As filed with the Securities and Exchange Commission on August 15, 2016
Registration No. 333-212449
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Forterra, Inc.
Delaware | 3272 | 37-1830464 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
511 East John Carpenter Freeway, 6 th Floor
Irving, TX 75062
(469) 458-7973
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Jeff Bradley
Chief Executive Officer
Forterra, Inc.
511 East John Carpenter Freeway, 6 th Floor
Irving, TX 75062
tel: (469) 458-7973
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Jeffrey A. Chapman Peter W. Wardle Gibson, Dunn & Crutcher LLP 2100 McKinney Ave., Suite 1100 Dallas, TX 75201 tel: (214) 698-3100 fax: (214) 571-2900 |
Joshua Davidson Samantha H. Crispin Baker Botts L.L.P. One Shell Plaza 910 Louisiana Street Houston, TX 77002 tel: (713) 229-1234 fax: (713) 229-1522 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Proposed Maximum
Aggregate Offering Price(1)(2) |
Amount of Registration Fee |
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Common Stock, $0.001 par value per share |
$100,000,000 | $10,070(3) | ||
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(1) | Includes shares that the underwriters have the option to purchase. See Underwriting. |
(2) | Estimated solely for the purpose of calculating the registration fee under Rule 457(o) of the Securities Act of 1933, as amended. |
(3) | Previously paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED AUGUST 15, 2016
Shares
Forterra, Inc.
Common Stock
$ per share
This is the initial public offering of our common stock. We are offering shares of our common stock and the selling stockholder identified in this prospectus is offering shares of our common stock. We will not receive any proceeds from the sale of shares by the selling stockholder. Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $ and $ .
has granted to the underwriters an option to purchase up to additional shares of common stock.
We have applied to list our common stock on the NASDAQ Global Select Market under the symbol FRTA.
Investing in our common stock involves risks. See Risk Factors beginning on page 21 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
Per Share | Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discount(1) |
$ | $ | ||||||
Proceeds to us (before expenses) |
$ | $ | ||||||
Proceeds to selling stockholder (before expenses) |
$ | $ |
(1) | See Underwriting (Conflicts of Interest) for a description of all underwriting compensation payable in connection with this offering. |
The underwriters expect to deliver the shares to purchasers on or about , 2016 through the book-entry facilities of The Depository Trust Company.
Goldman, Sachs & Co. | Citigroup | Credit Suisse |
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F-1 |
We are responsible for the information contained in this prospectus, in any amendment or supplement to this prospectus and in any free-writing prospectus we prepare or authorize. We have not authorized anyone to provide you with different information, and we take no responsibility for and cannot provide any assurance as to the reliability of any other information others may give you. We are not, the selling stockholder is not and the underwriters are not, making an offer to sell shares of our common stock in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
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GENERAL INFORMATION
Industry and Market Data
We use market data and industry forecasts throughout this prospectus and, in particular, in the sections entitled Prospectus Summary and Business. Unless otherwise indicated, statements in this prospectus concerning our industries and the markets in which we operate, including our general expectations, competitive position, business opportunity and market size, growth and share, are based on publicly available information, periodic industry publications and surveys, government surveys and reports, including from the U.S. Census Bureau and the U.S. Environmental Protection Agency, or EPA, and reports by market research firms.
In this prospectus, when we refer to:
| AWWA, we are referring to a publication prepared by the American Water Works Association, Buried No Longer: Confronting Americas Water Infrastructure Challenge (February 2012); |
| CMD Group, we are referring to a publication prepared by Construction Market Data Group LLC, Canadian Put-in-Place Construction Forecasts: Spring 2016 Edition (March 2016); |
| CMHC, we are referring to a publication prepared by the Canada Mortgage and Housing Corporation, Housing Market Outlook: Canada Edition (Second Quarter 2016); |
| Dodge, we are referring to a publication prepared by Dodge Data & Analytics, Construction Market Forecasting Service: The Next Five Years (March 2016); |
| Fannie Mae, we are referring to a publication prepared by the Federal National Mortgage Association, Housing Forecast (June 2016); and |
| Freedonia, we are referring to various studies prepared by Freedonia Custom Research, Inc. and/or Freedonia Group, Inc., including Construction Materials in the U.S., Eastern Canada and the UK Final Report (July 2014), which report was commissioned by our Predecessor in connection with its abandoned public offering, Precast Concrete Products (January 2015) and Total Pipe by Application (May 2016). |
We have not independently verified market data and industry forecasts provided by any of these or any other third-party sources referred to in this prospectus, although we believe such market data and industry forecasts included in this prospectus are reliable. This information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in surveys of market size.
Management estimates are derived from the information and data referred to above, as well as our internal research, calculations and assumptions made by us based on our analysis of such information and data and our knowledge of our industries and markets, which we believe to be reasonable, although they have not been independently verified. While we believe that the market position information included in this prospectus is generally reliable, such information is inherently imprecise. Assumptions, expectations and estimates of our future performance and the future performance of the industries and markets in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sections entitled Risk Factors and Forward-Looking Statements. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
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Pro Forma Financial Information
In addition to our results presented under U.S. GAAP, or GAAP, in this prospectus we also present certain pro forma financial information that gives effect to the acquisition of our business from HeidelbergCement AG, certain acquisition transactions we have completed following the acquisition of our business from HeidelbergCement AG and certain other transactions, as discussed in greater detail in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. As a result of these transactions, our historical financial results do not reflect any impact or the full impact, as applicable, of these transactions, and our management believes it is important to discuss our pro forma financial information because it provides investors with additional context regarding our business. However, our pro forma financial information should not be considered independent of our audited and unaudited combined financial statements and the related notes included elsewhere in this prospectus and the pro forma financial statements included in the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
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The following is a summary of material information discussed in this prospectus. The summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus carefully, including the risks discussed in the section entitled Risk Factors and our audited and unaudited combined Predecessor and Successor financial statements and the related notes, and our unaudited pro forma condensed combined financial information and the related notes, each included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock. Some of the statements in this summary constitute forward-looking statements. See Forward-Looking Statements.
On March 13, 2015, through an indirect wholly owned subsidiary, Lone Star Fund IX (U.S.), L.P. acquired the building products business of HeidelbergCement AG in the United States and Eastern Canada. Unless otherwise specified or where the context otherwise requires, references in this prospectus to our, we, us, the Company and our business (i) for the Predecessor periods prior to the completion of the acquisition described above, refer to the building products business of HeidelbergCement AG in the United States and Eastern Canada, (ii) for the Successor periods after completion of the acquisition described above, but prior to the internal reorganization transaction described below, the building products business of LSF9 Concrete Holdings Ltd in the United States and Eastern Canada and (iii) for the Successor periods after completion of the internal reorganization transaction in which LSF9 Concrete Holdings Ltd will transfer its building products business in the United States and Eastern Canada to Forterra, Inc., the operations of Forterra, Inc., in each case together with its consolidated subsidiaries. We are a holding company controlled and indirectly owned by Lone Star Fund IX (U.S.), L.P. and have a relatively short operating history as a stand-alone company.
All amounts in this prospectus are expressed in U.S. dollars unless specifically noted otherwise and the financial statements have been prepared in accordance with GAAP.
Our Company
We are a leading manufacturer of pipe and precast products by sales volume in the United States and Eastern Canada for a variety of water-related infrastructure applications, including water transmission, distribution and drainage. We provide critical infrastructure components for a broad spectrum of construction projects across residential, non-residential and infrastructure markets. Our extensive suite of end-to-end products covers the First Mile to the Last Mile of the water infrastructure grid, ranging from large diameter pipe that transports water to and from treatment centers and manages drainage along major transportation corridors, to smaller diameter pipe that delivers potable water to, and removes wastewater from, end users in residential and commercial settings. We employ a specialized technical salesforce, including engineers and field service representatives, which enables us to deliver a high degree of customer service, create tailored solutions and ensure our products meet project specifications to maximize applications in the field. We believe that our product breadth, footprint in the United States and Eastern Canada and significant scale help make us a one-stop shop for water-related pipe and products, and a preferred supplier to a wide variety of customers, including contractors, distributors and municipalities.
We are a market leader within each of our three business segments: Drainage Pipe & Products, Water Pipe & Products and Bricks. In 2015, approximately 75% of our pro forma net sales was generated from our concrete drainage pipe and precast products, ductile iron pipe, or DIP, and concrete pressure pipe products, product categories in which we hold a leading market share position by sales volume in
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the United States and Eastern Canada. We are also one of the top manufacturers of bricks in the United States and operate the only commercial brick manufacturing plant in Eastern Canada.
Our manufacturing and distribution network is one of the most extensive in the industry, allowing us to serve most major U.S. and Eastern Canadian markets. We operate 117 manufacturing facilities and currently have significant additional manufacturing capacity available in each of our segments, providing substantial room to increase production to meet short-cycle demand with minimal incremental investment. These strategically located facilities and our broad distribution network provide us with a local presence and the necessary proximity to our customers to minimize delivery time and distribution costs.
As one of the only companies of scale in our industry that manufactures both water drainage pipe and precast structures (used primarily for stormwater and drainage applications) and water transmission and distribution pipe (used primarily to transport potable water and as a component of wastewater systems), our complementary product portfolio is well positioned to serve both the projected $10.4 billion stormwater and wastewater infrastructure market and the projected $7.9 billion potable water transmission and distribution market, each based on Freedonia projections of 2018 total U.S. market demand. AWWA estimates that nearly $1 trillion will need to be spent from 2010 to 2035 to repair and upgrade aging water infrastructure in the United States. In December 2015, the Fixing Americas Surface Transportation Act, or the FAST Act, was enacted by the U.S. federal government authorizing $305.0 billion of funding over the following five years to upgrade transportation-related infrastructure, more than 70% of which relates to highway spending, which supports a key end market for our Drainage Pipe & Products business due to the stormwater, drainage and related needs associated with highway construction and improvement projects. As Buy America provisions become increasingly prevalent under federal law, we believe our domestic manufacturing footprint will be a competitive advantage. Additionally, within the water transmission and distribution markets, Dodge market forecasts suggest that new residential and non-residential construction starts, which remain well below long-term historical averages, are expected to grow from 2015 levels. We believe that our exposure to each of the residential, non-residential and infrastructure end markets will allow us to benefit from both secular and cyclical growth across each of these end markets. The residential, non-residential and infrastructure end markets in the United States and Eastern Canada have different growth drivers and operating dynamics, and the cyclical performance of these markets has historically been staggered during different stages of the broader economic cycle.
For the Predecessor period from January 1, 2015 to March 13, 2015, we generated net sales of $132.6 million, a net loss of $5.8 million and Adjusted EBITDA of $3.3 million, and for the Successor period from March 14, 2015 to December 31, 2015, we generated net sales of $722.7 million, a net loss of $82.8 million and Adjusted EBITDA of $72.0 million. In 2015, we generated pro forma net sales of $1,745.9 million, pro forma net loss of $119.0 million and pro forma Adjusted EBITDA of $202.5 million. Adjusted EBITDA and pro forma Adjusted EBITDA are non-GAAP measures. See the section entitled Non-GAAP Financial Information for a description of how we define and calculate Adjusted EBITDA and pro forma Adjusted EBITDA, a reconciliation thereof to net income (loss) and pro forma net income (loss), respectively, and a description of why we believe these measures are important.
The following charts represent the pro forma net sales contribution by business segment for the 12 months ended December 31, 2015 and an estimated breakdown by end market for the same period. In 2015, 23% of both our Predecessor and Successor net sales and 50% of our pro forma net sales were generated by our Water Pipe & Products segment; 60% of both our Predecessor and Successor net sales and 42% of our pro forma net sales were generated by our Drainage Pipe & Products segment;
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and 15% and 16% of our Predecessor and Successor net sales, respectively, and 8% of our pro forma net sales were generated by our Bricks segment. In 2015, we estimate that approximately 36% and 39% of our Predecessor and Successor net sales, respectively, and approximately 44% of our pro forma net sales were generated from residential construction activity; approximately 47% and 45% of our Predecessor and Successor net sales, respectively, and approximately 31% of our pro forma net sales were generated from government-funded infrastructure projects; and approximately 17% and 16% of our Predecessor and Successor net sales, respectively, and approximately 14% of our pro forma net sales were generated from non-residential construction activity.
2015 Pro Forma Net Sales by Segment* and Estimated End Market |
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* Excludes Corporate and Other business segment.
Since being acquired from HeidelbergCement AG in 2015, we have undergone a significant transformation to become a leading water infrastructure company throughout the United States and Eastern Canada. As part of this transformation, we have:
| Upgraded our senior leadership team, including a new CEO and CFO, both of whom have relevant public company leadership experience and manufacturing industry expertise |
| Rebranded our business to Forterra to strengthen and unify our corporate identity |
| Strengthened corporate functions to operate as a fully autonomous, standalone company |
| Implemented incentive compensation arrangements at the sales level to drive profitable growth and instill a strong performance culture |
| Launched numerous operational, commercial and cost savings initiatives throughout our businesses, targeting efficiency and profitability improvements from which we believe we have realized more than $8.0 million of year to date savings as of May 31, 2016 and will realize further substantial efficiencies |
| Executed our strategic acquisition strategy to build geographic scale and significantly enhance our extensive product offering with the acquisitions of Cretex Concrete Products, Inc., or Cretex, Sherman-Dixie Concrete Industries, Inc., or Sherman-Dixie, USP Holdings Inc., or U.S. Pipe, an industry leader in DIP manufacturing and sales, and Bio Clean Environmental, Inc. and Modular Wetland Systems, Inc., or together Bio Clean |
| Streamlined our product portfolio and refocused our efforts and resources on water infrastructure with strategic transactions, including the divestiture of our roof tile business |
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Our organic growth strategy is focused on leveraging our low-cost operations, high level of customer service and product innovation capabilities, as well as our product breadth and industry-leading scale, to cross-sell our products to existing customers to increase penetration and project wins and to gain market share through new customers. Operationally, we continue to focus on efficiency and productivity improvements to reduce costs and drive margin improvements.
We have built a strong operating platform and continuously evaluate acquisition opportunities to complement our organic growth and improve our market positions within the markets we serve. Over the past three years, seven strategic acquisitions (including three acquisitions completed by U.S. Pipe) have provided meaningful, ongoing synergy benefits. We believe that our success in acquiring businesses has been the result of our highly disciplined approach, continuous monitoring of potential targets (with a focus on culture and people, among other things), and a market view that Forterra is a strong partner given our scale, culture and recent growth. We believe significant acquisition opportunities at attractive prices are still available given the relatively fragmented landscape in several of the sub-markets in which we operate.
Our Segments
Drainage Pipe & Products . We are the largest producer of concrete drainage pipe and precast products by sales volume in the United States and Eastern Canada. We have 72 manufacturing facilities across 30 states and two Canadian provinces. We believe our extensive product offering creates a compelling value proposition for our customers as it eliminates the need to engage multiple suppliers of stormwater and wastewater-related products for a single project, thereby maximizing efficiency and allowing our customers to meet more aggressive timetables. We also have the ability to custom-build products to complex specifications and regulations, further enhancing our ability to address customer needs. Our top ten Drainage Pipe & Products customers have an average tenure with us of approximately 17 years. Recently, we acquired concrete pipe and precast and related product manufacturers Cretex and Sherman-Dixie to further enhance our scale, geographic footprint and product portfolio.
Water Pipe & Products . We are the largest producer of DIP and concrete pressure pipe by sales volume in the United States and Eastern Canada. We offer significant product breadth and depth and technical service, addressing our customers full range of water transmission and distribution needs. Our 28 manufacturing facilities are strategically located across the United States and Eastern Canada, with ample swing capacity available to support increased production levels as demand in the construction industry continues to improve. Furthermore, we believe our expansive distribution network allows us to achieve lead times among the shortest in the industry. Our top ten Water Pipe & Products customers have an average tenure with us of approximately 24 years. Recently, we acquired U.S. Pipe, a market leader within DIP, to diversify our product portfolio and enhance our service offering. U.S. Pipes recent acquisition history includes the acquisitions of Griffin Pipe Products Co., LLC, or Griffin Pipe, a manufacturer of DIP, the operations of Metalfit S.A de C.V and Metalfit, Inc., collectively Metalfit, a manufacturer of waterworks fittings and industrial castings, and Custom Fab, Inc., or Custom Fab, a fabricator of pipe primarily for the waterworks industry.
Bricks . We are one of the largest manufacturers of bricks by capacity in the United States and Eastern Canada. We operate 17 manufacturing facilities, strategically located near large population centers or major census Metropolitan Statistical Areas, or MSAs, and raw material reserves. We offer more than 300 core styles of bricks to both residential and non-residential end markets. Our facilities are located in Ontario, Quebec, Kentucky, Michigan, North Carolina, South Carolina and Texas.
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Key Segments 1 |
Drainage Pipe & Products |
Water Pipe & Products |
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Products | ||||
Product Applications |
Stormwater and wastewater infrastructure |
Potable and wastewater transmission and distribution |
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2018 Estimated U.S. Demand 2 | $10.4bn | $7.9bn | ||
Primary Market Channels |
Direct to Contractors Distributors |
Distributors Direct to Contractors, Municipalities and Utilities Waterworks |
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# of Manufacturing Facilities |
72 |
28 |
1 | This table does not reflect information for our Bricks or Corporate and Other business segments. See Business and Non-GAAP Financial Information for more information. |
2 | FreedoniaProjected 2018 total market demand. |
Our Competitive Strengths
Leading Market Positions with Unmatched Scale and Footprint. We believe we are the largest manufacturer in the over $17.0 billion U.S. drainage and water transmission pipe market, as estimated by Freedonia. We believe we are a leader in the following major product categories: concrete drainage pipe and precast products, DIP and concrete pressure pipe. Our industry is relatively fragmented and local in nature due to the transportation costs associated with our products, particularly in the Drainage Pipe & Products business. Our industry has few participants of scale, and we are one of the only sizeable players with significant presence in both the Drainage Pipe & Products and Water Pipe & Products segments, with an extensive portfolio covering the First Mile to the Last Mile and a broad geographic footprint. Further, we believe we have one of the most extensive manufacturing and distribution networks in the water transmission and infrastructure industry. We believe our geographic footprint enables us to win more large business projects than our local or regional competitors, as we can provide services to contractors and distributors across geographies and product categories. Additionally, due to our scale, we have purchasing power with suppliers, which reduces our operating costs and enhances our ability to win business in competitive bidding processes.
Well-positioned to Benefit from Attractive Industry Fundamentals. Our exposure to each of the residential, non-residential and infrastructure end markets enables us to capitalize on the growth in demand and recovery in each of these end markets and diversifies our customer base. The construction industry is recovering, fueled by the continuing rebound in infrastructure, residential and non-residential activity. According to AWWA, water infrastructure in the United States will require nearly $1 trillion of investment for repairs and upgrades from 2010 to 2035. The U.S. and Canadian governments are committed to upgrading their aging infrastructure. The FAST Act allocates $305.0 billion to improving surface transportation infrastructure, and in its budget for 2016, the Canadian federal government proposed $11.9 billion (CAD) in infrastructure spending over the next five years, with $2.0 billion (CAD) in a clean water and wastewater fund and $2.2 billion (CAD) towards water, wastewater and waste management infrastructure. Additional secular industry trends support further infrastructure construction growth, including the growing demand for precast structure products,
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environmental regulations supporting on-site water management and continued urbanization. Furthermore, Dodge market forecasts suggest that both residential and non-residential construction starts will grow from 2015 levels, which remain well below the average of the most recent cyclical troughs, and significantly below the average annual starts since 1970. Lastly, we have a presence in each of the 40 most populous MSAs and ten most populous states, enabling us to benefit from the recovery in residential construction.
Complete Suite of Products to Serve Customers from the First Mile to the Last Mile. We believe we offer unmatched product breadth and depth compared to our competitors in the United States and Eastern Canada. In our Water Pipe & Products segment, our complementary product portfolio of concrete and steel pressure pipe and DIP addresses the broad range of our customers water transmission and distribution needs. Our comprehensive suite of products incorporates large diameter pipe that transports water to treatment plants as well as smaller diameter pipe for distribution to residential users. In our Drainage Pipe & Products segment, our diversified product offering creates a one-stop shop for water-related pipe and products. Our drainage offering creates a compelling value proposition for customers by eliminating the need to seek multiple bids for a single project, helping maximize efficiency for time sensitive orders. Finally, our extensive product offering also creates cross-selling opportunities for our segments due to our broad and diversified customer base.
Attractive and Expanding Margins and Strong Cash Flow Profile. Due to our increasing scale, cost cutting initiatives and our work toward integrating acquisitions, we have generated attractive and increasing margins, capitalizing on our low-cost operations and operating leverage. Our regional and local sales force, strategically located manufacturing facilities and broad distribution network allow us to serve our customers across the United States and Eastern Canada at a competitive cost with efficient procurement and operations. We expect to further increase our scale through acquisitions and, as a result, we expect to continue to generate purchasing power, operating leverage and cost saving opportunities. Furthermore, we have an ongoing strategy of implementing cost-cutting initiatives at our production plants. In the Water Pipe & Products segment, service, procurement and operational initiatives have reduced year to date operating costs by more than $1.5 million in DIP and $1.5 million in large diameter concrete and steel pipe, each as of May 31, 2016. In the Drainage Pipe & Products segment, we have recognized year to date savings of more than $5.0 million as of May 31, 2016 across three major plants due to purchasing initiatives. We continue to roll out cost and productivity improvements at new sites and have identified new cost reduction opportunities in resale items, transportation, logistics and energy. Additionally, we have increased our margins and cash flow through operational improvement of acquired businesses. Our acquisition of Sherman-Dixie and U.S. Pipes acquisition of Griffin Pipe, specifically, provided consolidation opportunities with our existing plant network and improved the respective cost positions by reducing personnel and rationalizing older facilities.
Proven Ability to Identify, Close and Improve the Performance of Strategic Acquisitions. Over the last three years, we have acquired three businesses in our Drainage Pipe & Products segment and four businesses in our Water Pipe & Products segment (including three acquisitions by U.S. Pipe). Our acquisition strategy has been focused on three main pillars: reinforce our position in existing markets, expand our product offering and expand our geographic footprint. Acquisitions enable us to improve our product mix and expand our geographic scope, helping us to win business from new customers, cross-sell additional products to existing customers and optimize pricing through the enhanced value created by our differentiated product offering. We believe that our success in acquiring businesses has been the result of our highly disciplined acquisition strategy, continuous monitoring of potential targets in an opportunity-rich landscape and focus on culture and people, among other things. We have effectively sourced and closed both smaller strategic transactions, and larger transformative deals. In both instances, we have successfully achieved meaningful cost and revenue synergies
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through the implementation of best practices and operational improvement initiatives in the acquired businesses. In the instance of U.S. Pipes acquisition of Griffin Pipe, we have realized in excess of $40 million of synergies through cost savings.
Experienced Management Team with Proven Ability to Grow Businesses and Integrate Acquisitions. Our management team, led by Jeff Bradley, our Chief Executive Officer, has a proven track record of increasing shareholder value and generating profitable growth, attractive margins and cash flow. Mr. Bradley and other key executives, including Matt Brown, the Chief Financial Officer, have relevant history managing public companies, as well as extensive experience in the manufacturing industry. Our management team has proven their ability to execute on our acquisition strategy, leading us in growth through three substantive acquisitions that more than doubled our 2015 historical net sales (excluding net sales from Cretex) on a pro forma basis. Further, Mr. Bradley and his team are continuing to execute a comprehensive program to drive commercial, operational and procurement excellence, as well as managing working capital to increase free cash flow.
Our Business Strategy
Our goal is to be our customers preferred provider of drainage pipe, water transmission pipe and related products. We intend to drive profitable growth in excess of the growth rates of the end markets in which we operate through the following key strategies:
Capitalize on Favorable, Multi-pronged Industry Growth Dynamics. The multi-pronged cyclical recovery in our construction-related end markets is well underway. We expect to benefit from increased demand generated by growth in both residential and non-residential construction activity. Further, there is a significant need to improve North Americas aging water and highway infrastructure. Operationally, we believe we are well positioned in the water transmission and distribution industry to capitalize on the increased funding allocated to water infrastructure improvement. The FAST Act will be a key underlying driver for our business as it dedicates more than 70% of its total budget to highway spending, supporting our key infrastructure end market. Secular industry trends, including the continued shift in product preference to rigid and zinc-coated pipe, environmental regulations in support of on-site water management and continued urbanization, support further incremental growth. Our reputation, extensive product offering and coast-to-coast distribution network provide us with competitive advantages that we expect will fuel growth in excess of that offered by already attractive market dynamics underlying our businesses.
Increase Market Share by Leveraging Our Scale, the First Mile to the Last Mile Suite of Products and Go-to-Market Strategy. Our scale enables us to be among the industrys lowest cost producers, while our strategically located manufacturing facilities and broad distribution network allow us to meet the particular needs of our customers. Our existing swing capacity enables us to meet customer demand and well positions us to win small and large projects. Moreover, our large and scalable installed asset base will allow us to respond swiftly to growing demand without having to increase capacity.
Our First Mile to the Last Mile product portfolio enables us to be a complete solutions provider and to serve as a one-stop shop for water-related pipe and products, increasing our customers overall spend on our products. Our ability to offer both pipe and precast products helps us better serve our infrastructure-related markets and differentiates us from our competitors.
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Our go-to-market strategy is based on three main pillars. First, we incentivize our highly specialized technical salesforce to focus on profitable growth while offering our products and value-added services. Second, we target our key customers with a robust cross-selling sales organization, marketing the benefits of ordering from one supplier. Lastly, we focus on the implementation of systematic pricing strategies across all of our product categories.
Leverage Our Commitment to Product Innovation and Technical Expertise to Optimize Product Mix and Capitalize on Market Opportunities . We continuously explore new applications for our existing product portfolio and develop new products and solutions that allow us to stay at the forefront of the needs of the drainage and water pipe and products markets. Our technical salesforce also proactively reaches out to our customers on a regular basis to ensure that our customers are satisfied and our products adhere to project specifications. We have a long history of developing and seeking out innovative products to bring to market across both water-related segments, which include the recent introductions of Oystercrete, duct bank and metallic zinc coating. We will continue our innovation efforts, optimizing our portfolio through research and development and strategic acquisitions to expand our positions in attractive products and markets. Along with these initiatives, our specialized technical salesforce will continue to promote and support our existing specialty products to drive differentiation and growth.
Enhance Margins, Free Cash Flow and Returns Through Operational and Commercial Excellence. We have successfully launched multiple operational initiatives focused on increasing plant efficiency and productivity. We expect to continue growing our margins through ongoing operational, commercial and cultural initiatives. We are working to leverage our information technology and financial systems to lower costs and implement systematic pricing across our business. We will continue to manage working capital and seek scale-driven procurement efficiency improvements through centralized purchasing and fixed overhead control and reduction. We intend to prioritize opportunities that generate attractive returns on invested capital. Further, our management team has emphasized a strong pay-for-performance culture that cultivates, challenges and compensates employees based on profitability and cash flow generation.
Accelerate Profitable Growth Through Strategic Acquisitions. We believe that the relative fragmentation of some of our sub-markets creates an environment in which we can continue to acquire companies at attractive valuations to increase our scale, product breadth and geographic diversity. Over the past three years, we have acquired seven businessesboth tuck-in and transformative in naturewithin the water drainage and transmission industry (including three acquisitions by U.S. Pipe). We continuously monitor potential targets to develop and maintain a diversified and actionable acquisition pipeline. Additional acquisitions would enable us to add adjacent products to our portfolio that could help us further penetrate our existing markets and expand our geographic footprint. By integrating these businesses and implementing our culture and operational best practices, we believe we can achieve significant further growth. We are focused on driving synergies, including those achievable as a result of our recent acquisitions, to reduce costs and increase our margins. We are in the process of executing a plan associated with our acquisitions of Cretex, Sherman-Dixie and U.S. Pipe. We believe that we can achieve significant synergies associated with these acquisitions. We expect cost savings synergies to come from procurement, eliminating redundant selling, general and administrative functions, and optimizing our plant network through consolidations to achieve operational efficiencies and freight cost reductions. In addition, we believe the U.S. Pipe Acquisition creates opportunity to increase market share in large diameter DIP by leveraging our geographic scope, cross-selling capabilities and existing contractor relationships.
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Our Industry
In the United States and Eastern Canada, we are a market leader in each of the following core product categories: concrete drainage pipe and precast, ductile iron pipe and concrete pressure pipe.
Core Products
Drainage Pipe & Products
Drainage pipe has residential, non-residential and infrastructure applications. It is primarily used for storm water applications such as storm drains for roads and highways and for residential and non-residential site developments. In addition, drainage pipe and concrete precast structures are used for sanitary sewers, low-pressure sewer force mains, tunneled systems, treatment plant piping and utility tunnels. Freedonia estimates U.S. total market demand for sewer and drainage pipe and wastewater concrete precast structures to grow at a compound annual growth rate, or CAGR, of 7.4% from $7.2 billion in 2013 to $10.4 billion in 2018. We serve these markets primarily through our diverse portfolio of concrete drainage pipe, U.S. demand for which is expected to increase at a CAGR of 5.9% from 2013 to 2018, according to Freedonia estimates. Further, we serve the aforementioned markets with various precast structures, the demand for which Freedonia estimates to grow at a CAGR of 6.4% from 2013 to 2018. Rebounding levels of construction activity, replacement of aging stormwater and highway infrastructure and committed government funding programs are expected to support this growth. We typically sell our drainage pipe and precast concrete products to contractors that perform construction work for governments, residential and non-residential building owners and developers in markets across the United States and Eastern Canada.
Water Pipe & Products
Water pipe and products are primarily used for potable and wastewater transmission. Water transmission pipe demand comes from water supply construction, especially within municipalities and residential construction. Among these applications, potable water is expected to maintain the largest portion of U.S. demand, with projected growth at a CAGR of 8.2% from $5.3 billion in 2013 to $7.9 billion in 2018, according to Freedonia estimates. We serve these markets primarily through our diverse offering of DIP, prestressed concrete cylinder pipe and bar-wrapped pipe, as well as fittings and fabricated products.
Ductile iron inhibits corrosion, retains strength and prevents fractures better than cast iron and most other materials. Ductile iron also improves water flow compared to other materials, particularly plastic. U.S. market volume for DIP shipments (less than 24 diameter pipe) is expected to increase at a CAGR of 6.1% from 2013 to 2018, based on the key drivers of housing starts and waterline infrastructure spend, according to Freedonia estimates.
In larger diameters (greater than 24 diameter pipe), steel and concrete pipe are sturdier and more cost effective. Plastic pipe structural integrity is more dependent on firm soil bedding than concrete or steel, which can make engineers reluctant to use plastic in large diameters due to the increased installation cost. U.S. market demand for large diameter steel and concrete pipe is expected to increase at a CAGR of 4.6% from 2013 to 2018, based on increasing government spending on water infrastructure, according to Freedonia estimates.
Bricks
Our Bricks operations primarily serve the residential markets. Recovery in single family housing construction represents the largest driver of overall brick demand growth. The estimated demand for
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bricks in the United States and Eastern Canada is expected to grow at a CAGR of 11% from $1.3 billion in 2013 to $2.1 billion in 2018, according to Freedonia estimates. We are well-positioned to benefit from expected increases in residential housing starts and attractive market dynamics due to our competitive positioning and broad geographic footprint.
Core End Markets
North American water infrastructure, aging and strained by a growing population, requires substantial, prolonged capital investment totaling nearly $1 trillion across the U.S. according to the AWWA. According to the EPA, the U.S. potable water and waste and storm water infrastructures require a cumulative $682 billion investment in repairs and expansions over the next 20 years, with pipe representing a substantial proportion of the total capital need. In Canada, per the Canadian Infrastructure Report Card, or CIRC, the replacement value for water infrastructure in fair to very poor condition areas totals $173.0 billion (CAD), where fair assets are defined as those with indicated deterioration and deficiencies and require attention and very poor assets are defined as near or beyond expected service life and unfit for sustained service, indicating that infrastructure reinvestment lags behind targeted levels.
We serve a range of infrastructure-related end markets. Based on the source of funding, we classify these construction markets into infrastructure, residential and non-residential.
Infrastructure
We estimate that 2015 sales to the infrastructure market represented 47% and 45% of our Predecessor and Successor net sales, respectively, and 31% of our pro forma net sales. Our main sales drivers in this market include the construction of streets, highways and storm and sanitary sewers. We expect to benefit from several drivers in this market, as U.S. and Canadian federal funding dynamics and public infrastructure requirements support continued growth. At the U.S. federal level, the FAST Act demonstrates the U.S. governments commitment to improving the countrys transportation infrastructure. More than 70% of the laws budget is dedicated to highway spending, providing multi-year visibility on federal highway funding. As a U.S.-based company, we are well-positioned to benefit from this new spending, as the legislation steps up federal Buy America requirements from 60% in 2015 to 70% in 2020. In its budget for 2016, the Canadian federal government proposed $11.9 billion (CAD) in infrastructure spending over the next five years, with $2.0 billion (CAD) in a clean water and wastewater fund and $2.2 billion (CAD) towards water, wastewater and waste management infrastructure.
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Residential Construction
We estimate that 2015 sales to the residential construction market represented 36% and 39% of our Predecessor and Successor net sales, respectively, and 44% of our pro forma net sales. These revenues were largely driven by new U.S. residential construction, which is recovering from historic lows reached during the financial crisis. Though new housing starts grew at a CAGR of 14% from 2010 to 2015, according to the U.S. Census Bureau, current levels remain substantially below long-term averages, as outlined in the graph below.
U.S. Residential Housing Starts
Source: U.S. Census Bureau.
The new residential construction market is expected to continue to grow at a robust pace over the next few years, with Fannie Mae and CMHC forecasting a CAGR of 8% from 2015 to 2017 across the United States and Canada.
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Non-residential Construction
We estimate that 2015 sales to the non-residential construction market represented 17% and 16% of our Predecessor and Successor net sales, respectively, and 25% of our pro forma net sales. These revenues were driven largely by new U.S. non-residential construction, and we believe we will continue to benefit from this markets ongoing recovery from historical lows reached during the financial crisis. Though new non-residential construction starts grew, according to Dodge, at a CAGR of 7% from 2010 to 2015, current levels remain substantially below long-term average levels, as outlined in the graph below.
U.S. Non-Residential Starts
Source: Dodge and CMD Group
The non-residential construction market is expected to continue to grow at a CAGR of 8% from 2015 to 2017 across the United States and Canada, according to data from Dodge and CMD Group.
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Our History
The Acquisition
On March 13, 2015, through an indirect wholly owned subsidiary, Lone Star Fund IX (U.S.), L.P. acquired the building products business of HeidelbergCement AG, or HeidelbergCement in the United States and Eastern Canada, or the Acquisition, along with HeidelbergCements building products business in the United Kingdom for aggregate consideration of $1.33 billion. The aggregate purchase price is subject to a potential earn out capped at $100.0 million, which is subject to a dispute with HeidelbergCement as discussed in greater detail in the section entitled BusinessLegal Proceedings. Following the Acquisition, the acquired businesses were operated by LSF9 Concrete Holdings Ltd, or Concrete Holdings, an indirect wholly owned subsidiary of Lone Star Fund IX (U.S.), L.P.
Recent Transactions
A number of strategic transactions have been completed since the Acquisition. These transactions include:
| Cretex Acquisition On October 1, 2015, the Company acquired Cretex, a manufacturer of concrete pipe, box culverts, concrete precast drainage structures, pre-stressed bridge components and ancillary precast products in the Upper Midwestern United States, for aggregate consideration of $245.1 million, or the Cretex Acquisition. Cretex operates as part of our Drainage Pipe & Products segment. |
| Sherman-Dixie Acquisition On January 29, 2016, the Company acquired Sherman-Dixie, a manufacturer of concrete pipe, box culverts, precast concrete utility products, storm and sanitary civil engineered systems and specialty engineered retainage systems in Kentucky, Tennessee, Alabama and Indiana, for aggregate consideration of $66.8 million, or the Sherman-Dixie Acquisition. Sherman-Dixie operates as part of our Drainage Pipe & Products segment. |
| Forterra UK IPO On April 26, 2016, Concrete Holdings completed an initial public offering of the ordinary shares of Forterra, plc, the operator of HeidelbergCements former building products business in the United Kingdom, or Forterra UK. Though we and Forterra UK are both controlled by Lone Star Fund IX (U.S.), L.P., we have no relation to or affiliation with Forterra UK other than certain contractual arrangements regarding third-party IT services and the use of the Forterra name. |
| U.S. Pipe Acquisition On April 15, 2016, the Company acquired U.S. Pipe, which manufactures ductile iron pipe products for water distribution and water management applications and distributes its products throughout the United States, for aggregate consideration of $775.1 million, subject to customary working capital adjustments, or the U.S. Pipe Acquisition. U.S. Pipe operates as part of our Water Pipe & Products segment. |
| Bio Clean Acquisition On August 4, 2016, the Company acquired Bio Clean, which designs and sells storm water management systems that meet the requirements of local regulatory bodies regulating storm water quality, for aggregate consideration of $30.0 million, or the Bio Clean Acquisition. Bio Clean also owns more than 25 patents for a variety of technologies relating to drainage and storm water management. Bio Clean operates as part of our Drainage Pipe & Products segment. |
Each of the Companys recent acquisition and disposition transactions is discussed in greater detail in the section entitled BusinessOur Recent Strategic Transactions.
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Reorganization
Forterra, Inc., the registrant whose name appears on the cover page of this prospectus, does not currently have any operations and was formed in 2016 for the purpose of an internal reorganization transaction. Prior to or concurrent with the consummation of this offering, Concrete Holdings will transfer its building products operations in the United States and Eastern Canada, the business which is described in this prospectus and the business for which historical and pro forma financial information is included elsewhere in this prospectus, in an internal reorganization transaction, or the Reorganization, to Forterra, Inc. Following the Reorganization, Forterra, Inc. will be a wholly owned subsidiary of LSF9 Concrete Mid-Holdings Ltd, or Mid Holdings, which is wholly owned by Concrete Holdings. Each of Concrete Holdings, Mid Holdings and Forterra, Inc. are affiliates of Lone Star Fund IX (U.S.), L.P. Shares of common stock of Forterra, Inc. are being offered by the prospectus.
Our Sponsor
Lone Star Fund IX (U.S.), L.P., which we refer to in this prospectus, along with its affiliates and associates (including Concrete Holdings and Mid Holdings, but excluding us and other companies that it owns as a result of its investment activity), as Lone Star or our sponsor, is part of a leading private equity firm that, since the establishment of its first fund in 1995, has organized 16 private equity funds with aggregate capital commitments totaling over $65.0 billion. The funds are structured as closed-end, private-equity limited partnerships, the limited partners of which include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, funds of funds and high net worth individuals. Immediately prior to this offering, Lone Star owned all of our outstanding common stock, and will own approximately % of our common stock immediately following consummation of this offering (or % if the underwriters exercise in full their option to purchase additional shares). Therefore, we expect to be a controlled company under the corporate governance standards of the NASDAQ Global Select Market, or NASDAQ, and will take advantage of the related corporate governance exceptions for controlled companies.
Risks Affecting Our Business
Our business is subject to numerous risks and uncertainties, including, but not limited to, those arising from:
| the level of construction activity, particularly in the residential construction and non-residential construction markets; |
| government funding of infrastructure and related construction activities; |
| the highly competitive nature of our industry and our ability to effectively compete; |
| energy costs; |
| the availability and price of the raw materials we use in our business; |
| our ability to implement our growth strategy; |
| our dependence on key customers and the absence of long-term agreements with these customers; |
| the level of construction activity in Texas; |
| disruption at one of our manufacturing facilities or in our supply chain; |
| construction project delays and our inventory management; and |
| our ability to successfully integrate our recent acquisitions. |
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We are also subject to numerous risks relating to:
| the terms of our existing and any future indebtedness; and |
| our relationship with Lone Star and its significant ownership of our common stock. |
You should carefully consider all of the information set forth in this prospectus and, in particular, the information in the section entitled Risk Factors beginning on page 22 of this prospectus prior to making an investment in our common stock. These risks could, among other things, prevent us from successfully executing our strategies and could have a material adverse effect on our business, financial condition and results of operations.
Principal Executive Offices
Our principal executive offices are located at 511 East John Carpenter Freeway, 6th Floor, Irving, TX 75062 and our telephone number is (469) 458-7973. Our website address is forterrabp.com. Information contained on our website or linked therein or otherwise connected thereto does not constitute part of nor is it incorporated by reference into this prospectus or the registration statement of which this prospectus forms a part. Forterra, U.S. Pipe and other trademarks or service marks of ours appearing in this prospectus are our property. Other trademarks and service marks appearing in this prospectus are the property of their respective holders.
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THE OFFERING
Common stock offered by us |
shares | |
Common stock offered by the selling stockholder |
shares |
|
Common stock to be outstanding immediately after this offering |
shares (or shares if the underwriters exercise in full their option to purchase additional shares) |
|
Use of proceeds |
We estimate our proceeds from this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, based on the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus. We intend to use $ million of the net proceeds from this offering to repay outstanding indebtedness and the remainder for working capital and other general corporate purposes. | |
We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholder. See Use of Proceeds, Principal and Selling Stockholders and Underwriting. |
||
Dividend policy |
We have no present intention to pay cash dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our debt agreements and other factors that our board of directors deems relevant. See Dividend Policy. | |
Risk factors |
You should carefully read and consider the information set forth in the section entitled Risk Factors beginning on page 22, together with all of the other information set forth in this prospectus, before deciding whether to invest in our common stock. | |
Conflicts of Interest |
Credit Suisse Securities (USA) LLC, who is an underwriter in this offering, or its affiliates, is expected to receive more than 5% of the net proceeds of this offering in connection with the prepayment of our outstanding indebtedness. See Use of Proceeds. Accordingly, this offering is being made in compliance with the requirements of Financial Industry Regulatory |
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Authority, or FINRA, Rule 5121, which requires a qualified independent underwriter, as defined by the FINRA rules, participate in the preparation of the registration statement and the prospectus and exercise the usual standards of due diligence in respect thereto, and has served in that capacity and will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. To comply with FINRA Rule 5121, Credit Suisse Securities (USA) LLC will not confirm sales to any account over which it exercises discretionary authority without the specific written approval of the transaction of the accountholder. See Underwriting (Conflicts of Interest). | ||
NASDAQ symbol |
FRTA. |
The number of shares of our common stock to be outstanding immediately after this offering as set forth above is based on the number of shares outstanding as of , 2016 and excludes shares reserved for issuance under our equity incentive plan (under which no equity awards have been granted as of such date). We intend to grant equity awards representing an aggregate of approximately shares of common stock to our executive officers and certain director nominees under our equity incentive plan at the time of the pricing of this offering.
Unless otherwise indicated, this prospectus:
| assumes the completion of the Reorganization; |
| gives effect to a for one stock split, which will occur shortly before consummation of this offering; |
| assumes an initial public offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus; and |
| assumes no exercise of the underwriters option to purchase up to an additional shares of our common stock. |
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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL AND OTHER INFORMATION
The following tables set forth, for the periods and dates indicated certain summary historical and unaudited pro forma condensed combined financial information. The accompanying historical audited financial statements are presented for the Predecessor, which are the combined financial statements of HeidelbergCements building products business in the United States and Eastern Canada for the period preceding the Acquisition, and the Successor, which are the combined audited and unaudited financial statements of the Company and subsidiaries for the period following the Acquisition. The Predecessors combined statements of operations data for the years ended December 31, 2013 and 2014 and the period from January 1, 2015 through March 13, 2015 and the Predecessors combined balance sheet data as of December 31, 2014 have been derived from the audited combined financial statements of HeidelbergCements building products business in the United States and Eastern Canada, which are included elsewhere in this prospectus. The Successors combined statements of operations data for the period from March 14, 2015 through December 31, 2015 and balance sheet data as of December 31, 2015 have been derived from our audited financial statements, which are included elsewhere in this prospectus. The Successors combined balance sheet data as of June 30, 2016 and condensed combined statements of operations data for the period from March 14, 2015 through June 30, 2015 and the six months ended June 30, 2016 are derived from our unaudited condensed combined financial statements, which are included elsewhere in this prospectus.
The Predecessors financial statements may not necessarily be indicative of the cost structure or results of operations that would have existed if HeidelbergCements building products business in the United States and Eastern Canada operated as a stand-alone, independent business. Accordingly, these historical results should not be relied upon as an indicator of our future performance. The Acquisition was accounted for as a business combination, which resulted in a new basis of accounting. The Predecessors and the Successors historical financial statements are not comparable as a result of applying a new basis of accounting. See the notes to the audited financial statements for additional information regarding the accounting treatment of the Acquisition. In the opinion of management, the unaudited interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial position and operating results for these periods and as of such date. Results from interim periods are not necessarily indicative of results that may be expected for the entire year and historical results are not indicative of the results to be expected in the future. The summary financial and operating data presented below represent portions of our financial statements and are not complete.
The unaudited pro forma condensed combined financial information set forth below presents certain unaudited pro forma condensed combined statements of operations data for the six months ended June 30, 2016 and 2015 and for the year ended December 31, 2015, and certain unaudited pro forma condensed combined balance sheet data as of June 30, 2016. The unaudited pro forma condensed combined financial information has been derived by aggregating our audited and unaudited historical combined financial statements, and the historical financial statements of U.S. Pipe, each included elsewhere in this prospectus, and making certain pro forma adjustments to such aggregated financial information to give effect to the transactions discussed in greater detail in the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
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The information presented below should be read in conjunction with the sections entitled Capitalization, Selected Historical Financial Data, Unaudited Pro Forma Condensed Combined Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited and unaudited combined financial statements and related notes included elsewhere in this prospectus.
(in thousands) | ||||||||||||||||||||||||||||||||||||||||
Successor | Predecessor | |||||||||||||||||||||||||||||||||||||||
(in thousands) |
Pro forma
Six months ended June 30, 2016 |
Pro forma
Six months ended June 30, 2015 |
Pro forma
Year ended December 31, 2015 |
Six
months ended June 30, 2016 |
For the
period from March 14, 2015 to June 30, 2015 |
For the
period from March 14, 2015 to December 31, 2015 |
For the
period from January 1, 2015 to March 13, 2015 |
Year ended
December 31, 2014 |
Year ended
December 31, 2013 |
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Statement of Operations Data |
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Net sales |
$ | 825,292 | $ | 804,735 | $ | 1,745,906 | $ | 640,142 | $ | 251,315 | $ | 722,664 | $ | 132,620 | $ | 736,963 | $ | 697,948 | ||||||||||||||||||||||
Cost of goods sold |
660,820 | 697,869 | 1,476,753 | 509,370 | 228,405 | 626,498 | 117,831 | 631,454 | 611,660 | |||||||||||||||||||||||||||||||
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Gross profit |
$ | 164,472 | $ | 106,866 | $ | 269,153 | $ | 130,772 | $ | 22,910 | $ | 96,166 | $ | 14,789 | $ | 105,509 | $ | 86,288 | ||||||||||||||||||||||
Selling, general and administrative expenses |
(117,392 | ) | (130,299 | ) | (282,594 | ) | (98,622 | ) | (47,716 | ) | (134,971 | ) | (21,683 | ) | (102,107 | ) | (87,393 | ) | ||||||||||||||||||||||
Impairment and restructuring charges |
| | | (23 | ) | (343 | ) | (1,185 | ) | (542 | ) | (4,219 | ) | (250,577 | ) | |||||||||||||||||||||||||
Earnings from equity method investee |
| | | 4,868 | 3,772 | 8,429 | 67 | 4,451 | (216 | ) | ||||||||||||||||||||||||||||||
Other operating income |
2,525 | 5,964 | 12,200 | 2,533 | 3,930 | 832 | 994 | 6,965 | 9,232 | |||||||||||||||||||||||||||||||
Interest expense |
(54,578 | ) | (50,524 | ) | (102,413 | ) | (42,129 | ) | (15,551 | ) | (45,953 | ) | (84 | ) | | | ||||||||||||||||||||||||
Other income (expense), net |
(1,075 | ) | (246 | ) | 1,191 | (1,179 | ) | (140 | ) | (326 | ) | (39 | ) | (594 | ) | 947 | ||||||||||||||||||||||||
Income (loss) from continuing operations before taxes |
(6,048 | ) | (68,239 | ) | (102,463 | ) | (3,780 | ) | (33,138 | ) | (77,008 | ) | (6,498 | ) | 10,005 | (241,719 | ) | |||||||||||||||||||||||
Income tax (expense) benefit |
32,807 | (7,560 | ) | (17,518 | ) | 36,533 | (1,579 | ) | (5,778 | ) | 742 | (2,417 | ) | (2,561 | ) | |||||||||||||||||||||||||
Income (loss) from continuing operations |
26,759 | (75,799 | ) | (119,981 | ) | 32,753 | (34,717 | ) | (82,786 | ) | (5,756 | ) | 7,588 | (244,280 | ) | |||||||||||||||||||||||||
Discontinued operations |
| | | | | | | 1,260 | (3,018 | ) | ||||||||||||||||||||||||||||||
Net income (loss) |
$ | 26,759 | $ | (75,799 | ) | $ | (119,981 | ) | $ | 32,753 | $ | (34,717 | ) | $ | (82,786 | ) | $ | (5,756 | ) | $ | 8,848 | $ | (247,298 | ) | ||||||||||||||||
Statements of Cash Flow Data: |
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Net cash provided by (used in): |
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Operating activities |
$ | (6,366 | ) | $ | (37 | ) | $ | 121,417 | $ | (48,224 | ) | $ | 25,918 | $ | 31,686 | |||||||||||||||||||||||||
Investing activities |
(858,201 | ) | (643,160 | ) | (898,039 | ) | (2,762 | ) | (1,901 | ) | (55 | ) | ||||||||||||||||||||||||||||
Financing activities |
861,868 | 665,629 | 822,580 | 60,907 | (23,990 | ) | (31,636 | ) | ||||||||||||||||||||||||||||||||
Balance Sheet Data (as of period end): |
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Cash and cash equivalents |
$ | 11,817 | $ | 41,817 | $ | 43,590 | $ | 42 | $ | 5 | ||||||||||||||||||||||||||||||
Property, plant & equipment, net |
648,790 | 648,621 | 388,924 | 414,073 | 423,826 | |||||||||||||||||||||||||||||||||||
Total assets |
2,035,512 | 2,034,110 | 938,875 | 846,168 | 864,842 | |||||||||||||||||||||||||||||||||||
Total debt |
1,450,711 | 1,450,711 | 705,829 | | | |||||||||||||||||||||||||||||||||||
Total parent company net investment |
| | | 657,473 | 700,938 | |||||||||||||||||||||||||||||||||||
Shareholders equity |
203,467 | 203,467 | 52,315 | | | |||||||||||||||||||||||||||||||||||
Other financial data: |
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Adjusted EBITDA(a) |
$ | 134,693 | $ | 98,116 | $ | 201,862 | $ | 105,790 | $ | 42,253 | $ | 71,954 | $ | 3,278 | $ | 65,812 | $ | 48,193 | ||||||||||||||||||||||
Adjusted EBITDA margin(a) |
16.3 | % | 12.2 | % | 11.6 | % | 16.5 | % | 16.8 | % | 10.0 | % | 2.5 | % | 8.9 | % | 6.9 | % |
(a) | EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We calculate EBITDA as income (loss) from continuing operations before interest expense, income tax (benefit) expense, depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before impairment and restructuring charges, (gains)/losses on the sale of property, plant and equipment and certain other income and expenses, such as transaction costs, carve-out costs related to our separation from HeidelbergCement and costs associated with disposed sites. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales. We present these measures for the same historical periods covered by our audited combined financial statements and the related notes, and the historical financial statements of U.S. Pipe and the historical financial statements of Cretex, as well as on a pro forma basis for the periods reflected in and the transactions accounted for in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. See the section entitled Non-GAAP Financial Information for a description of why we believe these measures are important. |
The following table reconciles income (loss) from continuing operations to EBITDA and Adjusted EBITDA and Adjusted EBITDA margin to operating margin for the Company for the periods presented. See our audited and unaudited combined financial statements and the related notes included elsewhere in this prospectus.
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(1) | Adjusts for impairment of intangible assets and the following charges related to plant closures: (i) impairment charges in respect of abandoned fixed assets that had remaining book value and (ii) restructuring charges in respect of severance and lease and other contract termination costs. |
(2) | Adjusts for the (gain) loss on sale of property, plant and equipment, primarily related to the disposition of two manufacturing facilities. |
(3) | Adjusts for Successor and Predecessor legal, valuation, accounting, advisory and other costs related to the Acquisition and Predecessor expenses related to preparation for a public offering that was not ultimately consummated. |
(4) | Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the Acquisition, the Cretex Acquisition and the Sherman-Dixie Acquisition. |
(5) | Adjusts for the results of operations of our disposed roof tile business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of Adjusted EBITDA presented herein. |
(6) | Adjusts for other (gains) losses, such as gain on insurance proceeds related to the destruction of property. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the combined financial statements and the related notes appearing elsewhere in this prospectus, before making an investment decision. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially and adversely affected and the trading price of our common stock could decline, causing you to lose all or part of your investment in our common stock.
Risks Relating to Our Business and Industry
Residential and non-residential construction activity is cyclical and influenced by many factors, and any reduction in the activity in one or both of these markets could have a material adverse effect on us.
Our results of operations can vary materially in response to market conditions and changes in the demand for our products. Historically, demand for our products has been closely tied to residential construction and non-residential construction activity in the United States and Eastern Canada. In 2015, we estimate that approximately 36% and 39% of our Predecessor and Successor net sales, respectively, and approximately 44% of our pro forma net sales were generated from residential construction activity and approximately 17% and 16% of our Predecessor and Successor net sales, respectively, and approximately 25% of our pro forma net sales were generated from non-residential construction activity. See Unaudited Pro Forma Condensed Combined Financial Information. Our success and future growth prospects depend, to a significant extent, on conditions in these two end markets and the degree to which these markets are strong in the future.
The construction industry and related markets are cyclical and have in the past been, and may in the future be, materially and adversely affected by general economic and global financial market conditions. These factors impact not only our business, but those of our customers and suppliers as well. This influence is true with respect to macroeconomic factors within North America, particularly within our geographic footprint in the United States and Eastern Canada. For example, in 2008, residential construction and non-residential construction activity in the United States dipped to historically low levels during the financial crisis. As a result, demand for many of our products in the United States dropped significantly. The residential and non-residential construction markets in Canada also suffered during this time.
The markets in the construction industry in which we operate are also subject to other more specific factors. Residential construction activity levels are influenced by and sensitive to a number of factors, including mortgage availability, the cost of financing a home (in particular, mortgage terms and interest rates), unemployment levels, household formation rates, gross domestic product, residential vacancy and foreclosure rates, demand for second homes, existing housing prices, rental prices, housing inventory levels, building mix between single- and multi-family homes, consumer confidence, seasonal weather factors, the available labor pool and government policy and incentives. Non-residential construction activity is primarily driven by levels of business investment, availability of credit and interest rates, as well as many of the factors that impact residential construction activity levels.
We cannot control the foregoing factors and, although construction activity and related spending levels have increased in recent years, there is still uncertainty regarding the timing and extent of the recovery and whether it will be sustained, and there can be no assurances that there will not be any future downturns. There can be no assurances regarding whether more recent growth in our markets can be sustained or if demand will ever return to pre-2008 levels or historical averages. If construction
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activity in our markets and more generally does not continue to recover, or if there are future downturns, whether locally, regionally or nationally, our business, financial condition and results of operations could be materially and adversely affected.
Our business is based in significant part on government-funded infrastructure projects and building activities, and any reductions or re-allocation of spending or related subsidies in these areas could have a material adverse effect on us.
Our business, particularly our Drainage Pipe & Products and Water Pipe & Products segments, depends heavily on government spending for infrastructure and other similar building activities. In 2015, we estimate approximately 47% and 45% of our Predecessor and Successor net sales, respectively, and approximately 31% of our pro forma net sales were generated by government-funded infrastructure projects. See Unaudited Pro Forma Condensed Combined Financial Information. As a result, demand for many of our products is heavily influenced by U.S. federal government fiscal policies and tax incentives and other subsidies, including those incorporated into the economic stimulus plans implemented in connection with the financial crisis and the FAST Act. Projects in which we participate are funded directly by governments and privately-funded, but are otherwise tied to or impacted by government policies and spending measures. Government infrastructure spending and governmental policies with respect thereto depend primarily on the availability of public funds, which is influenced by many factors, including governmental budgets, public debt levels, interest rates, existing and anticipated and actual federal, state, provincial and local tax revenues, government leadership and the general political climate, as well as other general macroeconomic and political factors. In addition, U.S. federal government funds may only be available based on states willingness to provide matching funding. Government spending is often approved only on a short-term basis and some of the projects in which our products are used require longer-term funding commitments. If government funding is not approved, or funding is lowered as a result of poor economic conditions, lower than expected revenues, competing spending priorities or other factors, it could limit infrastructure projects available, increase competition for projects, result in excess inventory and decrease sales, all of which could adversely affect the profitability of our business. Additionally, certain regions or states may require or possess the means to finance only a limited number of large infrastructure projects and periods of high demand may be followed by years of little to no activity. There can be no assurances that governments will sustain or increase current infrastructure spending and tax incentive and other subsidy levels, and any reductions thereto or delays therein could have a material adverse effect on our business, financial condition and results of operations.
We engage in a highly competitive business and any failure to effectively compete could have a material adverse effect on us.
The markets in which we sell our products are highly competitive. We face significant competition from, depending on the segment or product, domestic and imported products produced by local, regional, national and international building product manufacturers, as well as privately owned single-site enterprises. Due in part to the costs associated with transporting our products to our customers, many of our sub-markets are relatively fragmented and include a number of regional competitors. Our primary competitors include Rinker Materials (a unit of CEMEX, S.A.B. de C.V.) and Oldcastle, Inc. (a unit of CRH plc) in our Drainage Pipe & Products segment, McWane, Inc. and American Cast Iron Pipe Company in our Water Pipe & Products segment, particularly with respect to DIP, and Boral USA (a unit of Boral Limited), General Shale, Inc. (a unit of Wienerberger AG), Acme Brick Company (a unit of Berkshire Hathaway Inc.), and Glen-Gery Corporation (a unit of Ibstock Building Products) in our Bricks segment.
Competition among manufacturers in our markets is based on many factors, but we primarily compete on price. Our competitors may sell their products at lower prices because, among other things, they possess the ability to manufacture or supply similar products and services more efficiently
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or at a lower cost or have built a superior sales or distribution network. Some of our competitors may have access to greater financial or other resources than we do, which may afford them greater purchasing power, greater production efficiency, increased financial flexibility or more capital resources for expansion and improvement. In addition, some of our competitors are vertically integrated with suppliers or distributors and can leverage this structure to their advantage to offer better pricing to customers. Furthermore, our competitors actions, including restoring idled or expanding manufacturing capacity, competition from newly-designed or imported products or the entry of new competitors into one or more of our markets could cause us to lower prices in an effort to maintain our customer base. Certain of our products, including gravity pipe and bricks, are volume manufacturing products that are widely available from other manufacturers or distributors, with prices and volumes determined frequently based on participants perceptions of short-term supply and demand. Competitive factors, including industry overcapacity, could also lead to pricing pressures. For example, competitors may choose to pursue a volume policy to continue utilizing their manufacturing facilities to the detriment of maintaining prices. Excess product supply can result in significant declines in the market prices for these products, often within a short period of time. As a result, at times, to remain competitive, we may lower the price for any one or more of our products to or below our production costs, requiring us to sacrifice margins or incur losses. Alternatively, we may choose to pass on product sales or cease production at one or more of our manufacturing facilities.
In addition to pricing, we also compete based on service, quality, range of products and product availability. Competition in certain of our product segments, such as the Bricks segment, is also based in part on styles and trends. Our competitors may be positioned to provide better service and thereby establish stronger relationships with customers and suppliers. Our competitors may also sell preferred products, improve the design and performance of their products, develop a more comprehensive product portfolio, be better positioned to influence end-user product specifications or introduce new products with competitive prices and performance characteristics. While the majority of our products are not subject to frequent or rapid stylistic changes, trends do evolve over time, and our competitors may do a better job of predicting market developments or adapt more quickly to new technologies or evolving customer requirements.
We also face competition from substitute building products. For example, storm water pipe can be manufactured from concrete, steel, high-density polyethylene (HDPE), polypropylene (PP) or polyvinyl chloride (PVC) and potable water transmission infrastructure can be manufactured using HDPE or PVC. The market share of HDPE and PP pipe, which compete with gravity pipe and pressure pipe for certain applications, and HDPE and PVC pipe, which compete with DIP for certain applications, have increased in recent years. Additionally, our bricks compete with other materials that can be used for the exterior of a house or non-residential building such as wood, vinyl, fiber cement, stucco and manufactured stone. Governments in the past have, and may continue in the future, to provide incentives that support or encourage, or in certain instances pass regulations that require, the consideration of use of substitute products with which we compete. Additionally, new construction techniques and materials will likely be developed in the future. Increases in customer or market preferences for any of these products could lead to a reduction in demand for our products.
Any failure by us to compete on price, to develop successful products and strategies or to generally maintain and improve our competitive position could have a material adverse effect on our business, financial condition and results of operations.
Increases in energy and related costs could have a material adverse effect on us.
We use significant amounts of energy, including electricity and natural gas, in the manufacturing, distribution and sale of our products, and the related expense is significant. While we have benefited from the relatively low cost of electricity and natural gas in recent years, energy prices have been and
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may continue to be volatile and these reduced prices may not continue. Proposed or existing government policies, including those to address climate change by reducing greenhouse gas emissions or the effects of hydraulic fracturing, a method of exploring for oil and natural gas, could result in increased energy costs. In addition, factors such as international political and military instability, adverse weather conditions and other natural disasters may disrupt fuel supplies and increase prices in the future. Although we have hedged energy positions in the past and we currently hedge a portion of our exposure to electricity and natural gas prices, we may not continue our current strategy or hedge any positions in the future and therefore remain susceptible to energy price increases. Additionally, because we and other manufacturers in our industry are often responsible for delivering products to the customer, we are further exposed to increased energy prices as a component of our transportation costs. While we generally attempt to pass increased costs, including higher energy costs, on to our customers, pricing pressure from our competitors, the market power of our customers or other pricing factors may limit our ability to do so, and any increases in energy prices could have a material adverse effect on our business, financial condition and results of operations.
Decreased availability of or increases in the cost of raw materials could have a material adverse effect on us.
Our ability to offer our products to our customers is dependent upon our ability to obtain adequate supplies of raw materials at reasonable costs, such as cement, aggregate, steel and iron. Raw material prices and availability, including the forms in which they are purchased, such as scrap metal, have been volatile in recent years. Many suppliers decreased capacity during the financial crisis. This decreased capacity, along with strong global demand for certain raw materials, has at times caused and may continue to cause tighter supply and significant price increases. Factors such as adverse weather conditions and other natural disasters, as well as political and other social instability, have and will continue to disrupt raw material supplies and impact prices. Suppliers are also subject to their own viability concerns from economic, market and other pressures.
Although we have agreements with our raw material suppliers, these agreements are generally terminable by either party on limited notice or contain prices that are based upon the volume of our total purchases. For example, we have historically purchased a substantial portion of our cement requirements from a subsidiary of HeidelbergCement and have an existing supply agreement with HeidelbergCement to purchase cement for certain of our facilities as discussed in greater detail in the section entitled BusinessRaw Materials and Inputs. Though the term of the supply agreement extends to March 2020, beginning on January 1, 2017, HeidelbergCement may, for any reason and upon 180 days notice, reduce the amount of cement it supplies thereunder or terminate the supply agreement altogether. To the extent the agreement with HeidelbergCement or any of our other raw material suppliers is terminated or we need to purchase additional cement or other raw materials in the open market, there can be no assurance that we could timely find alternative sources in reasonable quantities or at reasonable prices. In addition, sudden or unanticipated changes in sources for certain raw materials, such as cement, may require us to engage in testing of our products for quality assurance, which may cause delays in our ability to meet production schedule for our customers and timely deliver our products. The inability to obtain any raw materials or unanticipated changes with respect to our suppliers could negatively impact our ability to manufacture or deliver our products and to meet customer demands.
We are susceptible to raw material price fluctuations. Prices of the raw materials we use have at times fluctuated in recent years and may be susceptible to significant price fluctuations in the future. We have hedged our positions with respect to certain raw materials in the past and may do so in the future, but we currently have no hedging in place and are therefore more susceptible to any short-term price fluctuations. We generally attempt to pass increased costs, including higher raw material prices, on to our customers, but pricing pressure from our competitors, the market power of
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our customers or other pricing factors may limit our ability to pass on such price increases. If we cannot fully-offset increases in the cost of raw materials through other cost reductions, or recover these costs through price increases or otherwise, we could experience lower margins and profitability, which could have a material adverse effect on our business, financial condition and results of operations.
Any inability to successfully implement our growth strategy could have a material adverse effect on us.
Our business plan provides for continued growth through acquisitions and joint ventures. We have grown in large part as a result of our recent acquisitions, including our acquisitions of Cretex, Sherman-Dixie and U.S. Pipe, and we anticipate continuing to grow in this manner. Shortly before it was acquired by us, U.S. Pipe had also completed several acquisition transactions of its own. Although we expect to regularly consider additional strategic transactions in the future, there can be no assurances that we will identify suitable acquisition, joint venture or other investment opportunities or, if we do, that any transaction can be consummated on acceptable terms. Antitrust or other competition laws may also limit our ability to acquire or work collaboratively with certain businesses or to fully realize the benefits of a prospective acquisition. Furthermore, a significant change in our business or the economy, an unexpected decrease in our cash flows or any restrictions imposed by our debt may limit our ability to obtain the necessary capital or otherwise impede our ability to complete a transaction. Regularly considering strategic transactions can also divert managements attention and lead to significant due diligence and other expenses regardless of whether we pursue or consummate any transaction. Failure to identify suitable transaction partners and to consummate transactions on acceptable terms, as well as the commitment of time and resources in connection with such transactions, could have a material adverse effect on our business, financial condition and results of operations.
The consummation of an acquisition also exposes us to significant risks and additional costs. We may not accurately assess the value, strengths, weaknesses or potential profitability of an acquisition target. Furthermore, we may not be able to fully or successfully integrate an acquired business or realize the expected benefits and synergies following an acquisition. Business and operational overlaps may lead to hidden costs. These costs can include unforeseen pre-acquisition liabilities or the impairment of customer relationships or certain acquired assets such as inventory and goodwill. We may also incur costs and inefficiencies to the extent an acquisition expands the industries, markets or geographies in which we operate due to our limited exposure to and experience in a given industry, market or region. Significant acquisitions may also require that we incur additional debt to finance the transaction, which could be substantial and limit our flexibility in using our cash flow from operations for other purposes. Acquisitions can also involve post-transaction disputes with the counter party regarding a number of matters, including a purchase price or other working capital adjustment or liabilities for which we believe we were indemnified under the relevant transaction agreements such as environmental liabilities or pension obligations retained by the seller, including certain environmental obligations in connection with our U.S. Pipe Acquisition and certain pension obligations we assumed pursuant to the Acquisition and the Cretex Acquisition. For example, as discussed in greater detail in the section entitled BusinessLegal Proceedings, we are currently engaged in a dispute with HeidelbergCement regarding the earn-out provision in the purchase agreement entered into in connection with the Acquisition. We are also engaged in other indemnification and other post-closing disputes with certain of our transaction counterparties. Our inability to realize the anticipated benefits of an acquisition as well as other transaction-related issues could have a material adverse effect on our business, financial condition and results of operations.
In July 2012, we entered into a joint venture agreement with Americast, Inc. to form Concrete Pipe & Precast LLC. From time to time, we may enter into additional joint ventures as part of our growth strategy. The nature of a joint venture requires us to share control with unaffiliated third parties. If our joint venture partners do not fulfill their contractual and other obligations, the affected joint
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venture may be unable to operate according to its business plan, and we may be required to increase our level of commitment. Differences in views among joint venture participants could also result in delays in business decisions or otherwise, failures to agree on major issues, operational inefficiencies and impasses, litigation or other issues. Third parties may also seek to hold us liable for the joint ventures liabilities. These issues or any other difficulties that cause a joint venture to deviate from its original business plan could have a material adverse effect on our business, financial condition and results of operations.
Our dependence on key customers with whom we do not have long-term contracts and consolidation within our customers industries could have a material adverse effect on us.
Our business is dependent on certain key customers. In 2015, our largest customer accounted for 10.6% of our pro forma net sales. See the section entitled Unaudited Condensed Combined Financial Information. As is customary in our industry, we do not enter into long-term contracts with many of our customers. As a result, our customers could stop purchasing our products, reduce their purchase levels or request reduced pricing structures at any time. We may therefore need to adapt our manufacturing, pricing and marketing strategies in response to a customer who may seek concessions in return for its continued or increased business. In addition, following the financial crisis, there was significant consolidation in the U.S. homebuilding industry, with many smaller builders going out of business or being acquired by larger builders, significantly increasing the market share and bargaining power of a limited number of builders. Any further consolidation in the U.S. homebuilding industry or among any of our other customers could give them significant additional leverage to negotiate more favorable terms and place greater demands on us. A loss of one or more customers or a meaningful reduction in their purchases from us or further consolidation within our end markets could have a material adverse effect on our business, financial condition and results of operations.
Changes in construction activity levels in Texas could have a material adverse effect on us.
We currently conduct a significant portion of our business in Texas, which in 2015 we estimate represented approximately 46% and 37% of our Predecessor and Successor net sales, respectively, and approximately 19% of our pro forma net sales. Residential and non-residential construction activity, as well as government-funded infrastructure spending in Texas has declined from time to time, particularly as a result of slow economic growth, whether in the energy industry or otherwise. Local economic conditions depend on a variety of factors, including national economic conditions, local and state budgets, infrastructure spending and the impact of federal cutbacks. Texas is also an area of the country that is susceptible to severe weather and flooding, which can interrupt, delay or otherwise impact the timing of projects. Any decrease in construction activity in Texas could have a material adverse effect on our business, financial condition and results of operations.
A material disruption at one or more of our manufacturing facilities or in our supply chain could have a material adverse effect on us.
We own and operate manufacturing facilities of various ages and levels of automated control and rely on a number of third parties as part of our supply chain, including for the efficient distribution of products to our customers. Any disruption at one of our manufacturing facilities or within our supply chain could prevent us from meeting demand or require us to incur unplanned capital expenditures. Older facilities are generally less energy-efficient and are at an increased risk of breakdown or equipment failure, resulting in unplanned downtime. Any unplanned downtime at our facilities may cause delays in meeting customer timelines, result in liquidated damages claims or cause us to lose or harm customer relationships. Additionally, we require specialized equipment to manufacture certain of our products, and if any of our manufacturing equipment fails, the time required to repair or replace this equipment could be lengthy, which could result in extended downtime at the affected facility. Any
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unplanned repair or replacement work can also be very expensive. Moreover, manufacturing facilities can unexpectedly stop operating because of events unrelated to us or beyond our control, including fires and other industrial accidents, floods and other severe weather events, natural disasters, environmental incidents or other catastrophes, utility and transportation infrastructure disruptions, shortages of raw materials, and acts of war or terrorism. Work stoppages, whether union-organized or not, can also disrupt operations at manufacturing facilities. Furthermore, while we are generally responsible for delivering products to the customer, we do not maintain our own fleet of delivery vehicles and outsource this function to third parties. Any shortages in trucking capacity, any increase in the cost thereof or any other disruption to the highway systems could limit our ability to deliver our products in a timely manner or at all. Any material disruption at one or more of our facilities or those of our customers or suppliers or otherwise within our supply chain, whether as a result of downtime, facility damage, an inability to deliver our products or otherwise, could prevent us from meeting demand, require us to incur unplanned capital expenditures or cause other material disruption to our operations, any of which could have a material adverse effect on our business, financial condition and results of operations.
Delays in construction projects and any failure to manage our inventory could have a material adverse effect on us.
Many of our products are used in water transmission and distribution projects and other large-scale construction projects which generally require a significant amount of planning and preparation before construction commences. However, construction projects can be delayed and rescheduled for a number of reasons, including unanticipated soil conditions, adverse weather or flooding, changes in project priorities, financing issues, difficulties in complying with environmental and other government regulations or obtaining permits and additional time required to acquire rights-of-way or property rights. These delays or rescheduling may occur with too little notice to allow us to replace those projects in our manufacturing schedules or to adjust production capacity accordingly, creating unplanned downtime, increasing costs and inefficiencies in our operations and increased levels of obsolete inventory. Additionally, we maintain an inventory of brick products that meet standard specifications and are ultimately purchased by a variety of end users. We forecast demand for these brick products to ensure that we keep high inventory levels of certain products that we expect to be in high demand and limit our inventory for which we do not expect much interest. However, our forecasts are not always accurate and unexpected changes in demand for these brick products, whether because of a change in preferences or otherwise, can lead to increased levels of obsolete inventory. Any delays in construction projects and our customers orders or any inability to manage our inventory could have a material adverse effect on our business, financial condition and results of operations.
Any inability to successfully integrate our recent acquisitions could have a material adverse effect on us.
We have recently acquired Cretex, Sherman-Dixie, U.S. Pipe and Bio Clean. In addition, U.S. Pipe completed three acquisitions shortly before being acquired by us. The integration of acquired businesses can take significant amount of time and also exposes us to significant risks and additional costs. Integrating these and other acquisitions may strain our resources. Further, we may have difficulty integrating the operations, systems, controls, procedures or products of acquired businesses and may not be able to do so in a timely, efficient and cost-effective manner. These difficulties could include:
| diversion of the attention of our management and that of the acquired business; |
| combining management teams, strategies and philosophies; |
| merging or linking different accounting and financial reporting systems and systems of internal controls; |
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| assimilation of personnel, human resources and other administrative departments and potentially contrasting corporate cultures; |
| merging computer, technology and other information networks and systems; |
| incurring or guaranteeing additional indebtedness; |
| disruption of our relationship with or loss of key customers, suppliers or personnel; |
| interference with, or loss of momentum in, our ongoing business or that of the acquired company; and |
| delays or cost-overruns in the integration process. |
We have not fully-integrated Cretex, Sherman-Dixie, U.S. Pipe or Bio Clean and may encounter one or more of the issues discussed above, or others of which we are not yet aware. In particular, we have not yet integrated the accounting and financial reporting systems of these businesses and are currently evaluating whether and to what extent we will do so in the future. Additionally, U.S. Pipe had recently acquired other businesses prior to their being acquired by us, and the integration of some of those businesses remains on-going. Any of these acquisition or other integration-related issues could divert managements attention and resources from our day-to-day operations, cause significant disruption to our business and lead to substantial additional costs. Our inability to realize the anticipated benefits of an acquisition or to successfully integrate acquired companies as well as other transaction-related issues could have a material adverse effect on our business, financial condition and results of operations.
Labor disruptions and other union activity could have a material adverse effect us.
Approximately 35% of our workforce is covered by collective bargaining agreements, and approximately 25% of these employees are included in collective bargaining agreements that expire within one year. If negotiations to renew expiring collective bargaining agreements are not successful or become unproductive, the union could take actions such as strikes, work slowdowns or work stoppages. Such actions at any one of our facilities could lead to a plant shut down or a substantial modification to employment terms, thereby causing us to lose net sales or to incur increased costs. We have not had any union organized work stoppages in the United States, Canada or Mexico over the last four years; however, we have experienced one union organizing effort directed at our non-union employees in the past ten years. There can be no assurances there will not be additional union organizing efforts, strikes, work slowdowns or work stoppages in the future. Any such disruption, or other issue related to union activity, could have a material adverse effect on our business, financial condition and results of operations.
A tightening of mortgage lending or mortgage financing requirements or other reductions in the availability of consumer credit or increases in its cost could have a material adverse effect on us.
We estimate that in 2015, approximately 36% and 39% of our Predecessor and Successor net sales, respectively, and approximately 44% of our pro forma net sales were generated from residential construction activity. Most home sales in the United States and Eastern Canada are financed through mortgage loans, and a significant percentage of renovation and other home repair activity is financed either through mortgage loans or other available credit. The financial crisis affected the financial position of many consumers and caused financial institutions to tighten their lending criteria, each of which contributed to a significant reduction in the availability of consumer credit. The mortgage lending and mortgage finance industries experienced significant instability because of, among other factors, a decline in property values and an increase in delinquencies, defaults and foreclosures. These developments resulted in a significant reduction in total new housing starts in the United States and
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consequently, a reduction in demand for our products in the residential sector. Similarly, the rate of interest payable on any mortgage or other form of credit will have an impact on the cost of borrowing. While base rates have remained low in recent years, they may rise in the future. Any increase in interest rates will increase the cost of borrowing and may make the purchase of a home less attractive. Any future tightening of mortgage lending or other reductions in the availability of consumer credit or increases in its cost could have a material adverse effect on our business, financial condition and results of operations.
We are in a dispute with HeidelbergCement related to the payment of an earn out in connection with the Acquisition and any significant earn out payment we are required to make could have a material adverse effect on us.
We are currently engaged in a dispute with HeidelbergCement regarding the earn out provision in the purchase agreement entered into in connection with the Acquisition. As discussed in greater detail in BusinessLegal Proceedings, we believe that no earn out payment is owed, but HeidelbergCement has asserted that a payment should be made in the amount of $100.0 million. Absent agreement of the parties, resolution of the matter will likely be determined by a neutral accountant. If it is determined that we are required to make a significant payment to HeidelbergCement, we may not have sufficient cash to make such payment and may be required to incur additional indebtedness. We cannot be certain that we will be able to borrow any funds for this purpose under the terms of our existing indebtedness or on other terms acceptable to us, if at all. If incurred, additional indebtedness will subject us to additional interest expense, negatively impact our cash flow, increase the risk of a downgrade in our credit rating and could limit our ability to incur other indebtedness or make further acquisitions.
We are subject to increasingly stringent environmental laws and regulations, and any failure to comply with any current or future laws or regulations could have a material adverse effect on us.
We are subject to federal, state, provincial, local and foreign laws and regulations governing the protection of the environment and natural resources, including those governing air emissions, wastewater discharges and the use, storage, discharge, handling, disposal, transport and clean-up of solid and hazardous materials and wastes. We are required to obtain permits from governmental authorities for certain operations, and if we expand or modify our facilities or if environmental laws change, we could be required to obtain new or modified permits. One example of these laws, the National Emission Standards for Hazardous Air Pollutants: Brick and Structural Clay Products Manufacturing; and Clay Ceramics Manufacturing, was finalized in September 2015. This rule requires the installation of maximum achievable control technology or MACT at affected facilities. Of our brick facilities covered by this rule, six are required to install new MACT-compliant pollution control equipment no later than December 2018. We have budgeted an aggregate of $10.4 million for capital expenditures through 2018 to achieve full compliance with this rule, but we cannot assure you that the work will be completed on time or that our aggregate compliance costs will not be higher. Also, as the owner and operator of surface mines from which we excavate clay for our brick manufacturing, we have certain reclamation obligations under applicable law, which may lead to cash outflows upon complete or partial closure of a pit. As of December 31, 2015, the asset retirement obligation for such measures was $1.4 million. However, the estimated provisions resulting from reclamation obligations may change and the proportion of costs not covered by provisions could increase if the assumptions underlying our estimates are inaccurate or the underlying facts or legal requirements change.
Environmental laws and regulations, including those related to energy use and climate change, tend to become more stringent over time, and any future laws and regulations could have a material impact on our operations or require us to incur material additional expenses to comply with any such
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future laws and regulations. Future environmental laws and regulations may cause us to modify how we manufacture and price our products or require that we make significant capital investments to comply. For example, our manufacturing processes use a significant amount of energy, and increased regulation of energy use to address the possible emission of greenhouse gases could materially increase our manufacturing costs or require us to install emissions control or other equipment at some or all of our manufacturing facilities.
If we fail to comply with any existing or future environmental laws, regulations or permits, we could incur fines, penalties or other sanctions and suffer reputational harm. In addition, we could be held responsible for costs and damages arising from claims or liabilities under environmental laws and regulations, including with respect to any exposure to hazardous materials or contamination at our facilities or at third-party waste disposal sites. We could also be subject to third party claims from individuals if any releases from our property were to cause contamination of the air, soil or groundwater of areas near our facilities. These laws and regulations may also require us to investigate and, in certain instances, remediate contamination. Some of our sites have a history of industrial use, and while we apply strict environmental operating standards and undertake extensive environmental due diligence in relation to our facilities and acquisitions, some soil and groundwater contamination has occurred in the past at a limited number of sites. As of December 31, 2015, we had accrued approximately $1.8 million for environmental liabilities. Additionally, we cannot completely eliminate the risk of future contamination. Any costs or other damage related to existing or future environmental laws, regulations or permits or any violations thereof could expose us to significant financial losses as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, financial condition and results of operations.
We are subject to health and safety laws and regulations and any failure to comply with any current or future laws or regulations could have a material adverse effect on us.
Manufacturing and mining sites are inherently dangerous workplaces. Our sites often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, chemical and manufacturing processes, heavy products and items and highly regulated materials. As a result, we are subject to a variety of health and safety laws and regulations dealing with occupational health and safety. Unsafe work sites have the potential to increase employee turnover and raise our operating costs. Our safety record can also impact our reputation. We maintain functional groups whose primary purpose is to ensure we implement effective work procedures throughout our organization and take other steps to ensure the health and safety of our work force, but there can be no assurances these measures will be successful in preventing injuries or violations of health and safety laws and regulations. Any failure to maintain safe work sites or violations of applicable law could expose us to significant financial losses and reputational harm, as well as civil and criminal liabilities, any of which could have a material adverse effect on our business, financial condition and results of operations.
The use of our products is often affected by various laws and regulations in the markets in which we operate, any of which may have a material adverse effect on us.
The use of many of our products is subject to approvals by municipalities, state departments of transportation, engineers and developers. These approvals and specifications, including building codes, may affect the products our customers or their customers (the end users) are allowed or choose to use, and, consequently, failure to obtain or maintain such approvals or changes in building codes may affect the saleability of our products. Changes in applicable regulations governing the sale of some of our products or the failure of any of our products to comply with such requirements could increase our costs of doing business, reduce sales or otherwise have a material adverse effect on our business, financial condition and results of operations.
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We depend on the services of key executives and any inability to attract and retain key management personnel could have a material adverse effect on us.
Our key management personnel, including our Chief Executive Officer and Chief Financial Officer, are important to our success because they are instrumental in setting our strategic direction, operating our business and identifying expansion opportunities. Additionally, as our business grows, we may need to attract and hire additional management personnel. We have employment agreements with some members of senior management; however, we cannot prevent our executives from terminating their employment with us, and any replacements we hire may not be as effective. Our ability to retain our key management personnel or to attract additional management personnel or suitable replacements should any members of our management team leave is dependent on a number of factors, including the competitive nature of the employment market. Any failure to retain key management personnel or to attract additional or suitable replacement personnel could have a material adverse effect on our business, financial condition and results of operations.
Any failure to retain and attract additional skilled technical or sales personnel could have a material adverse effect on us
Our success depends in part on our ability to retain and attract additional skilled employees, particularly engineering and technical personnel. Without a sufficient number of skilled employees, our operations and manufacturing quality could suffer. The reduction in demand for products in our industry that occurred during the financial crisis led to a number of skilled workers leaving our industry permanently, reducing an already limited pool of available and qualified personnel. Our experienced sales team has also developed a number of meaningful customer relationships that would be difficult to replace. Therefore, competition for qualified technical personnel and operators as well as sales personnel with established customer relationships is intense, both in retaining our existing employees and when replacing or finding additional suitable employees. There can be no assurances the labor pool from which we hire our this personnel will increase or remain stable and any failure to retain our existing technical and sales personnel and other employees or attract additional skilled personnel could have a material adverse effect our business, financial condition and results of operations.
Credit and non-payment risks of our customers, especially during times of economic uncertainty and tight credit markets, could have a material adverse effect on us.
As is customary in our industry, the majority of our sales are to customers on an open credit basis, with standard payment terms of 30 days. While we generally monitor the ability of our customers to pay these open credit arrangements and limit the credit we extend to what we believe is reasonable based on an evaluation of each customers financial condition and payment history, we may still experience losses because of a customers inability to pay. As a result, while we maintain what we believe to be a reasonable allowance for doubtful receivables for potential credit losses based upon our historical trends and other available information, there is a risk that our estimates may not be accurate, particularly in times of economic uncertainty and tight credit markets. Any inability to collect customer receivables or inadequate provisions for doubtful receivables could have a material adverse effect on our business, financial condition and results of operations.
Warranty and related claims could have a material adverse effect on us.
We generally provide warranties on our products against defects in materials and workmanship, the costs of which could be significant. Many of our products such as gravity pipe are buried underground and incorporated into a larger infrastructure system, such as a citys or municipalitys water transmission system, or built into the fabric of a building or dwelling. In most cases, it is difficult to access, repair, recall or replace these products. Additionally, some of our products, such as our pressure pipe, which is used in nuclear and coal-fired power generation factories, are used in
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applications where a product failure or construction defect could result in significant project delay, property damage, personal injury or death or could require significant remediation expenses. Because our products, including discontinued products, are long lasting, claims can also arise many years after their manufacture and sale. Additionally, product failures may also arise due to the quality of the raw materials we purchase from third-party suppliers or the quality of the work performed by our customers, including installation work, matters for which we have little to no control, but which may still subject us to a warranty claim. We may also assume product warranty or other similar obligations in acquisition transactions regarding the products sold by the acquired businesses prior to the transaction date for which we are not indemnified pursuant to the terms of the relevant transaction documentation. Our quality control systems and procedures and those of our suppliers and customers cannot test for all possible conditions of use or identify all defects in the design, engineering or specifications of one of our products or the raw materials we use before they are put to their intended purpose. Therefore, there can be no assurances that we will not supply defective or inferior products that cause product or system failure, which could give rise to potentially extensive warranty and other claims for damages, as well as negatively impact our reputation and the perception of our product quality and reliability. While we have established reserves for warranty and related claims that we believe to be reasonable, these claims may exceed our reserves and any such excess and any negative publicity and other issues related to such claims could have a material adverse effect on our business, financial condition and results of operations.
Legal and regulatory claims and proceedings could have a material adverse effect on us.
We are subject to claims, litigation and regulatory proceedings in the normal course of business and could become subject to additional claims in the future, some of which could be material. For example, we have been, and may in the future be, subject to claims for product liability, construction defects, project delay, personal injury and property and other damages. We have also been subject to allegations regarding compliance with mandated product specifications. Claims and proceedings, whether or not they have merit and regardless of the outcome, are typically expensive and can divert the attention of management and other personnel for significant periods of time. Additionally, claims and proceedings can impact customer confidence and the general publics perception of our company and products, even if the underlying assertions are proven to be false. While we have established reserves we believe to be reasonable under the facts known, the outcomes of litigation and similar disputes are often difficult to reliably predict and may result in decisions or settlements that are contrary to or in excess of our expectations and losses may exceed our reserves. In addition, various factors and developments could lead us to make changes in our current estimates of liabilities and related insurance receivables or make new or modified estimates as a result of a judicial ruling or judgment, a settlement, regulatory developments or changes in applicable law. Any claims or proceedings, particularly those in which we are unsuccessful or for which we did not establish adequate reserves, could have a material adverse effect on our business, financial condition and results of operations.
The seasonality of our business and its susceptibility to severe and prolonged periods of adverse weather and other conditions could have a material adverse effect on us.
Demand for our products in some markets is typically seasonal, with periods of snow or heavy rain negatively affecting construction activity. For example, sales of our products in Canada and the Northeast and Midwest regions of the United States are somewhat higher from spring through autumn when construction activity is greatest. Construction activity declines in these markets during the winter months in particular due to inclement weather, frozen ground and fewer hours of daylight. Construction activity can also be affected in any period by adverse weather conditions such as hurricanes, severe storms, torrential rains and floods, natural disasters such as fires and earthquakes and similar events, any of which could reduce demand for our products, push back existing orders to later dates or lead to
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cancellations. Furthermore, our ability to deliver products on time or at all to our customers can be significantly impeded by such conditions and events, such as these described above. Public holidays and vacation periods constitute an additional factor that may exacerbate certain seasonality effects, as building projects or industrial manufacturing processes may temporarily cease. These conditions, particularly when unanticipated, can leave both equipment and personnel underutilized. Additionally, the seasonal nature of our business has led to variation in our quarterly results in the past and may continue to do so in the future. This general seasonality of our business and any severe or prolonged adverse weather conditions or other similar events could have a material adverse effect on our business, financial condition and results of operations.
Certain of the contracts in our backlog may be adjusted, cancelled or suspended by our customers and, therefore, our backlog is not necessarily indicative of our future revenues or earnings or, even if performed, a good indicator of our future margins.
As of June 30, 2016, our backlog totaled approximately $498.1 million. In accordance with industry practice, many of our contracts are subject to cancellation, reduction, termination or suspension at the discretion of the customer in respect of work that has not yet been performed. In the event of a project cancellation, we would generally have no contractual right to the total revenue reflected in our backlog, but instead would collect revenues in respect of all work performed at the time of cancellation as well as all other costs and expenses incurred by us through such date. Projects can remain in backlog for extended periods of time because of the nature of the project, delays in execution of the project and the timing of the particular services required by the project. Additionally, the risk of contracts in backlog being cancelled, terminated or suspended generally increases at times, including as a result of periods of wide-spread macroeconomic and industry slowdown, weather, seasonality and many of the other factors impacting our business. Many of the contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. The revenue for certain contracts included in backlog are based on estimates. Therefore, the timing of performance on our individual contracts can affect greatly our margins and hence, future profitability. There is no assurance that backlog will actually be realized as revenues in the amounts reported or, if realized, will result in any estimated profits.
Our project-based business requires significant liquidity, and any inability to ensure adequate financing or guarantees for large projects in the future could have a material adverse effect on us.
The projects in which we participate, particularly in our pressure pipe business, can be capital-intensive and often require substantial liquidity levels. In line with industry practice, we receive prepayments from our customers as well as milestone payments. However, a change in prepayment patterns or our inability to obtain third-party guarantees in respect of such prepayments could force us to seek alternative financing sources, such as bank debt or in the capital markets, which we may not be able to do on terms acceptable to us or at all, any of which could have a material adverse effect on our business, financial condition and results of operations.
As is customary in some of our sub-markets, we provide our customers with performance guarantees and other guarantee instruments, such as surety bonds, that guarantee the timely completion of a project pursuant to defined contractual specifications. We also enter into contractual obligations to pay liquidated damages to our customers for project delays. We are required to make payments under these contracts, guarantees and instruments if we fail to meet any of the specifications. Some customers require the performance guarantees to be issued by a reputable and creditworthy financial institution in the form of a letter of credit, surety bond or other financial guarantee. Financial institutions consider our credit ratings and financial position in the guarantee approval process. Our credit ratings and financial position could make the process of obtaining guarantees from financial institutions more difficult and expensive. If we cannot obtain such guarantees
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from reputable and creditworthy financial institutions on reasonable terms or at all, we could face higher financing costs or even be prevented from bidding on or obtaining new projects, and any of these or other related obstacles could have a material adverse effect on our business, financial condition and results of operations.
Delays or outages in our information technology systems and computer networks could have a material adverse effect on us.
Our manufacturing facilities as well as our sales and service activities depend on the efficient and uninterrupted operation of complex and sophisticated information technology systems and computer networks which are subject to failure and disruption. These and other problems may be caused by system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins or other similar events. Additionally, because we have grown through various acquisitions, we have integrated and are integrating a number of disparate information technology systems across our organization, certain of which may be outdated and due for replacement, further increasing the likelihood of problems. We may in the future replace and integrate systems, but these updates may not be successful, they may create new issues we currently do not face or they may significantly exceed our cost estimates.
Furthermore, prior to the Acquisition, we were dependent on HeidelbergCement for a number of corporate and shared services, including its information technology systems and services. Following the Acquisition through February 2016, HeidelbergCement continued to provide us with certain of these services under the terms of a transition services agreement. These information technology systems and services that were previously provided by HeidelbergCement under the transition services agreement are now established internally and, in part, provided by a third-party service provider. Such systems and services may not however be comparable to those provided under the transition services agreement, may be insufficient for our needs and may create new issues that we do not currently face.
Any disruption in our information technology systems could interrupt or damage our operations and our ability to meet customer needs as well as our ability to maintain effective controls. In addition, we could be subject to reputational harm or liability if confidential customer information is misappropriated from our systems. Despite our security measures and business continuity plans, our systems could be vulnerable to disruption and any such disruption and the resulting fall-out could have a material adverse effect on our business, financial condition and results of operations.
We have material weaknesses in our internal control over financial reporting and our inability to remediate these weaknesses or otherwise implement and maintain effective internal control over financial reporting, or the inability of our independent registered public accounting firm to provide an unqualified report thereon, could have a material adverse effect on us.
We are not currently required to comply with rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, regarding internal control over financial reporting and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. However, our independent registered public accounting firm identified two material weaknesses, one regarding inventory and one regarding systems, processes and people, as of December 31, 2015. These material weaknesses could, among other things, adversely impact our ability to provide timely and accurate financial information or result in a misstatement of the account balances or disclosures that would result in a material misstatement to our annual or interim financial statements that would not be prevented or detected. The material weaknesses are described in greater detail in the section entitled Managements Discussion and Analysis of Financial Condition and Results of OperationsMaterial Weaknesses in Internal Control Over Financial Reporting.
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Extensive work still remains to fully-implement and complete our remediation plan with respect to the existing material weaknesses. These matters have required, and will continue to require, a significant amount of management time and resources and a significant commitment of external resources, both of which may lead to substantial costs. Further, starting with our second annual report on Form 10-K that we file with the SEC, our management will be required to report on, and our independent registered public accounting firm will be required to attest to, the effectiveness of our internal control over financial reporting. To comply with these requirements, we may need to undertake various additional actions, such as implementing new controls and procedures and hiring additional accounting or internal audit staff, and incur substantial costs. If we are unsuccessful in implementing or following our remediation plan, or fail to update our internal controls as our business evolves, we may not be able to, among other things, accurately report our financial condition, results of operations, or cash flows or maintain effective disclosure controls and procedures.
We may not be able to successfully remediate our existing material weaknesses and we may identify additional material weaknesses that we may not be able to remediate, in each case, in time to meet the Section 404 compliance deadline. If we are unable to comply with the requirements of Section 404 in a timely manner or are unable to assert that our internal control over financial reporting is effective as and when required, whether as a result of any failure to remediate our existing material weaknesses, identification of additional material weaknesses in our internal control over financial reporting or otherwise, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting or issues an adverse opinion, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decline materially.
Our rebranding efforts could have a material adverse effect on us.
Prior to the Acquisition, we operated as a wholly owned business of HeidelbergCement known as Hanson Building Products and the majority of our products were marketed using the Hanson brand name and logo. Following completion of the Acquisition, we were required to discontinue the use of Hanson and related names. On October 16, 2015, we announced that we were rebranding our business under the Forterra name and began using the Forterra name and logo.
This rebranding effort requires time and expense, and may impact our future results of operations. We may lose customers if they do not respond favorably to the new brand or fail to recognize the new brand as a continuation of our prior business. This is particularly the case for customers that purchase our products through distributors and have no direct relationship with us. Furthermore, we believe that our association with the Hanson name and with HeidelbergCement at times provided us with preferred status with customers, suppliers and other parties due to its recognized brand, perceived high quality products and services and financial strength. We may therefore lose potential new customers who choose not to consider our product offerings since we are no longer branded with the more familiar Hanson name. The rebranding may also affect our ability to recruit qualified personnel. Any unforeseen costs, lack of success or loss of current or potential new customers related to the rebranding could have a material adverse effect on our business, financial condition and results of operations.
We also share the Forterra brand with Forterra UK, a public company listed on the London FTSE. Forterra UK is currently majority-owned by Lone Star and operates solely in the United Kingdom. We have no control over Forterra UKs use of the Forterra name and logo, and any actions or negative publicity related to it and its products could have a material adverse effect on our business, financial condition and results of operations.
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Any inability to protect our intellectual property or claims that we infringe on the intellectual property rights of others could have a material adverse effect on us.
We rely on a combination of patents, trademarks, trade names, confidentiality and nondisclosure clauses and agreements, and other unregistered rights to define and protect our rights to our brand and the intellectual property used in certain of our products, including the innovative technologies relating to storm water management acquired in the Bio Clean Acquisition. We also rely on product, industry, manufacturing and market know-how that cannot be registered and may not be subject to any confidentiality or nondisclosure clauses or agreements. Furthermore, while we have submitted the appropriate applications, we have not yet completed the registration process of the Forterra brand in all relevant jurisdictions and our rights to the intellectual property could be challenged by a third party. We cannot guarantee that any of our registered or unregistered intellectual property rights or our know-how, or claims thereto, will now or in the future successfully protect what we consider to be the intellectual property underlying our products and business, or that our rights will not be successfully opposed or otherwise challenged. We also cannot guarantee that each application filed with respect to the Forterra name will be approved. To the extent that our innovations, products and name are not protected by patents or other intellectual property rights, third parties, including competitors, may be able to commercialize our innovations or products or use our know-how. Additionally, we have faced in the past and may in the future face claims that we are infringing the intellectual property rights of others. If any of our products are found to infringe the patents or other intellectual property rights of others, our manufacture and sale of such products could be significantly restricted or prohibited and we may be required to pay substantial damages or on-going licensing fees. Any inability to protect our intellectual property rights or any misappropriation of the intellectual property of others could have a material adverse effect on our business, financial condition and results of operations.
Our foreign operations could have a material adverse effect on us.
We operate production facilities in Canada and Mexico and we are therefore subject to a number of risks specific to these countries. These risks include social, political and economic instability, unexpected changes in regulatory requirements, tariffs and other trade barriers, currency exchange fluctuations, acts of war or terrorism and import/export requirements. Our financial statements are reported in U.S. dollars with international transactions being translated into U.S. dollars. If the U.S. dollar strengthens in relation to the Canadian dollar, our U.S. dollar reported net sales and income will decrease. Additionally, since we incur costs in foreign currencies, fluctuation in those currencies value can negatively impact manufacturing and selling costs. See the section entitled Managements Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures about Market Risk. There can be no assurances that any of these factors will not materially impact our production cost or otherwise have a material adverse effect on our business, financial condition and results of operations.
Insufficient insurance coverage could have a material adverse effect on us.
We maintain property, business interruption, counterparty and liability insurance coverage that we believe is consistent with industry practice. However, our insurance program does not cover, or may not adequately cover, every potential risk associated with our business and the consequences thereof. In addition, market conditions or any significant claim or a number of claims made by or against us could cause our premiums and deductibles to increase substantially and, in some instances, our coverage may be reduced or become entirely unavailable. In the future, we may not be able to obtain meaningful coverage at reasonable rates for a variety of risks, including certain types of environmental hazards and ongoing regulatory compliance. In addition, we self-insure a portion of our exposure to certain employee benefit matters, including employee health care claims of up to $500,000 per covered individual per year and wage-payment obligations for short-term disability. If our insurance coverage is
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insufficient, if we are not able to obtain sufficient coverage in the future, or if we are exposed to significant losses as a result of the risks for which we self-insure, any resulting costs or liabilities could have a material adverse effect on our business, financial condition and results of operations.
Our historical financial information as a business of HeidelbergCement and following the Acquisition, after which we have consummated a number of strategic transactions, may not be representative of our results as an independent company.
Certain of the historical financial information included in this prospectus has been derived from the historical financial statements of HeidelbergCement through March 2015 and does not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity prior to that date. The historical costs and expenses reflected in our combined predecessor financial statements include an allocation for certain centralized corporate functions historically provided by HeidelbergCement, including executive senior management, financial reporting, financial planning and analysis, accounting, information technology, tax, risk management, treasury, legal and human resources. While we believe that the historical allocations for these functions are reasonable reflections of historical utilization levels in support of our business, such allocations may not be reflective of our cost structure, funding and operations following the Acquisition, including changes in our employee base, changes in our legal structure, potential increased costs associated with reduced economies of scale, migration of our informational technology systems and increased costs associated with being a stand-alone company. Nor do these historical results indicate the levels of expense necessary to operate as a publicly traded company. Furthermore, we have a very limited history of functioning as a stand-alone company and we have acquired a number of businesses since the Acquisition and we do not present any historical financial information in this prospectus for a full fiscal year reflecting our operations as a stand-alone company and inclusive of each of these acquisitions and the other transactions addressed in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. As a result of these factors, the historical financial information included in this prospectus is not necessarily representative of what would have been reflected in our financial statements had we been a stand-alone company inclusive of the recent transactions or indicative of our future results of operations, financial position, cash flows or costs and expenses. For additional information, see the sections entitled Selected Historical Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Unaudited Pro Forma Condensed Combined Financial Information and our audited combined financial statements and notes thereto included elsewhere in this prospectus.
Risks Relating to our Indebtedness
The terms of our debt could have a material adverse effect on us.
We have substantial debt and may incur additional debt. As of June 30, 2016, we had approximately $1,239.8 million of long-term debt outstanding under the Revolver, Senior Term Loan and Junior Term Loan, net of debt issuance costs and original issue discount. Our credit facilities contain a number of significant restrictions and covenants that generally restrict our business and limit our ability to, among other things:
| dispose of certain assets; |
| incur or guarantee additional indebtedness; |
| enter into new lines of business; |
| make investments, intercompany loans or certain payments in respect of indebtedness; |
| incur or maintain certain liens; |
| enter into transactions with affiliates; |
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| engage in certain sale and leaseback transactions; |
| declare or pay dividends and make other restricted payments, including the repurchase or redemption of our stock; and |
| engage in mergers, consolidations, liquidations and certain asset sales. |
The credit facilities also require us to maintain certain financial ratios. See the section entitled Description of Certain Indebtedness for additional information regarding the covenants and other terms of the Revolver, Senior Term Loan and Junior Term Loan.
These and other similar provisions in these and other documents could have adverse consequences on our business and to our investors because they limit our ability to take these actions even if we believe that a specific transaction would contribute to our future growth or improve our operating results. For example, these restrictions could limit our flexibility in planning for or reacting to changes in our business and our industry, thereby inhibiting our ability to react to markets and potentially making us more vulnerable to downturns. These restrictions could also require that, based on our level of indebtedness, a significant portion of our cash flow from operations be used to make interest payments, thereby reducing the cash flow available for working capital, to fund capital expenditures or other corporate purposes and to generally grow our business. Furthermore, these restrictions could prevent us from pursuing a strategic transaction that we believe is in the best interests of our company and our stockholders.
Under the terms of a U.S. master lease, we have leased certain U.S. properties through April 4, 2036 at a cost of approximately $13.4 million per annum, payable monthly, subject to an annual 2.0% increase. Under the terms of a Canadian master lease, we have leased certain Canadian properties through April 4, 2036 at a cost of $3.5 million (CAD) per annum. Each of these master lease agreements contain certain restrictions and covenants that limit, among other things, our use of and ability to sub-lease or discontinue use of the leased properties. See Description of Certain IndebtednessSale Leaseback.
Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these provisions or any inability to comply with mandated financial ratios could result in a default, in which case the lenders may have the right to declare all borrowings to be immediately due and payable. If we are unable to repay any borrowings when due, whether at maturity or if declared due and payable following a default, the lenders would have the right to proceed against the pledged collateral securing the indebtedness. Therefore, the restrictions under our credit facilities and any breach of the covenants or failure to otherwise comply with the terms of the credit facilities could have a material adverse effect on our business, financial condition and results of operations.
Our current indebtedness and any future indebtedness we may incur could have a material adverse effect on us.
We expect that we will depend primarily on cash generated by our operations to pay our expenses and any amounts due under our credit facilities and any other indebtedness we may incur. However, our business may not generate sufficient cash flows from operations in the future and our currently anticipated growth in revenues and cash flows may not be realized, either or both of which could result in us being unable to repay indebtedness or our inability to fund other liquidity or strategic needs. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which are beyond our control. If we do not have sufficient liquidity, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money.
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If we incur additional indebtedness, the risks related to our indebtedness that we currently face could intensify. In addition to the risk of higher interest rates and fees, the non-economic terms of any additional indebtedness may contain covenants and other terms restricting our financial, operating and strategic flexibility to an equal or greater extent as those imposed by our current credit facilities. Additional indebtedness may also include cross-default provisions such that, if we breach a restrictive covenant with respect to any of our indebtedness, or an event of default occurs, lenders may be entitled to accelerate all amounts owing under other outstanding indebtedness.
If we are required to refinance our indebtedness or otherwise incur additional indebtedness to fund strategic transactions or otherwise, any additional financing may not be available on terms favorable to us or at all. If, at such time, market conditions are materially different or our credit profile has deteriorated, the cost of refinancing our debt may be significantly higher than our indebtedness existing at that time, or we may not be able to refinance our debt at all. Any failure to meet any future debt service obligations or any inability to obtain any additional financing on terms acceptable to us or to comply therewith could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to this Offering and Ownership of Our Common Stock
There is currently no public market for shares of our common stock and an active trading market for our common stock may never develop following this offering.
Prior to this offering, there has been no market for shares of our common stock. Although we have applied to list our common stock on NASDAQ under the symbol FRTA, an active trading market for our common stock may never develop or, if one develops, it may not be sustained following this offering. Accordingly, no assurance can be given as to the following:
| the likelihood that an active trading market for our common stock will develop or be sustained; |
| the liquidity of any such market; |
| the ability of our stockholders to sell their shares of common stock; or |
| the price that our stockholders may obtain for their common stock. |
If an active market for our common stock with meaningful trading volume does not develop or is not maintained, the market price of our common stock may decline materially below the offering price and you may not be able to sell your shares.
The trading price of our common stock may be volatile and could decline substantially following this offering.
The market price of our common stock following this offering may be highly volatile and subject to wide fluctuations. Some of the factors that could negatively affect the market price of our common stock or result in significant fluctuations in price, regardless of our actual operating performance, include:
| actual or anticipated variations in our quarterly operating results; |
| changes in market valuations of similar companies; |
| changes in the markets in which we operate; |
| additions or departures of key personnel; |
| actions by stockholders, including the sale by Lone Star of any of its shares of our common stock; |
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| speculation in the press or investment community; |
| general market, economic and political conditions, including an economic slowdown; |
| uncertainty regarding economic events, including in Europe in connection with the United Kingdoms possible departure from the European Union; |
| changes in interest rates; |
| our operating performance and the performance of other similar companies; |
| our ability to accurately project future results and our ability to achieve those and other industry and analyst forecasts; and |
| new legislation or other regulatory developments that adversely affect us, our markets or our industry. |
Furthermore, in recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry, and often occurs without regard to the operating performance of the affected companies. Therefore, factors that have little or nothing to do with us could cause the price of our common stock to fluctuate, and these fluctuations or any fluctuations related to our company could cause the market price of our common stock to decline materially below the public offering price.
The offering price per share of our common stock offered under this prospectus may not accurately reflect the value of your investment.
Prior to this offering, there has been no market for our common stock. The offering price per share of our common stock offered by this prospectus was negotiated among Lone Star, the underwriters and us. Factors considered in determining the price of our common stock include:
| the history and prospects of companies whose principal business is the manufacturing and sale of similar products; |
| market valuations of those companies; |
| our capital structure; |
| general conditions of the securities markets at the time of this offering; and |
| other factors that we and they deemed relevant. |
The offering price may not accurately reflect the value of our common stock and may not be realized upon any subsequent disposition of the shares.
The coverage of our business or our common stock by securities or industry analysts or the absence thereof could adversely affect our stock price and trading volume.
The trading market for our common stock will be influenced in part by the research and other reports that industry or securities analysts may publish about us or our business or industry. We do not currently have, and may never obtain, research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price and volume of our stock would likely be negatively impacted. If analysts do cover us and one or more of them downgrade our stock, or if they issue other unfavorable commentary about us or our industry or inaccurate research, our stock price would likely decline. Furthermore, if one or more of these analysts cease coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets. Any of the foregoing would likely cause our stock price and trading volume to decline.
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Lone Star may have conflicts of interest with other stockholders and may limit your ability to influence corporate matters.
Immediately after this offering, Lone Star will beneficially own approximately % (or % if the underwriters option to purchase additional shares is exercised in full) of our outstanding common stock. See Principal and Selling Stockholders for more information on the beneficial ownership of our common stock. As a result of this concentration of stock ownership, Lone Star acting on its own has sufficient voting power to effectively control all matters submitted to our stockholders for approval, including director elections and proposed amendments to our bylaws or certificate of incorporation. We currently expect that, as discussed in Management, of the members of our board of directors following this offering will be employees or affiliates of Lone Star.
In addition, this concentration of ownership may delay or prevent a merger, consolidation or other business combination or change in control of our company and make some transactions that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our common stock more difficult or impossible without the support of Lone Star. Because we have opted out of Section 203 of the Delaware General Corporation Law regulating certain business combinations with interested stockholders, Lone Star may transfer control of us to a third party, which may limit the price that investors are willing to pay in the future for shares of our common stock. After the lock-up period discussed in Underwriting expires, Lone Star will be able to transfer control of us to a third-party by transferring its common stock, which would not require the approval of our board of directors or other stockholders. The interests of Lone Star may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, Lone Star could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. This concentration of ownership may also adversely affect our share price.
Lone Star is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us. Lone Star may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star and its affiliates and investment funds may serve as our directors or officers, our amended and restated certificate of incorporation will provide, among other things, that none of Lone Star or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of Lone Star has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any of these persons or entities acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in such corporate opportunity, and these persons and entities will not have any duty to communicate or offer such corporate opportunity to us and may pursue or acquire such corporate opportunity for themselves or direct such opportunity to another person. These potential conflicts of interest could have a material adverse effect on our business, financial condition and results of operations if, among other things, attractive corporate opportunities are allocated by Lone Star to themselves or their other affiliates. The terms of our amended and restated certificate of incorporation are described in full under Description of Capital StockCorporate Opportunities and Transactions with Lone Star.
Lone Star may also have conflicts of interest with the Company and other stockholders as a result of its status as a party to the tax receivable agreement. For example, the tax receivable agreement gives us the right to terminate the tax receivable agreement with approval of a majority of our independent directors and with Lone Stars consent by making a payment equal to the present value of future payments under the tax receivable agreement (based on certain assumptions and deemed events in the agreement, including those relating to our and our subsidiaries future taxable income). Lone Star may determine to withhold its consent to terminate the tax receivable agreement at a time
41
when such a termination would be favorable to us and the other stockholders. Furthermore, the tax receivable agreement prohibits us from settling any tax audit without Lone Stars consent if the outcome of the audit is reasonably expected to affect Lone Stars rights under the tax receivable agreement. Therefore, Lone Star may determine to withhold consent to a settlement that reduces the payments Lone Star will receive under the tax receivable agreement, even though the settlement might be favorable to us and our stockholders. See Certain Relationships and Related Party TransactionsTax Receivable Agreement.
We will be required to pay Lone Star for certain tax benefits, and these amounts are expected to be material.
In connection with this offering, we will enter into a tax receivable agreement with Lone Star that will provide for the payment by us to Lone Star of 85% of the amount of cash savings, if any, in U.S. federal, state, local and non-U.S. income tax that we and our subsidiaries realize (or in some circumstances are deemed to realize) as a result of the utilization of certain tax benefits, together with interest accrued at a rate of LIBOR plus 100 basis points from the date the applicable tax return is due (without extension) until paid. See Certain Relationships and Related Party TransactionsTax Receivable Agreement. These tax benefits, which we collectively refer to as the Covered Tax Benefits, include: (i) all depreciation and amortization deductions, and any offset to taxable gain or increase to taxable loss, resulting from the tax basis that we have in our assets as of the time of the consummation of this offering, (ii) the utilization of our and our subsidiaries net operating losses and tax credits, if any, attributable to periods prior to this offering, (iii) deductions in respect of payments made by Concrete Holdings to participants under its long-term incentive plan, (iv) deductions in respect of transaction expenses attributable to our acquisition of USP Holdings, Inc. and (v) certain other tax benefits attributable to payments made under the tax receivable agreement. The tax receivable agreement will become effective upon the completion of this offering and will remain in effect until all Covered Tax Benefits have been used or expired, unless the agreement is terminated early, as described below.
We expect that the payments we make under the tax receivable agreement could be substantial. Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient income to realize the full tax benefits subject to the tax receivable agreement, we currently estimate that future payments under the agreement will aggregate to between $ million and $ million. These payment obligations are our obligations and are not obligations of any of our subsidiaries. Furthermore, these payment obligations are not conditioned upon Lone Star maintaining a continued direct or indirect ownership interest in us. The actual utilization of Covered Tax Benefits as well as the timing of any payments under the tax receivable agreement will vary depending upon a number of factors, including the amount, character and timing of our and our subsidiaries taxable income in the future.
We will not be reimbursed for any payments made to Lone Star under the tax receivable agreement in the event that the tax benefits are disallowed.
Lone Star will not reimburse us for any payments previously made under the tax receivable agreement if such benefits are subsequently disallowed upon a successful challenge by the Internal Revenue Service, although future payments under the agreement would be adjusted to the extent possible to reflect the result of such disallowance. As a result, in certain circumstances, payments could be made under the tax receivable agreement in excess of our cash tax savings if any, from the Covered Tax Benefits, and we may not be able to recoup those payments, which could adversely affect our liquidity.
In certain cases, payments made by us under the tax receivable agreement may be accelerated and/or significantly exceed the actual benefits we realize in respect of the Covered Tax Benefits.
The term of the tax receivable agreement will continue until all Covered Tax Benefits have been utilized or expired, unless we exercise our right to terminate the agreement with Lone Stars consent,
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we breach any of our material obligations under the agreement or certain credit events occur with respect to us, in any of which cases we will be required to make an accelerated payment to Lone Star equal to the present value of future payments under the tax receivable agreement. Such payment would be based on certain assumptions, including, among others, that we and our subsidiaries would generate sufficient taxable income and tax liability to fully utilize all Covered Tax Benefits. The tax receivable agreement also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, our (or our successors) payments under the tax receivable agreement for each taxable year after any such event would be based on certain valuation assumptions, including the assumption that we and our subsidiaries have sufficient taxable income to fully utilize the Covered Tax Benefits. Accordingly, payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits and may be significantly greater than the benefits we realize in respect of the Covered Tax Benefits.
Even if the payments under the tax receivable agreement are not accelerated as described above, such payments may be significantly greater than the benefits we realize in respect of the Covered Tax Benefits, due to the manner in which payments are calculated under the tax receivable agreement. For example, for purposes of calculating the payments to be made to Lone Star:
| it is assumed that we will pay state and local taxes at a rate of 5%, even though our actual effective state and local tax rate may be materially lower; |
| tax benefits existing at the time of the offering are deemed to be utilized before any post-closing/after-acquired tax benefits and, as a result, we could be required to make payments to Lone Star for a particular tax year even if our tax liability for such year would have been materially reduced or eliminated by reason of our utilization of the post-closing/after-acquired tax benefits; |
| a non-taxable transfer of assets by us to a non-consolidated entity is treated under the tax receivable agreement as a taxable sale at fair market value and, as a result, we could be required to make payments to Lone Star even though such non-taxable transfer would not generate any actual tax benefits to us or our non-consolidated entity; and |
| a taxable sale or other taxable transfer of subsidiary stock by us is (in cases where the subsidiarys tax basis in its assets exceeds our tax basis in the subsidiarys stock) is treated under the tax receivable agreement as a taxable sale of the subsidiarys assets and, as a result, we could be required to make payments to Lone Star that materially exceed the actual tax benefit we realize from such stock sale. |
Because of the foregoing, our obligations under the tax receivable agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control.
Certain provisions of the tax receivable agreement limit our ability to incur additional indebtedness, which could adversely affect our business and growth strategy.
For so long as the tax receivable agreement remains outstanding, (a) without the prior written consent of Lone Star (not to be unreasonably withheld, conditioned or delayed), we will be prohibited from incurring any obligation that would restrict our ability to make payments under the tax receivable agreement and (b) we will be prohibited from incurring any indebtedness for borrowed money if immediately after giving effect to such incurrence and the application of proceeds therefrom, our consolidated net leverage ratio the ratio of consolidated funded indebtedness for borrowed money less unrestricted cash (up to $ ) to consolidated EBITDA would exceed 5.7 to 1.0, in each case as calculated pursuant to the tax receivable agreement. These restrictions on the incurrence of debt could adversely affect our business, including by preventing us from pursuing an acquisition or other
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strategic transaction that we believe is in the best interests of our company and our stockholders, thereby impeding our growth strategy. Lone Star has no fiduciary duties to us when deciding whether to enforce these covenants under the tax receivable agreement. Furthermore, the provision in the tax receivable agreement that requires that we make an accelerated payment to Lone Star equal to the present value of all future payments due under the tax receivable agreement if we breach any of our material obligations under the agreement or certain credit events occur with respect to us, even though such payment would be subordinated to indebtedness for borrowed money, might make it harder for us to obtain financing from third party lenders on favorable terms.
We would be required to make tax gross-up payments to Lone Star if we consummate a corporate inversion or similar transaction that causes payments under the tax receivable agreement to be subject to withholding taxes.
If we were to consummate a change of control transaction that causes us (or our successor) to become a non-U.S. person (e.g., a corporate inversion transaction), and such transaction causes payments under the tax receivable agreement to become subject to withholding taxes, we would be required under the tax receivable agreement to make tax gross-up payments to Lone Star in respect of such withholding taxes in amounts that may exceed the tax savings realized by the Company from the Covered Tax Benefits. Any such tax gross-up payments could have a negative impact on our liquidity and our ability to finance our growth.
Because of Lone Stars significant ownership and control of us, we could become liable for obligations of Lone Star or its affiliates, including other companies Lone Star owns or controls.
As a result of Lone Stars current beneficial ownership of 100% of our common stock, a court, applying tests based on common control or otherwise, could determine that Lone Star and its affiliates, including us and other companies Lone Star now or in the future may own or control, constitute a partnership-in-fact, a controlled group or other similar collective. Such a finding could be used to impose on us and other members of the group joint and several liability for the obligations of any Lone Star affiliate that is part of the group, including in respect of pension liabilities under the Employee Retirement Income Security Act of 1974, as amended, or ERISA, and related laws. These pension liabilities could include an obligation to make ongoing contributions to fund a pension plan for another group member and for any unfunded liabilities that may exist at the time a group member terminates or withdraws from an underfunded single employer or multiemployer pension plan, as well as result in the creation of liens against our assets and the assets of other members of the group. Under this theory, we could incur significant liabilities for events beyond our control that are not related to or known by us. Additionally, to the extent a group member maintains an underfunded pension plan, ERISA imposes reporting obligations on group members regarding certain events, including if a member ceases to be a member of the controlled group or if it makes certain dividends, distributions or stock repurchases. These reporting obligations could cause us or Lone Star to seek to delay or reconsider pursuing one or more strategic actions with respect to our company or our common stock.
Following this offering, we will be a controlled company within the meaning of NASDAQ rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.
Upon completion of this offering, Lone Star will continue to control a majority of the voting power of our outstanding common stock. As a result, we will be a controlled company within the meaning of the NASDAQ corporate governance standards. Under the relevant NASDAQ rules, a company of which more than 50% of the voting power is held by a person or group is a controlled company and need not comply with certain requirements, including the requirement that a majority of the board of directors consist of independent directors and the requirements that the compensation and nominating
44
and corporate governance committees be composed entirely of independent directors. Following this offering, we intend to utilize these exemptions. As a result, among other things, we may not have a majority of independent directors and our compensation and nominating and corporate governance committees may not consist entirely of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the applicable NASDAQ corporate governance requirements.
Future sales of our common stock in the public market could cause our stock price to fall.
Following completion of this offering, Lone Star will beneficially own approximately shares or % of our outstanding shares of common stock (or shares and % if the underwriters exercise their option to purchase additional shares in full). We, Lone Star, and our officers and directors have signed lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the sale of shares of our common stock held by them for 180 days following the date of this prospectus. The underwriters may, without notice except in certain limited circumstances, release all or any portion of the shares of common stock subject to lock-up agreements. See Underwriting for a description of these lock-up agreements. The market price of our common stock may decline materially when these restrictions on resale by Lone Star and our other affiliates lapse or if they are waived.
Upon the expiration of the lock-up agreements, all shares held by our affiliates will be eligible for resale in the public market, subject to applicable securities laws, including the Securities Act of 1933, as amended, or the Securities Act. Therefore, unless shares owned by any of our affiliates are registered under the Securities Act, these shares may only be resold into the public markets in accordance with the requirements of an exemption from registration or safe harbor, including Rule 144 and the volume limitations, manner of sale requirements and notice requirements thereof. See Shares Eligible for Future Sale. Lone Star will be considered an affiliate of ours after this offering based on their expected share ownership and representation of our board of directors. However, after completion of this offering, pursuant to the terms of a registration rights agreement between Lone Star and us, Lone Star will have the right to demand that we register its shares under the Securities Act as well as the right to include its shares in any registration statement that we file with the Securities and Exchange Commission, or the SEC, subject to certain exceptions. See Shares Eligible for Future Sale. Any registration of Lone Stars shares would enable those shares to be sold in the public market, subject to certain restrictions in the registration rights agreement and the restrictions under the lock-up agreements referred to above. Any sale by Lone Star or other affiliates or any perception in the public markets that such a transaction may occur could cause the market price of our common stock to decline materially.
Following this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering shares under our stock incentive plan. Subject to the terms of the awards pursuant to which these shares may be granted and except for shares held by affiliates who will be subject to the resale restrictions described above, the shares issuable pursuant to our stock incentive plan will be available for sale in the public market immediately after the registration statement is filed. See Shares Eligible for Future Sale.
If you purchase shares of common stock sold in this offering, you will experience immediate and substantial dilution and you may suffer additional dilution in the future.
If you purchase shares our common stock in this offering, the value of your shares based on our actual book value will immediately be less than the price you paid. This reduction in the value of your equity is known as dilution. This dilution occurs in large part because Lone Star paid substantially less than the then-equivalent of the initial public offering price when it purchased the Company in the Acquisition. If you purchase shares in this offering, you will suffer, as of , 2016, immediate
45
dilution of $ per share in the net tangible book value after giving effect to the sale of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the estimated price range appearing on the cover of this prospectus, less underwriting discounts and commissions and the estimated expenses payable by us, and the application of the net proceeds as described in Use of Proceeds. We also expect to grant stock options, restricted stock and other forms of stock-based compensation to our directors, officers and employees and you will experience additional dilution in the future when these equity awards are exercised or vest, as applicable. If we raise funds in the future by issuing additional securities, any newly issued shares or shares issued upon conversion or exercise of such securities will further dilute your ownership.
We have no present intention to pay dividends on our common stock.
We have no present intention to pay dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in our credit facilities and agreements governing any other indebtedness we may enter into and other factors that our board of directors deems relevant. See Dividend Policy. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment, and you may not be able to sell your shares at or above the price you paid for them.
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. However, the lapse or waiver of the lock up restrictions discussed above or any sale or perception of a possible sale by Lone Star, and any related decline in the market price of our common stock, could impair our ability to raise capital. Separately, additional financing may not be available on favorable terms, or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
We are a holding company and depend on the cash flow of our subsidiaries.
We are a holding company with no material assets other than the equity interests of our subsidiaries. Our subsidiaries conduct substantially all of our operations and own substantially all of our assets and intellectual property. Consequently, our cash flow and our ability to meet our obligations and pay any future dividends to our stockholders depends upon the cash flow of our subsidiaries and their ability to make payments, directly or indirectly, to us in the form of dividends, distributions and other payments. Any inability on the part of our subsidiaries to make payments to us could have a material adverse effect on our business, financial condition and results of operations.
Provisions of our amended and restated governing documents, Delaware law and other documents could discourage, delay or prevent a merger or acquisition at a premium price.
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws that we intend to adopt prior to the consummation of this offering may have the effect of
46
delaying or preventing a change of control or changes in our management. For example, our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:
| permit us to issue, without stockholder approval, preferred stock in one or more series and, with respect to each series, fix the number of shares constituting the series and the designation of the series, the voting powers, if any, of the shares of the series and the preferences and other special rights, if any, and any qualifications, limitations or restrictions, of the shares of the series; |
| prevent stockholders from calling special meetings; |
| restrict the ability of stockholders to act by written consent after such time as Lone Star owns less than a majority of our common stock; |
| limit the ability of stockholders to amend our certificate of incorporation and bylaws; |
| require advance notice for nominations for election to the board of directors and for stockholder proposals; |
| do not permit cumulative voting in the election of our directors, which means that the holders of a majority of our common stock may elect all of the directors standing for election; and |
| establish a classified board of directors with staggered three-year terms. |
These provisions may discourage, delay or prevent a merger or acquisition of our company, including a transaction in which the acquirer may offer a premium price for our common stock.
Our amended and restated certificate of incorporation will include an exclusive forum clause, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or the DGCL, or our certificate of incorporation or bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine, will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware); in all cases subject to such court having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. The exclusive forum clause may limit our stockholders ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding such exclusive forum clause, a court could rule that such a provision is inapplicable or unenforceable. See Description of Capital StockExclusive Forum Clause.
We will incur increased costs and obligations as a result of being a publicly-traded company.
As a company with publicly-traded securities, we will be subject to the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, NASDAQ listing requirements of the applicable stock exchange and other applicable securities rules and regulations. These rules and regulations require that we adopt additional controls and procedures and disclosure, corporate governance and other practices thereby significantly increasing our legal, financial and other compliance costs. These new obligations will also make other aspects of our business more difficult,
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time-consuming or costly and increase demand on our personnel, systems and other resources. For example, to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we will need to commit significant resources, hire additional staff and provide additional management oversight. Furthermore, as a result of disclosure of information in this prospectus and in our Exchange Act and other filings required of a public company, our business and financial condition will become more visible, which we believe may give some of our competitors who may not be similarly required to disclose this type of information a competitive advantage. In addition to these added costs and burdens, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, other regulatory actions and civil litigation, any of which could negatively affect the price of our common stock.
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This prospectus contains forward-looking statements. These forward-looking statements are included throughout this prospectus, including in the sections entitled Prospectus Summary, Risk Factors, Use of Proceeds, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and Certain Relationships and Related Party Transactions, 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 approximately, 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 prospectus. 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:
| the level of construction activity, particularly in the residential construction and non-residential construction markets; |
| government funding of infrastructure and related construction activities; |
| the highly competitive nature of our industry and our ability to effectively compete; |
| energy costs; |
| the availability and price of the raw materials we use in our business; |
| our ability to implement our growth strategy; |
| our dependence on key customers and the absence of long-term agreements with these customers; |
| the level of construction activity in Texas; |
| disruption at one of our manufacturing facilities or in our supply chain; |
| construction project delays and our inventory management; |
| our ability to successfully integrate our recent acquisitions; |
| labor disruptions and other union activity; |
| a tightening of mortgage lending or mortgage financing requirements; |
| our current dispute with HeidelbergCement related to the payment of an earn out; |
| compliance with environmental laws and regulations; |
| compliance with health and safety laws and regulations and other laws and regulations to which we are subject; |
| our dependence on key executives and key management personnel; |
| our ability to retain and attract additional skilled technical or sales personnel; |
| credit and non-payment risks of our customers; |
| warranty and related claims; |
| legal and regulatory claims; |
| the seasonality of our business and its susceptibility to severe adverse weather; |
| our ability to maintain sufficient liquidity and ensure adequate financing or guarantees for large projects; |
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| delays or outages in our information technology systems and computer networks; and |
| additional factors discussed under the sections captioned Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business. |
The forward-looking statements contained in this prospectus are based on historical performance and managements 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, as well as the other factors described in the section entitled Risk Factors. Additional factors or events that could cause our actual results to differ may also emerge from time to time, and it is not possible for us to predict all of them. 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 prospectus speaks only as of the date on which we make it. 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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We estimate that our proceeds from this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, based on an assumed offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus. We intend to use the net proceeds from this offering as follows:
| $ to repay outstanding indebtedness; and |
| the remainder for working capital and other general corporate purposes. |
The terms of our indebtedness, including the interest rates and maturities thereof, are described in detail in the section entitled Description of Certain Indebtedness. Certain of the proceeds of this indebtedness were used to fund some or all of the Cretex Acquisition, the Sherman-Dixie Acquisition, the U.S. Pipe Acquisition and the June 2016 dividend to Lone Star Fund IX (U.S.), L.P. discussed in the section entitled Dividend Policy.
Credit Suisse Securities (USA) LLC or its affiliates will receive more than 5% of the net proceeds of this offering in connection with the prepayment of our outstanding indebtedness. Accordingly, this offering is being made in compliance with the requirements of FINRA 5121. See the section entitled Underwriting (Conflicts of Interest).
Pending use of the net proceeds from this offering described above, we may invest the net proceeds in short- and intermediate-term interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the United States government.
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, would increase or decrease the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The selling stockholder will receive approximately $ million (or approximately $ million if the underwriters exercise in full their option to purchase additional shares) in gross proceeds from this offering, based on an assumed offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus. We will not receive any proceeds from the sale of shares by the selling stockholder.
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On June 17, 2016, we assumed an incremental borrowing of $345.0 million under the Senior Term Loan that was used to pay a dividend of the same amount to Lone Star Fund IX (U.S.), L.P., or the Debt Recapitalization.
We have no present intention to pay cash dividends on our common stock. Any determination to pay dividends to holders of our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial condition, results of operations, projections, liquidity, earnings, legal requirements, restrictions in the agreements governing our existing indebtedness and any other indebtedness we may enter into and other factors that our board of directors deems relevant.
The agreements governing our existing indebtedness contain, and debt instruments that we enter into in the future may contain, covenants that place limitations on the amount of dividends we may pay. See the section entitled Description of Certain Indebtedness. In addition, under Delaware law, our board of directors may declare dividends only to the extent of our surplus, which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or, if there is no surplus, out of our net profits for the then current and immediately preceding year.
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The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2016:
| on an actual basis; and |
| on a pro forma basis to give effect to the following: |
| the Reorganization; |
| a for one stock split, which will occur shortly before consummation of this offering; and |
| on a pro forma, as adjusted basis to give effect to the foregoing and the issuance and sale of shares of our common stock offered by us in this offering, based on an assumed offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the application of such proceeds as described in Use of Proceeds. |
You should read this table together with the information in this prospectus under Use of Proceeds, Selected Historical Financial and Operating Data, Unaudited Pro Forma Condensed Combined Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations and Description of Capital Stock, and with the combined financial statements and the related notes to those statements included elsewhere in this prospectus.
As of June 30,
2016 |
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Actual | Pro forma |
Pro forma,
as adjusted |
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(in thousands, except share data) | ||||||||||||
Cash and cash equivalents |
$ | 41,817 | $ | $ | ||||||||
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Debt: |
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Revolver |
| $ | $ | |||||||||
Junior Term Loan |
238,077 | |||||||||||
Senior Term Loan |
1,001,700 | |||||||||||
Financing obligation |
210,934 | |||||||||||
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Total debt |
$ | 1,450,711 | $ | $ | ||||||||
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Stockholders equity: |
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Undesignated preferred stock, par value $0.001 per share: no shares authorized, issued or outstanding actual, shares authorized, no shares issued and outstanding pro forma |
| |||||||||||
Common stock, $0.001 par value per share; shares authorized, shares issued and outstanding, actual; shares authorized, shares issued and outstanding, pro forma |
| |||||||||||
Contributed capital |
254,918 | |||||||||||
Accumulated other comprehensive loss |
(1,418 | ) | ||||||||||
Retained deficit |
(50,033 | ) | ||||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
203,467 | |||||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 1,654,178 | $ | $ | ||||||||
|
|
|
|
|
|
53
Dilution represents the difference between the amount per share paid by investors in this offering and the as adjusted net tangible book value per share of our common stock immediately after this offering. The data in this section have been derived from our condensed combined balance sheet as of June 30, 2016. Net tangible book value per share is equal to our total tangible assets less the amount of our total liabilities, divided by the sum of the number of our shares of common stock outstanding. Our net tangible book value as of June 30, 2016 was $ million, or $ per share of common stock.
After giving effect to our receipt of the estimated net proceeds from our sale of common stock in this offering, based on an assumed offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and other estimated offering expenses payable by us and the application of such proceeds as described in the section entitled Use of Proceeds, our net tangible book value, pro forma, as of June 30, 2016 would have been $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value to our existing stockholders of $ per share and an immediate dilution to new investors in this offering of $ per share. The following table illustrates this per share dilution:
Assumed initial public offering price per share |
$ | |||
Net tangible book value per share of common stock as of June 30, 2016 |
$ | |||
Pro forma increase in net tangible book value per share attributable to new investors |
$ | |||
Pro forma net tangible book value per share after the offering |
$ | |||
|
|
|||
Dilution per share to new investors |
$ | |||
|
|
The following table shows on a pro forma basis at June 30, 2016, after giving effect to the stock split and the Reorganization which will occur prior to the consummation of this offering, the total cash consideration paid to us and the average price per share paid by Lone Star and by new investors in this offering before deducting underwriting discounts and estimated offering expenses payable by us.
Shares purchased | Total consideration |
Average
price per share |
||||||||||||||||||
(in millions, except share and per share data) |
Number | % | Number | % | ||||||||||||||||
LSF9 Concrete Mid-Holdings Ltd |
% | % | $ | |||||||||||||||||
New investors |
% | % | $ | |||||||||||||||||
|
|
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|
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|
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|
|
|
|||||||||||
Total |
100 | % | 100 | % | $ |
The information in the preceding table is based on an assumed offering price of $ per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus. A $1.00 increase or decrease in the assumed initial public offering price per share would increase or decrease, respectively, the pro forma net tangible book value per share of common stock after this offering by $ million and increase or decrease the dilution per share of common stock to new investors in this offering by $ per share, in each case calculated as described above and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
If the underwriters exercise their option to purchase additional shares in full, Lone Star would own approximately % and our new investors would own approximately % of the total number of shares of our common stock outstanding immediately after this offering (or % and %, respectively, if the underwriters do not exercise in full their option to purchase additional shares), based on shares outstanding after this offering.
54
An aggregate of additional shares of our common stock will initially be available for future awards under the equity incentive plan that we intend to implement in connection with this offering and are not included in the above discussion and table. To the extent that we grant awards in the future with exercise prices below the initial public offering price in this offering, investors purchasing in this offering will incur additional dilution. See Shares Eligible for Future Sale.
55
SELECTED HISTORICAL FINANCIAL DATA
The following selected combined financial data should be read in conjunction with Capitalization, Unaudited Pro Forma Condensed Combined Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations, Certain Relationships and Related Party Transactions and Description of Certain Indebtedness, our audited and unaudited condensed combined financial statements and the related notes and the other financial information included elsewhere in this prospectus.
The following tables set forth, for the periods and dates indicated, our selected historical financial data. The accompanying historical financial statements are presented for the Predecessor, which are the combined financial statements of HeidelbergCements building products business in the United States and Eastern Canada for the period preceding the Acquisition, and the Successor, which are the combined financial statements of the Company and subsidiaries for the period following the Acquisition. The Predecessors combined statements of operations data for the years ended December 31, 2011 and 2012 and the Predecessors combined balance sheet data as of December 31, 2011 and 2012 have been derived from the audited combined financial statements of HeidelbergCements building products business in the United States and Eastern Canada, which are not included elsewhere in this prospectus. The Predecessors combined statements of operations data for the years ended December 31, 2013 and 2014 and the period from January 1, 2015 through March 13, 2015 and the Predecessors combined balance sheet data as of December 31, 2014 have been derived from the audited combined financial statements of HeidelbergCements building products business in the United States and Eastern Canada, which are included elsewhere in this prospectus. The Successors combined statements of operations data for the period from March 14, 2015 through December 31, 2015 and balance sheet data as of December 31, 2015 have been derived from our audited combined financial statements, which are included elsewhere in this prospectus. The Successors combined balance sheet data as of June 30, 2016 and combined statements of operations data for the period from March 14, 2015 through June 30, 2015 and the six months ended June 30, 2016 are derived from our unaudited condensed combined financial statements, which are included elsewhere in this prospectus.
The Predecessors financial statements may not necessarily be indicative of our cost structure, financial position, results of operations or cash flows that would have existed if HeidelbergCements building products business in the United States and Eastern Canada operated as a stand-alone, independent business. Accordingly, the historical results should not be relied upon as an indicator of our future performance. The Acquisition was accounted for as a business combination, which resulted in a new basis of accounting. The Predecessors and the Successors financial statements are not comparable as a result of applying a new basis of accounting. See the notes to our audited combined financial statements for additional information regarding the accounting treatment of the Acquisition. In the opinion of management, the unaudited interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial position and operating results for these periods and as of such date. Results from interim periods are not necessarily indicative of results that may be expected for the entire year and historical results are not indicative of the results to be expected in the future. The selected financial data presented below represent portions of our financial statements and are not complete.
56
57
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information and the related notes present our unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 and 2015 and for the year ended December 31, 2015, and our unaudited pro forma condensed combined balance sheet data as of June 30, 2016. The unaudited pro forma condensed combined financial information has been derived by aggregating our audited and unaudited historical combined financial statements, and the historical financial statements of U.S. Pipe, each included elsewhere in this prospectus, and making certain pro forma adjustments to such aggregated financial information to give effect to the transactions defined below, collectively the Transactions:
| the Acquisition; |
| the Cretex Acquisition; |
| the Sherman-Dixie Acquisition; |
| the U.S. Pipe Acquisition and the reallocation of debt to fund a portion of the purchase price; |
| the Bio Clean Acquisition |
| our sale of 49 properties in the United States and Eastern Canada and our concurrent agreement to lease back each of those properties from the respective buyers for an initial term of 20 years, or the Sale Leaseback; |
| our assumption of an incremental borrowing on the Senior Term Loan in June 2016 that was used to pay a dividend to Lone Star Fund IX (U.S.), L.P., or the Debt Recapitalization; and |
| the completion of this offering and the anticipated use of proceeds. |
The Transactions, along with the assumptions and estimates underlying the adjustments to the unaudited pro forma condensed combined financial information, are described in more detail in the accompanying notes, which should be read together with the unaudited pro forma condensed combined financial information.
58
The table below provides the date each Transaction closed, the date and/or periods each Transaction has been reflected in our historical financial statements and the date and/or periods each Transaction is shown in the unaudited pro forma condensed combined financial information giving effect to the Transactions as if they had occurred on the dates shown.
Transaction |
Transaction
|
Balance Sheet
|
Period
|
Balance Sheet
|
Pro forma
|
|||||
Acquisition |
March 13, 2015 | As of June 30, 2016 and December 31, 2015 | March 14, 2015 through June 30, 2016 |
January 1, 2015 through March 13, 2015 |
January 1, 2015 | |||||
Cretex Acquisition |
October 1, 2015 | As of June 30, 2016 and December 31, 2015 | October 1, 2015 through June 30, 2016 | January 1, 2015 through September 30, 2015 | January 1, 2015 | |||||
Sherman-Dixie Acquisition |
January 29, 2016 | As of June 30, 2016 | January 30, 2016 through June 30, 2016 | January 1, 2015 through January 29, 2016 | January 1, 2015 | |||||
U.S. Pipe Acquisition |
April 15, 2016 | As of June 30, 2016 |
April 15, 2016 through June 30, 2016 |
January 1, 2015 through April 14, 2016 | January 1, 2015 | |||||
Bio Clean Acquisition |
August 4, 2016 | Not included | Not included | As of June 30, 2016 and for period January 1, 2015 through June 30, 2016 | January 1, 2015 (Income Statement) and June 30, 2016 (Balance Sheet) | |||||
Sale Leaseback |
April 5, 2016 and April 14, 2016 | As of June 30, 2016 |
April 5, 2016 through June 30, 2016 |
January 1, 2015 through April 4, 2016 | January 1, 2015 | |||||
Debt Recapitalization |
June 17, 2016 | As of June 30, 2016 |
June 17, 2016 through June 30, 2016 |
January 1, 2015 through June 16, 2016 | January 1, 2015 | |||||
Offering |
Upon the offering closing date | Not included | Not included | As of June 30, 2016 and for period January 1, 2015 through June 30, 2016 | January 1, 2015 (Income Statement) and June 30, 2016 (Balance Sheet) |
The unaudited pro forma condensed combined balance sheet as of June 30, 2016 and unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 and 2015 and for the year ended December 31, 2015 have been prepared in accordance with Article 11 of Regulation S-X, using the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. The information provided for the six month period ended June 30, 2015 reflects a period for which pro forma information under Article 11 of Regulation S-X is not required to be presented herein. However, the information provided for this period has been included to provide additional information and comparable analysis to our historical and pro forma results of operations for the six months ended June 30, 2016 given the significant impact of these Transactions on our business. Also included in the notes to the unaudited pro forma condensed combined financial information is a note setting forth certain pro forma combined operating results by segment for the comparable periods.
59
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is based upon available information and reflects estimates and certain assumptions made by our management that we believe are reasonable. Actual adjustments may differ materially from the information presented herein. The unaudited pro forma condensed combined financial information does not purport to represent what our combined results of operations and financial position would have been had the Transactions occurred on the dates indicated. They are also not intended to project our combined results of operations or financial position for any future period or date.
The unaudited pro forma condensed combined financial information does not reflect any additional costs that may arise from being a public company or the realization of any expected cost savings, operating efficiencies or other synergies that may result from the Transactions as a result of restructuring activities or other planned cost savings initiatives following the completion of the Transactions, unless such costs have been realized in the historical financial statements.
The pro forma financial statements should be read in conjunction with Capitalization, Selected Historical Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Certain Relationships and Related Party Transactions, Description of Certain Indebtedness and our audited and unaudited condensed combined financial statements and the related notes and the other financial information included elsewhere in this prospectus.
We have calculated pro forma earnings per share assuming a total of shares of common stock outstanding after the consummation of this offering. Since we are a combination of entities under common control and did not have any share capital as of June 30, 2016, we have not calculated earnings per share on a historical basis.
60
Forterra, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2016
(In Thousands, Except Per Share Data)
Pro Forma Adjustments | ||||||||||||||||||||||||||||||||||||||||||||
Forterra
Historical |
Sherman-
Dixie Acquisition (4) |
U.S. Pipe
Acquisition (5) |
Bio Clean
Acquisition (6) |
Sale
Leaseback (7) |
Debt
Recapitalization (8) |
Offering
(9) |
Pro Forma
Combined 1 |
|||||||||||||||||||||||||||||||||||||
Net sales |
$ | 640,142 | $ | 2,893 | 4(a) | $ | 173,418 | 5(a) | $ | 8,839 | 6(a) | $ | | $ | | $ | | $ | 825,292 | |||||||||||||||||||||||||
Cost of goods sold |
509,370 | 2,503 | 4(a) | 146,103 | 5(a) | 4,762 | 6(a) | | | | 660,820 | |||||||||||||||||||||||||||||||||
91 | 4(b) | (2,009 | ) | 5(b) | | | ||||||||||||||||||||||||||||||||||||||
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Gross profit |
130,772 | 299 | 29,324 | 4,077 | | | | 164,472 | ||||||||||||||||||||||||||||||||||||
Selling, general & administrative expenses |
(93,777 | ) | (795 | ) | 4(a) | (11,340 | ) | 5(a) | (2,085 | ) | 6(a) | | | | (117,392 | ) | ||||||||||||||||||||||||||||
(120 | ) | 4(c) | (9,275 | ) | 5(c) | |||||||||||||||||||||||||||||||||||||||
Other operating income (expense), net |
2,533 | | (8 | ) | | | | | 2,525 | |||||||||||||||||||||||||||||||||||
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Income (loss) from operations |
$ | 39,528 | $ | (616 | ) | $ | 8,701 | $ | 1,992 | $ | | $ | | $ | | $ | 49,605 | |||||||||||||||||||||||||||
Other income (expenses) |
||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(42,129 | ) | 36 | 4(d) | 2,739 | 5(d) | | (4,519 | ) | (10,705 | ) | | (54,578 | ) | ||||||||||||||||||||||||||||||
Other income (expenses), net |
(1,179 | ) | 2 | 102 | 5(a) | | | | | (1,075 | ) | |||||||||||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(3,780 | ) | (578 | ) | 11,542 | 1,992 | (4,519 | ) | (10,705 | ) | | (6,048 | ) | |||||||||||||||||||||||||||||||
Income tax (expense) benefit |
36,533 | | 4(e) | (3,726 | ) | 5(a) | | | | | 32,807 | |||||||||||||||||||||||||||||||||
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Net income (loss) |
$ | 32,753 | $ | (578 | ) | $ | 7,816 | $ | 1,992 | $ | (4,519 | ) | $ | (10,705 | ) | $ | | $ | 26,759 | |||||||||||||||||||||||||
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Pro forma net loss per share: |
|
|||||||||||||||||||||||||||||||||||||||||||
Basic |
| |||||||||||||||||||||||||||||||||||||||||||
Diluted |
| |||||||||||||||||||||||||||||||||||||||||||
Pro forma weighted average shares outstanding: |
|
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Basic |
| |||||||||||||||||||||||||||||||||||||||||||
Diluted |
|
See notes to unaudited pro forma condensed combined financial information.
1 | The Pro Forma Combined amounts do not currently reflect the receipt of or any anticipated application of the proceeds from this offering. |
61
Forterra, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2015
(In Thousands, Except Per Share Data)
Predecessor | Successor | Pro forma adjustments | ||||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 to
March 13, 2015 |
March 14 to
June 30, 2015 |
Acquisition
(2) |
Cretex
Acquisition (3) |
Sherman-
Dixie Acquisition (4) |
U.S. Pipe
Acquisition (5) |
Bio Clean
Acquisition (6) |
Sale
Leaseback (7) |
Debt
Recapitalization (8) |
Offering
(9) |
Pro Forma
Combined 1 |
||||||||||||||||||||||||||||||||||||||||||||
Net sales |
$ | 132,620 | $ | 251,315 | $ | | $ | 75,002 | 3(a) | $ | 23,973 | 4(a) | $ | 282,921 | 5(a) | $ | 5,271 | 6(a) | $ | | $ | | $ | | $ | 804,735 | ||||||||||||||||||||||||||||
33,633 | 5(f) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold |
117,831 | 228,405 | (303 | ) | 2(a) | 63,965 | 3(a) | 20,257 | 4(a) | 238,196 | 5(a) | 2,840 | 6(a) | | | | 697,869 | |||||||||||||||||||||||||||||||||||||
28,110 | 5(f) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
1,480 | 3(b) | 395 | 4(b) | (3,307 | ) | 5(b) | | |||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit |
$ | 14,789 | $ | 22,910 | $ | 303 | $ | 9,557 | $ | 3,321 | $ | 53,555 | $ | 2,431 | $ | | $ | | $ | | $ | 106,866 | ||||||||||||||||||||||||||||||||
Selling, general & administrative expenses |
(21,683 | ) | (44,287 | ) | (1,084 | ) | 2(b) | (6,777 | ) | 3(a) | (3,577 | ) | 4(a) | (27,533 | ) | 5(a) | (1,426 | ) | 6(a) | | | | (130,299 | ) | ||||||||||||||||||||||||||||||
(3,153 | ) | 5(f) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
(3,481 | ) | 3(c) | (1,653 | ) | 4(c) | (15,645 | ) | 5(c) | ||||||||||||||||||||||||||||||||||||||||||||||
Other operating income (expense), net |
519 | 3,930 | | (23 | ) | 13 | 1,525 | 5(a) | | | | | $ | 5,964 | ||||||||||||||||||||||||||||||||||||||||
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Income (loss) from operations |
$ | (6,375 | ) | $ | (17,447 | ) | $ | (781 | ) | $ | (724 | ) | $ | (1,896 | ) | $ | 8,749 | $ | 1,005 | $ | | $ | | $ | | $ | (17,469 | ) | ||||||||||||||||||||||||||
Other income (expenses) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(84 | ) | (15,551 | ) | (10,212 | ) | 2(c) | (7,881 | ) | 3(d) | (558 | ) | 4(d) | 3,924 | 5(d) | | (8,484 | ) | (11,678 | ) | | (50,524 | ) | |||||||||||||||||||||||||||||||
Other income (expense), net |
(163 | ) | 5(a) | (246 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
(39 | ) | (140 | ) | | 105 | 3(a) | 12 | (21 | ) | 5(f) | | | | |||||||||||||||||||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(6,498 | ) | (33,138 | ) | (10,993 | ) | (8,500 | ) | (2,442 | ) | $ | 12,489 | 1,005 | (8,484 | ) | (11,678 | ) | | (68,239 | ) | ||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
742 | (1,579 | ) | | 2(d) | | 3(e) | | 4(e) | (6,723 | ) | 5(a) | | | | (7,560 | ) | |||||||||||||||||||||||||||||||||||||
| 5(e) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Less: Net income/(loss) from noncontrolling interest |
| | | | | | | | | | ||||||||||||||||||||||||||||||||||||||||||||
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Net income (loss) |
$ | (5,756 | ) | $ | (34,717 | ) | $ | (10,993 | ) | $ | (8,500 | ) | $ | (2,442 | ) | $ | 5,766 | $ | 1,005 | $ | (8,484 | ) | $ | (11,678 | ) | $ | | $ | (75,799 | ) | ||||||||||||||||||||||||
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Pro forma net loss per share: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted |
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Pro forma weighted average shares outstanding: |
|
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Basic |
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Diluted |
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See notes to unaudited pro forma condensed combined financial information.
1 | The Pro Forma Combined amounts do not currently reflect the receipt of or any anticipated application of the proceeds from this offering. |
62
Forterra, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2015
(In Thousands, Except Per Share Data)
Predecessor | Successor |
Pro forma adjustments |
||||||||||||||||||||||||||||||||||||||||||||||||||||||
January 1 to
March 13, 2015 |
March 14 to
December 31, 2015 |
Acquisition
(2) |
Cretex
Acquisition (3) |
Sherman-
Dixie Acquisition (4) |
U.S. Pipe
Acquisition (5) |
Bio Clean
Acquisition (6) |
Sale
Leaseback (7) |
Debt
Recapitalization (8) |
Offering
(9) |
Pro
Forma Combined 1 |
||||||||||||||||||||||||||||||||||||||||||||||
Net sales |
$ | 132,620 | $ | 722,664 | $ | | $ | 149,284 | 3(a) | $ | 53,920 | 4(a) | $ | 618,119 | 5(a) | $ | 13,417 | 6(a) | $ | | $ | | $ | | $ | 1,745,906 | ||||||||||||||||||||||||||||||
55,882 | 5(f) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold |
117,831 | 626,498 | (303 | ) | 2(a) | 121,969 | 3(a) | 44,147 | 4(a) | 516,561 | 5(a) | 6,388 | 6(a) | | | | 1,476,753 | |||||||||||||||||||||||||||||||||||||||
47,382 | 5(f) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,263 | 3(b) | 810 | 4(b) | (6,793 | ) | 5(b) | | |||||||||||||||||||||||||||||||||||||||||||||||||
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Gross profit |
$ | 14,789 | $ | 96,166 | $ | 303 | $ | 25,052 | $ | 8,963 | $ | 116,851 | $ | 7,029 | $ | | $ | | $ | | $ | 269,153 | ||||||||||||||||||||||||||||||||||
Selling, general & administrative expenses |
(21,683 | ) | (134,971 | ) | (1,084 | ) | 2(b) | (11,652 | ) | 3(a) | (11,033 | ) | 4(a) | (47,573 | ) | 5(a) | (4,286 | ) | 6(a) | | | | (282,594 | ) | ||||||||||||||||||||||||||||||||
(5,329 | ) | 5(f) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
(6,115 | ) | 3(c) | (2,408 | ) | 4(c) | (36,460 | ) | 5(c) | ||||||||||||||||||||||||||||||||||||||||||||||||
Other operating income (expense), net |
519 | 8,076 | | | | 3,605 | 5(a) | | | | | 12,200 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
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|
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|
|
|
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|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
Income (loss) from operations |
$ | (6,375 | ) | $ | (30,729 | ) | $ | (781 | ) | $ | 7,285 | $ | (4,478 | ) | $ | 31,094 | $ | 2,743 | $ | | $ | | $ | | $ | (1,241 | ) | |||||||||||||||||||||||||||||
Other income (expenses) |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense |
(84 | ) | (45,953 | ) | (10,212 | ) | 2(c) | (11,691 | ) | 3(d) | (1,102 | ) | 4(d) | 6,954 | 5(d) | | (16,969 | ) | (23,356 | ) | | (102,413 | ) | |||||||||||||||||||||||||||||||||
Other income (expenses), net |
(39 | ) | (326 | ) | | 210 | 3(a) | 125 | 4(a) | 1,177 | 5(a) | | | | | 1,191 | ||||||||||||||||||||||||||||||||||||||||
44 | 5(f) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
|
|
|||||||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes |
(6,498 | ) | (77,008 | ) | (10,993 | ) | (4,196 | ) | (5,455 | ) | 39,269 | 2,743 | (16,969 | ) | (23,356 | ) | | (102,463 | ) | |||||||||||||||||||||||||||||||||||||
Income tax (expense) benefit |
742 | (5,778 | ) | | 2(d) | | 3(e) | 876 | 4(e) | (13,358 | ) | 5(a) | | | | (17,518 | ) | |||||||||||||||||||||||||||||||||||||||
Less: Net income/(loss) from noncontrolling interest |
| | | | | | | | | |||||||||||||||||||||||||||||||||||||||||||||||
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|
||||||||||||||||||||||||||
Net income (loss) |
$ | (5,756 | ) | $ | (82,786 | ) | $ | (10,993 | ) | $ | (4,196 | ) | $ | (4,579 | ) | $ | 25,911 | $ | 2,743 | $ | (16,969 | ) | $ | (23,356 | ) | $ | | $ | (119,981 | ) | ||||||||||||||||||||||||||
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||||||||||||||||||||||||||
Pro forma net loss per share: |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pro forma weighted average shares outstanding: |
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic |
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted |
|
|
See notes to unaudited pro forma condensed combined financial information.
1 | The Pro Forma Combined amounts do not currently reflect the receipt of or any anticipated application of the proceeds from this offering. |
63
Forterra, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2016
(In Thousands)
Pro forma adjustments | ||||||||||||||||||||
Forterra
Historical |
Bio Clean
Acquisition (6) |
Offering
(9) |
Pro Forma
Combined |
|||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets |
||||||||||||||||||||
Cash and cash equivalents |
$ | 41,817 | $ | (30,000 | ) | 6(b) | $ | | $ | 11,817 | ||||||||||
Receivables, net |
270,088 | 3,872 | 6(b) | | 273,960 | |||||||||||||||
Inventories |
322,283 | | | 322,283 | ||||||||||||||||
Other current assets |
16,328 | 25 | | 16,353 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
650,516 | (26,103 | ) | | 624,413 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Non-current assets |
||||||||||||||||||||
Property, plant and equipment, net |
648,621 | 169 | 6(b) | | 648,790 | |||||||||||||||
Goodwill and other intangible assets, net |
675,401 | 27,245 | 6(b) | | 702,646 | |||||||||||||||
Investment in equity method investees |
56,656 | | | 56,656 | ||||||||||||||||
Other long term assets |
2,916 | 91 | | 3,007 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 2,034,110 | $ | 1,402 | $ | | $ | 2,035,512 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities |
||||||||||||||||||||
Trade payables |
$ | 136,525 | $ | 1,265 | 6(b) | $ | | $ | 137,790 | |||||||||||
Accrued liabilities |
73,359 | 137 | 6(b) | | 73,496 | |||||||||||||||
Deferred revenue |
15,286 | | | 15,286 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total current liabilities |
225,170 | 1,402 | | 226,572 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Non-current liabilities |
||||||||||||||||||||
Senior Term Loan |
1,001,700 | | | 1,001,700 | ||||||||||||||||
Junior Term Loan |
238,077 | | | 238,077 | ||||||||||||||||
Financing Obligation |
210,934 | | | 210,934 | ||||||||||||||||
Deferred tax liability |
132,978 | | | 132,978 | ||||||||||||||||
Derivative liability |
2,875 | | | 2,875 | ||||||||||||||||
Other long term liabilities |
18,909 | | | 18,909 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
1,830,643 | 1,402 | | 1,832,045 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Equity |
||||||||||||||||||||
Contributed capital |
254,918 | | | 254,918 | ||||||||||||||||
Accumulated other comprehensive income (loss) |
(1,418 | ) | | | (1,418 | ) | ||||||||||||||
Retained earnings (deficit) |
(50,033 | ) | | | (50,033 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total equity |
203,467 | | | 203,467 | ||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and equity |
$ | 2,034,110 | $ | 1,402 | $ | | $ | 2,035,512 | ||||||||||||
|
|
|
|
|
|
|
|
1 | The Pro Forma Combined amounts do not currently reflect the receipt of or any anticipated application of the proceeds from this offering. |
See notes to unaudited pro forma condensed combined financial information.
64
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
1. Basis of presentation
The unaudited pro forma condensed combined financial information is based upon the historical combined financial statements of the Predecessor, the historical financial statements of the Successor and the historical financial statements of U.S. Pipe, as adjusted for the impact of the Transactions on ours and U.S. Pipes historical results of operations and financial position, as if the Transactions occurred on the dates reflected in the table in the introductory section above. The historical financial statements have been adjusted to give pro forma effect to events that are (i) directly attributable to the Transactions, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the Transactions.
Each of the business combinations were accounted for under the acquisition method of accounting in accordance with Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 805, Business Combinations. As the acquirer for accounting purposes, we have estimated the fair value of the Predecessors, Cretexs, Sherman-Dixies, U.S. Pipes and Bio Cleans assets acquired and liabilities assumed and conformed the accounting policies of each acquisition to our own accounting policies. The estimated values of the assets acquired and liabilities assumed for Sherman-Dixie, U.S. Pipe and Bio Clean presented herein are preliminary and reflect our expectations based on the information currently available. The acquisitions of Sherman-Dixie, U.S. Pipe and Bio Clean are still in their respective measurement periods as defined by ASC 805 and purchase price allocations may be subject to change upon completion of the determination of the fair values of all acquired assets and liabilities. The Sale Leaseback was accounted for under the guidance set forth in ASC 360, Property, Plant and Equipment , and ASC 840, Leases , for similar transactions.
The unaudited pro forma condensed combined financial statements do not necessarily reflect what the combined companys financial condition or results of operations would have been had the Transactions occurred on the dates indicated. They also may not be useful in predicting our future financial condition and results of operations. Our actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
2. Pro Forma Adjustments for Acquisition
The Acquisition was completed on March 13, 2015 and therefore, the fair value of the assets acquired and liabilities assumed is already reflected in our historical condensed combined balance sheet as of June 30, 2016. Lone Star acquired our business, along with the business of Forterra UK, from HeidelbergCement for aggregate cash consideration of $1.33 billion, subject to a potential earn out of up to $100.0 million that is currently the subject of dispute. The portion of the total purchase price apportioned by Lone Star to the Acquisition is $640.4 million. Lone Star funded the transactions with an equity investment of $432.3 million and third-party debt in the amount of $940.0 million. The portion of Lone Stars equity investment apportioned to the Acquisition is $167.5 million and the portion of third party debt allocated to the Acquisition is $515.5 million, inclusive of $20.5 million in debt issuance costs and $22.1 million in original issue discount. Our operating subsidiaries are guarantors of this debt, and therefore, jointly and severally liable obligors. The unaudited pro forma condensed combined financial information reflects the impact of our portion of the Acquisition on our historical operating activity for the period from January 1, 2015 through March 13, 2015, including increased debt financed interest expense and the impact on historical depreciation and amortization expense, as if the Acquisition had occurred on January 1, 2015.
65
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
Transition Services Agreement
The Company is no longer part of HC and its affiliates, but did have a Transition Services Agreement (TSA) with HC providing for corporate overhead services. Per the TSA, the services were to be provided to the Successor for a period of up to 18 months. The initial services provided primarily consisted of certain accounting, information technology, human resources, and other general and administrative services associated with the Successors transition to a stand-alone company. As of February 2016, the TSA was terminated and the Company replaced the TSA with internal costs. These internal costs are reflected in the historical financial statements, thus, no pro forma adjustments are required.
Hudson Advisors
The Company has an advisory agreement with Hudson Advisors, 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. Upon completion of the Offering, this agreement will be terminated.
We performed a valuation analysis of the fair market value of the Predecessors assets and liabilities, which has been completed as of the date of this prospectus. The following table summarizes the fair values of the assets acquired and liabilities assumed by us as of the Acquisition date:
Fair Value | ||||
Net working capital |
$ | 257,368 | ||
Property, plant and equipment |
311,191 | |||
Investment in equity method investee |
56,400 | |||
Customer backlog intangible |
4,500 | |||
Other assets and other liabilities |
(6,495 | ) | ||
|
|
|||
Net identifiable assets acquired |
$ | 622,964 | ||
Goodwill |
17,464 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 640,428 | ||
|
|
The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired.
66
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
The following adjustments have been included in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015 and the year ended December 31, 2015 covering the pro forma adjustment period from January 1, 2015 through March 13, 2015 as if the Acquisition had occurred as of January 1, 2015:
(a) | Cost of goods sold . Reflects the adjustments to eliminate the Predecessors historical depreciation expense and record depreciation expense for the assets acquired: |
Asset Category |
Fair Value
acquired |
Estimated
useful life range (in years) |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
||||||||||||
Land and land improvements |
$ | 120,591 | 4-38 | $ | 167 | $ | 167 | |||||||||
Machinery and equipment |
96,428 | 1-20 | 5,546 | 5,546 | ||||||||||||
Building and improvements |
68,496 | 1-37 | 834 | 834 | ||||||||||||
Other equipment |
1,193 | 2-36 | 32 | 32 | ||||||||||||
Construction in process |
24,483 | N/A | | | ||||||||||||
|
|
|||||||||||||||
Total property, plant and equipment, net |
$ | 311,191 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Depreciation expense for assets acquired |
$ | 6,579 | $ | 6,579 | ||||||||||||
Elimination of Predecessors historical depreciation expense |
(6,882 | ) | (6,882 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Pro forma adjustment to decrease cost of goods sold |
$ | (303 | ) | $ | (303 | ) | ||||||||||
|
|
|
|
(b) | Selling, general and administrative expenses . The net pro forma adjustments to selling, general and administrative expenses are comprised of the following items: |
Estimated
Fair Value |
Estimated
Useful Life (in Years) |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
|||||||||||||
Customer backlog |
$ | 4,500 | 0.8 | $ | 1,096 | $ | 1,096 | |||||||||
Elimination of Predecessors historical amortization expense |
(12 | ) | (12 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Pro forma adjustment to increase Selling, general and administrative expenses |
$ | 1,084 | 1,084 | |||||||||||||
|
|
|
|
The pro forma adjustments to intangible amortization expense are based on the fair value of the Predecessors identifiable intangible assets as if the Acquisition had occurred as of January 1, 2015.
(c) |
Interest expense . Reflects an adjustment for interest expense and the amortization of deferred financing costs and debt discounts on our borrowings of approximately $515.5 million, assuming the Acquisition occurred on January 1, 2015. The financing transactions included $254.9 million under the Senior Term Loan ($241.7 million net of $13.2 million of original issue discount and debt issuance costs), $260.0 million under the Junior Term Loan ($233.8 million, net of $26.2 million of original issue discount and debt issuance costs) and a $0.6 million draw on the Revolver. The terms of these financing arrangements |
67
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
are described in greater detail in the section entitled Description of Certain Indebtedness. The interest rate for both the Senior Term Loan and Junior Term Loan is set at LIBOR (with a 1% floor) plus a margin of 5.5% and 9.5%, respectively. 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. As of June 30, 2016, we had elected to use three month LIBOR with a rate of 0.63%. A hypothetical 1/8 percent change in the rates applicable to our variable rate debt would have increased interest expense by $0.2 million for the six months ended June 30, 2015 and the year ended December 31, 2015. |
Principal
Amount |
Interest
Rate |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
|||||||||||||
Senior Term Loan |
$ | 254,877 | 6.5% | $ | 3,313 | $ | 3,313 | |||||||||
Junior Term Loan |
260,000 | 10.5% | 5,460 | 5,460 | ||||||||||||
Revolver |
619 | Variable | 271 | 271 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total debt, gross |
515,496 | |||||||||||||||
Interest expense on new debt used to acquire Predecessor |
$ | 9,044 | $ | 9,044 | ||||||||||||
Amortization of new debt issuance costs and discount |
1,168 | 1,168 | ||||||||||||||
|
|
|
|
|||||||||||||
Proforma adjustment to increase Interest expense |
$ | 10,212 | $ | 10,212 | ||||||||||||
|
|
|
|
(d) | Income tax (expense) benefit . Due to our limited history and the history of pre-tax losses generated by the Predecessor, deferred tax benefits were not recorded on the pro forma adjustments. |
3. Pro Forma Adjustments for Cretex Acquisition
We acquired Cretex on October 1, 2015 for total cash consideration of approximately $245.1 million including customary working capital adjustments. The Cretex Acquisition was partially funded with new indebtedness under the Senior Term Loan totaling $240.0 million, net of $8.9 million in debt issuance costs and debt discounts.
The fair value of Cretex assets acquired and liabilities assumed is reflected in our historical condensed combined balance sheet as of June 30, 2016. The following table summarizes the fair values of the assets acquired and liabilities assumed by us in the Cretex Acquisition as of the acquisition date:
Fair Value | ||||
Net working capital |
$ | 69,745 | ||
Property, plant and equipment |
97,282 | |||
Customer relationship intangible |
24,700 | |||
Trade name |
600 | |||
Customer backlog intangible |
800 | |||
Other assets and other liabilities |
(7,500 | ) | ||
|
|
|||
Net identifiable assets acquired |
185,627 | |||
Goodwill |
59,473 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 245,100 | ||
|
|
68
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired.
The following adjustments have been included in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015 and the year ended December 31, 2015 covering the pro forma adjustment period from January 1, 2015 through September 30, 2015 as if the Cretex Acquisition had occurred as of January 1, 2015:
(a) | The Cretex Acquisition was completed on October 1, 2015 and the pro forma adjustments reflect the inclusion of Cretexs historical results of operations as if Cretex had been acquired on January 1, 2015. The pro forma adjustments reflect: |
Six months ended June 30, 2015:
(i) | an increase in net sales of $75.0 million and the related increase in cost of goods sold of $64.0 million; |
(ii) | an increase in selling, general and administrative expenses of $6.8 million; and |
(iii) | an increase in other income of $0.1 million. |
Year ended December 31, 2015:
(i) | an increase in net sales of $149.3 million and the related increase in cost of goods sold of $122.0 million; |
(ii) | an increase in selling, general and administrative expenses of $11.7 million; and |
(iii) | an increase in other income of $0.2 million. |
(b) | Cost of goods sold . Reflects the adjustments to eliminate Cretexs historical depreciation expense and to record depreciation expense based on the fair value of the assets acquired in the Cretex Acquisition: |
Asset Category |
Fair Value
acquired |
Estimated
useful life range (in years) |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
||||||||||||
Land and land improvements |
$ | 31,084 | 4-15 | $ | 256 | $ | 387 | |||||||||
Machinery and equipment |
46,053 | 1-24 | 4,086 | 6,144 | ||||||||||||
Building and improvements |
17,832 | 9-45 | 353 | 530 | ||||||||||||
Other equipment |
852 | 2-7 | 133 | 203 | ||||||||||||
Construction in process |
1,461 | N/A | | | ||||||||||||
|
|
|||||||||||||||
Total property, plant and equipment, net |
$ | 97,282 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Depreciation expense for assets acquired |
$ | 4,828 | $ | 7,264 | ||||||||||||
Elimination of Cretexs historical depreciation expense |
(3,348 | ) | (5,001 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Pro forma adjustment to decrease cost of goods sold |
$ | 1,480 | $ | 2,263 | ||||||||||||
|
|
|
|
69
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
(c) | Selling, general and administrative expenses . Reflects the adjustments to eliminate Cretexs historical amortization expense and to record amortization expense based on the fair value of Cretexs identifiable intangible assets as if the Cretex Acquisition had occurred as of January 1, 2015: |
Estimated
Fair Value |
Estimated
Useful Life (in Years) |
Year ended
June 30, 2015 |
Year ended
December 31, 2015 |
|||||||||||||
Customer relationships |
$ | 24,700 | 10 | $ | 2,553 | $ | 4,740 | |||||||||
Customer backlog |
800 | 1.3 | 598 | 800 | ||||||||||||
Trade name |
600 | 1.5 | 330 | 575 | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 26,100 | $ | 3,481 | $ | 6,115 | |||||||||||
|
|
|
|
|||||||||||||
Elimination of Cretexs historical amortization expense |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Pro forma adjustment to increase Selling, general and administrative expenses |
$ | 3,481 | $ | 6,115 | ||||||||||||
|
|
|
|
(d) | Interest expense . Reflects an adjustment for interest expense and the amortization of deferred financing costs and debt discounts related to the incremental $240.0 million borrowing under the Senior Term Loan, assuming the incremental borrowing occurred on January 1, 2015. The interest rate for the add-on to the Senior Term Loan is set at LIBOR (with a 1% floor) plus a margin of 5.5%. As with the original issuance, 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. A hypothetical 1/8 percent change in the rates applicable to our variable rate debt would not have a material impact on our unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015 and the year ended December 31, 2015. |
Principal
Amount |
Interest
Rate |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
|||||||||||||
Interest expense on new debt used to acquire Cretex |
$ | 240,000 | 6.5 | % | $ | 7,800 | $ | 11,700 | ||||||||
Amortization of new debt issuance costs and discount |
680 | 1,020 | ||||||||||||||
Elimination of historical interest expense |
(599 | ) | (1,029 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Proforma adjustment to increase Interest expense |
$ | 7,881 | $ | 11,691 | ||||||||||||
|
|
|
|
(e) | Income tax (expense) benefit . Due to our limited history and the history of pre-tax losses generated by the Predecessor, deferred tax benefits were not recorded on the pro forma adjustments. |
70
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
4. Pro Forma Adjustments for Sherman-Dixie Acquisition
On January 29, 2016, we acquired Sherman-Dixie for cash consideration of $66.8 million. The Sherman-Dixie Acquisition was fully financed through a draw on the Revolver.
We have performed a preliminary valuation analysis of the fair market value of Sherman-Dixies assets and liabilities and the preliminary fair value of these assets acquired and liabilities assumed are reflected in our historical condensed combined balance sheet as of June 30, 2016. The following table summarizes the preliminary allocation of the purchase price as of the date of the Sherman-Dixie Acquisition:
Fair Value | ||||
Net working capital |
$ | 14,293 | ||
Property, plant and equipment |
29,163 | |||
Customer relationships intangible |
5,100 | |||
Non-compete agreement intangible |
2,500 | |||
Other identifiable intangibles |
900 | |||
Deferred tax liabilities |
(11,189 | ) | ||
|
|
|||
Net identifiable assets acquired |
40,767 | |||
Goodwill |
25,984 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 66,751 | ||
|
|
These preliminary purchase price allocations have been used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial statements. The final purchase price allocations will be determined when we have completed the detailed valuations and necessary calculations. The final allocation could differ materially from the preliminary allocation used in these pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, non-compete agreements and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
The following adjustments have been included in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015, the year ended December 31, 2015, and the six months ended June 30, 2016 covering the applicable pro forma adjustment period for the year ended December 31, 2015 and the period from January 1 through January 29, 2016 as if the Sherman-Dixie Acquisition had occurred as of January 1, 2015:
(a) | The Sherman-Dixie Acquisition closed on January 29, 2016 and the pro forma adjustments reflect the inclusion of Sherman-Dixies historical results of operations as if Sherman-Dixie had been acquired on January 1, 2015. The pro forma adjustments reflect: |
Six months ended June 30, 2016:
(i) | an increase in net sales of $2.9 million and the related increase in cost of goods sold of $2.5 million; and |
(ii) | an increase in selling, general and administrative expenses of $0.8 million. |
Six months ended June 30, 2015:
(i) | an increase in net sales of $24.0 million and the related increase in cost of goods sold of $20.3 million; and |
(ii) | an increase in selling, general and administrative expenses of $3.6 million. |
71
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
Year ended December 31, 2015:
(i) | an increase in net sales of $53.9 million and the related increase in cost of goods sold of $44.1 million; |
(ii) | an increase in selling, general and administrative expenses of $11.0 million; and |
(iii) | an increase in other income of $0.1 million. |
(b) | Cost of goods sold. Reflects the adjustments to eliminate Sherman-Dixies historical depreciation expense and record depreciation expense based on the preliminary fair value of the assets acquired in the Sherman-Dixie acquisition: |
Asset Category |
Fair Value
acquired |
Estimated
useful life range (in years) |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
Six months
ended June 30, 2016 |
|||||||||||||||
Land and land improvements |
$ | 3,824 | 0-22 | $ | 12 | $ | 25 | $ | 2 | |||||||||||
Machinery and equipment |
22,841 | 1-20 | 1,858 | 3,745 | 316 | |||||||||||||||
Building and improvements |
2,060 | 2-23 | 186 | 372 | 31 | |||||||||||||||
Other equipment |
347 | 2-7 | 75 | 146 | 13 | |||||||||||||||
Construction in process |
91 | N/A | | | | |||||||||||||||
|
|
|||||||||||||||||||
Total property, plant and equipment, net |
$ | 29,163 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Depreciation expense for assets acquired |
$ | 2,131 | $ | 4,288 | $ | 362 | ||||||||||||||
Elimination of Sherman-Dixies historical depreciation expense |
|
(1,736 | ) | (3,478 | ) | (271 | ) | |||||||||||||
|
|
|
|
|
|
|||||||||||||||
Pro forma adjustment to decrease cost of goods sold |
|
$ | 395 | $ | 810 | $ | 91 | |||||||||||||
|
|
|
|
|
|
(c) | Selling, general and administrative expenses . Reflects the adjustment to eliminate Sherman-Dixies historical intangible amortization expense and to record intangible amortization of the acquired intangible assets based on their preliminary fair value. The preliminary fair value of identifiable intangible assets was determined primarily using the income approach, which requires a forecast of all of the expected future cash flows. Customer relationships, customer backlog and brand names are amortized over a 10 year, 0.5 year and 0.5 year period, respectively, using the accelerated method that reflects the expected future cash flows. Acquired non-compete agreement assets are amortized on a straight-line basis over the estimated useful lives of 5 years. |
72
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
The following table summarizes the pro forma adjustments to amortization expense based on the preliminary fair value of Sherman-Dixies identifiable intangible assets as if the Sherman-Dixie Acquisition occurred as of January 1, 2015 (in thousands):
Estimated
Fair Value |
Estimated
Useful Life (in years) |
Six
Months ended June 30, 2015 |
Year ended
December 31, 2015 |
Six
Months ended June 30, 2016 |
||||||||||||||||
Customer relationships |
$ | 5,100 | 10 | $ | 505 | $ | 1,010 | $ | 78 | |||||||||||
Non-competes |
2,500 | 5 | 250 | 500 | 42 | |||||||||||||||
Other intangibles |
900 | 0.5 | 900 | 900 | 0 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 8,500 | $ | 1,655 | $ | 2,410 | $ | 120 | |||||||||||||
Elimination of historical amortization expense |
|
(2 | ) | (2 | ) | | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Pro forma adjustment to increase selling, general and administrative expenses |
|
$ | 1,653 | $ | 2,408 | $ | 120 | |||||||||||||
|
|
|
|
|
|
These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts we will calculate after completing a detailed valuation analysis for Sherman-Dixie, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill and annual amortization expense of approximately $0.2 million, assuming an overall weighted-average useful life of 7.5 years.
(d) | Interest expense . Reflects the pro forma increase to interest expense from an additional draw of $80.0 million on the Revolver to fund the Sherman-Dixie Acquisition, as if the draw had occurred on January 1, 2015. Interest is floating, based on a reference rate plus an applicable margin. The weighted average annual interest rate on the Revolver was 2.03% for the six months ended June 30, 2016. A hypothetical 1/8 percent change in the rates applicable to our variable rate debt would not have a material impact on our unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2016 and 2015 and the year ended December 31, 2015. |
Principal
Amount |
Weighted
avg rate |
Six
Months Ended June 30, 2015 |
Year ended
December 31, 2015 |
Six
Months Ended June 30, 2016 |
||||||||||||||||
Interest expense on draw on Revolver |
$ | 80,000 | 2.03 | % | $ | 776 | $ | 1,552 | $ | 125 | ||||||||||
Elimination of historical interest expense |
(218 | ) | (450 | ) | (161 | ) | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Proforma adjustment to increase Interest expense |
$ | 558 | $ | 1,102 | (36 | ) | ||||||||||||||
|
|
|
|
|
|
(e) | Income tax (expense) benefit . Due to our limited history and the history of pre-tax losses generated by the Predecessor, deferred tax benefits were not recorded on the pro forma adjustments. The $0.9 million pro forma adjustment for the year ended December 31, 2015 reflects an acquired state tax benefit. |
73
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
5. Pro Forma Adjustments for U.S. Pipe Acquisition
We completed the acquisition of U.S. Pipe for consideration of approximately $775.1 million, subject to customary working capital adjustments. The U.S. Pipe Acquisition was funded, in part, with a draw of $205.0 million on the Revolver, of which $203.4 million was repaid during April 2016 by an affiliate in connection with the initial public offering of Forterra UK as described in greater detail in the section entitled Our HistoryRecent Transactions. The $203.4 million repayment of the Revolver by an affiliate resulted in an increase of the same amount to our allocated share of the Senior Term Loan balance. A portion of the U.S. Pipe Acquisition was financed by using $171.5 million in proceeds generated from the Sale Leaseback, and the remainder of the U.S. Pipe Acquisition was funded with a cash contribution from Lone Star. All outstanding stock options of U.S. Pipe were settled by U.S. Pipe with proceeds from the U.S. Pipe Acquisition and were not assumed by the Company. No pro forma adjustment for the historical periods have been made to reflect these options.
We have performed a preliminary valuation analysis of the fair market value of U.S. Pipes assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as of the date of the U.S. Pipe Acquisition:
Fair Value | ||||
Net working capital |
$ | 149,683 | ||
Property, plant and equipment, net |
246,241 | |||
Customer relationship intangible |
179,491 | |||
Trade name intangible |
37,388 | |||
Patent intangible |
13,093 | |||
Other intangibles |
7,659 | |||
Long term liabilities |
(10,613 | ) | ||
Deferred tax liabilities |
(160,906 | ) | ||
|
|
|||
Net identifiable assets acquired |
462,036 | |||
Goodwill |
313,074 | |||
|
|
|||
Cash consideration transferred |
$ | 775,110 | ||
|
|
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial statements. The final purchase price allocation will be determined when we have completed the detailed valuations and necessary purchase price adjustment calculations. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, non-compete agreements and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
74
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been included in the unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2015, the year ended December 31, 2015, and the six months ended June 30, 2016 as if the U.S. Pipe Acquisition had occurred as of January 1, 2015:
(a) | The U.S. Pipe Acquisition was completed on April 15, 2016 and the pro forma adjustments reflect the inclusion of U.S. Pipes historical results of operations as if U.S. Pipe had been acquired on January 1, 2015. The pro forma adjustments reflect: |
Six months ended June 30, 2016:
(i) | an increase in net sales of $173.4 million and the related increase in cost of goods sold of $146.1 million; and |
(ii) | an increase in selling, general and administrative expenses of $11.3 million; |
(iii) | an increase in other income of $0.1 million; and |
(iv) | an increase in income tax expense of $3.7 million. |
Six months ended June 30, 2015:
(i) | an increase in net sales of $282.9 million and the related increase in cost of goods sold of $238.2 million; |
(ii) | an increase in selling, general and administrative expenses of $27.5 million; |
(iii) | an increase in other operating income of $1.5 million; |
(iv) | an increase in other income of $0.2 million; and |
(v) | an increase in income tax expense of $6.7 million. |
Year ended December 31, 2015:
(i) | an increase in net sales of $618.1 million and the related increase in cost of goods sold of $516.6 million; |
(ii) | an increase in selling, general and administrative expenses of $47.6 million; |
(iii) | an increase in other operating income of $3.6 million; |
(iv) | an increase in other income of $1.2 million; and |
(v) | an increase in income tax expense of $13.4 million. |
75
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
(b) | Property, plant and equipment and related depreciation adjustment. Reflects the estimated adjustment of $93.6 million to increase the basis in the acquired property, plant and equipment to an estimated fair value of $246.2 million. The estimated useful lives range from 2 to 35 years for buildings, 2 to 25 years for machinery and equipment, 2 to 10 years for other equipment and lower of lease term or useful life on leasehold improvements. The fair value and useful life calculations are preliminary and subject to change for U.S. Pipe after we finalize our review of the specific types, nature, age, condition and location of U.S. Pipes property, plant and equipment. The following table summarizes the changes in the estimated depreciation expense for each of the applicable periods presented as if the transaction occurred on January 1, 2015: |
Asset Category |
Fair Value
acquired |
Estimated
useful life range (in years) |
Six months
ended June 30, 2015 |
Year ended
December 31, 2015 |
Six months
ended June 30, 2016 |
|||||||||||||||
Land and land improvements |
$ | 68,438 | 0-5 | $ | 234 | $ | 466 | $ | 136 | |||||||||||
Machinery and equipment |
134,990 | 1-25 | 12,178 | 24,572 | 7,147 | |||||||||||||||
Building and improvements |
29,949 | 2-35 | 1114 | 2328 | 734 | |||||||||||||||
Other equipment |
2,805 | 2-10 | 307 | 680 | 232 | |||||||||||||||
Construction in process |
10,059 | N/A | | | | |||||||||||||||
|
|
|||||||||||||||||||
Total property, plant and equipment, net |
$ | 246,241 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Depreciation expense for assets acquired |
$ | 13,833 | $ | 28,046 | $ | 8,249 | ||||||||||||||
Elimination of U.S. Pipes historical depreciation expense |
(17,140 | ) | (34,839 | ) | (10,258 | ) | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Pro forma adjustment to decrease cost of goods sold |
$ | (3,307 | ) | $ | (6,793 | ) | $ | (2,009 | ) | |||||||||||
|
|
|
|
|
|
(c) | Other intangible assets, goodwill and related amortization adjustment; selling, general and administrative expenses. The preliminary fair value of identifiable intangible assets was determined primarily using the income approach, which requires a forecast of all of the expected future cash flows. Since all information required to perform a detailed valuation analysis of U.S. Pipes assets could not be obtained as of the date of this prospectus, for purposes of these unaudited pro forma condensed combined financial statements, we used certain assumptions based on publicly available transaction data for the industry. Customer relationships, customer backlog, patents and brand names are amortized over the estimated useful lives shown in the table below, using the accelerated method that reflects the expected future cash flows. Acquired non-compete agreement assets are amortized on a straight-line basis over the estimated useful lives of 5 years. |
76
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
The following table summarizes the preliminary estimated fair values of U.S. Pipes identifiable intangible assets, their estimated useful lives and the related amortization changes as if the assets had been acquired as of January 1, 2015:
Estimated
Fair Value |
Estimated
Useful Life (in years) |
Six
Months ended June 30, 2015 |
Year ended
December 31, 2015 |
Six
Months ended June 30, 2016 |
||||||||||||||||
Customer relationships |
$ | 179,000 | 10 | $ | 9,743 | $ | 24,080 | $ | 7,768 | |||||||||||
Customer backlog |
3,900 | 1 | 1,818 | 3,900 | | |||||||||||||||
Non-competes |
3,800 | 5 | 380 | 760 | 221 | |||||||||||||||
Patents |
13,000 | 10 | 1,191 | 2,605 | 687 | |||||||||||||||
Brand names |
37,000 | 10 | 2,595 | 5,677 | 1,497 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
$ | 236,700 | $ | 15,727 | $ | 37,022 | $ | 10,173 | |||||||||||||
Elimination of historical amortization expense |
|
(82 | ) | (562 | ) | (898 | ) | |||||||||||||
|
|
|
|
|
|
|||||||||||||||
Pro forma adjustment to increase selling, general and administrative expenses |
|
$ | 15,645 | $ | 36,460 | $ | 9,275 | |||||||||||||
|
|
|
|
|
|
These preliminary estimates of fair value and estimated useful lives will likely differ from final amounts we will calculate after completing a detailed valuation analysis for U.S. Pipe, and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill and annual amortization expense of approximately $3.7 million, assuming an overall weighted-average useful life of 9.8 years.
(d) | Debt related adjustments . The following table summarizes the pro forma decrease to interest expense resulting from the extinguishment of U.S. Pipes historical debt obligations and the added obligation under the Senior Term loan to partially fund the U.S. Pipe Acquisition, as if the extinguishment had been made and the increased debt obligation had existed on January 1, 2015: |
Principal
Amount |
Interest
Rate |
Six Months
Ended June 30, 2015 |
Year ended
December 31, 2015 |
Six Months
Ended June 30, 2016 |
||||||||||||||||
Interest expense on additional Senior Term Loan |
$ | 203,400 | 6.5 | % | $ | 6,610 | $ | 13,221 | $ | 3,856 | ||||||||||
Elimination of amortization of debt issuance costs |
(527 | ) | (1,064 | ) | (383 | ) | ||||||||||||||
Elimination of historical interest expense |
(10,007 | ) | (19,111 | ) | (6,212 | ) | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Pro forma adjustment to decrease Interest expense |
$ | (3,924 | ) | $ | (6,954 | ) | $ | (2,739 | ) | |||||||||||
|
|
|
|
|
|
(e) | Income tax (expense) benefit . Due to our limited history and the history of pre-tax losses generated by the Predecessor, deferred tax benefits were not recorded on the pro forma adjustments. |
77
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
(f) | Pro forma effect of U.S. Pipe acquisition of Custom Fab . U.S. Pipe purchased the Custom Fab business in August 2015. This adjusts net sales, cost of goods sold, selling, general & administrative expenses and other income (expense) as if U.S. Pipe had purchased Custom Fab on January 1, 2015. The adjustments for each period are as follows: |
Six Months
ended 2015 |
Year ended
December 31, 2015 |
Six Months
Ended June 30, 2016 |
||||||||||
Net sales |
$ | 33,633 | $ | 55,882 | $ | | ||||||
Cost of goods sold |
28,110 | 47,382 | | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
5,523 | 8,500 | | |||||||||
Selling, general and administrative expenses |
(3,153 | ) | (5,329 | ) | | |||||||
|
|
|
|
|
|
|||||||
Income from operations |
2,370 | 3,171 | | |||||||||
Other expense |
(21 | ) | 44 | | ||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations before taxes |
2,349 | 3,215 | | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 2,349 | $ | 3,215 | $ | | ||||||
|
|
|
|
|
|
6. Pro Forma Adjustments for Bio Clean Acquisition
We completed the Bio Clean acquisition for $30.0 million in cash, subject to customary working capital adjustments.
We performed a preliminary valuation analysis of the fair market value of Bio Cleans assets and liabilities. The following table summarizes the preliminary allocation of the purchase price as of the date of the Bio Clean Acquisition:
Fair Value | ||||
Net working capital |
$ | 2,495 | ||
Property, plant and equipment |
169 | |||
Other long term assets |
91 | |||
|
|
|||
Net identifiable assets acquired |
2,755 | |||
Goodwill |
27,245 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 30,000 | ||
|
|
(a) | The Bio Clean Acquisition closed on August 4, 2016 and the pro forma adjustments reflect the inclusion of Bio Cleans historical results of operations as if Bio Clean had been acquired on January 1, 2015. The pro forma adjustments reflect: |
Six months ended June 30, 2016:
(i) | an increase in net sales of $8.8 million and the related increase in cost of goods sold of $4.8 million; and |
(ii) | an increase in selling, general and administrative expenses of $2.1 million. |
78
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
Six months ended June 30, 2015:
(i) | an increase in net sales of $5.3 million and the related increase in cost of goods sold of $2.8 million; and |
(ii) | an increase in selling, general and administrative expenses of $1.4 million. |
Year ended December 31, 2015:
(i) | an increase in net sales of $13.4 million and the related increase in cost of goods sold of $6.4 million; and |
(ii) | an increase in selling, general and administrative expenses of $4.3 million. |
b) | The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following historical results and adjustments have been included in the unaudited pro forma condensed combined balance sheet as if the Bio Clean Acquisition had occurred as of June 30, 2016: |
i) | a decrease to Cash and cash equivalents to reflect $30.0 million of cash proceeds used to fund the Bio Clean Acquisition; |
ii) | an increase in Receivables, net of $3.9 million; |
iii) | an increase in Property, plant and equipment, net of $0.1 million; |
iv) | an increase to Goodwill of $27.3 million based on the consideration transferred, net of cash acquired and net identifiable assets acquired; |
v) | an increase in Trade payables of $1.3 million; and |
vi) | an increase in Accrued liabilities of $0.1 million; |
7. Pro Forma Adjustments for Sale Leaseback
In April 2016, we sold and simultaneously leased back 49 properties in the United States and Eastern Canada in a transaction with two unrelated third parties, Pipe Portfolio Owner (Multi) LP, or the U.S. Property Buyer, and FORT-BEN Holdings (ONQC) LTD., or the Canadian Property Buyer, for an aggregate consideration of $216.2 million. We entered into master land and building agreements with the U.S. Property Buyer and the Canadian Property Buyer pursuant to which we agreed to lease back each of the properties for an initial 20 year term. We have options to extend each master lease for an additional nine years and 11 months. The terms of the Sale Leaseback are described in greater detail in the section entitled Description of Certain IndebtednessSale Leaseback.
The Sale Leaseback was assessed under ASC 360 and ASC 840 to determine the proper accounting treatment and classification of the leases. At lease inception, we (as the seller-lessee) are considered to have a form of prohibited continuing involvement with the properties because we provide the U.S. Property Buyer and the Canadian Property Buyer (each as the buyer-lessor) with a guarantee that serves as additional collateral that reduces the buyer-lessors risk of loss. As a result, we are precluded from applying sale-leaseback accounting to the Sale Leaseback and the assets subject to the Sale Leaseback remain on the balance sheet and continue to be depreciated over their remaining useful lives as a failed sale-leaseback.
The aggregate net proceeds of $209.7 million, after payment of transaction costs, is recorded as a receipt of cash and corresponding financing obligation liability on the unaudited pro forma condensed
79
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
combined balance sheet. We do not report rent expense for the properties which are owned for accounting purposes. Rather, payments under the master land and building agreements are recognized as a reduction of the financing obligation and as interest expense. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2016 and June 30, 2015 and the year ended December 31, 2015 include pro forma adjustments which give effect to increased interest expense of $4.5 million, $8.5 million and $17.0 million, respectively, related to the financing obligation as if the Sale Leaseback had occurred on January 1, 2015. For greater detail, see section entitled Description of Certain Indebtedness-Sale Leaseback.
8. Pro Forma Adjustments for Debt Recapitalization
On June 17, 2016, an incremental $345 million was borrowed on the Senior Term Loan (guaranteed by our operating subsidiaries) and used the proceeds to pay a dividend of $338 million to its shareholders (recorded as a return of contributed capital). Concrete Holdings incurred debt issuance fees and discount of $3.2 million and $3.5 million, respectively, in connection with the issuance of the debt. The incremental borrowing incurs interest at the same rate as the Senior Term Loan and matures in March 2022.
The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2016 and June 30, 2015 and the year ended December 31, 2015 include pro forma adjustments which give effect to increased interest expense as if the Debt Recapitalization had occurred on January 1, 2015.
As with the original issuance, the interest rate for the new debt under the Senior Term loan is set at LIBOR (with a 1% floor) plus a margin of 5.5%. 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. A hypothetical 1/8 percent change in the rates applicable to our variable rate debt would have increased interest expense by $0.1 million for the six months ended June 30, 2016 and June 30, 2015 and would have increased interest expense by $0.4 million for the year ended December 31, 2015.
Principal
Amount |
Interest
Rate |
Six Months
Ended June 30, 2015 |
Year ended
December 31, 2015 |
Six Months
Ended June 30, 2016 |
||||||||||||||||
Senior Term loan |
$ | 345,000 | 6.5 | % | $ | 11,212 | $ | 22,425 | $ | 10,278 | ||||||||||
Amortization of new debt issuance costs and discount |
466 | 931 | 427 | |||||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Proforma adjustment to increase Interest expense |
$ | 11,678 | $ | 23,356 | $ | 10,705 | ||||||||||||||
|
|
|
|
|
|
Adjustment to weighted average shares outstanding
A dividend declared in the latest year is deemed to be in contemplation of this offering with the intention of repayment out of the offering proceeds to the extent the dividend exceeded earnings during the previous twelve months. As a portion of the proceeds of the offering are used to reduce debt (see pro forma note 9), the entire million shares for the offering have already been included in the pro forma weighted average shares outstanding as of January 1, 2015. As such, no additional adjustment to the weighted average shares need be made in connection with the dividend. Additionally, there are no restricted shares, options, or other anti-dilutive securities outstanding.
80
Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
9. Pro Forma Adjustments for Offering
The Pro Forma Combined amounts do not currently reflect the receipt of or any anticipated application of proceeds from this offering. Upon completion of this offering, we will issue and sell shares of common stock and receive net proceeds, after deducting estimated offering expenses payable by us and underwriting discounts and commissions of approximately $ million, assuming an initial offering price of $ per share (the mid-point of the price range set forth on the cover page of this prospectus) in connection therewith and the use of proceeds as described in greater detail in the section entitled Use of Proceeds. We intend to use $ million of the net proceeds received by us from this offering to repay outstanding indebtedness which, for the six months ended June 30, 2016 and June 30, 2015 and the year ended December 31, 2015 would result in pro forma adjustments to eliminate interest expense of $ , $ and $ , respectively. We intend to use the remaining net proceeds for working capital and for general corporate purposes. For more detail, see Use of Proceeds.
As described in greater detail in the section entitled Certain Relationships and Related-Party Transactions Tax Receivable Agreement, in connection with this offering, we will enter into a tax receivable agreement with Lone Star that will provide for the payment by us to Lone Star of 85% of the amount of Covered Tax Benefits, which may reduce the actual liability for certain taxes that we might otherwise be required to pay. The anticipated payments under the tax receivable agreement that are related to the Covered Tax Benefits have been reflected in the pro forma adjustments.
For purposes of the tax receivable agreement, the aggregate reduction in income tax payable by us will be computed by comparing our actual income tax liability with our hypothetical liability had we not been able to utilize the Covered Tax Benefits. The agreement will become effective upon completion of this offering and will remain in effect until all such Covered Tax Benefits remain.
(a) | Reflects the impact of the tax receivable agreement, as described in the section entitled Certain Relationships and Related-Party Transactions Tax Receivable Agreement, which results in an increase of $ million in liability to Lone Star and $ million in additional paid-in capital to reflect the distribution to Lone Star. |
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Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
10. Unaudited Pro Forma Condensed Combined Segment Results
The following tables provide the pro forma combined operating results by segment for each period presented (in thousands):
For the Six Months Ended June 30, 2016
Water Pipe
& Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net sales |
$ | 403,059 | $ | 348,281 | $ | 71,424 | $ | 2,528 | $ | 825,292 | ||||||||||
Cost of goods sold |
332,519 | 265,242 | 59,432 | 3,627 | 660,820 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
$ | 70,540 | $ | 83,039 | $ | 11,992 | $ | (1,099 | ) | $ | 164,472 | |||||||||
Selling, general & administrative expenses and other |
(41,677 | ) | (26,133 | ) | (8,716 | ) | (38,341 | ) | (114,867 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations |
$ | 28,863 | $ | 56,906 | $ | 3,276 | $ | (39,440 | ) | $ | 49,605 | |||||||||
Other income (expenses) |
||||||||||||||||||||
Interest expense |
(1,619 | ) | (6,941 | ) | | (46,018 | ) | (54,578 | ) | |||||||||||
Other income (expenses), net |
49 | (46 | ) | | (1,078 | ) | (1,075 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes |
27,293 | 49,919 | 3,276 | (86,536 | ) | (6,048 | ) | |||||||||||||
Income tax (expense) benefit |
(5,319 | ) | 38,814 | (688 | ) | | 32,807 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 21,974 | $ | 88,733 | $ | 2,588 | $ | (86,536 | ) | $ | 26,759 | |||||||||
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2015
Water Pipe
& Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net sales |
$ | 408,907 | $ | 324,617 | $ | 65,535 | $ | 5,676 | $ | 804,735 | ||||||||||
Cost of goods sold |
347,925 | 278,524 | 66,119 | 5,301 | 697,869 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
$ | 60,982 | $ | 46,093 | $ | (584 | ) | $ | 375 | $ | 106,866 | |||||||||
Selling, general & administrative expenses and other |
(52,671 | ) | (24,221 | ) | (7,027 | ) | (40,416 | ) | (124,335 | ) | ||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations |
$ | 8,311 | $ | 21,872 | $ | (7,611 | ) | $ | (40,041 | ) | $ | (17,469 | ) | |||||||
Other income (expenses) |
||||||||||||||||||||
Interest expense |
(1,597 | ) | (6,870 | ) | | (42,057 | ) | (50,524 | ) | |||||||||||
Other income (expenses), net |
(185 | ) | (24 | ) | | (37 | ) | (246 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes |
6,529 | 14,978 | (7,611 | ) | (82,135 | ) | (68,239 | ) | ||||||||||||
Income tax (expense) benefit |
(7,536 | ) | (24 | ) | | | (7,560 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | (1,007 | ) | $ | 14,954 | $ | (7,611 | ) | $ | (82,135 | ) | $ | (75,799 | ) | ||||||
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|
|
|
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|
|
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Forterra, Inc.
Notes To Unaudited Pro Forma Condensed Combined Financial Information
(USD in thousands, unless stated otherwise)
For the Year Ended December 31, 2015
Water Pipe
& Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net sales |
$ | 871,882 | $ | 727,685 | $ | 138,310 | $ | 8,029 | $ | 1,745,906 | ||||||||||
Cost of goods sold |
731,550 | 602,738 | 132,099 | 10,366 | 1,476,753 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
$ | 140,332 | $ | 124,947 | $ | 6,211 | $ | (2,337 | ) | $ | 269,153 | |||||||||
Selling, general & administrative expenses and other |
(106,622 | ) | (62,281 | ) | (18,246 | ) | (83,245 | ) | (270,394 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations |
$ | 33,710 | $ | 62,666 | $ | (12,035 | ) | $ | (85,582 | ) | $ | (1,241 | ) | |||||||
Other income (expenses) |
||||||||||||||||||||
Interest expense |
(3,193 | ) | (13,775 | ) | | (85,445 | ) | (102,413 | ) | |||||||||||
Other income (expenses), net |
2,397 | 194 | | (1,400 | ) | 1,191 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes |
32,914 | 49,085 | (12,035 | ) | (172,427 | ) | (102,463 | ) | ||||||||||||
Income tax (expense) benefit |
(16,357 | ) | (480 | ) | 1,826 | (2,507 | ) | (17,518 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ | 16,557 | $ | 48,605 | $ | (10,209 | ) | $ | (174,934 | ) | $ | (119,981 | ) | |||||||
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83
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our audited and unaudited combined Predecessor and Successor financial statements and the related notes, and our unaudited pro forma combined financial information and the related notes, each included elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See the section entitled Forward-Looking Statements for a discussion of the risks, uncertainties and assumptions associated with those statements. Our actual results may differ materially from those discussed herein as a result of various factors, including, but not limited to, those factors discussed in the section entitled Risk Factors and in other sections of this prospectus.
Overview
Our Company
We are a leading manufacturer of pipe and precast products by sales volume in the United States and Eastern Canada for a variety of water-related infrastructure applications, including water transmission, distribution and drainage. We provide critical infrastructure components for a broad spectrum of construction projects across residential, non-residential and infrastructure markets. Our extensive suite of end-to-end products covers the First Mile to the Last Mile of the water infrastructure grid, ranging from large diameter pipe that transports water to and from treatment centers and manages drainage along major transportation corridors, to smaller diameter pipe that delivers potable water to, and removes wastewater from, end users in residential and commercial settings. We employ a specialized technical salesforce, including engineers and field service representatives, which enables us to deliver a high degree of customer service, create tailored solutions and ensure our products meet project specifications to maximize applications in the field. We believe that our product breadth, footprint in the United States and Eastern Canada and significant scale help make us a one-stop shop for water-related pipe and products, and a preferred supplier to a wide variety of customers, including contractors, distributors and municipalities.
Our Segments
Our operations are organized into the following reportable segments, which is the way
management views the business in making operating decisions and assessing performance:
| Drainage Pipe & ProductsWe are a producer of concrete drainage pipe and precast products in the United States and Eastern Canada. Recently, we acquired concrete pipe and precast and related product manufacturers Cretex and Sherman-Dixie. |
| Water Pipe & ProductsWe are a producer of DIP and concrete and steel pressure pipe. |
| BricksWe are a manufacturer of bricks in the United States and Eastern Canada. We operate manufacturing facilities, strategically located near major Census MSAs and raw material reserves. |
| Corporate and OtherConsists of corporate overhead locations in the United States and our roof tile operations, which were sold in April 2016. |
Basis of Presentation
Predecessor and Successor Historical Results of Operations
Forterra, Inc. is wholly owned by LSF9 Stardust Holdings, L.P., an affiliate of Lone Star, or Stardust Holdings. Lone Star, through a wholly owned subsidiary, acquired our business in the
84
Acquisition, along with the business of Forterra UK, on March 13, 2015 for aggregate cash consideration of $1.33 billion, subject to a $100.0 million earn out that is currently subject to dispute, as discussed in greater detail in the section entitled BusinessLegal Proceedings. Prior to the Acquisition, we were HeidelbergCements building products operations in the United States and Eastern Canada. Concrete Holdings, which was formed on February 6, 2015 for the purpose of consummating the Acquisition, had no operations prior to the date of Acquisition. Forterra, Inc., which was formed on June 21, 2016 for purposes of the Reorganization, will not have any operations prior to the date of the Reorganization. See the sections entitled Prospectus SummaryOur HistoryThe Acquisition and Prospectus SummaryOur HistoryThe Reorganization. In the accompanying financial information, Predecessor refers to our business prior to the Acquisition and Successor refers to our business following the Acquisition. The historical combined Predecessor financial statements were prepared on a stand-alone basis in accordance with GAAP and were derived from HeidelbergCements consolidated financial statements and accounting records using the historical results of operations and assets and liabilities attributed to our business and include allocations of expenses from HeidelbergCement.
The historical combined Predecessor statements of operations include expense allocations for certain corporate functions historically provided by HeidelbergCement. Substantially all of the Predecessors senior management was employed by HeidelbergCement and certain functions critical to our operations were centralized and managed by HeidelbergCement. Historically, the centralized functions included executive senior management, financial reporting, financial planning and analysis, accounting, information technology, tax, risk management, treasury, legal, human resources, land management and strategy and development.
HeidelbergCement used a centralized approach to cash management and financing of its operations. Historically, the majority of the Predecessors cash was transferred to HeidelbergCement or its North American affiliates daily and our company was dependent on HeidelbergCements funding of our operating and investing activities. This arrangement was not reflective of the manner in which we would have been able to finance our operations had we been a stand-alone business separate from HeidelbergCement.
The historical combined Predecessor financial statements included elsewhere in this prospectus and the other historical combined Predecessor financial information presented and discussed in this discussion and analysis may not be indicative of what they would actually have been had we been a separate stand-alone entity, nor are they indicative of what our financial position, results of operations and cash flows may be in the future.
See notes 1, 2 and 15 to our audited combined financial statements included elsewhere in this prospectus.
Pro Forma Six Months Ended June 30, 2016 and 2015 Results of Operations
As a result of our recent acquisitions resulting in significant expansion of our business in both size and scale following the Acquisition, our audited and unaudited combined financial statements and the related notes included elsewhere in this prospectus do not present our full business as it currently stands. In particular, the impact of the U.S. Pipe Acquisition, which was completed in April 2016, is not reflected in any of our audited combined financial statements and related notes, and is included for only a portion of the results for the six month period ended June 30, 2016 in the unaudited combined financial statements and the related notes included elsewhere in this prospectus. Therefore, management believes it is important to include, in addition to the narrative discussion of our historical results of operations set forth below, a narrative discussion of our pro forma results of operations for the comparable periods set forth in the section entitled Unaudited Pro Forma Condensed Combined Financial Information above. Specifically, included in the discussion and analysis below is a
85
comparison of the unaudited pro forma condensed combined results of operations for six months ended June 30, 2016 as compared to the six months ended June 30, 2015, assuming the Transactions had been completed as of the relevant dates set forth in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. Management believes this pro forma narrative comparison provides investors with additional context regarding our recent acquisitions and other strategic transactions when considering our historical results of operations. However, our pro forma results of operations for these periods should not be considered independent of our historical results of operations and our unaudited combined financial statements and the related notes included elsewhere in this prospectus and the pro forma financial statements included above in the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
Recent Developments
On August 4, 2016 the Company purchased all of the outstanding stock of Bio Clean Environmental Services, Inc. and Modular Wetland Systems, Inc., California corporations which design and sell storm water management systems that meet the requirements of local regulatory bodies regulating storm water quality, for cash consideration of $30.0 million subject to customary net working capital and purchase price adjustments. Bio Clean will operate as part of the Companys Drainage Pipe & Products reportable segment. The acquisition was financed through cash on hand.
Principal Factors Affecting Our Results of Operations
Our financial performance and results of operations are influenced by a variety of factors, including conditions in the residential, and non-residential and infrastructure construction markets, general economic conditions, changes in cost of goods sold, and seasonality and weather conditions. Some of the more important factors are discussed below, as well as in the section entitled Risk Factors.
Infrastructure Spending and Residential and Non-Residential Construction Activities
A large proportion of our net sales in our Drainage Pipe & Products and Water Pipe & Products segments are generated through public infrastructure projects. Many of these projects are dependent on government funding, including subsidies and stimulus programs. Government spending on infrastructure projects depends on the availability of public funds, which is influenced by various factors, including fiscal budgets, the level of public debt, interest rates, existing and anticipated tax revenues and the political climate. Increases or reductions in governmental funding for these infrastructure projects can have a material effect on our net sales and results of operations. In the United States, federal and state government funding for infrastructure projects is usually accomplished through multi-year funding and authorization bills known as highway bills, such as the FAST Act, which authorized $305 billion in spending over the next five years. The outlook for future growth and consistent revenue streams for our Drainage Pipe & Products and Water Pipe & Products segments has improved with the passage of the FAST Act.
Historically, demand for many of our products has been closely tied to residential construction and non-residential construction activity in the United States and Eastern Canada. Activity levels in these markets can be materially affected by general economic and global financial market conditions. In addition, residential construction activity levels are influenced by and sensitive to mortgage availability, the cost of financing a home (in particular, mortgage and interest rates), unemployment levels, household formation rates, residential vacancy and foreclosure rates, existing housing prices, rental prices, housing inventory levels, consumer confidence and government policy and incentives. Non-residential construction activity is primarily driven by levels of business investment, availability of credit and interest rates, as well as many of the factors that impact residential construction activity levels. See the section entitled BusinessOur Industry.
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Mix of Products
We derive our sales from both the sale of products manufactured to inventory, such as concrete drainage pipe and bricks, and highly engineered products which are made to order, such as concrete and steel pressure pipe and structural precast products for drainage. These two components of our business differ in their dynamics. Approximately two-thirds of our net sales during 2015 were derived from the sale of products which are manufactured to inventory and approximately one-third came from highly engineered products which were made to order. This mix of products varies from period to period. We generally recognize revenue in connection with product shipment; however, for some of our highly engineered products, we recognize revenue on a percentage of completion method, which amounted to $40.9 million in 2015. In the second half of 2015, we changed our inventory strategy, shifting away from maintaining products manufactured to inventory in our Drainage Pipe & Products business segment.
Products such as concrete drainage pipe and bricks are typically sold on a one-off basis, with volumes and prices determined frequently based on market participants perceptions of short-term supply and demand factors. A shortage of capacity or excess capacity in the industry, or in the regions where we have operations, or the behavior of our competitors, can each result in significant increases or decreases in market prices for these products, often within a short period of time. By contrast, our project driven business involves highly engineered and customized products with a wide range of contract values. The products for these projects are engineered, manufactured and delivered on the basis of contracts that tend to extend over periods of several months or, in some cases, several years. The timing of the commencement of a project and the progress and completion of work under a contract, therefore, can have a significant effect on our results of operations for a particular period.
Cost of Goods Sold
Costs of raw material and supplies, labor (including contract labor), freight and energy constitute a large portion of our cost of goods sold, and fluctuations in the prices of these materials and inputs affect our results of operations. Our primary raw materials are cement, aggregates, steel and clay. We do not generally hedge our raw material purchases, except that we may increase our inventory of certain materials in the short term in anticipation of future price increases.
In addition, our manufacturing is energy intensive. Our energy costs primarily consist of the cost for the supply of electricity and natural gas used in various manufacturing processes. Prices for energy, including natural gas and electricity, have been volatile in recent years and have been a driver of our raw material and energy costs in the past. We generally purchase natural gas and electricity at spot prices in the open market, however, as opportunities are presented we may enter into natural gas fixed price supply contracts.
We attempt to pass on price increases of raw materials, energy and certain other manufacturing costs to our customers, and typically increase prices as new customer agreements are negotiated throughout the year. In addition, certain of our customer contracts, primarily with respect to our highly engineered product, contain price modification mechanisms pursuant to which we may increase the prices of our products to correspond to increases in raw material costs. As a result, we believe we have been able to manage our exposures to fluctuations in our raw material and energy costs, although there can be no assurance that we will continue to be able to do so in the future.
Seasonality and Weather Conditions
The construction industry, and therefore demand for our products, is typically seasonal and dependent on weather conditions, with periods of snow or heavy rain negatively affecting construction activity. Lower demand for our products tends to occur in periods of cold weather, particularly during winter and periods of excessive rain, and such conditions or other unfavorable weather conditions
87
generally lead to seasonal fluctuations in our quarterly financial results. Historically, our net sales in the second and third quarters have been higher than in the other quarters of the year, particularly the first quarter.
In addition, unfavorable weather conditions, such as hurricanes or severe storms, or public holidays during peak construction periods can result in temporary cessation of projects and a material reduction in demand for our products and consequently have an adverse effect on our net sales. Results of a fiscal quarter may therefore not be a reliable basis for the expectations of a full fiscal year and may not be comparable with the results in the other fiscal quarters in the same year or prior years.
Factors Affecting our Financial Statements
Business Combinations
The Acquisition Our business was acquired from HeidelbergCement in the Acquisition, along with the business of Forterra UK, for aggregate cash consideration of $1.33 billion, subject to an earn out capped at $100.0 million. Lone Star funded the transactions with an equity investment of $432.3 million and third-party debt in the amount of $940.0 million. The Acquisition was accounted for as a business combination under ASC 805, Business Combinations .
The Successor combined financial statements include certain assets and liabilities historically held at LSF9, including the portion of the debt incurred to consummate the Acquisition which we are obligated to pay. Our portion of the initial $432.3 million equity investment is $167.5 million. Our portion of the $940.0 million of third party debt used to finance the Acquisition is $515.5 million. The remainder of the debt was allocated to Forterra UK and other affiliates of LSF9 that are not included in these financial statements. We and the other affiliates of LSF9, other than Forterra UK, are co-obligors and jointly and severally liable under the terms of the initial credit agreements. Forterra UK was released as an obligor in connection with its initial public offering and the repayment of its portion of the debt, as discussed in note 9 to our unaudited condensed combined financial statements. As part of the Acquisition, we incurred transaction costs necessary to consummate the Acquisition. Our portion of the costs was $10.6 million for the period from March 14, 2015 to December 31, 2015 and $2.1 million for the period from January 1, 2015 to March 13, 2015, which was recorded in selling, general and administrative expenses. As a result of the debt used to fund the Acquisition, we incurred additional interest expense of $46.0 million in the period from March 14, 2015 to December 31, 2015.
Cretex Acquisition On October 1, 2015, we acquired all of the outstanding stock of Cretex for $245.1 million. Cretex is a manufacturer of concrete pipe, box culverts, precast drainage structures, pre-stressed bridge components and ancillary precast products, and our acquisition of Cretex expanded our market footprint into the Upper Midwestern United States. The Cretex Acquisition was financed with $240.0 million of incremental third-party senior debt and cash on hand. As part of the Cretex Acquisition, we incurred transaction costs recorded in selling, general and administrative expenses of $3.1 million in the period from March 14, 2015 to December 31, 2015.
Sherman-Dixie Acquisition On January 29, 2016, we acquired all of the outstanding stock of Sherman-Dixie for $66.8 million. Sherman-Dixie manufactures and sells concrete pipe, box culverts, precast concrete utility products, storm and sanitary civil engineered systems and specialty engineered retainage systems in the Southeastern United States. The acquisition was financed through a draw on the Revolver. As part of the Sherman-Dixie Acquisition, we incurred transaction costs recorded in selling, general and administrative expenses of $0.5 million in the six months ended June 30, 2016. See note 3 to our unaudited condensed combined financial statements, each included elsewhere in this prospectus.
U.S. Pipe AcquisitionWe acquired substantially all of the stock of U.S. Pipe, a ductile iron pipe manufacturer, on April 15, 2016 for an initial purchase price of $775.1 million, which was funded with a
88
$205.0 million borrowing on the Revolver, a portion of the proceeds of the Sale Leaseback and a capital contribution of $402.1 million from Lone Star. As part of the U.S. Pipe Acquisition, we incurred transaction costs recorded in selling, general and administrative expenses of $5.4 million in the six months ended June 30, 2016. See note 3 to our unaudited condensed combined financial statements, each included elsewhere in this prospectus.
Sale Leaseback
At lease inception of the Sale Leaseback, we (as the seller-lessee) were considered to have a form of prohibited continuing involvement with the properties because we provided the respective purchaser (as the buyer-lessor) with a guarantee that serves as additional collateral that reduces the buyer-lessors risk of loss. As a result, we are precluded from applying sale-leaseback accounting to the Sale Leaseback, and we have accounted for the transaction as a financing obligation. The assets subject to the Sale Leaseback remain on the balance sheet and continue to be depreciated over their remaining useful lives as a failed sale-leaseback. However, we expect to subsequently replace the current guarantor, LSF9, with the Company as the new guarantor within the next 12 months which would, at that time, allow the Sale Leaseback to qualify for sales recognition and be classified as an operating lease.
Principal Components of Results of Operations
Net Sales
Net sales consist of the consideration received or receivable for the sale of products in the ordinary course of business and include the billable costs of delivery of our products to customers, net of discounts given to the customer. Net sales include any outbound freight charged to the customer. Revenue on long-term engineering and construction contracts for our structural precast and products that are designed and engineered specifically for the customer is recognized under the percentage-of completion method. Certain of our businesses, primarily our concrete and steel pressure pipe businesses, also enter into agreements to provide inventory to customers for long-term construction projects. With respect to these agreements, we recognize revenue upon shipment of the respective goods, whereas billings are based on contract terms and may or may not coincide with shipments, which gives rise to either unbilled or deferred revenue. See note 2 and note 20 to our audited combined financial statements included elsewhere in this prospectus.
Cost of Goods Sold
Cost of goods sold includes raw materials (cement, aggregates, steel and clay) and supplies, labor (including contract labor), freight (including outbound freight for delivery of products to end users and other charges such as inbound freight), energy, depreciation and amortization, repairs and maintenance and other cost of goods sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include expenses for sales, marketing, legal, accounting and finance services, human resources, customer support, treasury and other general corporate services. See note 2 to our audited combined financial statements included elsewhere in this prospectus for a description of the expense allocation for certain corporate and other functions historically provided to us by HeidelbergCement during the Predecessor periods. For the period from January 1, 2015 to March 13, 2015 and for the fiscal years ended December 31, 2014 and 2013, we were allocated selling, general and administrative expenses from HeidelbergCement in the amount of $4.1 million, $23.6 million and $29.4 million, respectively. Selling, general and administrative expenses also include transaction costs directly related to the Acquisition, transaction costs related to the Cretex Acquisition and the Sherman-Dixie Acquisition, and other carve-out costs surrounding the separation from HeidelbergCement.
89
Earnings (Losses) from Equity Method Investee
Earnings (losses) from equity method investee represents our share of the income (loss) of the Concrete Pipe & Precast LLC, or CP&P, joint venture we entered into in July 2012 with Americast, Inc. We contributed plant assets and related inventory from nine plants as part of the agreement to form CP&P in exchange for a 50% ownership interest in the joint venture. CP&P is engaged primarily in the manufacture, marketing, sale and distribution of concrete pipe and precast products in Virginia, West Virginia, Maryland, North Carolina, South Carolina and Georgia with sales to contiguous states. See note 19 to our audited combined financial statements included elsewhere in this prospectus.
Gain on Sale of Property, Plant and Equipment, Net
Gain on sale of property, plant and equipment, net includes the net gain or loss on the sale of assets including property, plant and equipment and sales of businesses that do not otherwise qualify as discontinued operations.
Other Operating Income
The remaining categories of operating income and expenses consist of scrap income (associated with scrap from the manufacturing process or remaining scrap after plants are closed), rental income and income generated from exhausted clay quarries that are used for landfill.
Interest Expense
Interest expense represents interest on the indebtedness incurred in connection with the Acquisition, the Cretex Acquisition and the Sherman-Dixie Acquisition. Prior to the Acquisition, we incurred an insignificant amount of interest expense in connection with our capital leases.
Income Tax Expense
Income tax expense consists of federal, state, provincial, local and foreign taxes based on income in the jurisdictions in which we operate. Historically, our U.S. subsidiaries were included in HeidelbergCements U.S. consolidated federal and state income tax returns. In the combined Predecessor financial statements, income tax benefit (expense) is calculated as if our U.S. subsidiaries filed separate tax returns.
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Results of Operations
Pro Forma Six Months ended June 30, 2016 Compared to Pro Forma Six Months Ended June 30, 2015
Pro Forma Total Company
The following table summarizes certain pro forma financial information relating to our pro forma operating results that have been derived from our unaudited pro forma condensed combined financial information for the six months ended June 30, 2016 and 2015 included in the section above entitled Unaudited Pro Forma Condensed Combined Financial Information. Also included is certain information relating to the pro forma operating results as a percentage of net sales. The unaudited pro forma condensed combined financial information below is based on our unaudited combined financial statements and the related notes included elsewhere in this prospectus, adjusted to give pro forma effect to the Transactions as of the applicable dates set forth in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. The unaudited pro forma financial information below is presented because management believes it provides a meaningful comparison of operating results. See further discussion related to the pro forma information above in the Basis of Presentation.
Pro Forma |
Pro Forma
Six Months Ended June 30, 2016 |
% of pro
forma net sales |
Pro Forma
Six Months Ended June 30, 2015 |
% of pro
forma net sales |
Change | % Change | ||||||||||||||||||
Net sales |
$ | 825,292 | 100.0 | % | $ | 804,735 | 100.0 | % | 20,557 | 2.6 | % | |||||||||||||
Cost of goods sold |
660,820 | 80.1 | % | 697,869 | 86.7 | % | (37,049 | ) | (5.3 | )% | ||||||||||||||
|
|
|
|
|||||||||||||||||||||
Gross profit |
164,472 | 19.9 | % | 106,866 | 13.3 | % | 57,606 | 53.9 | % | |||||||||||||||
Selling, general & administrative expenses and other |
(114,867 | ) | (13.9 | )% | (124,335 | ) | (15.5 | )% | 9,468 | (7.6 | )% | |||||||||||||
|
|
|
|
|||||||||||||||||||||
Income (loss) from operations |
49,605 | 6.0 | % | (17,469 | ) | (2.2 | )% | 67,074 | (384.0 | )% | ||||||||||||||
Other income (expenses) |
||||||||||||||||||||||||
Interest expense |
(54,578 | ) | (6.6 | )% | (50,524 | ) | (6.3 | )% | (4,054 | ) | 8.0 | % | ||||||||||||
Other income (expenses), net |
(1,075 | ) | (0.1 | )% | (246 | ) | NM | (829 | ) | 337.0 | % | |||||||||||||
|
|
|
|
|||||||||||||||||||||
Income (loss) from continuing operations before income taxes |
(6,048 | ) | (0.7 | )% | (68,239 | ) | (8.5 | )% | 62,191 | (91.1 | )% | |||||||||||||
Income tax (expense) benefit |
32,807 | 4.0 | % | (7,560 | ) | (0.9 | )% | 40,367 | (534.0 | )% | ||||||||||||||
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
$ | 26,759 | 3.2 | % | $ | (75,799 | ) | (9.4 | )% | 102,558 | (135.3 | )% | ||||||||||||
|
|
|
|
Net sales
Pro forma net sales increased by $20.6 million, or 2.6%, to $825.3 million in the six months ended June 30, 2016 from $804.7 million in the six months ended June 30, 2015. The increase is attributable to higher net sales for Cretex of $9.8 million, U.S. Pipe of $7.2 million, Bio Clean of $3.6 million, and Sherman-Dixie of $0.9 million due to improved market conditions. The legacy Forterra net sales decreased approximately $1.7 million caused primarily by a reduction of 0.4% of sales volumes during the six months ended June 30, 2015 compared to June 30, 2016.
91
Cost of goods sold
Pro forma cost of goods sold decreased by $37.0 million, or 5.3%, to $660.8 million in the six months ended June 30, 2016 from $697.9 million in the six months ended June 30, 2015. The decline is primarily a result of lower raw material costs of $14.9 million and lower energy of costs of $2.3 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 in the legacy Forterra business.
Gross profit
Pro forma gross profit increased by $57.6 million, or 53.9%, to $164.5 million in the six months ended June 30, 2016 from $106.9 million in the six months ended June 30, 2015. Pro forma gross profit increased between periods due to more favorable production costs in the six months ended June 30, 2016 compared to the six months ended June 30, 2015 as well as the increase in net sales as discussed above.
Selling, general and administrative expenses and other
Pro forma selling, general and administrative expenses and other costs decreased by $9.5 million, or 7.6%, to $114.9 million in the six months ended June 30, 2016 from $124.3 million in the six months ended June 30, 2015. This decrease from the six months ended June 30, 2015 was due to higher than normal costs related to the Acquisition as well as additional carve-out costs to separate the Company from HeidelbergCement. Partially offsetting this decrease were transaction costs incurred in connection with the U.S. Pipe Acquisition and Sherman-Dixie Acquisition in the six months ended June 30, 2016.
Interest expense
Pro forma interest expense remained relatively consistent as the debt balances and interest rates were generally consistent between the periods.
Income tax expense
Our pro forma income tax benefit changed by $40.4 million to $32.8 million in the six months ended June 30, 2016 from a tax expense of $7.6 million in the six months ended June 30, 2015 due to a change in taxable income during the periods.
Net loss
Pro forma net loss decreased by $102.6 million to a net income of $26.8 million in the six months ended June 30, 2016 from a net loss of $75.8 million in the six months ended June 30, 2015 due to increased pro forma gross profits resulting from lower production costs and higher net sales and lower pro forma selling, general and administrative expenses discussed above.
92
Pro Forma Segment Results of Operations
The following table summarizes certain pro forma financial information relating to our pro forma operating results by segment that have been derived from our unaudited pro forma condensed combined financial information for the six months ended June 30, 2016 and 2015 included in the section above entitled Unaudited Pro Forma Condensed Combined Financial Information. The unaudited pro forma condensed combined financial information below is based on our unaudited combined financial statements and the related notes included elsewhere in this prospectus, adjusted to give pro forma effect to the Transactions as of the applicable dates set forth in the section entitled Unaudited Pro Forma Condensed Combined Financial Information. The unaudited pro forma financial information below is presented because management believes it provides a meaningful comparison of operating results. See further discussion related to the pro forma information above in the Basis of Presentation.
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
For the six months ended June 30, 2016: |
||||||||||||||||||||
Pro forma net sales |
$ | 348,281 | $ | 403,059 | $ | 71,424 | $ | 2,528 | $ | 825,292 | ||||||||||
Pro forma gross profit (loss) |
83,039 | 70,540 | 11,992 | (1,099 | ) | 164,472 | ||||||||||||||
Pro forma income (loss) from continuing operations before income taxes |
49,919 | 27,293 | 3,276 | (86,536 | ) | (6,048 | ) | |||||||||||||
For the six months ended June 30, 2015: |
||||||||||||||||||||
Pro forma net sales |
$ | 324,617 | $ | 408,907 | $ | 65,535 | $ | 5,676 | 804,735 | |||||||||||
Pro forma gross profit (loss) |
46,093 | 60,982 | (584 | ) | 375 | 106,866 | ||||||||||||||
Pro forma income (loss) from continuing operations before income taxes |
14,978 | 6,529 | (7,611 | ) | (82,135 | ) | (68,239 | ) |
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
Drainage Pipe & Products
Net sales
Pro forma net sales increased by $23.7 million, or 7.3%, to $348.3 million in the six months ended June 30, 2016 from $324.6 million in the six months ended June 30, 2015. Pro forma net sales increased due to improved market conditions for Cretex, Bio Clean and Sherman-Dixie, which resulted in increased net sales of $9.8 million, $3.6 million and $0.9 million, respectively. The average selling price for the legacy Forterra business improved 1.9%, which increased net sales by $4.2 million. Sales volumes improved in the legacy Forterra business by 1.5% which resulted in higher net sales of $3.3 million.
Gross profit
Pro forma gross profit increased $36.9 million, or 80.2%, in the six months ended June 30, 2016, to $83.0 million from $46.1 million in the six months ended June 30, 2015, primarily due to favorable market conditions, which allowed us to increase sales volumes and implement price increases. Additionally, pro forma gross profit increased due to improved plant efficiencies due to increases in plant production and lower raw material and energy prices.
93
Water Pipe & Products
Net sales
Pro forma net sales decreased by $5.8 million, or 1.4%, to $403.1 million in the six months ended June 30, 2016 from $408.9 million in the six months ended June 30, 2015. The decrease was due to decreased net sales for the legacy Forterra business which declined $13.0 million, primarily due to a reduction of sales volumes of 19.8% due to delays in the US. Partially offsetting the decline was an increase in gross sales from U.S. Pipe of $7.2 million due to more favorable market conditions.
Gross profit
Pro forma gross profit increased by $9.6 million, or 15.7%, to $70.5 million in the six months ended June 30, 2016 from $61.0 million in the six months ended June 30, 2015, due primarily to the reduction in raw material and energy costs, partially offset by the reduction in net sales as discussed above.
Bricks
Net Sales
Pro forma net sales increased by $5.9 million, or 9.0%, to $71.4 million in the six months ended June 30, 2016 from $65.5 million in the six months ended June 30, 2015 driven primarily by a 9.0% increase in sales volumes.
Gross profit (loss)
Pro forma gross profit increased by $12.6 million, to $12.0 million in the six months ended June 30, 2016 from a pro forma gross loss of $0.6 million in the six months ended June 30, 2015. Bricks pro forma gross profit increased primarily due to higher pro forma net sales as well as lower raw material and energy costs in 2016.
94
Six Months Ended June 30, 2016
Total Company
The following table summarizes certain financial information relating to our operating results that have been derived from our unaudited condensed combined financial statements for the six months ended June 30, 2016. Also included is certain information relating to the operating results as a percentage of net sales.
Six months
ended June 30, 2016 |
% of
Net Sales |
|||||||
Combined Statements of Income Data: |
||||||||
Net sales |
$ | 640,142 | 100.0 | % | ||||
Cost of goods sold |
509,370 | 79.6 | % | |||||
|
|
|
|
|||||
Gross profit |
130,772 | 20.4 | % | |||||
Selling, general and administrative expenses |
(98,622 | ) | (15.4 | )% | ||||
Impairment and restructuring charges |
(23 | ) | NM | |||||
Earnings from equity method investee |
4,868 | 0.8 | % | |||||
Other operating income |
2,533 | 0.4 | % | |||||
|
|
|
|
|||||
(91,244 | ) | (14.3 | )% | |||||
|
|
|
|
|||||
Income from operations |
39,528 | 6.2 | % | |||||
Other income (expenses) |
||||||||
Interest expense |
(42,129 | ) | (6.6 | )% | ||||
Other income (expense), net |
(1,179 | ) | (0.2 | )% | ||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
(3,780 | ) | (0.6 | )% | ||||
Income tax benefit |
36,533 | 5.7 | % | |||||
|
|
|
|
|||||
Net income |
$ | 32,753 | 5.1 | % | ||||
|
|
|
|
Net sales for the six months ended June 30, 2016 were $640.1 million consisting of legacy Forterra net sales of $382.3 million, net sales as a result of the U.S. Pipe Acquisition of $150.3 million, and $106.8 million of net sales from the Cretex Acquisition and the Sherman-Dixie Acquisition. Cost of goods sold were $509.4 million, which included $12.5 million of inventory step-up adjustments due to the impact of business combinations primarily related to the U.S. Pipe Acquisition, which resulted in gross profit of $130.8 million. Selling, general and administrative expenses were $98.6 million, which includes $17.0 million of costs from acquired businesses and $13.6 million of amortization of intangible assets acquired in business combinations primarily attributable to the U.S. Pipe Acquisition. Interest expense of $42.1 million was incurred as a result of the outstanding debt during the period. Net income was $32.8 million driven by positive operating results partially offset by interest expense.
95
Segment Results of Operations
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
For six months ended June 30, 2016: |
||||||||||||||||||||
Net sales |
$ | 336,549 | $ | 229,641 | $ | 71,424 | $ | 2,528 | $ | 640,142 | ||||||||||
Gross profit (loss) |
78,664 | 41,216 | 11,992 | (1,100 | ) | 130,772 | ||||||||||||||
Income (loss) from continuing operations before income taxes |
52,211 | 19,343 | 3,276 | (78,610 | ) | (3,780 | ) |
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
Drainage Pipe & Products
Net sales were $336.5 million which included net sales from the Cretex and Sherman-Dixie acquisitions of $106.8 million. Gross profit was $78.7 million which included the impact of inventory step-up adjustments of $1.9 million as a result of the business combinations.
Water Pipe & Products
Net sales were $229.6 million which included sales from US Pipe of $150.3 million. Gross profit was $41.2 million which included the impact of inventory step-up adjustments of $10.6 million as a result of the U.S. Pipe Acquisition.
Bricks
Net sales were $71.4 million which resulted in gross profit of $12.0 million for the six months ended June 30, 2016.
96
Period from March 14, 2015 to June 30, 2015
Total Company
The following table summarizes certain financial information relating to our operating results that have been derived from our combined Successor financial statements for the period from March 14, 2015 to June 30, 2015. Also included is certain information relating to the operating results as a percentage of net sales.
Successor | ||||||||
For the
period from March 14 to June 30, 2015 |
% of
Net Sales |
|||||||
Combined Statements of Income Data: |
||||||||
Net sales |
$ | 251,315 | 100.0 | % | ||||
Cost of goods sold |
228,405 | 90.9 | % | |||||
|
|
|
|
|||||
Gross profit |
22,910 | 9.1 | % | |||||
Selling, general and administrative expenses |
(47,716 | ) | (19.0 | )% | ||||
Impairment and restructuring charges |
(343 | ) | (0.1 | )% | ||||
Earnings from equity method investee |
3,772 | 1.5 | % | |||||
Other operating income |
3,930 | 1.6 | % | |||||
|
|
|
|
|||||
(40,357 | ) | (16.1 | )% | |||||
|
|
|
|
|||||
Loss from operations |
(17,447 | ) | (6.9 | )% | ||||
Other income (expenses) |
||||||||
Interest expense |
(15,551 | ) | (6.2 | )% | ||||
Other income (expense), net |
(140 | ) | (0.1 | )% | ||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
(33,138 | ) | (13.2 | )% | ||||
Income tax benefit |
(1,579 | ) | (0.7 | )% | ||||
|
|
|
|
|||||
Net loss |
$ | (34,717 | ) | (13.8 | )% | |||
|
|
|
|
Net sales for the period from March 14, 2015 to June 30, 2015 were $251.3 million. Cost of goods sold was $228.4 million, which included $10.7 million of inventory step-up adjustments as a result of the Acquisition, which resulted in a gross profit of $22.9 million. Selling, general and administrative expenses were $47.7 million during the period which included $11.0 million of Acquisition related costs. Interest expense was $15.6 million as a result of debt incurred to fund the Acquisition. The net loss of $34.7 million was primarily driven by selling, general and administrative expenses and interest expense.
Segment Results of Operations
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
For the period from March 14, 2015 to June 30, 2015: |
||||||||||||||||||||
Net sales |
$ | 141,031 | $ | 61,888 | $ | 45,613 | $ | 2,783 | $ | 251,315 | ||||||||||
Gross profit (loss) |
17,152 | 6,945 | (1,182 | ) | (5 | ) | 22,910 | |||||||||||||
Income (loss) from continuing operations before income taxes |
14,460 | 3,767 | (3,779 | ) | (47,586 | ) | (33,138 | ) |
97
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
Drainage Pipe & Products
Net sales were $141.0 million during the period. Gross profit was $17.2 million which included the impact of inventory step-up adjustments of $6.5 million as a result of the Acquisition.
Water Pipe & Products
Net sales were $61.9 million during the period. Gross profit was $6.9 million which included the impact of inventory step-up adjustments of $2.1 million as a result of the Acquisition.
Bricks
Net sales were $45.6 million during the period. Gross loss was $1.2 million which included the impact of inventory step-up adjustments of $2.0 million as a result of the Acquisition.
Period from January 1, 2015 to March 13, 2015
Total Company
The following table summarizes certain financial information relating to our operating results that have been derived from our combined Predecessor financial statements for the period from January 1, 2015 to March 13, 2015. Also included is certain information relating to the operating results as a percentage of net sales.
Predecessor | ||||||||
For the
period from January 1 to March 13, 2015 |
% of Net
Sales |
|||||||
Combined Statements of Income Data: |
||||||||
Net sales |
$ | 132,620 | 100.0 | % | ||||
Cost of goods sold |
117,831 | 88.8 | % | |||||
|
|
|
|
|||||
Gross profit |
14,789 | 11.2 | % | |||||
|
|
|
|
|||||
Selling, general and administrative expenses |
(21,683 | ) | (16.3 | )% | ||||
Impairment and restructuring charges |
(542 | ) | (0.4 | )% | ||||
Earnings from equity method investee |
67 | 0.1 | % | |||||
Other operating income |
994 | 0.7 | % | |||||
|
|
|
|
|||||
(21,164 | ) | (16.0 | )% | |||||
|
|
|
|
|||||
Income (loss) from operations |
(6,375 | ) | (4.8 | )% | ||||
Other income (expense) |
||||||||
Interest expense |
(84 | ) | (0.1 | )% | ||||
Other income (expense), net |
(39 | ) | NM | |||||
|
|
|
|
|||||
Income (loss) from continuing operations before income taxes |
(6,498 | ) | (4.9 | )% | ||||
Income tax expense |
742 | 0.6 | % | |||||
|
|
|
|
|||||
Net income (loss) |
$ | (5,756 | ) | (4.3 | )% | |||
|
|
|
|
98
Net sales for the period were $132.6 million. Cost of goods sold was $117.8 million resulted in gross profit of $14.8 million. Selling, general and administrative expenses were $21.7 million. The net loss of $5.8 million was primarily driven by selling, general, and administrative expenses.
Segment Results of Operations
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
For the period from January 1, 2015 to March 13, 2015: |
||||||||||||||||||||
Net sales |
$ | 79,341 | $ | 30,464 | $ | 19,922 | $ | 2,893 | $ | 132,620 | ||||||||||
Gross profit |
13,567 | 413 | 429 | 380 | 14,789 | |||||||||||||||
Income (loss) from continuing operations before income taxes |
8,839 | (3,192 | ) | (4,000 | ) | (8,145 | ) | (6,498 | ) |
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
Drainage Pipe & Products
Net sales were $79.3 million during the period which resulted in gross profit of $13.6 million.
Water Pipe & Products
Net sales were $30.5 million during the period which resulted in gross profit of $0.4 million.
Bricks
Net sales were $19.9 million during the period which resulted in gross profit of $0.4 million.
99
Period from March 14, 2015 to December 31, 2015
Total Company
The following table summarizes certain financial information relating to our operating results that have been derived from our combined Successor financial statements for the period from March 14, 2015 to December 31, 2015. Also included is certain information relating to the operating results as a percentage of net sales.
Successor | ||||||||
For the
period from March 14 to December 31, 2015 |
% of Net
Sales |
|||||||
Combined Statements of Income Data: |
||||||||
Net sales |
$ | 722,664 | 100.0 | % | ||||
Cost of goods sold |
626,498 | 86.7 | % | |||||
|
|
|
|
|||||
Gross profit |
96,166 | 13.3 | % | |||||
|
|
|
|
|||||
Selling, general and administrative expenses |
(134,971 | ) | (18.7 | )% | ||||
Impairment and restructuring charges |
(1,185 | ) | (0.2 | )% | ||||
Earnings from equity method investee |
8,429 | 1.2 | % | |||||
Other operating income |
832 | 0.1 | % | |||||
|
|
|
|
|||||
(126,895 | ) | (17.6 | )% | |||||
|
|
|
|
|||||
Income (loss) from operations |
(30,729 | ) | (4.3 | )% | ||||
Other income (expense) |
||||||||
Interest expense |
(45,953 | ) | (6.4 | )% | ||||
Other income (expense), net |
(326 | ) | NM | |||||
|
|
|
|
|||||
Income (loss) from continuing operations before income taxes |
(77,008 | ) | (10.7 | )% | ||||
Income tax expense |
(5,778 | ) | (0.8 | )% | ||||
|
|
|
|
|||||
Net income (loss) |
$ | (82,786 | ) | (11.5 | )% | |||
|
|
|
|
Net sales for the period were $722.7 million which included net of $39.1 million of sales from Cretex. Cost of goods sold was $626.5 million which resulted in gross profit of $96.2 million. Selling, general and administrative expenses were $135.0 million. Interest expense was $46.0 million as a result of the debt acquired to fund the Acquisition and the Cretex Acquisition. The net loss of $82.8 million was primarily driven by selling, general, and administrative expenses as well as the interest expense during the year.
100
Segment Results of Operations
Drainage
Pipe & Products |
Water Pipe
& Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
For the period from March 13, 2015 to December 31, 2015: |
||||||||||||||||||||
Net sales |
$ | 431,723 | $ | 167,417 | $ | 118,389 | $ | 5,135 | $ | 722,664 | ||||||||||
Gross profit (loss) |
69,601 | 23,000 | 5,613 | (2,048 | ) | 96,166 | ||||||||||||||
Income (loss) from continuing operations before income taxes |
48,216 | 6,824 | (8,401 | ) | (123,647 | ) | (77,008 | ) |
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and assess performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
Drainage Pipe & Products
Net sales were $431.7 million during the period which included $39.1 million as a result of the Cretex Acquisition. Gross profit was $69.6 million, which included a $30.0 million impact to cost of goods sold related to inventory step-up adjustments due to purchase accounting.
Water Pipe & Products
Net sales were $167.4 million during the period. Gross profit was $23.0 million during the period, which included the impact of inventory step-up adjustments due to purchase accounting of $5.9 million associated with the Acquisition.
Bricks
Net sales were $118.4 million during the period. Gross profit was $5.6 million, which included the impact of inventory step-up adjustments due to purchase accounting of $6.7 million associated with the Acquisition.
101
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The following table summarizes certain financial information relating to our operating results that have been derived from our combined Predecessor financial statements for the years ended December 31, 2014 and 2013. Also included is certain information relating to the operating results as a percentage of net sales.
Year Ended
December 31, 2014 |
% of
Net Sales |
Year Ended
December 31, 2013 |
% of
Net Sales |
%
Change |
||||||||||||||||
(In thousands, except percentages) | ||||||||||||||||||||
Combined Statements of Income Data: |
||||||||||||||||||||
Net sales |
$ | 736,963 | 100.0 | % | $ | 697,948 | 100.0 | % | 5.6 | % | ||||||||||
Cost of goods sold |
631,454 | 85.7 | % | 611,660 | 87.6 | % | 3.2 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
105,509 | 14.3 | % | 86,288 | 12.4 | % | 22.3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Selling, general and administrative expenses |
(102,107 | ) | (13.9 | )% | (87,393 | ) | (12.5 | )% | 16.8 | % | ||||||||||
Impairment and restructuring charges |
(4,219 | ) | (0.6 | )% | (250,577 | ) | (35.9 | )% | (98.3 | )% | ||||||||||
Earnings from equity method investee |
4,451 | 0.6 | % | (216 | ) | NM | (2,160.6 | )% | ||||||||||||
Other operating income |
6,965 | 0.9 | % | 9,232 | 1.3 | % | (24.6 | )% | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(94,910 | ) | (12.9 | )% | (328,954 | ) | (47.1 | )% | (71.1 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from operations |
10,599 | 1.4 | % | (242,666 | ) | (34.8 | )% | (104.4 | )% | |||||||||||
Other income (expense) |
||||||||||||||||||||
Other income (expense), net |
(594 | ) | (0.1 | )% | 947 | 0.1 | % | (162.7 | )% | |||||||||||
Income (loss) from continuing operations before income taxes |
10,005 | 1.4 | % | (241,719 | ) | (34.6 | )% | (104.1 | )% | |||||||||||
Income tax expense |
(2,417 | ) | (0.3 | )% | (2,561 | ) | (0.4 | )% | (5.6 | )% | ||||||||||
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Loss from continuing operations |
7,588 | 1.0 | % | (244,280 | ) | (35.0 | )% | (103.1 | )% | |||||||||||
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Discontinued operations |
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Income (loss) from discontinued operations |
1,976 | 0.3 | % | (3,018 | ) | (0.4 | )% | (165.5 | )% | |||||||||||
Income tax benefit (expense) from discontinued operations |
(716 | ) | (0.1 | )% | | | % | NM | ||||||||||||
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Gain (loss) on discontinued operations, net of income tax |
1,260 | 0.2 | % | (3,018 | ) | (0.4 | )% | (141.7 | )% | |||||||||||
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Net income (loss) |
$ | 8,848 | 1.2 | % | $ | (247,298 | ) | (35.4 | )% | (103.6 | )% | |||||||||
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Total Company
Net sales
Net sales increased by $39.0 million, or 5.6%, to $737.0 million in 2014 from $697.9 million in 2013. The increase was primarily attributable to increases in net sales in the Drainage Pipe & Products segment of $64.7 million, partially offset by net sales decreases of $21.9 million and $6.0 million in the Water Pipe & Products and Bricks segments, respectively.
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Cost of goods sold
The following are the key components of cost of goods sold (in thousands, except percentages):
Year ended
December 31, 2014 |
Year ended
December 31, 2013 |
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$ |
% of Net
Sales |
$ |
% of Net
Sales |
$ Change |
%
Change |
|||||||||||||||||||
Raw materials and supplies |
$ | 198,409 | 26.9 | % | $ | 167,046 | 23.9 | % | $ | 31,363 | 18.8 | % | ||||||||||||
Labor (including contract labor) |
173,697 | 23.6 | % | 176,170 | 25.2 | % | (2,473 | ) | (1.4 | )% | ||||||||||||||
Transportation |
68,086 | 9.2 | % | 52,744 | 7.6 | % | 15,342 | 29.1 | % | |||||||||||||||
Energy |
36,328 | 4.9 | % | 33,537 | 4.8 | % | 2,791 | 8.3 | % | |||||||||||||||
Depreciation |
33,417 | 4.5 | % | 35,319 | 5.1 | % | (1,902 | ) | (5.4 | )% | ||||||||||||||
Repairs and maintenance |
28,718 | 3.9 | % | 28,351 | 4.1 | % | 367 | 1.3 | % | |||||||||||||||
Other variable and production costs |
92,799 | 12.6 | % | 118,493 | 16.9 | % | (25,694 | ) | (21.7 | )% | ||||||||||||||
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Total cost of goods sold |
$ | 631,454 | 85.7 | % | $ | 611,660 | 87.6 | % | $ | 19,794 | 3.2 | % | ||||||||||||
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Cost of goods sold increased by $19.8 million, or 3.2%, to $631.5 million in 2014 from $611.7 million in 2013. Cost of goods sold increased primarily due to the net sales increase in the Drainage Pipe & Products segment.
Gross profit
Gross profit increased by $19.2 million, or 22.3%, to $105.5 million in 2014 from $86.3 million in 2013 as a result of the increase in net sales. Gross profit margin improved to 14.3% in 2014 as compared to 12.4% in 2013 due to improvements in plant production efficiencies in our Drainage Pipe & Products segment.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $14.7 million, or 16.8%, to $102.1 million in 2014 from $87.4 million in 2013. This increase was due to higher professional fees for transaction costs related to legal, accounting and auditing services in connection with the preparation of a public offering in the second half of 2014 that was not ultimately consummated. As a percentage of net sales, selling, general and administrative expenses increased to 13.9% in 2014 from 12.5% in 2013.
Impairment and restructuring charges
Impairment and restructuring charges in 2014 and 2013 were $4.2 million and $250.6 million, respectively. The impairment and restructuring charges recorded in 2014 related to equipment impairments across various segments in 2014. The impairment and restructuring charges in 2013 consist of a goodwill impairment charge of $236.6 million as well as the closure of certain plants resulting in $14.0 million of additional charges. The goodwill impairment charge in 2013 of $236.6 million was the amount by which the carrying value of the reporting unit within our Water Pipe & Products segment exceeded the fair value of the identifiable assets and liabilities of the reporting unit.
Earnings from equity method investee
Earnings from equity method investee increased $4.7 million in 2014 to $4.5 million from a loss of $0.2 million in 2013. The increase was attributable to improved profitability of our investment in CP&P.
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Gain (loss) on sale of property, plant and equipment and business, net
Our net gain on sale of property, plant and equipment and business in 2014 of $2.3 million related primarily to fixed asset sales in the United States primarily associated with the sale of two plants within the Drainage Pipe & Products segment. In 2013, our net gain on sale of property, plant and equipment and business of $4.0 million related mainly to the sale of three plants.
Other operating income
Other operating income remained relatively flat at $4.6 million in 2014 and $5.2 million in 2013.
Income tax expense
Our income tax expense decreased by $0.2 million to $2.4 million in 2014 from $2.6 million in 2013 due to the change in our taxable income in Canada for the period. During both periods presented, the U.S. federal taxes were reduced by a corresponding change in the valuation allowance.
Gain (loss) on discontinued operations, net of income tax
Our gain on discontinued operations, net of income tax, in 2014 of $1.3 million related primarily to the operations of our Maple Grove business in the United States. In 2013, our loss on discontinued operations, net of income tax, of $3.0 million related mainly to our paver business.
Net income (loss)
We recognized net income of $8.8 million in 2014, an increase of $256.1 million as compared to the net loss of $247.3 million in 2013. The improvement was primarily due to an impairment charge of $236.6 million recognized in 2013 described above.
Segment Results of Operations
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
For year ended December 31, 2014: |
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Net Sales |
$ | 436,754 | $ | 149,864 | $ | 139,537 | $ | 10,808 | $ | 736,963 | ||||||||||
Gross profit |
77,943 | 12,054 | 14,770 | 742 | 105,509 | |||||||||||||||
Income (loss) from continuing operations before income taxes |
64,686 | 6,412 | (2,078 | ) | (59,015 | ) | 10,005 | |||||||||||||
For year ended December 31, 2013: |
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Net Sales |
$ | 372,060 | $ | 171,773 | $ | 145,500 | $ | 8,615 | $ | 697,948 | ||||||||||
Gross profit |
38,476 | 27,773 | 21,451 | (1,412 | ) | 86,288 | ||||||||||||||
Income (loss) from continuing operations before income taxes |
10,937 | (218,555 | ) | 2,594 | (36,695 | ) | (241,719 | ) |
For the purposes of evaluating segment performance, the Companys chief operating decision maker reviews earnings before interest, taxes, depreciation and amortization as a basis for making the decisions to allocate resources and asset performance. Our discussion below includes the primary drivers of earnings before interest, taxes, depreciation and amortization.
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Drainage Pipe & Products
Net sales
Net sales increased by $64.7 million, or 17.4%, to $436.8 million in 2014 from $372.1 million in 2013. Sales volumes increased period over period by 14.0% due to market improvements in the United States which impacted sales by $56.0 million. Further, the average sales price increased 3.0% due to price increases in late 2013 and early 2014 resulting in a further increase in net sales of $8.7 million.
Gross profit
Gross profit improved by $39.5 million, or 102.6%, to $77.9 million in 2014 from $38.5 million in 2013. The year-over-year improvement was due to favorable market conditions that allowed us to increase sales volumes and implement price increases.
Water Pipe & Products
Net sales
Net sales decreased by $21.9 million, or 12.8%, to $149.9 million in 2014 from $171.8 million in 2013. The decrease was primarily driven by an 11.8% decline in the average selling price due to a shift in product mix from steel pipe to concrete pipe, which led to a net sales decrease of $21.5 million, and several large projects that ended toward the second half of 2013 causing a decline in sales volume of 1.0%, which decreased net sales by $0.4 million.
Gross profit
Gross profit decreased by $15.7 million, or 56.6%, to $12.1 million in 2014 from $27.8 million in 2013. This decrease was primarily driven by an 11.8% decline in the average selling price due to a shift in product mix from steel pipe to concrete pipe and several large projects that ended toward the second half of 2013 that led to a decline in sales volumes.
Bricks
Net sales
Net sales decreased by $6.0 million, or 4.1%, to $139.5 million in 2014 from $145.5 million in 2013, as a result of a 2.4% decline in sales volume, which led to a $4.1 million decrease in net sales, and a lower average sales price of 1.8% which resulted in a $1.9 million reduction in net sales. This decrease in sales volume was primarily due to unfavorable winter weather conditions in Canada that extended beyond the first quarter in 2014, which delayed shipments, job site availability and preparation of residential lots by home-builders.
Gross profit
Gross profit decreased by $6.7 million, or 31.1%, to $14.8 million in 2014 from $21.5 million in 2013. This decrease was due to unfavorable winter weather conditions in Canada that extended beyond the first quarter in 2014.
Quarterly Financial Information
The following tables set forth our unaudited combined Successor quarterly financial information for each of the full period quarters following the Acquisition on March 13, 2015. This unaudited information has been prepared on a basis consistent with our audited combined Successor financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary
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for the fair presentation of the unaudited quarterly data. This information should be read together with our Successor combined financial statements and the related notes, included elsewhere in this prospectus. The results for any quarter are not necessarily indicative of results that we may achieve for any subsequent periods.
Three Months Ended | ||||||||||||||||||||
June 30,
2016 |
March 31,
2016 |
December 31,
2015 |
September 30,
2015 |
June 30,
2015 |
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(In thousands) | ||||||||||||||||||||
Total net sales |
$ | 422,808 | $ | 217,334 | $ | 229,934 | $ | 241,415 | $ | 213,301 | ||||||||||
Depreciation and amortization |
26,661 | 13,759 | 12,590 | 9,277 | 9,267 | |||||||||||||||
Interest expense, net |
(24,839 | ) | (17,290 | ) | (17,374 | ) | (13,028 | ) | (13,077 | ) | ||||||||||
Income tax expense (benefit) |
(26,165 | ) | (10,368 | ) | 1,468 | 2,730 | 1,579 | |||||||||||||
Net income (loss) |
$ | 36,689 | $ | (3,936 | ) | $ | (33,102 | ) | $ | (14,967 | ) | $ | (17,147 | ) |
Liquidity and Capital Resources
Prior to the Acquisition, our primary source of liquidity was cash from operations and borrowings or advances from HeidelbergCement. The Predecessor used HeidelbergCements centralized processes and systems for cash management, payroll and purchasing. As a result, all cash received by our business was deposited with HeidelbergCements general corporate funds and was not specifically allocated to our business.
Since the Acquisition, our primary sources of liquidity have been cash on hand, cash from operations and borrowings under our long-term debt. We believe these sources will be sufficient to fund our planned operations and capital expenditures in the next 24 months. See Description of Certain Indebtedness for a description of our existing indebtedness.
We are currently engaged in a dispute with HeidelbergCement regarding the earn out provision in the purchase agreement entered into in connection with the Acquisition. As discussed in greater detail in BusinessLegal Proceedings, we believe that no earn out payment is owed, but HeidelbergCement has asserted that a payment should be made in the amount of $100.0 million. Resolution may be determined by a neutral accountant. If it is determined that we are required to make a significant payment to HeidelbergCement, we may not have sufficient cash to make such payment and may be required to incur additional indebtedness. See the section entitled Risk Factors.
As of June 30, 2016 and December 31, 2015, we had approximately $41.8 million and $43.6 million of cash and cash equivalents, respectively of which $14.6 million and $8.8 million, respectively, was held by foreign subsidiaries. All of the cash and cash equivalents as of June 30, 2016 and December 31, 2015 were readily convertible as of such dates into currencies used in the Companys operations, including the U.S. dollar. We are not aware of legal or economic restrictions on our ability to repatriate funds in the form of cash dividends, loans or advances. Total debt as of June 30, 2016 was $1,450.7 million, and included $1,001.7 million and $238.1 million outstanding on the Senior Term Loan and Junior Term Loan, respectively, and a $210.9 million financing obligation related to the Sale Leaseback discussed in note 10 to our unaudited combined financial statements included elsewhere in this prospectus. At June 30, 2016, we had no outstanding balance on the Revolver, which has total borrowing capacity of $285.0 million.
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The following table sets forth a summary of the net cash provided by (used in) operating, investing and financing activities for the period presented.
Net Cash Provided by (Used in) Operating Activities
Net cash used in operating activities was $6.4 million for the six months ended June 30, 2016, net cash used in operating activities was $0.0 million for the period from March 14, 2015 to June 30, 2015, net cash provided by operating activities was $121.4 million for the period from March 14, 2015 to December 31, 2015, and net cash used in operating activities was $48.2 million for the period from January 1, 2015 to March 13, 2015.
Net cash provided by operating activities was $25.9 million for 2014 compared to $31.7 million for 2013. The decrease in operating cash flow was driven by a decline in accounts payable due to timing of payments made to vendors.
Net Cash Used in Investing Activities
Net cash used in investing activities was $858.2 million for the six months ended June 30, 2016 primarily as a result of the cash used for the U.S. Pipe Acquisition and Sherman-Dixie Acquisition, $643.2 million for the period from March 14, 2015 to June 30, 2015 due to the Acquisition, $898.0 million for the period from March 14, 2015 to December 31, 2015 primarily due to the Acquisition and the Cretex Acquisition, and $2.8 million for the period from January 1, 2015 to March 13, 2015 due to cash used for property, plant, and equipment.
Net cash used in investing activities was $1.9 million for 2014 due to capital expenditures related mainly to fixed asset replacements of $22.8 million, partially offset by $5.9 million of net proceeds from the sale of long-term assets and a $15.0 million distribution from our investment in CP&P.
Net cash used in investing activities was $0.1 million for 2013, primarily due to capital expenditures of $10.5 million, partially offset by $10.4 million of net proceeds from the sale of closed plants.
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities was $861.9 million for the six month period ended June 30, 2016 primarily as a result of additional debt obligations incurred in connection with the Debt Recapitalization and the U.S. Pipe Acquisition as well as capital contributions from our parent, partially
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offset by dividend payments of $345.0 million to our parent, $665.6 million for the period from March 14, 2015 to June 30, 2015 primarily consisting of additional borrowings of long-term debt incurred in connection with the Acquisition as well as capital contributions from our parent, $822.6 million for the period from March 14, 2015 to December 31, 2015 due to borrowings of long-term debt incurred in connection with the Acquisition and capital contributions from our parent, and $60.9 million for the period January 1, 2015 compared to March 13, 2015 due to capital contributions from HeidelbergCement.
Net cash used in financing activities was $24.0 million for 2014 and $31.6 million for 2013, in each case primarily due to net distributions to HeidelbergCement.
Capital Expenditures
Our capital expenditures were $15.0 million for the six months ended June 30, 2016, and $7.0 million for the period from March 14, 2015 to June 30, 2015, $20.0 million for the period from March 14, 2015 to December 31, 2015, and $2.7 million for the period from January 1, 2015 to March 13, 2015. We had capital expenditures of $25.3 million, and $10.6 million in 2014 and 2013, respectively. Capital expenditures primarily related to equipment, such as plant and mobile equipment, expansion of existing facilities and environmental and permit compliance projects.
Contractual Obligations and Other Long-Term Liabilities
The following table summarizes our significant contractual obligations as of June 30, 2016. Some of the amounts included in the table are based on managements estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, our actual payments may vary from those reflected in the table.
Payment Due by Period | ||||||||||||||||||||||||||||
Total | 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Senior Term Loan |
1,035,721 | | | | | | 1,035,721 | |||||||||||||||||||||
Junior Term Loan |
260,000 | | | | | | 260,000 | |||||||||||||||||||||
Financing obligation |
217,404 | | | | | | 217,404 | |||||||||||||||||||||
Interest on indebtedness |
1,024,369 | 73,445 | 111,856 | 112,201 | 112,552 | 112,911 | 501,404 | |||||||||||||||||||||
Operating leases |
38,814 | 5,874 | 8,018 | 6,935 | 4,832 | 3,125 | 10,030 | |||||||||||||||||||||
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Total Commitments |
2,576,308 | 79,319 | 119,874 | 119,136 | 117,384 | 116,036 | 2,024,559 | |||||||||||||||||||||
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In connection with this offering or shortly thereafter, we expect to enter into new term loans and revolving lines of credit or otherwise refinance our long-term indebtedness. See Description of Certain Indebtedness.
Additionally, we have accrued $18.9 million in other long-term liabilities as of June 30, 2016. See note 13 to our unaudited condensed combined financial statements included elsewhere in this prospectus.
Off-Balance Sheet Arrangements
In the ordinary course of our business, we are required to provide surety bonds and standby letters of credit to secure performance commitments, particularly in our Water Pipe & Products and Bricks segments. As of June 30, 2016, outstanding stand-by letters of credit amounted to $22.6 million.
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Material Weaknesses in Internal Control Over Financial Reporting
Our management is responsible for the design, implementation and maintenance of our internal controls over our financial reporting as defined in Rule 13a-15(e) promulgated under the Exchange Act. In connection with the audit of our combined financial statements during the period from March 14, 2015 to December 31, 2015, material weaknesses in our internal control over financial reporting were identified. A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. These material weaknesses resulted in material adjustments to our combined financial statements identified during the audit and corrected in historical periods presented.
The two material weaknesses identified as of December 31, 2015 were:
| Systems, processes and people: this material weakness related to the fact we (i) did not have adequate systems in place for recording transactions, (ii) did not have well designed processes under which we could complete our financial statement close process and (iii) were heavily dependent on HeidelbergCements people for support functions. |
| Systems The issue regarding our systems related to the fact we did not maintain a general ledger in which transactions were recorded on a basis that is consistent with policies established for purposes of complying with GAAP and consistent with our business practices independent of HeidelbergCement and its affiliates. At various times in 2015 prior to the Acquisition, our accounting records were maintained by affiliates of HeidelbergCement under accounting policies intended to comply with HeidelbergCements IFRS group reporting requirements or, following the Acquisition, under those same accounting policies under the terms of a Transition Services Agreement with HeidelbergCement. In order to prepare financial statements as a stand-alone company in compliance with GAAP, we were required to record a significant number of manual adjusting entries and other adjustments necessary to adjust the financial statements to an appropriate degree of precision necessary for our stand-alone reporting to be accurate. |
| Processes Prior to the Acquisition, we were one member of HeidelbergCements large multinational group of companies and were therefore not required to produce stand-alone financial reporting. Our routine policies, procedures and practices that existed as of December 31, 2015 were developed to process transactions and produce financial data to meet HeidelbergCements financial reporting needs under IFRS. Our accounting policies and practices had not been substantially modified and documented since the Acquisition. As such, we had not established well-defined processes under which we could complete our financial statement close process for stand-alone GAAP financial reporting at that time. |
| People (dependence on HeidelbergCement) In order to produce financial statements in compliance with GAAP, we relied on the resources of HeidelbergCement and its affiliates following the Acquisition. Among other things, at times in 2015, both prior to the Acquisition and following the Acquisition pursuant to a transition services agreement, we were specifically dependent on HeidelbergCement for the provision of legal services, accounting and finance services, human resources, marketing and contract support, customer support, treasury, facility and land management and other corporate and infrastructure services. Additionally, an extensive number of third party service providers were performing routine financial statement close processes, including qualitative activities, for much of 2015. We have largely eliminated our reliance on HeidelbergCement personnel and third-parties; however, the training of personnel hired and establishment of effective policies and procedures will continue to be a significant undertaking. |
| Inventory: this material weakness related to the cumulative impact of control deficiencies found in our inventory cycle and the fact that the required standard costing and physical observation audit adjustments to inventory was considered material to our financial statements. |
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Each of these material weaknesses could result in a material error and a misstatement of the account balances or disclosures that could result in a material misstatement to our annual or interim combined financial statements that would not be prevented or detected. See Risk Factors.
We are in the process of implementing a remediation plan to specifically address these material weaknesses and to improve the effectiveness of our internal control over financial reporting. The specific aspects of our remediation plan include:
| The redesign and implementation of internal controls and process flows for each business cycle (Purchase to Pay, Quote to Cash, Inventory, Payroll and Benefits, and Financial Close and Reporting) and subsequent implementation of these processes and controls to field locations; |
| Assessment of the design and operating effectiveness of our enterprise resource planning, or ERP, system; |
| Training users on our ERP system use and controls; |
| Assessing competencies of existing accounting and finance personnel with responsibilities for financial accounting and reporting, and developing ongoing training programs; |
| Recruiting and hiring accounting and finance personnel with the appropriate accounting and reporting technical skills to support its financial reporting responsibilities; and |
| Recruiting and hiring additional finance personnel to support internal control documentation, testing and monitoring of controls. |
While management has concluded that we have material weaknesses in our internal control over financial reporting, we have devoted a significant amount of time and resources to the analysis of our historical combined financial statements included elsewhere in this prospectus. Accordingly, management believes that our historical combined financial statements included elsewhere in this prospectus fairly present in all material respects, our financial condition, results of operations and cash flows.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected or that judgments in decision-making are not based on faulty input.
Our independent public accounting firm has not yet performed an audit of our internal control over financial reporting and is not required to report on managements assessment of our internal control over financial reporting until the second annual report on Form 10-K that we file with the SEC.
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 utilize derivative instruments to manage selected foreign exchange and interest rate exposures. See note 9 to our audited combined financial statements included elsewhere in this prospectus.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our long-term debt. The interest expense associated with our long-term debt will vary with market rates. Based upon our outstanding principal amount of debt of $749.5 million at December 31, 2015, an increase in the current rate levels of 1% would result in an increase in our annual interest expense of $7.5 million.
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Foreign Currency Risk
Approximately 11.2 of our net sales for the six months ended June 30, 2016 were in Canada. As a result, we are exposed to movements in foreign exchange rates between the U.S. dollar and the Canadian dollar. Based upon our net sales for the six months ended June 30, 2016 we estimate that a 1% change in the exchange rate between the U.S. dollar and the Canadian dollar would affect net sales by approximately $0.7 million. This may differ from actual results depending on the levels of net sales in Canada.
Commodity Price Risk
We are subject to commodity price risks with respect to price changes mainly in the electricity and natural gas markets and other raw material costs, such as cement, aggregates, steel and clay. Price fluctuations on our key inputs have a significant effect on our financial performance. The markets for most of these commodities are cyclical and are affected by factors such as the global economic conditions, changes in or disruptions to industry production capacity, changes in inventory levels and other factors beyond our control. See Risk Factors.
Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk consist principally of accounts receivable. We provide our products to customers based on an evaluation of the financial condition of our customers, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customers financial condition. We monitor the exposure for credit losses and maintain allowances for anticipated losses. Concentrations of credit risk with respect to our accounts receivable are limited due to the large number of customers comprising our customer base and their dispersion among many different geographies.
Critical Accounting Policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Although management bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances, actual results may differ to some extent from the estimates on which our financial statements have been prepared at any point in time. A summary of our significant accounting policies is included in note 2 to the audited combined financial statements included elsewhere in this prospectus. We believe that the critical accounting policies listed below involve our more significant judgments, assumptions, and estimates and, therefore, could have the greatest potential impact on the financial statements.
Revenue recognition
Revenues are recognized by the Company when the risks and rewards associated with the transaction have been transferred to the purchaser, which is demonstrated when all the following conditions are met: evidence of a binding arrangement exists (generally, purchase orders), products have been delivered or services have been rendered, there is no future performance required, fees are fixed or determinable and amounts are collectable under normal payment terms. Sales represent the net amounts charged or chargeable in respect of services rendered and goods supplied, excluding intercompany sales. Sales are recognized net of any discounts given to the customer.
The Company bills and incurs shipping costs to third parties for the transportation of building products to customers. For the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, the
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Company recorded freight costs of approximately $59,943, $11,041, $69,862, and $63,301, respectively, on a gross basis within net sales and cost of goods sold in the accompanying combined statements of operations.
The Companys revenues primarily relate to product shipments. For certain engineering and construction contracts and building contracting arrangements, the Company recognizes revenue using the percentage of completion method, based on total contract costs incurred to date compared to total estimated cost at completion for each contract. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined. Pre-contract costs are expensed as incurred. If estimated total costs on a contract indicate a loss, the entire loss is provided for in the financial statements immediately. To the extent the Company has invoiced and collected from its customers more revenue than has been recognized as revenue using the percentage of completion method, the Company records the excess amount invoiced as deferred revenue. For the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, revenue recognized in continuing operations using the percentage of completion method amounted to 5%, 4%, 3% and 4% of total net sales, respectively.
Business Combinations
Assets acquired and liabilities assumed in business combination transactions, as defined by ASC 805, Business Combination , are recorded at fair value using the acquisition method of accounting. We allocate the purchase price of acquisitions based upon the fair value of each component which may be derived from various observable and unobservable inputs and assumptions. Initial purchase price allocations are preliminary and subject to revision within the measurement period, not to exceed one year from the date of the transaction. The fair value of property, plant and equipment and intangible assets may be based upon the discounted cash flow method that involves inputs that are not observable in the market (Level 3). Goodwill assigned represents the amount of consideration transferred in excess of the fair value assigned to identifiable assets acquired and liabilities assumed.
Impairment or disposal of long-lived assets
The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment . ASC 360 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for impairment are significantly impacted by estimates of future prices for the Companys products, capital needs, economic trends in the construction sector and other factors. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.
The Company assesses impairment of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For purposes of evaluating impairment of long-lived assets held in use, the Company has determined this level to be the asset group level, which are defined as geographical market clusters of plants. For assets meeting the criteria for classification as held for sale under ASC 360, the impairment is assessed at the disposal group level, generally the specific plant or plants held for sale.
Goodwill and other intangible assets, net
The goodwill reflected in the combined Successor balance sheets relates to the recognition of goodwill in the Acquisition and in the Cretex Acquisition.
112
Goodwill represents the excess of costs over the fair value of identifiable assets acquired and liabilities assumed.
The Company evaluates goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets . ASC 350 requires goodwill to be either qualitatively or quantitatively assessed for impairment annually (or more frequently if impairment indicators arise) for each reporting unit. The Company performs its annual impairment testing of goodwill as of October 1 of each year and in interim periods if events occur that would indicate that it is more likely than not goodwill may be impaired.
The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the net book value may not be recoverable. Intangible assets with finite lives consist of customer relationships, customer backlogs, and brand names, and are amortized under a consumption method over the estimated useful lives. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends.
If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net book value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the remaining amortization period, the Company reduces the net book value of the related intangible asset to fair value and may adjust the remaining amortization period.
Inventories
Inventories are valued at the lower of cost or market. The Companys inventories are valued using the average cost method. Inventories include materials, labor and applicable factory overhead costs. The value of inventory is adjusted for damaged, obsolete, excess and slow-moving inventory. Market value of inventory is estimated considering the impact of market trends, an evaluation of economic conditions, and the value of current orders relating to the future sales of each respective component of inventory.
Recent Accounting Pronouncements
A summary of recent accounting pronouncements and our assessment of any expected impact of these pronouncements if known is included in note 2 to the unaudited condensed combined financial statements included elsewhere in this prospectus.
113
NON-GAAP FINANCIAL INFORMATION
In addition to our results under GAAP, in this prospectus we also present EBITDA, Adjusted EBITDA and Adjusted EBITDA margin for historical periods and on a pro forma basis. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and have been presented in this prospectus as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before impairment and restructuring charges, (gains)/losses on the sale of property, plant and equipment and certain other income and expenses, such as transaction costs, carve-out costs related to our separation from HeidelbergCement and costs associated with disposed sites. Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of net sales. Operating margin represents income (loss) from operations as a percentage of net sales. We present these measures for the historical periods covered by our audited combined financial statements, the historical financial statements of U.S. Pipe and the historical financial statements of Cretex, as well as on a pro forma basis for the periods reflected in and the transactions accounted for in the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are presented in this prospectus because they are important metrics used by management as one of the means by which it assesses our financial performance. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as supplements to GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to allocate resources and to compare our performance relative to our peers. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are also important measures for assessing our operating results and evaluating each operating segments performance on a consistent basis, by excluding the impacts of depreciation, amortization, income tax expense, interest expense and other items not indicative of ongoing operating performance. Additionally, these measures, when used in conjunction with related GAAP financial measures, provide investors with additional financial analytical framework which management uses, in addition to historical operating results, as the basis for financial, operational and planning decisions and present measurements that third parties have indicated are useful in assessing our company and its results of operations.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin have certain limitations. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income and Adjusted EBITDA margin should not be considered as an alternative to operating margin, or in the case of any of the non-GAAP measures, as measures of financial performance or any other performance measure derived in accordance with GAAP. These measures also should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items for which these non-GAAP measures make adjustments. Additionally, EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not intended to be liquidity measures because of certain limitations such as:
| they do not reflect our cash outlays for capital expenditures or future contractual commitments; |
| they do not reflect changes in, or cash requirements for, working capital; |
| they do not reflect interest expense, or the cash requirements necessary to service interest, or principal payments, on indebtedness; |
| they do not reflect income tax expense or the tax necessary to pay income taxes; and |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and these non-GAAP measures do not reflect cash requirements for such replacements. |
114
Other companies, including other companies in our industry, may not use such measures or may calculate one or more of the measures differently than as presented in this prospectus, limiting their usefulness as a comparative measure.
In evaluating EBITDA, Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we will incur expenses that are the same as or similar to some of the adjustments made in our calculations below and our presentation of EBITDA, Adjusted EBITDA and Adjusted EBITDA margin should not be construed to mean that our future results will be unaffected by such adjustments. Management compensates for these limitations by using EBITDA, Adjusted EBITDA and Adjusted EBITDA margin as supplemental financial metrics and in conjunction with our results prepared in accordance with GAAP. The non-GAAP information below and elsewhere in this prospectus should be read in conjunction with our audited and unaudited combined financial statements and the related notes and the historical financial statements of U.S. Pipe and the related notes included elsewhere in this prospectus and the information set forth in the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
Our Company
The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA and Adjusted EBITDA margin to operating margin for the Company for the periods presented. See our audited and unaudited combined financial statements and the related notes included elsewhere in this prospectus.
Successor | Predecessor | |||||||||||||||||||
For the
period from March 14, 2015 to December 31, 2015 |
For the
period from January 1, 2015 to March 13, 2015 |
Year ended
December 31, 2014 |
Year ended
December 31, 2013 |
|||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net Income (loss) |
$ | (82,786 | ) | $ | (5,756 | ) | $ | 8,848 | $ | (247,298 | ) | |||||||||
Less: Gain (loss) on discontinued operations, net of income tax |
| | (1,260 | ) | 3,018 | |||||||||||||||
Depreciation and amortization |
32,930 | 6,894 | 36,605 | 38,560 | ||||||||||||||||
Interest expense |
45,953 | 84 | | | ||||||||||||||||
Income tax (benefit) expense |
5,778 | (742 | ) | 2,417 | 2,561 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
EBITDA |
1,875 | 480 | 46,610 | (203,159 | ) | |||||||||||||||
Impairment and restructuring 1 |
12,941 | 542 | 4,219 | 250,577 | ||||||||||||||||
(Gain) loss on sale of property, plant & equipment, net 2 |
618 | (122 | ) | (2,329 | ) | (3,999 | ) | |||||||||||||
Transaction costs 3 |
25,590 | 2,079 | 17,674 | | ||||||||||||||||
Inventory step-up impacting margin 4 |
29,969 | | | | ||||||||||||||||
Costs associated with disposed sites 5 |
2,632 | 299 | (362 | ) | 4,774 | |||||||||||||||
Other (gains) expenses 6 |
(1,671 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjusted EBITDA |
$ | 71,954 | $ | 3,278 | $ | 65,812 | $ | 48,193 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Operating margin |
-4.3 | % | -4.8 | % | 1.4 | % | -34.8 | % | ||||||||||||
Adjusted EBITDA margin |
10.0 | % | 2.5 | % | 8.9 | % | 6.9 | % |
1 | Adjusts for impairment of intangible assets and the following charges related to plant closures: (i) impairment charges in respect of abandoned fixed assets that had remaining book value and (ii) restructuring charges in respect of severance and lease and other contract termination costs. |
2 | Adjusts for the (gain) loss on sale of property, plant and equipment, primarily related to the disposition of two manufacturing facilities. |
115
3 | Adjusts for Successor and Predecessor legal, valuation, accounting, advisory and other costs related to the Acquisition and Predecessor expenses related to preparation for a public offering that was not ultimately consummated. |
4 | Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the Acquisition, the Cretex Acquisition and the Sherman-Dixie Acquisition. |
5 | Adjusts for the results of operations of our disposed roof tile business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of Adjusted EBITDA presented herein. |
6 | Adjusts for other (gains) losses, such as gain on insurance proceeds related to the destruction of property. |
U.S. Pipe
The following table reconciles net income (loss) to EBITDA and Adjusted EBITDA and Adjusted EBITDA margin to operating margin for U.S. Pipe for the periods presented. See the audited and unaudited financial statements and the related notes of U.S. Pipe included elsewhere in this prospectus.
Year ended September 30, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
(in thousands) | ||||||||||||
Net income |
$ | 25,235 | $ | 697 | $ | (465 | ) | |||||
|
|
|
|
|
|
|||||||
Less: Net income (loss)noncontrolling interest |
$ | 3,457 | $ | (1,418 | ) | $ | | |||||
|
|
|
|
|
|
|||||||
Net income (loss)attributable to U.S. Pipe |
$ | 21,777 | $ | 2,115 | $ | (465 | ) | |||||
|
|
|
|
|
|
|||||||
Net income |
$ | 21,777 | $ | 2,115 | $ | (465 | ) | |||||
Depreciation and amortization |
35,402 | 29,354 | 21,347 | |||||||||
Interest expense |
20,175 | 16,914 | 4,598 | |||||||||
Income tax expense |
13,358 | (2,965 | ) | (1,368 | ) | |||||||
|
|
|
|
|
|
|||||||
EBITDA |
90,712 | 45,418 | 24,111 | |||||||||
Impairment and restructuring 1 |
| 5,321 | | |||||||||
Loss on sale of property, plant and equipment, net 2 |
1,248 | 1,479 | 1,772 | |||||||||
Acquisition related costs 3 |
2,122 | 1,094 | 114 | |||||||||
Other (gains) expense 4 |
(4,788 | ) | (716 | ) | | |||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA |
$ | 89,294 | $ | 52,595 | $ | 25,997 | ||||||
|
|
|
|
|
|
|||||||
Operating margin |
9.3 | % | 2.8 | % | 1.2 | % | ||||||
Adjusted EBITDA margin |
14 | % | 9.8 | % | 5.6 | % |
1 | Adjusts for charges related to U.S. Pipe restructuring its operations into three foundry locations and the related temporary closing of one facility. |
2 | Adjusts for the loss on sale of property, plant and equipment, primarily related to the disposition of equipment. |
3 | Adjusts for legal, valuation, accounting and advisory costs related to acquisition transactions. |
4 | Adjusts for insurance proceeds received in connection with a fire at a production facility, net of other non-recurring costs associated with a financing and legal costs associated with an investigation. |
116
Cretex
The following table reconciles net income to EBITDA and Adjusted EBITDA and Adjusted EBITDA margin to operating margin for Cretex for the periods presented. See the audited and unaudited financial statements and the related notes of Cretex included elsewhere in this prospectus.
52 Week
Period ended September 30, |
Fiscal year ended | |||||||||||
December 27, | December 28, | |||||||||||
2015 | 2014 | 2013 | ||||||||||
(in thousands) | ||||||||||||
Net income |
$ | 14,634 | $ | 11,776 | $ | 9,358 | ||||||
Depreciation and amortization |
5,342 | 6,524 | 6,066 | |||||||||
Interest expense |
1,029 | 1,226 | 1,551 | |||||||||
Income tax expense |
| | | |||||||||
|
|
|
|
|
|
|||||||
EBITDA |
21,005 | 19,526 | 16,975 | |||||||||
Impairment and restructuring 1 |
267 | 102 | 76 | |||||||||
Gain on sale of property, plant and equipment, net 2 |
(310 | ) | (227 | ) | (502 | ) | ||||||
Other (gains) expense 3 |
| 148 | 325 | |||||||||
|
|
|
|
|
|
|||||||
Adjusted EBITDA |
$ | 20,962 | $ | 19,549 | $ | 16,874 | ||||||
|
|
|
|
|
|
|||||||
Operating margin |
10.5 | % | 7.4 | % | 6.8 | % | ||||||
Adjusted EBITDA margin |
14.0 | % | 11.1 | % | 10.5 | % |
1 | Adjusts for the following charges related to plant closures: (i) impairment charges in respect of abandoned fixed assets that had remaining book value and (ii) restructuring charges in respect of severance and other contract termination costs. |
2 | Adjusts for the gain on sale of property, plant and equipment, primarily related to the disposition of manufacturing facilities. |
3 | Adjusts for costs incurred primarily in respect of a labor strike and systems updates. |
117
Pro Forma
The following tables reconcile pro forma net income (loss) to pro forma EBITDA and pro forma Adjusted EBITDA and pro forma Adjusted EBITDA margin to pro forma operating margin for the periods presented. See the section entitled Unaudited Pro Forma Condensed Combined Financial Information.
For the Six Months Ended June 30, 2016
Water
Pipe & Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net Income |
$ | 23,965 | $ | 86,742 | $ | 2,588 | $ | (86,536 | ) | $ | 26,759 | |||||||||
Depreciation and amortization |
34,925 | 20,032 | 3,992 | 375 | 59,324 | |||||||||||||||
Interest expense |
1,619 | 6,941 | | 46,018 | 54,578 | |||||||||||||||
Income tax (benefit) expense |
5,319 | (38,814 | ) | 688 | | (32,807 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 65,828 | $ | 74,901 | $ | 7,268 | $ | (40,143 | ) | $ | 107,854 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impairment and restructuring 1 |
23 | | | | 23 | |||||||||||||||
(Gain) loss on sale of property, plant, and equipment 2 |
135 | 198 | | 847 | 1,180 | |||||||||||||||
Acquisition related costs 3 |
69 | | | 12,078 | 12,147 | |||||||||||||||
Inventory step-up impacting margin 4 |
10,637 | 1,656 | | | 12,293 | |||||||||||||||
Cost associated with disposed sites 5 |
| 188 | | 665 | 853 | |||||||||||||||
Other one-time (gains) expenses 6 |
343 | | | | 343 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 77,035 | $ | 76,943 | $ | 7,268 | $ | (26,553 | ) | $ | 134,693 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Margin |
7.2 | % | 16.3 | % | 4.6 | % | NM | 6.0 | % | |||||||||||
Adjusted EBITDA Margin |
18.6 | % | 22.7 | % | 10.2 | % | NM | 16.3 | % |
For the Six Months Ended June 30, 2015
Water
Pipe & Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net Income |
$ | (1,007 | ) | $ | 14,954 | $ | (7,611 | ) | $ | (82,135 | ) | $ | (75,799 | ) | ||||||
Depreciation and amortization |
35,574 | 20,353 | 5,153 | 335 | 61,415 | |||||||||||||||
Interest expense |
1,597 | 6,870 | | 42,057 | 50,524 | |||||||||||||||
Income tax (benefit) expense |
7,536 | 24 | | | 7,560 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 43,700 | $ | 42,201 | $ | (2,458 | ) | $ | (39,743 | ) | $ | 43,700 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impairment and restructuring 1 |
72 | $ | 813 | | | 885 | ||||||||||||||
(Gain) loss on sale of property, plant, and equipment 2 |
24 | (329 | ) | (2 | ) | | (307 | ) | ||||||||||||
Acquisition related costs 3 |
1,752 | | | 27,342 | 29,094 | |||||||||||||||
Inventory step-up impacting margin 4 |
4,811 | 13,626 | 4,386 | (43 | ) | 22,780 | ||||||||||||||
Cost associated with disposed sites 5 |
| 540 | | 353 | 893 | |||||||||||||||
Other one-time (gains) expenses 6 |
1,071 | | | | 1,071 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 51,430 | $ | 56,851 | $ | 1,926 | $ | (12,091 | ) | $ | 98,116 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Margin |
2.0 | % | 6.7 | % | (11.6 | )% | NM | (2.2 | )% | |||||||||||
Adjusted EBITDA Margin |
12.4 | % | 17.8 | % | 2.9 | % | NM | 12.2 | % |
118
For the Year Ended December 31, 2015
Water Pipe
& Products |
Drainage Pipe
& Products |
Bricks |
Corporate and
Other |
Pro Forma
Combined |
||||||||||||||||
Net Income |
$ | 16,557 | $ | 48,605 | $ | (10,209 | ) | $ | (174,934 | ) | $ | (119,981 | ) | |||||||
Depreciation and amortization |
76,305 | 39,942 | 10,012 | 734 | 126,993 | |||||||||||||||
Interest expense |
3,194 | 13,775 | | 85,444 | 102,413 | |||||||||||||||
Income tax (benefit) expense |
16,357 | 480 | (1,826 | ) | 2,507 | 17,518 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 112,413 | $ | 102,802 | $ | (2,023 | ) | $ | (86,249 | ) | $ | 126,943 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Impairment and restructuring 1 |
988 | 580 | 159 | | 1,727 | |||||||||||||||
(Gain) loss on sale of property, plant, and equipment 2 |
1,268 | 504 | (7 | ) | 2 | 1,767 | ||||||||||||||
Acquisition related costs 3 |
5,606 | 3,720 | 1,001 | 34,915 | 45,242 | |||||||||||||||
Inventory step-up impacting margin 4 |
5,909 | 17,374 | 6,729 | (43 | ) | 29,969 | ||||||||||||||
Cost associated with disposed sites 5 |
| 654 | | 2,019 | 2,673 | |||||||||||||||
Other one-time (gains) expenses 6 |
(4,788 | ) | (1,671 | ) | | | (6,459 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 121,396 | $ | 123,963 | $ | 5,859 | $ | (49,356 | ) | $ | 201,862 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Margin |
3.9 | % | 8.6 | % | (8.7 | )% | NM | (0.1 | )% | |||||||||||
Adjusted EBITDA Margin |
13.7 | % | 17.4 | % | 4.2 | % | NM | 11.6 | % |
1 | Adjusts for the following charges related to plant closures: (i) impairment charges in respect of abandoned fixed assets that had remaining book value and (ii) restructuring charges in respect of severance and lease and other contract termination costs. |
2 | Adjusts for the (gain) loss on sale of property, plant and equipment, primarily related to the disposition of two manufacturing facilities. |
3 | Adjusts for legal, valuation, accounting and advisory costs related to the Acquisition, the Cretex Acquisition, the Sherman-Dixie Acquisition and the U.S. Pipe Acquisition and costs related to the separation of the Successor from HeidelbergCement subsequent to the Acquisition to establish the entity as a standalone business. |
4 | Adjusts for the effect of the purchase accounting step-up in the value of inventory to fair value recognized in cost of goods sold as a result of the Acquisition, the Cretex Acquisition and the Sherman-Dixie Acquisition. |
5 | Adjusts for the results of operations of our disposed roof tile business and other disposed sites for the periods presented, net of specific items for which adjustments are separately made elsewhere in the calculation of Adjusted EBITDA presented herein. |
6 | Adjusts for other (gains) losses, such as gain on insurance proceeds related to the destruction of property and, with respect to U.S. Pipe, refinancing fees. |
119
Our Company
We are a leading manufacturer of pipe and precast products by sales volume in the United States and Eastern Canada for a variety of water-related infrastructure applications, including water transmission, distribution and drainage. We provide critical infrastructure components for a broad spectrum of construction projects across residential, non-residential and infrastructure markets. Our extensive suite of end-to-end products covers the First Mile to the Last Mile of the water infrastructure grid, ranging from large diameter pipe that transports water to and from treatment centers and manages drainage along major transportation corridors, to smaller diameter pipe that delivers potable water to, and removes wastewater from, end users in residential and commercial settings. We employ a specialized technical salesforce, including engineers and field service representatives, which enables us to deliver a high degree of customer service, create tailored solutions and ensure our products meet project specifications to maximize applications in the field. We believe that our product breadth, footprint in the United States and Eastern Canada and significant scale help make us a one-stop shop for water-related pipe and products, and a preferred supplier to a wide variety of customers, including contractors, distributors and municipalities.
We are a market leader within each of our three business segments: Drainage Pipe & Products, Water Pipe & Products and Bricks. In 2015, approximately 75% of our pro forma net sales was generated from our concrete drainage pipe and precast products, DIP and concrete pressure pipe products, product categories in which we hold a leading market share position by sales volume in the United States and Eastern Canada. We are also one of the top manufacturers of bricks in the United States and operate the only commercial brick manufacturing plant in Eastern Canada.
Our manufacturing and distribution network is one of the most extensive in the industry, allowing us to serve most major U.S. and Eastern Canadian markets. We operate 117 manufacturing facilities and currently have significant additional manufacturing capacity available in each of our segments, providing substantial room to increase production to meet short-cycle demand with minimal incremental investment. These strategically located facilities and our broad distribution network provide us with a local presence and the necessary proximity to our customers to minimize delivery time and distribution costs.
As one of the only companies of scale in our industry that manufactures both water drainage pipe and precast structures (used primarily for stormwater and drainage applications) and water transmission and distribution pipe (used primarily to transport potable water and as a component of wastewater systems), our complementary product portfolio is well positioned to serve both the projected $10.4 billion stormwater and wastewater infrastructure market and the projected $7.9 billion potable water transmission and distribution market, each based on Freedonia projections of 2018 total U.S. market demand. AWWA estimates that nearly $1 trillion will need to be spent from 2010 to 2035 to repair and upgrade aging water infrastructure in the United States. In December 2015, the FAST Act was enacted by the U.S. federal government authorizing $305.0 billion of funding over the following five years to upgrade transportation-related infrastructure, more than 70% of which relates to highway spending, which supports a key end market for our Drainage Pipe & Products business due to the stormwater, drainage and related needs associated with highway construction and improvement projects. As Buy America provisions become increasingly prevalent under federal law, we believe our domestic manufacturing footprint will be a competitive advantage. Additionally, within the water transmission and distribution markets, Dodge market forecasts suggest that new residential and non-residential construction starts, which remain well below long-term historical averages, are expected to grow from 2015 levels. We believe that our exposure to each of the residential, non-residential and infrastructure end markets will allow us to benefit from both secular and cyclical growth across each of these end markets. The residential, non-residential and infrastructure end markets in the United States
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and Eastern Canada have different growth drivers and operating dynamics, and the cyclical performance of these markets has historically been staggered during different stages of the broader economic cycle.
For the Predecessor period from January 1, 2015 to March 13, 2015, we generated net sales of $132.6 million, a net loss of $5.8 million and Adjusted EBITDA of $3.3 million, and for the Successor period from March 14, 2015 to December 31, 2015, we generated net sales of $722.7 million, a net loss of $82.8 million and Adjusted EBITDA of $72.0 million. In 2015, we generated pro forma net sales of $1,745.9 million, pro forma net loss of $119.0 million and pro forma Adjusted EBITDA of $202.5 million. Adjusted EBITDA and pro forma Adjusted EBITDA are non-GAAP measures. See the section entitled Non-GAAP Financial Information for a description of how we define and calculate Adjusted EBITDA and pro forma Adjusted EBITDA, a reconciliation thereof to net income (loss) and pro forma net income (loss), respectively, and a description of why we believe these measures are important.
The following charts represent the pro forma net sales contribution by business segment for the 12 months ended December 31, 2015 and an estimated breakdown by end market for the same period. In 2015, 23% of both our Predecessor and Successor net sales and 50% of our pro forma net sales were generated by our Water Pipe & Products segment; 60% of both our Predecessor and Successor net sales and 42% of our pro forma net sales were generated by our Drainage Pipe & Products segment; and 15% and 16% of our Predecessor and Successor net sales, respectively, and 8% of our pro forma net sales were generated by our Bricks segment. In 2015, we estimate that approximately 36% and 39% of our Predecessor and Successor net sales, respectively, and approximately 44% of our pro forma net sales were generated from residential construction activity; approximately 47% and 45% of our Predecessor and Successor net sales, respectively, and approximately 31% of our pro forma net sales were generated from government-funded infrastructure projects; and approximately 17% and 16% of our Predecessor and Successor net sales, respectively, and approximately 25% of our pro forma net sales were generated from non-residential construction activity.
Pro Forma Net Sales by Segment* and Estimated End Market |
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* Excludes Corporate and Other business segment.
Since being acquired from HeidelbergCement in 2015, we have undergone a significant transformation to become a leading water infrastructure company throughout the United States and Eastern Canada. As part of this transformation, we have:
| Upgraded our senior leadership team, including a new CEO and CFO, both of whom have relevant public company leadership experience and manufacturing industry expertise |
| Rebranded our business to Forterra to strengthen and unify our corporate identity |
| Strengthened corporate functions to operate as a fully autonomous, standalone company |
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| Implemented incentive compensation arrangements at the sales level to drive profitable growth and instill a strong performance culture |
| Launched numerous operational, commercial and cost savings initiatives throughout our businesses, targeting efficiency and profitability improvements from which we believe we have realized more than $8.0 million of year to date savings as of May 31, 2016 and will realize further substantial efficiencies |
| Executed our strategic acquisition strategy to build geographic scale and significantly enhance our extensive product offering with the acquisitions of Cretex, Sherman-Dixie, U.S. Pipe, an industry leader in DIP manufacturing and sales, and Bio Clean |
| Streamlined our product portfolio and refocused our efforts and resources on water infrastructure with strategic transactions, including the divestiture of our roof tile business |
Our organic growth strategy is focused on leveraging our low-cost operations, high level of customer service and product innovation capabilities, as well as our product breadth and industry-leading scale, to cross-sell our products to existing customers to increase penetration and project wins and to gain market share through new customers. Operationally, we continue to focus on efficiency and productivity improvements to reduce costs and drive margin improvements.
We have built a strong operating platform and continuously evaluate acquisition opportunities to complement our organic growth and improve our market positions within the markets we serve. Over the past three years, seven strategic acquisitions (including three acquisitions completed by U.S. Pipe) have provided meaningful, ongoing synergy benefits. We believe that our success in acquiring businesses has been the result of our highly disciplined approach, continuous monitoring of potential targets (with a focus on culture and people, among other things), and a market view that Forterra is a strong partner given our scale, culture and recent growth. We believe significant acquisition opportunities at attractive prices are still available given the relatively fragmented landscape in several of the sub-markets in which we operate.
Our Segments
Drainage Pipe & Products . We are the largest producer of concrete drainage pipe and precast products by sales volume in the United States and Eastern Canada. We have 72 manufacturing facilities across 30 states and two Canadian provinces. We believe our extensive product offering creates a compelling value proposition for our customers as it eliminates the need to engage multiple suppliers of stormwater and wastewater-related products for a single project, thereby maximizing efficiency and allowing our customers to meet more aggressive timetables. We also have the ability to custom-build products to complex specifications and regulations, further enhancing our ability to address customer needs. Our top ten Drainage Pipe & Products customers have an average tenure with us of approximately 17 years. Recently, we acquired concrete pipe and precast and related product manufacturers Cretex and Sherman-Dixie to further enhance our scale, geographic footprint and product portfolio.
Water Pipe & Products. We are the largest producer of DIP and concrete pressure pipe by sales volume in the United States and Eastern Canada. We offer significant product breadth and depth and technical service, addressing our customers full range of water transmission and distribution needs. Our 28 manufacturing facilities are strategically located across the United States and Eastern Canada, with ample swing capacity available to support increased production levels as demand in the construction industry continues to improve. Furthermore, we believe our expansive distribution network allows us to achieve lead times among the shortest in the industry. Our top ten Water Pipe & Products customers have an average tenure with us of approximately 24 years. Recently, we acquired U.S. Pipe, market leader within DIP, to diversify our product portfolio and enhance our service offering. U.S. Pipes recent acquisition history includes the acquisitions of Griffin Pipe, Metalfit and Custom Fab.
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Bricks. We are one of the largest manufacturers of bricks by capacity in the United States and Eastern Canada. We operate 17 manufacturing facilities, strategically located near large population centers or major census MSAs and raw material reserves. We offer more than 300 core styles of bricks to both residential and non-residential end markets. Our facilities are located in Ontario, Quebec, Kentucky, Michigan, North Carolina, South Carolina and Texas.
Key Segments 1 |
Drainage Pipe & Products |
Water Pipe & Products |
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Products | ||||
Product Applications |
Stormwater and wastewater infrastructure |
Potable and wastewater transmission and distribution |
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2018 Estimated U.S. Demand 2 | $10.4bn | $7.9bn | ||
Primary Market Channels |
Direct to Contractors Distributors |
Distributors Direct to Contractors, Municipalities and Utilities Waterworks |
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# of Manufacturing Facilities | 72 | 28 |
1 | This table does not reflect information for our Bricks or Corporate and Other business segments. See Non-GAAP Financial Information for more information. |
2 | FreedoniaProjected 2018 total market demand. |
Our Industry
Across the United States and Eastern Canada, we are a market leader in each of the following core product categories: concrete drainage pipe and precast, ductile iron pipe and concrete pressure pipe.
Core Products
Drainage Pipe & Products
Drainage pipe has residential, non-residential and infrastructure applications. It is primarily used for storm water applications such as storm drains for roads and highways and for residential and non-residential site developments. In addition, drainage pipe and concrete precast structures are used for sanitary sewers, low-pressure sewer force mains, tunneled systems, treatment plant piping and utility tunnels. Freedonia estimates U.S. total market demand for sewer and drainage pipe and wastewater concrete precast structures to grow at a CAGR of 7.4% from $7.2 billion in 2013 to $10.4 billion in 2018. We serve these markets primarily through our diverse portfolio of concrete drainage pipe, U.S. demand for which is expected to increase at a CAGR of 5.9% from 2013 to 2018, according to Freedonia estimates. Further, we serve the aforementioned markets with various precast structures, the demand for which Freedonia estimates to grow at a CAGR of 6.4% from 2013 to 2018. Rebounding levels of construction activity, replacement of aging stormwater and highway infrastructure and committed government funding programs are expected to support this growth. We typically sell our drainage pipe and precast concrete products to contractors that perform construction work for governments, residential and non-residential building owners and developers in markets across the United States and Eastern Canada.
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Water Pipe & Products
Water pipe and products are primarily used for potable and wastewater transmission. Water transmission pipe demand comes from water supply construction, especially within municipalities and residential construction. Among these applications, potable water is expected to maintain the largest portion of U.S. demand with projected growth at a CAGR of 8.2% from $5.3 billion in 2013 to $7.9 billion in 2018, according to Freedonia estimates. We serve these markets primarily through our diverse offering of DIP, prestressed concrete cylinder pipe and bar-wrapped pipe, as well as fittings and fabricated products.
Ductile iron inhibits corrosion, retains strength and prevents fractures better than cast iron and most other materials. Ductile iron also improves water flow compared to other materials, particularly plastic. U.S. market volume for DIP shipments (less than 24 diameter pipe) is expected to increase at a CAGR of 6.1% from 2013 to 2018, based on the key drivers of housing starts and waterline infrastructure spend, according to Freedonia estimates.
In larger diameters (greater than 24 diameter pipe), steel and concrete pipe are sturdier and more cost effective. Plastic pipe structural integrity is more dependent on firm soil bedding than concrete or steel, which can make engineers reluctant to use plastic in large diameters due to the increased installation cost. U.S. market demand for large diameter steel and concrete pipe is expected to increase at a CAGR of 4.6% from 2013 to 2018, based on increasing government spending on water infrastructure, according to Freedonia estimates.
Bricks
Our Bricks operations primarily serve the residential markets. Recovery in single family housing construction represents the largest driver of overall brick demand growth. The estimated demand for bricks in the United States and Eastern Canada is expected to grow at a CAGR of 11% from $1.3 billion in 2013 to $2.1 billion in 2018, according to Freedonia estimates. We are well-positioned to benefit from expected increases in residential housing starts and attractive market dynamics due to our competitive positioning and broad geographic footprint.
Core End Markets
North American water infrastructure, aging and strained by a growing population, requires substantial, prolonged capital investment totaling nearly $1 trillion across the U.S. according to the AWWA. According to the EPA, the U.S. potable water and waste and storm water infrastructures require a cumulative $682 billion investment in repairs and expansions over the next 20 years, with pipe representing a substantial proportion of the total capital need. In Canada, per CIRC, the replacement value for water infrastructure in fair to very poor condition areas totals $173 billion (CAD), where fair assets are defined as those with indicated deterioration and deficiencies and require attention and very poor assets are defined as near or beyond expected service life and unfit for sustained service, indicating that infrastructure reinvestment lags behind targeted levels.
We serve a range of infrastructure-related end markets. Based on the source of funding, we classify these construction markets into infrastructure, residential and non-residential.
Infrastructure
We estimate that 2015 sales to the infrastructure market represented 47% and 45% of our Predecessor and Successor net sales, respectively, and 31% of our pro forma net sales. Our main sales drivers in this market include the construction of streets, highways and storm and sanitary sewers. We expect to benefit from several drivers in this market, as U.S. and Canadian federal funding
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dynamics and public infrastructure requirements support continued growth. At the U.S. federal level, the FAST Act demonstrates the U.S. governments commitment to improving the countrys transportation infrastructure. More than 70% of the laws budget is dedicated to highway spending, providing multi-year visibility on federal highway funding. As a U.S.-based company, we are well-positioned to benefit from this new spending, as the legislation steps up federal Buy America requirements from 60% in 2015 to 70% in 2020. In its budget for 2016, the Canadian federal government proposed $11.9 billion (CAD) in infrastructure spending over the next five years, with $2.0 billion (CAD) in a clean water and wastewater fund and $2.2 billion (CAD) towards water, wastewater and waste management infrastructure.
Residential Construction
We estimate that 2015 sales to the residential construction market represented 36% and 39% of our Predecessor and Successor net sales, respectively, and 44% of our pro forma net sales. These revenues were largely driven by new U.S. residential construction, which is recovering from historic lows reached during the financial crisis. Though new housing starts grew at a CAGR of 14% from 2010 to 2015, according to the U.S. Census Bureau, current levels remain substantially below long-term averages, as outlined in the graph below.
U.S. Residential Housing Starts
Source: U.S. Census Bureau.
The new residential construction market is expected to continue to grow at a robust pace over the next few years, with Fannie Mae and CMHC forecasting a CAGR of 8% from 2015 to 2017 across the United States and Canada.
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Non-residential Construction
We estimate that 2015 sales to the non-residential construction market represented 17% and 16% of our Predecessor and Successor net sales, respectively, and 25% of our pro forma net sales. These revenues were driven largely by new U.S. non-residential construction, and we believe we will continue to benefit from this markets ongoing recovery from historical lows reached during the financial crisis. Though new non-residential construction starts grew, according to Dodge, at a CAGR of 7% from 2010 to 2015, current levels remain substantially below long-term average levels, as outlined in the graph below.
U.S. Non-Residential Starts
Source: Dodge and CMD Group
The non-residential construction market is expected to continue to grow at a CAGR of 8% from 2015 to 2017 across the United States and Canada, according to data from Dodge and CMD Group.
Our Recent Strategic Transactions
Cretex Acquisition
On October 1, 2015, we acquired all of the outstanding stock of Cretex Concrete Products, Inc. for $245.1 million. Cretex manufactures concrete pipe, box culverts, precast drainage structures, pre-stressed bridge components and ancillary precast products. The Cretex Acquisition expanded our market footprint into the Upper Midwestern United States. Cretex operates as part of our Drainage Pipe & Products segment. The Cretex Acquisition was financed with $240.0 million of incremental borrowings under the Senior Term Loan and cash on hand.
Sherman-Dixie Acquisition
On January 29, 2016, we acquired all of the outstanding stock of Sherman-Dixie Concrete Industries, Inc. for $66.8 million. Sherman-Dixie manufactures concrete pipe, box culverts, precast concrete utility products, storm and sanitary civil engineered systems and specialty engineered retainage systems in Kentucky, Tennessee, Alabama and Indiana. Sherman-Dixie operates as part of our Drainage Pipe & Products segment. The Sherman-Dixie Acquisition was financed with a draw on the Revolver.
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U.S. Pipe Acquisition
On April 15, 2016, we acquired all of the outstanding stock of USP Holdings Inc. for $775.1 million, subject to customary working capital adjustments. U.S. Pipe manufactures ductile iron pipe products for water distribution and water management applications and distributes its products throughout the United States. U.S. Pipe operates as part of our Water Pipe & Products segment. The U.S. Pipe Acquisition was financed with a $205.0 million draw on the Revolver and $573.6 million in cash on hand.
Bio Clean Acquisition
On August 4, 2016, we acquired all of the outstanding stock of Bio Clean Environmental, Inc. and Modular Wetland Systems, Inc. for aggregate consideration of $30.0 million. Bio Clean designs and sells storm water management systems that meet the requirements of local regulatory bodies regulating storm water quality. Bio Clean owns more than 25 patents for a variety of technologies relating to drainage and storm water management. Bio Clean operates as part of our Drainage Pipe & Products segment. The Bio Clean Acquisition was financed with cash on hand.
Roof Tile Disposition
On April 12, 2016, we sold our roof tile business for $10.5 million, subject to customary working capital adjustments.
Our Competitive Strengths
Leading Market Positions with Unmatched Scale and Footprint. We believe we are the largest manufacturer in the over $17.0 billion U.S. drainage and water transmission pipe market, as estimated by Freedonia. We believe we are a leader in the following major product categories: concrete drainage pipe and precast products, DIP and concrete pressure pipe. Our industry is relatively fragmented and local in nature due to the transportation costs associated with our products, particularly in the Drainage Pipe & Products business. Our industry has few participants of scale, and we are one of the only sizeable players with significant presence in both the Drainage Pipe & Products and Water Pipe & Products segments, with an extensive portfolio covering the First Mile to the Last Mile and a broad geographic footprint. Further, we believe we have one of the most extensive manufacturing and distribution networks in the water transmission and infrastructure industry. We believe our geographic footprint enables us to win more large business projects than our local or regional competitors, as we can provide services to contractors and distributors across geographies and product categories. Additionally, due to our scale, we have purchasing power with suppliers, which reduces our operating costs and enhances our ability to win business in competitive bidding processes.
Well-positioned to Benefit from Attractive Industry Fundamentals. Our exposure to each of the residential, non-residential and infrastructure end markets enables us to capitalize on the growth in demand and recovery in each of these end markets and diversifies our customer base. The construction industry is recovering, fueled by the continuing rebound in infrastructure, residential and non-residential activity. According to AWWA, water infrastructure in the United States will require nearly $1 trillion of investment for repairs and upgrades from 2010 to 2035. The U.S. and Canadian governments are committed to upgrading their aging infrastructure. The FAST Act allocates $305.0 billion to improving surface transportation infrastructure, and in its budget for 2016, the Canadian federal government proposed $11.9 billion (CAD) in infrastructure spending over the next five years, with $2.0 billion (CAD) in a clean water and wastewater fund and $2.2 billion (CAD) towards water, wastewater and waste management infrastructure. Additional secular industry trends support further infrastructure construction growth, including the growing demand for precast structure products, environmental regulations supporting on-site water management and continued urbanization.
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Furthermore, Dodge market forecasts suggest that both residential and non-residential construction starts will grow from 2015 levels, which remain well below the average of the most recent cyclical troughs, and significantly below the average annual starts since 1970. Lastly, we have a presence in each of the 40 most populous MSAs and ten most populous states, enabling us to benefit from the recovery in residential construction.
Complete Suite of Products to Serve Customers from the First Mile to the Last Mile. We believe we offer unmatched product breadth and depth compared to our competitors in the United States and Eastern Canada. In our Water Pipe & Products segment, our complementary product portfolio of concrete and steel pressure pipe and DIP addresses the broad range of our customers water transmission and distribution needs. Our comprehensive suite of products incorporates large diameter pipe that transports water to treatment plants as well as smaller diameter pipe for distribution to residential users. In our Drainage Pipe & Products segment, our diversified product offering creates a one-stop shop for water-related pipe and products. Our drainage offering creates a compelling value proposition for customers by eliminating the need to seek multiple bids for a single project, helping maximize efficiency for time sensitive orders. Finally, our extensive product offering also creates cross-selling opportunities for our segments due to our broad and diversified customer base.
Attractive and Expanding Margins and Strong Cash Flow Profile. Due to our increasing scale, cost cutting initiatives and our work toward integrating acquisitions, we have generated attractive and increasing margins, capitalizing on our low-cost operations and operating leverage. Our regional and local sales force, strategically located manufacturing facilities and broad distribution network allow us to serve our customers across the United States and Eastern Canada at a competitive cost with efficient procurement and operations. We expect to further increase our scale through acquisitions and, as a result, we expect to continue to generate purchasing power, operating leverage and cost saving opportunities. Furthermore, we have an ongoing strategy of implementing cost-cutting initiatives at our production plants. In the Water Pipe & Products segment, service, procurement and operational initiatives have reduced year to date operating costs by more than $1.5 million in DIP and $1.5 million in large diameter concrete and steel pipe, each as of May 31, 2016. In the Drainage Pipe & Products segment, we have recognized year to date savings of more than $5.0 million as of May 31, 2016 across three major plants due to purchasing initiatives. We continue to roll out cost and productivity improvements at new sites and have identified new cost reduction opportunities in resale items, transportation, logistics and energy. Additionally, we have increased our margins and cash flow through operational improvement of acquired businesses. The Sherman-Dixie Acquisition and U.S. Pipes acquisition of Griffin Pipe, specifically, provided consolidation opportunities with our existing plant network and improved the respective cost positions by reducing personnel and rationalizing older facilities.
Proven Ability to Identify, Close and Improve the Performance of Strategic Acquisitions. Over the last three years, we have acquired three businesses in our Drainage Pipe & Products segment and four businesses in our Water Pipe & Products segment (including three acquisitions by U.S. Pipe). Our acquisition strategy has been focused on three main pillars: reinforce our position in existing markets, expand our product offering and expand our geographic footprint. Acquisitions enable us to improve our product mix and expand our geographic scope, helping us to win business from new customers, cross-sell additional products to existing customers and optimize pricing through the enhanced value created by our differentiated product offering. We believe that our success in acquiring businesses has been the result of our highly disciplined acquisition strategy, continuous monitoring of potential targets in an opportunity-rich landscape and focus on culture and people, among other things. We have effectively sourced and closed both smaller strategic transactions, and larger transformative deals. In both instances, we have successfully achieved meaningful cost and revenue synergies through the implementation of best practices and operational improvement initiatives in the acquired businesses. In the instance of U.S. Pipes acquisition of Griffin Pipe, we have realized in excess of $40 million of synergies through cost savings.
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Experienced Management Team with Proven Ability to Grow Businesses and Integrate Acquisitions. Our management team, led by Jeff Bradley, our Chief Executive Officer, has a proven track record of increasing shareholder value and generating profitable growth, attractive margins and cash flow. Mr. Bradley and other key executives, including Matt Brown, the Chief Financial Officer, have relevant history managing public companies, as well as extensive experience in the manufacturing industry. Our management team has proven their ability to execute on our acquisition strategy, leading us in growth through three substantive acquisitions that more than doubled our 2015 historical net sales (excluding net sales from Cretex) on a pro forma basis. Further, Mr. Bradley and his team are continuing to execute a comprehensive program to drive commercial, operational and procurement excellence, as well as managing working capital to increase free cash flow.
Our Business Strategy
Our goal is to be our customers preferred provider of drainage pipe, water transmission pipe and related products. We intend to drive profitable growth in excess of the growth rates of the end markets in which we operate through the following key strategies:
Capitalize on Favorable, Multi-pronged Industry Growth Dynamics. The multi-pronged cyclical recovery in our construction-related end markets is well underway. We expect to benefit from increased demand generated by growth in both residential and non-residential construction activity. Further, there is a significant need to improve North Americas aging water and highway infrastructure. Operationally, we believe we are well positioned in the water transmission and distribution industry to capitalize on the increased funding allocated to water infrastructure improvement. The FAST Act will be a key underlying driver for our business as it dedicates more than 70% of its total budget to highway spending, supporting our key infrastructure end market. Secular industry trends, including the continued shift in product preference to rigid and zinc-coated pipe, environmental regulations in support of on-site water management and continued urbanization, support further incremental growth. Our reputation, extensive product offering and coast-to-coast distribution network provide us with competitive advantages that we expect will fuel growth in excess of that offered by already attractive market dynamics underlying our businesses.
Increase Market Share by Leveraging Our Scale, the First Mile to the Last Mile Suite of Products and Go-to-Market Strategy. Our scale enables us to be among the industrys lowest cost producers, while our strategically located manufacturing facilities and broad distribution network allow us to meet the particular needs of our customers. Our existing swing capacity enables us to meet customer demand and well positions us to win small and large projects. Moreover, our large and scalable installed asset base will allow us to respond swiftly to growing demand without having to increase capacity.
Our First Mile to the Last Mile product portfolio enables us to be a complete solutions provider and to serve as a one-stop shop for water-related pipe and products, increasing our customers overall spend on our products. Our ability to offer both pipe and precast products helps us better serve our infrastructure-related markets and differentiates us from our competitors.
Our go-to-market strategy is based on three main pillars. First, we incentivize our highly specialized technical salesforce to focus on profitable growth while offering our products and value-added services. Second, we target our key customers with a robust cross-selling sales organization, marketing the benefits of ordering from one supplier. Lastly, we focus on the implementation of systematic pricing strategies across all of our product categories.
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Leverage Our Commitment to Product Innovation and Technical Expertise to Optimize Product Mix and Capitalize on Market Opportunities . We continuously explore new applications for our existing product portfolio and develop new products and solutions that allow us to stay at the forefront of the needs of the drainage and water pipe and products markets. Our technical salesforce also proactively reaches out to our customers on a regular basis to ensure that our customers are satisfied and our products adhere to project specifications. We have a long history of developing and seeking out innovative products to bring to market across both water-related segments, which include the recent introductions of Oystercrete, duct bank and metallic zinc coating. We will continue our innovation efforts, optimizing our portfolio through research and development and strategic acquisitions to expand our positions in attractive products and markets. Along with these initiatives, our specialized technical salesforce will continue to promote and support our existing specialty products to drive differentiation and growth.
Enhance Margins, Free Cash Flow and Returns Through Operational and Commercial Excellence. We have successfully launched multiple operational initiatives focused on increasing plant efficiency and productivity. We expect to continue growing our margins through ongoing operational, commercial and cultural initiatives. We are working to leverage our information technology and financial systems to lower costs and implement systematic pricing across our business. We will continue to manage working capital and seek scale-driven procurement efficiency improvements through centralized purchasing and fixed overhead control and reduction. We intend to prioritize opportunities that generate attractive returns on invested capital. Further, our management team has emphasized a strong pay-for-performance culture that cultivates, challenges and compensates employees based on profitability and cash flow generation.
Accelerate Profitable Growth Through Strategic Acquisitions. We believe that the relative fragmentation of some of our sub-markets creates an environment in which we can continue to acquire businesses at attractive valuations to increase our scale, product breadth and geographic diversity. Over the past three years, we have acquired seven businessesboth tuck-in and transformative in naturewithin the water drainage and transmission industry (including three acquisitions by U.S. Pipe). We continuously monitor potential targets to develop and maintain a diversified and actionable acquisition pipeline. Additional acquisitions would enable us to add adjacent products to our portfolio that could help us further penetrate our existing markets and expand our geographic footprint. By integrating these businesses and implementing our culture and operational best practices, we believe we can achieve significant further growth. We are focused on driving synergies, including those achievable as a result of our recent acquisitions, to reduce costs and increase our margins. We are in the process of executing a plan associated with our acquisitions of Cretex, Sherman-Dixie and U.S. Pipe. We believe that we can achieve significant synergies associated with these acquisitions. We expect cost savings synergies to come from procurement, eliminating redundant selling, general and administrative functions, and optimizing our plant network through consolidations to achieve operational efficiencies and freight cost reductions. In addition, we believe the U.S. Pipe Acquisition creates opportunity to increase market share in large diameter DIP by leveraging our geographic scope, cross-selling capabilities and existing contractor relationships.
Our Products
Drainage Pipe & Products Segment
We manufacture drainage pipe and precast products in the United States and Eastern Canada. Drainage pipe has residential, non-residential and infrastructure applications. It is primarily used for storm water applications, such as storm drains for roads and highways, and for residential and non-residential site developments. In addition, drainage pipe is used for sanitary sewers, low-pressure sewer force mains, tunneled systems, treatment plant piping and utility tunnels.
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Drainage pipe consists of concrete reinforced by a steel cage. It is manufactured by producing a steel mesh cage, enclosing it in a form or mold and then pouring concrete around it to produce the pipe. Drainage pipe is manufactured in round, elliptical and arch shapes ranging from 12 inches to 144 inches in diameter and in box sizes ranging from three feet to 15 feet in length and width.
We also manufacture a wide variety of precast concrete products, including box culverts, utility vaults, manholes, drainage inlets and pipe end sections. These precast concrete products are used for applications such as roadway drainage, airport drainage, storm water management, utility construction and water treatment and filtration systems. Our range of precast concrete products also includes products that fall under the general description of specialty precast products for which we hold patents that make us the exclusive manufacturer or which are manufactured under license agreements with third parties. These specialty products include architectural panels for buildings, modular railroad crossings, retaining wall systems, highway noise barriers, storm water treatment systems and concrete vaults, which are used to house either dry utilities (such as electrical, data or communications equipment) or wet utilities (such as valves, pumps or water meters).
We also manufacture structural precast products in the United States and manufacture a range of precast concrete bridge girders for highway projects in both the United States and Eastern Canada. We manufacture a variety of structural precast products primarily for infrastructure and non-residential applications, including hollow-core planks, prestressed bridge girders, beams, columns, wall panels, stairs, garage floors and architectural cladding. These products are used as structural and architectural elements in building structures such as parking garages and arched and modular bridges.
Precast concrete products are reinforced with steel, similar to pipe, and manufactured using either a dry cast or wet cast concrete mix, depending on the size of the piece and the number of identical pieces to be manufactured. In the dry cast method, a concrete mix with low water content, known as zero-slump concrete, is poured into a mold and then densely compacted around the steel reinforcement using a variety of manufacturing methods. The concrete structure is immediately removed from the mold and allowed to cure in a high humidity environment to ensure proper hydration of the concrete. This method allows multiple pieces to be produced from the same mold each day and is most suitable for high volume, repetitive manufacturing. In the wet cast method, a concrete mix with relatively high water content is poured into a mold and allowed to cure in the mold, which can take from four to 12 hours. Precast concrete products typically range in diameter from four to 12 feet for round products or in length and width from one foot to 12 feet for square or rectangular products.
We also regularly consider ways to innovate internally and expand our drainage pipe and precast product offerings by working to bring other products to market. Some of our recent product offerings include Kenner Chainwall, Oystercrete and Duct Bank. Kenner Chainwall is a precast concrete foundation that provides a structurally sound, on-grade or elevated foundation to support prefabricated shelters or equipment buildings. One use is to elevate electrical equipment in floodzones such as those devastated by Hurricane Katrina. Oystercrete is a product engineered to dissipate wave energy and recapture sediment and we believe could be of great utility in both rebuilding coastlines and fighting future erosion. Duct bank is a precast product that consolidates and protects underground electrical and communication cables and can be used in the construction of large buildings as well as installing cabling underneath roads and areas with existing structures. Each of these products is now commercially available. We also acquired a number of innovative technologies relating to storm water management acquired in the Bio Clean Acquisition.
In addition to our operations, we have a 50% equity interest in CP&P, a joint venture with Americast, Inc. entered into in 2012. CP&P operates 14 plants, nine of which were contributed by us, that serve the Mid-Atlantic and Southeastern United States. CP&P manufactures drainage pipe and
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precast concrete products and sells those products to similar types of customers as the ones to which we market. See note 19 to our audited combined financial statements included elsewhere in this prospectus for additional information regarding CP&P.
In 2015, we estimate that approximately 40% and 41% of our Predecessor and Successor Drainage Pipe & Products net sales, respectively, and approximately 40% of our pro forma Drainage Pipe & Products net sales were generated from government-funded infrastructure projects; approximately 36% and 41% of our Predecessor and Successor Drainage Pipe & Products net sales, respectively, and approximately 37% of our pro forma Drainage Pipe & Products net sales were generated from residential construction activity; and approximately 24% and 18% of our Predecessor and Successor Drainage Pipe & Products net sales, respectively, and approximately 23% of our pro forma Drainage Pipe & Products net sales were generated from non-residential construction activity.
Water Pipe & Products Segment
Utilizing the U.S. Pipe and Forterra Pressure Pipe Canada brands, we manufacture a number of products used for the transmission of potable water and wastewater, in pipe diameters ranging from three to 174 inches.
We manufacture DIP in pipe diameters ranging from three to 64 inches in the United States. For each diameter of pipe we offer a wide range of thicknesses with both standard and specialized coatings. DIP is used for transmission and distribution of potable water and wastewater and is typically utilized for smaller diameter applications of 24 inches and smaller. DIP has residential and infrastructure repair replacement applications, including potable water distribution systems, small water system grids, major water transmission mains, wastewater collection systems, sewer force mains and water treatment plants. In addition to DIP, in Mexico we also manufacture a full line of complementary joint restraints and fittings, which are utilized for interlocking adjoining segments of pipe and are typically bundled with DIP. We also operate fabrication plants that modify our pipe to meet specific customer design requirements for above ground applications.
DIP is manufactured using a process that consists of introducing molten iron into a rapidly-rotating steel mold and relying on centrifugal force to distribute the molten iron evenly around the inner surface of the mold to produce pipe of uniform size and dimensions.
In addition, for larger diameter applications, we manufacture concrete and steel pressure pipe in the United States and Eastern Canada. Our pressure pipe is used for water transmission and distribution, power plant cooling water lines, sewage force mains for wastewater and storm water and other diverse applications involving the movement of large volumes of water.
We manufacture prestressed concrete pipe, welded steel pipe and bar-wrapped concrete pipe. Concrete-lined pressure pipe ranges from ten to 144 inches in diameter and welded steel pipe ranges from 32 to 124 inches in diameter. We also manufacture joints, fittings and related components to complement our larger diameter pipe.
Prestressed concrete pipe consists of a concrete core, a steel cylinder and a high tensile strength wire that is wrapped, under measured tension and at uniform spacing, around the steel cylinder. This wire wrap places the steel cylinder and concrete core in compression, developing the pipes ability to withstand specified hydrostatic pressures and external loads. An outside coating of mortar protects the wires.
Welded steel pipe consists of a steel cylinder that is helically formed and welded from a continuous coil of steel, with a centrifugally placed cement mortar lining and polyurethane or tape coating.
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Bar-wrapped concrete cylinder pipe combines the physical strength of steel with the structural and protective properties of high strength cement mortar. In this type of pipe, a round steel bar is helically wound around a welded steel cylinder and all surfaces are encased in cement mortar. This composite pipe reacts as a unit when resisting internal pressure and external loads. The inside of the cylinder is lined with centrifugally cast cement mortar.
Our pressure pipe is highly engineered and is built to order for technically demanding applications requiring various thresholds of working pressure, surge pressure and loads. Our engineers work closely with customers to design components and systems to meet specific regulatory and industrial demands. In particular, we have differentiated ourselves from regional competitors in highly regulated customer sectors such as nuclear, coal and solar power generation and specialty applications.
We also strive to innovate in our Water Pipe & Products segment, in both ductile iron pipe and large diameter steel and concrete pipe. Several of our more successful developments include metallic zinc coating, TR-XTREME pipe and snap ring joints. Metallic zinc coating is active corrosion protection for DIP. TR-XTREME pipe is designed for areas of seismic activity and has joints providing flexible extension capabilities. Snap ring joints are a restrained joint system for bar-wrapped concrete pipe that allows contractors to install pipelines without welding joints on the job site. Each of these products is commercially available.
In 2015, we estimate that none of our Predecessor and Successor Water Pipe & Products net sales and approximately 42% of our pro forma Water Pipe & Products net sales were generated from residential construction activity; approximately 97% and 85% of our Predecessor and Successor Water Pipe & Products net sales, respectively, and approximately 29% of our pro forma Water Pipe & Products net sales were generated from government-funded infrastructure projects; and approximately 3% and 15% of our Predecessor and Successor Water Pipe & Products net sales, respectively, and approximately 29% of our pro forma Water Pipe & Products net sales were generated from non-residential construction activity.
Bricks Segment
We operate brick facilities in the United States and Eastern Canada, which are all strategically located near large population centers or major census MSAs and raw material reserves. We are recognized in our industry for our product quality and range, as well as our industry-leading customer service.
In our markets in the United States and Eastern Canada, bricks are used primarily for decorative cladding and are selected for their attractive appearance, versatility, low maintenance and durability. Bricks made to more demanding technical specifications are also used in the non-residential markets in the United States and Eastern Canada.
To manufacture bricks, clay and shale is excavated from the ground and processed, extruded to a required size and shape, cut into individual bricks by means of a wire and finally fired in a kiln. We estimate that our present clay reserves constitute approximately 14,299 kilotons, our average annual clay production over the last five years has been approximately 206 kilotons, and the estimated mine life for our clay operations is 56.3 years. Brick plants are increasingly automated, including through the use of robotics to improve brick handling.
Bricks can be manufactured in a wide variety of colors and textures through the use of different manufacturing methods, various body mixtures of clay and shale, and the addition of dyes and pigments to the body mixture. In order to appeal to different customer tastes in different regions, we manufacture and stock more than 300 core brick styles in four regional brick collections. These regional collections cater to customer preferences and traditional local styles. We work closely with designers, architects and builders to develop brick blends that meet ever-changing consumer demands, including more eco-friendly products.
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In 2015, we estimate that approximately 89% and 88% of our Predecessor and Successor Bricks net sales, respectively, and approximately 88% of our pro forma Bricks net sales were generated from residential construction activity; and approximately 11% and 12% of our Predecessor and Successor Bricks net sales, respectively, and approximately 12% of our pro forma Bricks net sales were generated from non-residential construction activity.
Customers and Markets
Drainage Pipe & Products Segment
We typically sell our drainage pipe and precast products to contractors that perform construction work for various levels of government, residential and non-residential building owners, and developers in markets across the United States and Eastern Canada. Additionally, although they are not our direct customers, we view the owners and engineers who are customers of the contractors that purchase our products as our customers as well, because these owners and engineers often specify the types of products that our customers are required to use, which can lead to increased sales of our products. We also sell our drainage pipe and precast products to utility companies. Several of our largest manufacturing facilities are strategically located in close proximity to our markets. Our drainage pipe and precast products are typically shipped within a radius of 150 miles, but in some cases up to 350 miles, from our manufacturing facilities.
Water Pipe & Products Segment
Our water transmission pipe products are sold direct to contractors as well as through some of the largest waterworks distributors. We also sell to utility contractors that work on new or replacement pipeline projects, primarily in the East, South and Midwest of the United States and in Eastern Canada. Our pressure pipe is used in projects for regional water authorities and districts, cities, counties, municipalities, port authorities, private companies and industrial clients, including power plants. Concrete pressure pipe is typically shipped within a radius of 500 miles from our manufacturing facilities and DIP and steel pressure pipe is shipped within a radius of over 1,000 miles.
Bricks Segment
We sell our bricks to a diverse group of customers in the construction industry in the United States and Eastern Canada. Our bricks are typically shipped within a radius of 300 miles from our manufacturing facilities. Our customers, depending on local market customs, include homebuilders, brick distributors and dealers, as well as masonry contractors. Where market size is sufficient to support a sales force and there is reasonable proximity to manufacturing facilities, we have adopted a direct sales model in which we sell bricks directly to the end user. Where distance to market would require setting up depots and additional handling services, we typically utilize third-party distributors.
Competition
Drainage Pipe & Products Segment
Our largest competitors in our Drainage Pipe & Products Segment include Rinker Materials (a unit of CEMEX, S.A.B. de C.V.) and Oldcastle, Inc. (a unit of CRH plc). We also compete with many regional and local manufacturers. Additionally, our drainage pipe products compete with high density polyethylene, or HDPE, and polypropylene pipe products for a limited number of applications.
Water Pipe & Products Segment
Our two largest competitors in DIP manufacturing are McWane, Inc. and American Cast Iron Pipe Company. Our DIP products also compete with polyvinyl chloride, or PVC, and HDPE pipe. Our national network of fabrication products competes with regional and local providers of those products and services.
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Due to the highly technical nature of our concrete and steel pressure pipe products, we compete with a small number of national manufacturers. Our concrete-lined pressure pipe also competes with pressure pipe made from other materials such as fiberglass, HDPE and PVC. Our concrete and steel pressure pipe competes with products manufactured by Northwest Pipe Company, which manufactures steel pressure pipe, Ameron (a unit of National Oilwell Varco, Inc.), which manufactures steel and bar-wrapped pressure pipe, and American Cast Iron Pipe Company, which also manufactures steel pressure pipe. Within Canada, our concrete pressure pipe products compete with DECAST (formerly Munro Concrete Products, Ltd.).
Bricks Segment
Our competitors in the brick market in the United States include Boral USA (a unit of Boral Limited), General Shale, Inc. (a unit of Wienerberger AG), Acme Brick Company (a unit of Berkshire Hathaway Inc.), Glen-Gery Corporation (a unit of Ibstock Building Products) and a number of regional manufacturers. In Eastern Canada, we compete with Brampton Brick and, to a lesser extent, smaller companies and imports from the United States. Our brick business also competes with other alternative building materials such as wood, vinyl, fiber cement, stucco and manufactured stone.
Sales, Marketing and Distribution
Our drainage pipe, DIP and related fittings and fabricated products, some of our brick products and certain precast concrete products are made to order, while the majority of our bricks are made to inventory. We have established target levels of inventory for these items that we attempt to keep available at our manufacturing facilities to meet customer demand. Inventories are held at manufacturing facilities and, to a lesser extent, at distribution yards. Because bricks have decorative functions, we attempt to predict customers changing tastes and manage our inventory accordingly.
Our concrete and steel pressure pipe, structural precast products and most precast concrete products are customized products that are made to order. Our order backlog for precast concrete products is typically two to six months, while order backlog for concrete and steel pressure pipe is approximately 12 months.
We seek to attract and retain customers through exceptional customer service and technical expertise, leading product quality, broad product and service offerings and competitive pricing. Our market strategy for products with non-residential end users is centered on building and maintaining strong customer relationships rather than traditional advertising. Our market strategy for bricks is centered on providing aesthetically pleasing products for the end user, coupled with providing sales tools and information directly to our channel partners (builders, distributors and masons) to facilitate the end consumers choice in selecting our products.
We maintain in-house technical sales, engineering and field service teams which provide customers technical expertise and support to assist them in finding the right product or solution for their specific need. Each of our product groups has its own specialized sales force. Overall, we employ approximately 372 sales and related support professionals. Our sales force and customer service functions are staffed by experienced professionals who have been trained in our product lines, processes and systems, and who maintain touch points with homebuyers, architects, builders, masons and distributors. Additionally, we have a staff of more than 30 engineers that we employ to work in concert with our sales force to help develop the best and most useful product solutions for our customers.
We sell our DIP products, fittings and fabricated products, and some of our brick products through distributors. Our drainage pipe, concrete and steel pressure pipe, precast concrete products and some of our brick products are sold direct to customers who are the end users of such products.
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Drainage pipe, concrete pressure pipe, and certain precast products are sold through a bidding process in which we seek to place the most competitive bid. We undertake marketing efforts through our participation in trade shows and through our website. We outsource all of our product deliveries by using a combination of dedicated carriers and other third-party carriers.
Raw Materials and Inputs
The primary material for our drainage pipe and precast concrete products and our concrete pressure pipe is concrete, which consists of cement, sand and aggregates. Another key input for our products is steel, which is the main material in our steel pressure pipe and is also used to provide reinforcement within our drainage pipe and precast concrete products. Our DIP is largely made from iron melted from recycled scrap metals. Other key materials for our DIP include foundry coke and certain additives, such as silica. Our bricks business relies on clay and shale as main raw materials, as well as natural gas to fuel the kilns.
Most of our raw materials are widely available commodities. We have not experienced any significant shortages of raw materials. To the extent we do not produce any raw materials, when and where possible, we try to purchase raw materials from the source, and because of their low value-to-weight ratios, we generally try to source our raw materials in the vicinity of our facilities. We usually purchase the raw materials we need in the spot market, except where we anticipate a significant need of materials for a specific project. Other than the cement supply agreement described below, we generally do not enter into long-term supply contracts with our suppliers that require us to purchase particular quantities or to pay particular prices. In our project-based businesses, we may pass certain raw material costs to end users through step-up mechanisms included in our price quotes tied to the timing of execution.
As part of the Acquisition, we entered into a Cement Supply Agreement with Lehigh Cement Company, LLC, or Lehigh, a subsidiary of HeidelbergCement, which requires us to purchase our cement requirements from Lehigh for 16 of our existing manufacturing facilities in the United States through March of 2020. The Cement Supply Agreement allows us to obtain competing price quotations from other suppliers and gives Lehigh an opportunity to match those prices or release us from our purchase obligation for the facility or facilities in question for the period of the competing price quotation.
We purchase our steel from a number of different suppliers, but most suppliers are based in the United States in order to comply with Buy America government contract requirements placed on our customers. We endeavor to purchase these steel supplies from the entity which is as close as possible to the manufacturer. In the case of hot rolled steel coil, this means shifting from buying from a service center to making purchases directly from the steel mill. We purchase most of our welded wire reinforcement steel and bright basic wire directly from the manufacturer.
For the manufacture of our DIP and fittings, we purchase scrap metal directly from all qualified scrap sources near our foundry sites in the United States and Mexico. We utilize certain categories of scrap metal, primarily shredded automobile bodies, plate & structural, and cast iron. We purchase foundry coke from two of the three merchant coke producers in the United States, both located in Birmingham, Alabama. Major alloys and additives are procured from both domestic and foreign sources based on a semi-annual bid process.
We obtain substantially all of the clay and shale for our bricks from open mines on land that we own or lease under long term leases and that are in close proximity to our brick manufacturing operations. Mining operations are performed either by us or subcontracted out to a third party. We purchase the remaining portion of our clay and shale (primarily specialty clays that we use in limited
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quantities) from various suppliers. The natural gas used in our brickworks is sourced from a number of different gas suppliers. We typically hedge a portion of our exposure to electricity and natural gas prices, we may not continue our current strategy or hedge any positions in the future and therefore remain susceptible to energy price increases.
Seasonality
The construction industry, and therefore demand for our products, is typically seasonal and dependent on weather conditions, with periods of snow or heavy rain negatively affecting construction activity. For a more detailed discussion, see the sections titled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of OperationsPrincipal Factors Affecting our Results of Operations for a discussion of the seasonality of our business.
Backlog
Backlog represents the total dollar amount of revenues we expect to record in the future as a result of performing work under contracts that have been awarded to us. In accordance with industry practice, substantially all of our contracts are subject to cancellation, termination, or suspension at the discretion of the client in respect of work that has not yet been performed. In addition, the contracts in our backlog are subject to changes in the scope of services to be provided as well as adjustments to the costs relating to the contracts. Accordingly, backlog is not necessarily indicative of our future revenues or earnings. As of June 30, 2016 and June 30, 2015, we had approximately $498.1 million and $328.4 million of backlog, respectively.
Employees
As of June 30, 2016, we had 5,565 employees, 1,148 of which were salaried and 4,417 of which were hourly. Of the total number of employees, 4,698 were located in the United States, 615 were located in Canada and 252 were located in Mexico. The number of hourly workers we employ varies to match our labor needs during periods of fluctuating demand. From time to time, we employ temporary workers to meet increased demand.
Approximately 35% of our workforce is covered by collective bargaining agreements, and approximately 25% of these employees are included in a collective bargaining agreement that expires within one year of June 30, 2016. We have not had any union-organized work stoppages in the United States, Canada or Mexico over the last four years.We believe that we have good relationships with our employees and with the unions representing our employees.
Manufacturing Facilities and Properties
We have a broad network of 106 manufacturing facilities in the United States, including 14 fabrication plants. We also have ten manufacturing facilities in Canada and one in Mexico. Our headquarters is located in Irving, Texas. We also receive income from the 14 plants associated with CP&P. Please see note 16 to our audited combined financial statements included elsewhere in this prospectus for certain financial information regarding the United States and Canada.
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The following tables set forth certain information regarding our manufacturing facilities:
Facility Name |
City |
State/Province |
Ownership |
|||
Drainage Pipe & Products (72 plants) |
||||||
Caldwell |
Caldwell | Idaho | Owned | |||
Salt Lake City |
Salt Lake City | Utah | Owned | |||
Montgomery |
Montgomery | Alabama | Owned | |||
Pelham Pipe & Precast (3 plants) |
Pelham | Alabama | Owned | |||
El Mirage |
El Mirage | Arizona | Owned | |||
Little Rock |
Little Rock | Arkansas | Leased | |||
West Memphis |
West Memphis | Arkansas | Leased | |||
Florin Road (2 plants) |
Sacramento | California | Leased | |||
Deland Precast |
Deland | Florida | Leased | |||
Gretna |
Gretna | Florida | Leased | |||
Marianna |
Marianna | Florida | Leased | |||
Winter Haven Pipe |
Winter Haven | Florida | Leased | |||
Athens Precast |
Athens | Georgia | Leased | |||
Rome |
Rome | Georgia | Leased | |||
La Place |
LaPlace | Louisiana | Leased | |||
New Orleans |
New Orleans | Louisiana | Leased | |||
St. Martinville |
St. Martinville | Louisiana | Leased | |||
Como |
Como | Mississippi | Owned | |||
Hattiesburg (2 plants) |
Hattiesburg | Mississippi | Leased | |||
Jackson Northside |
Jackson | Mississippi | Leased | |||
Columbus |
Columbus | Ohio | Owned | |||
Dayton - Dixie |
Dayton | Ohio | Owned | |||
Macedonia |
Macedonia | Ohio | Leased | |||
Oklahoma City |
Oklahoma City | Oklahoma | Leased | |||
Austin Pipe |
Austin | Texas | Leased | |||
Cedar Hill Pipe |
Cedar Hill | Texas | Leased | |||
Grand Prairie (2 plants) |
Grand Prairie | Texas | Leased | |||
Jersey Village (3 plants) |
Houston | Texas | Leased | |||
Robstown |
Robstown | Texas | Owned | |||
San Antonio (2 plants) |
San Antonio | Texas | Leased | |||
Waco |
Hewitt | Texas | Leased | |||
Ottawa |
Gloucester | Ontario | Leased | |||
Cambridge |
Cambridge | Ontario | Leased | |||
Mascouche Pipe & Precast |
Mascouche | Quebec | Leased | |||
Franklin |
Franklin | Tennessee | Leased | |||
Lexington |
Lexington | Kentucky | Leased | |||
Evansville |
Evansville | Indiana | Leased | |||
Chattanooga |
Chattanooga | Tennessee | Leased | |||
Lenoir City |
Lenoir City | Tennessee | Leased | |||
Elizabethtown |
Elizabethtown | Kentucky | Leased | |||
Hermitage |
Hermitage | Tennessee | Leased | |||
Louisville |
Louisville | Kentucky | Leased | |||
Cullman |
Cullman | Alabama | Leased | |||
Bar Nunn |
Bar Nunn | Wyoming | Leased | |||
Billings |
Billings | Montana | Leased | |||
Bonner Springs |
Bonner Springs | Kansas | Leased | |||
Cedar Rapids |
Cedar Rapids | Iowa | Leased |
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Facility Name |
City |
State/Province |
Ownership |
|||
Des Moines |
Des Moines | Iowa | Leased | |||
Elk River |
Elk River | Minnesota | Leased | |||
Hawley |
Hawley | Minnesota | Leased | |||
Helena |
Helena | Montana | Leased | |||
Humboldt |
Humboldt | Iowa | Owned | |||
Iowa Falls |
Iowa Falls | Iowa | Leased | |||
Lawrence |
Lawrence | Kansas | Leased | |||
Marshalltown |
Marshalltown | Iowa | Leased | |||
Menoken |
Menoken | North Dakota | Leased | |||
Mitchell |
Mitchell | South Dakota | Owned | |||
Montana City |
Montana City | Montana | Owned | |||
Plattsmouth |
Plattsmouth | Nebraska | Leased | |||
Rapid City |
Rapid City | South Dakota | Leased | |||
Shakopee |
Shakopee | Minnesota | Leased | |||
Green Cove Springs |
Green Cove Springs | Florida | Owned | |||
Romoland |
Romoland | California | Leased | |||
Oceanside |
Oceanside | California | Leased | |||
Water Pipe & Products (28 plants) |
||||||
St. Eustache Pressure Pipe |
St. Eustache | Quebec | Leased | |||
Stouffville |
Stouffville | Ontario | Leased | |||
Uxbridge |
Uxbridge | Ontario | Leased | |||
Grand Prairie |
Grand Prairie | Texas | Leased | |||
Lubbock Pressure Pipe |
Lubbock | Texas | Leased | |||
Palatka |
Palatka | Florida | Owned | |||
South Beloit Pressure Pipe |
South Beloit | Illinois | Owned | |||
Bakewell Pressure Pipe |
Bakewell | Tennessee | Leased | |||
Bessemer |
Bessemer | Alabama | Owned | |||
Mini Mill |
Bessemer | Alabama | Owned | |||
Union City |
Union City | California | Owned | |||
Lynchburg |
Lynchburg | Virginia | Owned | |||
Monterrey, Mexico |
Monterrey | Mexico | Owned | |||
Rogers |
Rogers | Minnesota | Leased | |||
Saginaw |
Saginaw | Texas | Leased | |||
Remington |
Remington | Virginia | Leased | |||
Ottawa |
Ottawa | Kansas | Leased | |||
Indianapolis |
Indianapolis | Indiana | Leased | |||
Louisville |
Louisville | Kentucky | Leased | |||
Bloomfield |
Bloomfield | Connecticut | Leased | |||
Marysville |
Marysville | California | Leased | |||
Warren |
Warren | Oregon | Leased | |||
Ephrata |
Ephrata | Pennsylvania | Leased | |||
Phoenix |
Phoenix | Arizona | Leased | |||
Orlando |
Orlando | Florida | Leased | |||
Gainesville |
Gainesville | Georgia | Leased | |||
Homestead |
Homestead | Florida | Leased | |||
San Antonio |
San Antonio | Texas | Leased | |||
Bricks (17 plants) |
||||||
Stanton Brick Plant |
Stanton | Kentucky | Owned | |||
Michigan Brick |
Corunna | Michigan | Owned |
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Facility Name |
City |
State/Province |
Ownership |
|||
Monroe Brick Plant |
Monroe | North Carolina | Owned | |||
Roseboro Brick |
Roseboro | North Carolina | Owned | |||
Columbia Brick Plant (2 plants) |
Columbia | South Carolina | Owned | |||
Athens TX Brick |
Athens | Texas | Owned | |||
Elgin Plant (2 plants) |
Elgin | Texas | Owned | |||
Mineral Wells Brick |
Mineral Wells | Texas | Owned | |||
Mineral Wells East Brick |
Mineral Wells East | Texas | Owned | |||
Ogden (2 plants) |
Schertz | Texas | Owned | |||
Aldershot |
Burlington | Ontario | Owned | |||
Burlington (2 plants) |
West Burlington | Ontario | Owned | |||
La Prairie Brick |
LaPrairie | Quebec | Owned |
Intellectual Property
We own various United States and foreign patents, registered trademarks, trade names and trade secrets and applications for, or licenses in respect of, the same that relate to our various business lines including, as a result of the Bio Clean Acquisition, a number of innovative technologies relating to storm water management. While the name Forterra is new in the industry, we believe our customers have reacted favorably to the new name and rebranding effort that followed the Acquisition. The U.S. Pipe name has been a recognized manufacturer of ductile iron pipe for more than 110 years. We also license intellectual property for use in certain of our products from unaffiliated third parties. We believe that our patents, trademarks, trade names and trade secrets are adequately protected and that any expiration or other loss of one or more of our patents or other intellectual property rights would not have a material adverse effect upon our business, financial condition or results of operations.
Environmental, Health and Safety Matters
We are subject to a broad range of federal, state, provincial, local and foreign laws and regulations governing health and safety or the protection of the environment and natural resources, including, for example:
| the federal Resource Conservation and Recovery Act, or RCRA, and comparable state laws that impose requirements for the generation, handling, transportation, treatment, storage, disposal and cleanup of waste from our operations; |
| the federal Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, also known as Superfund, and comparable state laws that govern the cleanup of hazardous substances that may have been released at properties currently or previously owned or operated by us or locations which we have sent waste for disposal; |
| the federal Mine Safety and Health Act, or the Mine Act, that imposes health and safety standards to ensure safe and healthy work environments at mining operations; |
| the federal Clean Water Act, or CWA, and analogous state laws and regulations that can impose detailed permit requirements and strict controls on discharges of waste water from our facilities; and |
| the federal Clean Air Act, or CAA, and comparable state laws and regulations that impose obligations related to air emissions, including federal and state laws and regulations to address greenhouse gas, or GHG, emissions. |
Environmental pre-construction and operating permits are, or may be, required for certain of the Companys operations, and such permits are subject to modification, renewal, and revocation. It is
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likely that we will be subject to increasingly stringent environmental standards in the future, particularly under air quality and water quality laws. It is also likely that we will be required to make additional expenditures, which could be significant, relating to environmental matters such as pollution controls, on an ongoing basis. As our operations involve, and have involved, the handling, transport and distribution of materials that are, or could be classified as, toxic or hazardous or otherwise as pollutants, there is some risk of contamination and environmental damage inherent in our operations and the materials and products we handle and transport. Consequently, we are subject to environmental laws that impose liability for historical releases of hazardous substances. We are also subject to a variety of health and safety laws and regulations dealing with occupational health and safety, including mine safety. Manufacturing and mining sites can be inherently dangerous workplaces. Our sites often put our employees and others in close proximity with large pieces of mechanized equipment, moving vehicles, and manufacturing processes, and highly regulated materials and there is inherent risk of related liabilities in our operations. See Risk Factors.
The Company regularly monitors and reviews its operations, procedures, and policies for compliance with existing laws and regulations, changes in interpretations of existing laws and enforcement policies, new laws that are adopted, and new laws that the Company anticipates will be adopted that could affect its operations. In September 2015, the EPA finalized a rule-making process establishing limitations for hydrogen fluoride, hydrogen chloride and metals emitted from brick and clay ceramics kilns and from dryers and glazing operations at clay ceramics manufacturing facilities in the United States. The rule requires the installation of maximum achievable control technology or MACT at affected facilities. Eleven of our facilities will be covered by this rule. Of those, six will have to install new MACT-compliant pollution control equipment. We have currently budgeted $10.4 million for capital expenditures to achieve compliance with the rule.
The Occupational Safety and Health Administration, or OSHA, published a final rule in March 2016 decreasing the levels of crystalline silica dust exposure to which workers can be exposed. This rule must be implemented by March 2018 and may require some of our manufacturing facilities to install new controls to reduce the levels of crystalline silica dust. Excessive, prolonged inhalation of very small-sized particles of crystalline silica has been associated with lung diseases, including silicosis, and several scientific organizations and some states, such as California, have reported that crystalline silica can cause lung cancer. The Mine Safety and Health Administration, or MSHA, and the OSHA have established occupational thresholds for crystalline silica exposure as respirable dust. The Company monitors occupational exposures at its facilities and implements dust control procedures and/or makes available appropriate respiratory protective equipment to maintain the occupational exposures at or below the appropriate levels.
Despite our compliance efforts, risk of environmental, health and safety liability is inherent in the operation of the Companys businesses, as it is with other companies engaged in similar businesses, and there can be no assurance that environmental, health and safety liabilities will not have a material adverse effect on the Company in the future.
Our financial statements include estimated liabilities for future costs arising from environmental issues relating to our properties and operations. As of December 31, 2015, the Company had accrued environmental liabilities of approximately $1.8 million. We believe these accruals are adequate to cover our costs for remedial measures that may eventually be required by environmental authorities with respect to known environmental matters. Our liabilities represent our best estimate of our probable future obligations for the investigation and remediation of known contaminated sites. Our actual future expenditures, however, relating to compliance and cleanup of environmental conditions at our properties cannot be conclusively determined. The estimate of our environmental costs is based on currently available facts, present laws and regulations, and current technology and take into consideration our prior experience in site investigation and remediation, the data available for each site
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and the professional judgment of our environmental specialists and consultants. Although recorded liabilities include our best estimate of all probable costs, our total costs for the final resolution of each site cannot be predicted with certainty due to the variety of factors that make potential costs associated with contaminated sites inherently uncertain, such as the nature and extent of site contamination, available remediation alternatives, the extent to which remedial actions will be required, the time period over which costs will be incurred, the number and economic viability of other responsible parties and whether we have any opportunity of contribution from third parties, including recovery from insurance policies. Further, sites that are in the early stages of investigation are subject to greater uncertainties than mature sites that are close to completion.
We have been named as a potentially responsible party, or PRP, at sites identified by the EPA or state regulatory agencies for investigation and remediation under CERCLA, or comparable state statutes, generally referred to as Superfund sites, including Sylacauga, AL, North Birmingham, AL, Portland, OR, and Chattanooga, TN. With respect to these Superfund sites for which we have received PRP notices, we are entitled to contractual indemnity by a third party, subject to the terms of the indemnity provisions contained in the relevant agreement. Our estimates of current liabilities factor in these indemnification rights and our assessment of the likelihood that the indemnitor will fulfill its obligations with respect to liabilities relating to such sites. To date, the indemnifying party has been fulfilling its indemnification obligation with respect to those Superfund sites, and we have no reason to believe it will not continue to do so. However, in the future, we can provide no assurance that the indemnifying party will continue to honor its obligations, or that the existing indemnities will be sufficient to cover the liabilities for such matters.
The Company is generally required by state or provincial laws to reclaim our clay and shale mining sites after use. The projected costs for these reclamation obligations are included as a part of our asset retirement obligation and are reviewed and updated on a periodic basis. Asset retirement obligations were $1.4 million at December 31, 2015.
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 we believe could reasonably be expected to have a material adverse effect on our business, financial condition or our results of operations. We may become involved in material legal proceedings in the future. See note 4 to the audited combined financial statements included elsewhere in this prospectus.
The purchase agreement entered into with HeidelbergCement in connection with the Acquisition requires us to make an earn out payment to HeidelbergCement if and to the extent the financial results of the businesses acquired by Lone Star in the Acquisition, including ours and that of Forterra UK, exceeded a specified adjusted EBITDA target for fiscal year 2015, as calculated pursuant to the terms of the purchase agreement. If such adjusted EBITDA calculation exceeds the specified target, we would be required to pay HeidelbergCement an amount equal to a multiple of such excess adjusted EBITDA, with any payment capped at $100 million. On April 14, 2016, we provided an earn-out statement to HeidelbergCement demonstrating that no payment was required. On June 13, 2016, HeidelbergCement notified us that it is disputing, among other things, our calculation of adjusted EBITDA under the purchase agreement and asserting that a payment should be made in the amount of $100 million. Pursuant to the resolution process outlined in the purchase agreement, the parties are in the process of selecting a neutral accounting expert who could issue a final determination as early as the fourth quarter of 2016. We believe our calculation of adjusted EBITDA for fiscal year 2015 under the purchase agreement is correct and do not consider a payment on the earn out to be probable.
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Therefore, we did not accrue any contingency reserve as of December 31, 2015 or June 30, 2016 in respect of any earn out. See Note 3 to our audited and unaudited combined financial statements included elsewhere in this prospectus. While we intend to vigorously oppose HeidelbergCements assertions, the outcome of this matter is uncertain, and no assurances can be given regarding the ultimate outcome of any proceedings.
U.S. Pipe received a General Notice Letter and Invitation to Conduct Removal Action dated September 20, 2013 from the EPA with respect to the 35th Avenue superfund site in Birmingham, Alabama. The letter requests that U.S. Pipe participate in an environmental response action in an area proximate to a closed U.S. Pipe facility in North Birmingham, Alabama. The U.S. Pipe North Birmingham facility was closed and, as part of the acquisition of U.S. Pipe by a private equity fund from Mueller Water Products, Inc. and Mueller Group, LLC, or the Sellers, in 2012, the facility was retained by and is currently owned by either the Sellers or one of their affiliates. The notice requested response activities including testing and removing surface soils at area residences alleged to be contaminated by locally-sourced air pollutants. In connection with the disposition, the Sellers agreed to jointly and severally defend and indemnify U.S. Pipe against any losses or environmental liabilities related to sites retained by the Sellers, including the North Birmingham facility. Accordingly, U.S. Pipe tendered the defense of this matter to the Sellers for defense and indemnification. The Sellers accepted the tender and, on behalf of U.S. Pipe, have responded to the EPAs request to participate in a time-critical removal action by declining, based on the EPAs failure to establish any nexus between the contamination and any operations at the U.S. Pipe North Birmingham facility. The EPA sent a renewed request addressed to the Sellers, U.S. Pipe and a number of other potentially responsible parties on August 8, 2014 seeking participation in a broader cleanup of soil at approximately 80 homes in North Birmingham. The Sellers again responded on U.S. Pipes behalf declining to participate on the same grounds. In September 2014, the EPA proposed that the site be listed on the National Priorities List. The Sellers continue to defend on this matter on behalf of U.S. Pipe. While we cannot provide assurance that such defense will be successful, because of the indemnification described above, we do not believe the ultimate resolution of these matters will have a material adverse effect on our business, financial condition or results of operations.
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The following table sets forth certain information regarding our director nominees and executive officers as of the date of this prospectus.
Name |
Age |
Position |
||||
Jeffrey Bradley |
56 | Chief Executive Officer, Director | ||||
William Matthew Brown |
51 | Executive Vice President and Chief Financial Officer | ||||
Mark Carpenter |
48 | President, Drainage Pipe & Products | ||||
William Kerfin |
48 | President, Water Pipe & Products | ||||
Ed Sexe |
52 | Senior Vice President and General Manager | ||||
Charles L. Ward |
54 | Senior Vice President and General Manager, Bricks | ||||
Lori M. Browne |
41 | Senior Vice President and General Counsel | ||||
Matthew Wayman |
37 | Vice President, Corporate Development | ||||
Kevin Barner |
34 | Director Nominee | ||||
Robert Corcoran |
57 | Director Nominee | ||||
Samuel D. Loughlin |
44 | Director Nominee | ||||
Clint McDonnough |
61 | Director Nominee | ||||
John McPherson |
48 | Director Nominee | ||||
Chris Meyer |
45 | Director Nominee | ||||
Jacques Sarrazin |
66 | Director Nominee | ||||
Chadwick Suss |
39 | Director Nominee | ||||
Kyle Volluz |
47 | Director | ||||
Grant Wilbeck |
35 | Director Nominee |
Executive Officers
Jeffrey Bradley Mr. Bradley has served as our Chief Executive Officer since September 2015 and a member of our board of directors since July 2016. Mr. Bradley joined Forterra from Globe Specialty Metals, a publicly-traded producer of silicon metal and silicon based alloys, where he served as Chief Executive Officer from 2008 through 2015. From 2005 to 2008, Mr. Bradley served as Chairman and Chief Executive Officer of Claymont Steel, a U.S. custom steel plate producer. Prior to Claymont Steel, Mr. Bradley held numerous key roles at Worthington Industries. Mr. Bradley holds a Bachelor of Science degree in Business Administration from Loyola University.
As our Chief Executive Officer, Mr. Bradley brings a deep understanding of our business, operations and strategic planning to the Board. Mr. Bradley also has extensive industry and public company experience gained through his prior service as Chief Executive Officer of Globe Specialty Materials and Claymont Steel, where he successfully led each company through its initial public offering and its early stages as a public company. Mr. Bradleys board service will also provide a direct and open channel of communications between the board and management.
William Matthew Brown Mr. Brown has served as Executive Vice President and Chief Financial Officer since April 2016 and as our Chief Financial Officer since August 2015. From August 2012 through August 2015, Mr. Brown served as Senior Vice President and Chief Financial Officer of U.S. Concrete, Inc., a publicly-traded producer of ready-mixed concrete and aggregate products. From November 2007 through August 2012, Mr. Brown served as the Treasurer and Executive Assistant to the Chief Executive Officer, and from 2005 through 2007, as the Treasurer of Drummond Company, Inc., an international coal producer. From 1999 through 2005, Mr. Brown served in the investment banking department of Citigroup Global Markets Inc., including as a Vice President in the basic industries coverage group. From 1988 through 1997, Mr. Brown served in the United States Navy as a Naval Special Warfare Officer. Mr. Brown holds a Master of Business Administration degree from The Wharton School of the University of Pennsylvania and a Bachelor of Science degree in Mechanical Engineering from the United States Naval Academy.
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Mark Carpenter Mr. Carpenter has served as President, Drainage Pipe & Products since April 2016. Over the four months prior to his appointment as President, Mr. Carpenter served as Senior Vice President and General Manager, Drainage Pipe & Products since January 2016. From May 2013 to December 2015, Mr. Carpenter served as the Senior Vice President for Hanson Engineered Products and was responsible for the North American pressure pipe, U.S. structural precast and Eastern Canada gravity pipe and precast businesses. Mr. Carpenter joined Hanson in October 2005 and managed a number of gravity pipe and precast businesses in the United States, including serving as Senior Vice President for Hanson Pipe & Precast West US from 2011 to August 2012 and assuming responsibility for all of U.S. Drainage Pipe & Products in August 2012 when he was appointed Senior Vice President Hanson Pipe & Precast US, a position he held through May 2013. Prior to joining Hanson, Mr. Carpenter served as Senior Consultant with Collinson Grant, where he led post-acquisition integration and restructuring assignments for Hanson across North America. His early career was with British American Tobacco in the United Kingdom and Russia. Mr. Carpenter holds a Bachelor of Science degree in Engineering from Brunel University, London and a Masters of Business Administration degree from Henley Business School.
William Kerfin Mr. Kerfin has served as President, Water Pipe & Products since April 2016. Over the 13 months prior to his appointment as President, Mr. Kerfin served as Vice President of Sales for U.S. Pipe. From October 2010 through February 2015, Mr. Kerfin was the Vice President of Finance for Provisur Technologies, Inc., a leader in the food processing industry recognized for leading technologies and their global reach. From March 2006 through October 2010, Mr. Kerfin was the Vice President of Finance for Griffin Pipe Products Company, a customer-focused ductile iron pipe manufacturer. Prior to joining Griffin Pipe Products, Mr. Kerfin held various positions with Cameo Container, Square D Company, Helene Curtis Industries, Inc., Groupe Schneider, and Illinois Tool Works. Mr. Kerfin holds a Master of Business Administration from The University of Chicago Booth School of Business, Bachelor of Science in accountancy from De Paul University and received his Certified Public Accountant certificate from Illinois. Mr. Kerfin also served in the United States Marine Corps Reserve from 1985 through 1993.
Ed Sexe Mr. Sexe has served as Senior Vice President and General Manager since January 2016. Mr. Sexe has responsibility for our Structural & Specialty Products line, which is a part of our Water Pipe & Products business segment. Before joining Forterra, Mr. Sexe held a number of positions with Cretex Concrete Products, a producer of precast concrete infrastructure products, most recently serving as Vice President from March 2015 to December 2015 and Director of Sales from September 2009 to March 2015. Prior to joining Cretex Concrete Products in 1997, Mr. Sexe worked for Bartlett & West Engineers and the Kansas Department of Transportation. Mr. Sexe holds a Bachelor of Science degree in Engineering from North Dakota State University.
Charles L. Ward Mr. Ward has served as Senior Vice President and General Manager, Bricks since October 2010. Mr. Ward joined Hanson Brick & Tile in 2002 and held a number of senior finance and other roles in Hansons brick and roof tile businesses, including Chief Financial Officer of Hanson Brick & Tile, Vice President of Sales for Hanson Brick North America and General Manager of Hanson Brick East. Prior to joining Hanson, Mr. Ward was President of Scholl America, Inc., an international textile machinery company. Mr. Ward has a Bachelor of Science degree in accounting from the University of North Carolina at Greensboro and holds a certified public accountant license in the state of North Carolina.
Lori M. Browne Ms. Browne has served as Senior Vice President and General Counsel since June 2016 and previously served as Vice President and General Counsel from March 2015 to June 2016. From April 2007 through March 2015, Ms. Browne served first as General Counsel for Fairpay Solutions, Inc. through March 2014, and subsequently as Assistant General Counsel for Mitchell International, Inc. after Mitchells acquisition of Fairpay Solutions, Inc. Both Fairpay Solutions, Inc. and
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Mitchell International, Inc. provide health care technology services to property and casualty insurers. Prior to that, Ms. Browne was an attorney at Weil, Gotshal & Manges, LLP and Fulbright & Jaworski, LLP. Ms. Browne holds a Juris Doctor degree from The University of Texas School of Law and a Bachelor of Arts degree from Texas A&M University. She is admitted to practice in the State of Texas.
Matthew Wayman Mr. Wayman has served as Vice President, Corporate Development since November 2015. From August 2012 through November 2015, Mr. Wayman served as Vice President of Strategy and Development for Oldcastle Building Products, Inc., an integrated building materials manufacturer and distributor, and a wholly owned subsidiary of Irish-based CRH plc. During his tenure at Oldcastle, Mr. Wayman also served as Vice President Operations for Oldcastle Precast, Inc. Prior to Oldcastle, Mr. Wayman worked as a turnaround and restructuring advisor with Macquarie Capital (USA), Inc. from April 2008 to September 2012. Prior to Macquarie Capital (USA), Inc., Mr. Wayman held investment banking roles at J.P. Morgan and Barclays Capital as well as a corporate finance position at Fleet Securities, Inc. Mr. Wayman holds a Bachelor of Science degree in Engineering Science and Economics from Vanderbilt University.
Directors and Director Nominees
Kevin Barner Mr. Barner will become a director upon the listing of our common stock. Mr. Barner is a Director of Lone Star Americas Acquisitions LLC, an affiliate of ours and Lone Star, where he focuses on origination and underwriting activities related to corporate private equity and debt investments throughout the Americas region. Prior to his current role, from August 2012 until June 2014, Mr. Barner was a Vice President at Hudson Americas L.P., an affiliate of ours and Lone Star, serving in an origination, underwriting, and asset management role on various operating company investments made by several of Lone Stars funds. Prior to joining Hudson Americas, from March 2006 until August 2012, Mr. Barner served as a Vice President and Associate at The Halifax Group, a middle-market private equity firm with over $1.0 billion under management. While at Halifax, Mr. Barner was responsible for identifying, evaluating and sourcing private equity investment opportunities and was a board member or board observer for several of Halifaxs portfolio companies, including, Service Champ, Aptiv Solutions, North American Video, and XLA. From July 2004 until March 2006, Mr. Barner was an Analyst with BB&T Capital Markets Investment Banking platform specializing in mergers and acquisitions across a variety of industries. Mr. Barner served as a member of the board of directors of Continental Building Products, Inc. from March 2015 to March 2016 and currently serves as a member of the board of directors of a number of privately held companies.
Mr. Barner brings broad expertise in financial management to the board of directors. His extensive experience in private equity and the financial markets also allows him to make valuable contributions with respect to our capital structure and financing, acquisition and investing activities.
Robert Corcoran Mr. Corcoran will become a director upon the listing of our common stock. Mr. Corcoran is Senior Advisor Global Operations for Hudson Advisors LP, an affiliate of ours and Lone Star, a position he has held since January 2016. Mr. Corcoran was formerly President and Chief Operating Officer of Hudson Advisors, a position he held from July 2014 to December 2015, and prior to that served as President and Chief Financial Officer of Hudson Advisors since 1993. Before joining Hudson Advisors, Mr. Corcoran served as the Controller for Brazos Asset Management, Inc. and American Real Estate Group. Mr. Corcoran began his career with the accounting firm of Touche Ross & Co. in San Antonio. He is a CPA and holds a Bachelor of Science degree from the University of Texas at San Antonio.
Mr. Corcoran brings a significant level of management and asset-oversight expertise to the board from his career with Hudson Advisors. His service as an executive also provides the board with valuable insight regarding managements day-to-day duties and responsibilities. Mr. Corcorans service on our advisory board also provides him with a working knowledge of our business and operations.
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Samuel D. Loughlin Mr. Loughlin will become a director and Chairman of the Board upon the listing of our common stock. Mr. Loughlin currently serves as President of Lone Star Americas Acquisitions, LLC, an affiliate of ours and Lone Star, where he is responsible for the management and oversight of all originations initiatives in North America. Previously, from 2011 to 2013, he served as Managing Director and Senior Managing Director of Lone Star U.S. Acquisitions, LLC. Mr. Loughlin joined Hudson Americas LP, an affiliate of ours and Lone Star, in 2008 and focused on directing the management of the corporate assets located in North America. From 2008 to 2011, he served in various capacities at Hudson Americas, with responsibility for its retail and restaurant operating companies, in addition to leading teams in special originations initiatives. Mr. Loughlin has more than 18 years of finance and legal experience, including mergers and acquisitions, financing, private equity investment, originations and asset management transactions. Prior to joining Hudson Americas, Mr. Loughlin was a Partner of a Texas-based private equity firm with real estate, operating company and securities holdings, where he was responsible for legal oversight, deal structuring, asset evaluation, acquisitions and sales. Prior to that, Mr. Loughlin served as an attorney at Vinson & Elkins LLP, where he was a member of the Business and Corporate Securities group, with experience in venture capital and mezzanine financing transactions, private and public securities offerings, mergers and acquisitions, management buyouts and debt financing transactions. Mr. Loughlin also served as chairman of the board of directors of Del Friscos Restaurant Group, Inc. from July 2012 through December 2013, and served as chairman of the board of directors of Continental Building Products, Inc. from February 2014 through March 2015 and currently serves as a member of the board of directors of a number of privately held companies.
Mr. Loughlin has significant experience with the strategic, financial and operational requirements facing operating companies in various industries, allowing him to guide the board in analyzing, shaping, and overseeing our execution of important operational and policy issues. His responsibilities for Lone Stars operating companies in North America, including our company, also provide Mr. Loughlin with a working knowledge of our business and operations that are important to the development of the board.
Clint McDonnough Mr. McDonnough will become a director upon the listing of our common stock. Mr. McDonnough has been the Managing Partner of McDonnough Consulting LLC, a consulting firm, since May 2016. Before retiring in June 2015, Mr. McDonnough served 38 years for Ernst & Young LLP, most recently serving as the Managing Partner of the firms Dallas office. In his role as Managing Partner, Mr. McDonnough was responsible for leading all day-to-day practice operations in one of the firms largest markets. Prior to serving as Managing Partner, Mr. McDonnough was the firms Managing Partner of Assurance & Advisory Business Services for the southwest area practice. Mr. McDonnough has been a member of the board of directors of UDR, Inc. and ORIX USA Corporation since February 2016 and April 2016, respectively, and has served as a member of our Advisory Board since July 1, 2015. Mr. McDonnough is also active in, and serves on the boards of, several charitable and educational organizations.
Mr. McDonnough brings a significant level of financial and accounting expertise to the board developed during his more than 35 year career with Ernst & Young. This experience, in particular his experience gained working with numerous listed companies, provides valuable insight regarding public company reporting matters, as well as insight into the process of an audit committees interactions with the board and management. Mr. McDonnoughs service on our advisory board also provides him with a working knowledge of our business and operations.
John McPherson Mr. McPherson will become a director upon the listing of our common stock. Mr. McPherson has been Executive Vice President, Chief Financial and Strategy Officer of Vulcan Materials Company, a publicly-traded producer of construction aggregates, asphalt mix and ready-mixed concrete, since July 2014. Prior to assuming his current position, Mr. McPherson served in a number of roles for Vulcan, including Executive Vice President and Chief Financial Officer from
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January 2014 to July 2014, Senior Vice President East Region from November 2012 to December 2013 and Senior Vice President, Strategy and Business Development from October 2011 to November 2012. Before joining Vulcan in October 2011, Mr. McPherson worked at McKinsey & Company, Inc., a global management consulting firm, beginning in 1995, most recently serving as Senior Partner from 2006 to 2011.
Mr. McPherson brings a significant level of financial and accounting expertise to the board developed during his professional career, including through his service as a Chief Financial Officer. Mr. McPhersons valuable public company experience also provides the board with valuable insight regarding public company reporting matters, as well a first-hand view of managements day-to-day duties and responsibilities. Mr. McPhersons service on our advisory board also provides him with a working knowledge of our business and operations.
Chris Meyer Mr. Meyer will become a director upon the listing of our common stock. Mr. Meyer has been a Managing Director of Hudson Americas L.P., an affiliate of ours and Lone Star, since February 2015. Mr. Meyer has oversight responsibility for a number of Lone Stars private equity investments, including our company, and also assists with the due diligence and underwriting of potential operating company investments. Prior to joining Hudson Americas, Mr. Meyer held a number of positions with McKinsey & Company, Inc., a global management consulting firm, most recently serving as a Director (Senior Partner). While at McKinsey, Mr. Meyer managed the Dallas office, co-led the Consumer Practice group and co-founded McKinseys Consumer Marketing Analytics Center. Mr. Meyer currently serves as a member of the board of directors of a number of privately held companies, including several for which he serves as chairman. Mr. Meyer earned a Bachelor of Science degree in Industrial Engineering from North Carolina State University and a Masters of Business Administration degree from Harvard Business School.
Mr. Meyers background, including as a management consultant in a wide range of industries, allows him to assist the board in understanding and addressing a wide variety of the issues it faces. Mr. Meyer also brings significant financial and operational expertise developed through his past and current leadership and oversight roles. His responsibilities for Lone Stars companies, including our company, also provide Mr. Meyer with a deep working knowledge of our business and operations.
Jacques Sarrazin Mr. Sarrazin will become a director upon the listing of our common stock. Mr. Sarrazin has also been a Partner at and President of JMH Conseil, a strategy and development consulting firm, since 2015. Mr. Sarrazin has also been an Affiliate Partner at Lindsay Goldberg, a private equity fund, since 2015. Prior to 2015, Mr. Sarrazin held a number of executive positions with Lafarge SA, a French industrial company, over a period of almost 25 years, most recently serving as Group Vice President of Strategy from 2007 to 2014. Prior to Lafarge, Mr. Sarrazin was employed by Pechiney, an aluminum company, and served as a research fellow at Ecole Polytechnique in Paris. Mr. Sarrazin holds a degree in Mining Engineering from Ecole des Mines, Nancy and a PhD from the University of Texas at Austin.
Mr. Sarrazin brings a significant level of industry experience to the board developed during his approximately 25 year career in the industrial and construction industries, including as an executive at Lafarge. His service as an executive also provides the board with valuable insight regarding managements day-to-day duties and responsibilities. Mr. Sarrazins service on our advisory board also provides him with a working knowledge of our business and operations.
Chadwick Suss Mr. Suss will become a director upon the listing of our common stock. Mr. Suss has been a Director of Hudson Americas L.P., an affiliate of ours and Lone Star, since July 2015 and prior to that, served as a Vice President starting in August 2013. His responsibilities include identifying investment opportunities, managing acquisition processes, driving portfolio company
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performance and working on investment exits. Mr. Susss asset management responsibilities include the building products and shipping businesses of Lone Stars operating companies. Prior to joining Hudson Americas, Mr. Suss worked as a turnaround and restructuring advisor with AlixPartners from March 2009 to July 2013. Prior to AlixPartners, Mr. Suss held investment banking roles at J.P. Morgan and A.G. Edwards as well as corporate finance positions at S.C. Johnson. Mr. Suss served as a member of the board of directors of Continental Building Products, Inc. from February 2014 to March 2016.
Mr. Suss brings broad financial and operational expertise to the board of directors developed through roles in management consulting, investment banking and corporate finance across a variety of industries. Mr. Susss background and expertise allow him to help the board identify, understand and address a wide variety of issues.
Kyle Volluz Mr. Volluz has been a member of our board of directors since June 21, 2016. Mr. Volluz has been a Managing Director with Hudson Advisors L.P., an affiliate of ours and Lone Star, since January 2015, and for the five years prior to that, a Director with Hudson Advisors, in each case, with responsibility for the management of the Legal Department. In such capacity, Mr. Volluz oversees all legal issues impacting operating companies that are affiliates of Lone Star within North America, as well as other corporate investments for which Hudson Advisors or its subsidiaries provide asset management services in North America. In particular, Mr. Volluz has been actively involved in the negotiation and closing of numerous lending transactions, acquisitions and asset sales for us and other Lone Star portfolio companies since joining Hudson Advisors in 2009. Previously, Mr. Volluz was Senior Vice President and Director of Legal Services for Goldman Sachs Specialty Lending Group, an affiliate of Goldman, Sachs & Co., a position he held from 2005 to 2009. Prior thereto, Mr. Volluz was an attorney with Baker Botts LLP and Thompson & Knight LLP, where he supported clients in various types of commercial banking transactions, mergers and acquisitions, private and public securities offerings and debt financing transactions. Mr. Volluz served as a member of the board of directors of Continental Building Products, Inc. from February 2014 to March 2016 and currently serves as a member of the board of directors of a number of privately held companies. Mr. Volluz graduated from the University of Texas at Austin in Austin, Texas. He holds a Master of Business Administration degree from the Thunderbird School of Global Management in Glendale, Arizona, and a Juris Doctor degree from the Dedman School of Law at Southern Methodist University in Dallas, Texas.
Mr. Volluzs knowledge of our company allows him to bring a well-informed perspective to the board of directors regarding our operations and the associated legal risks. His extensive experience with capital market transactions, both involving our company and other affiliates of Lone Star, also allows him to make valuable contributions with respect to our capital structure and financing and investing activities. His legal background also provides valuable insight to the board regarding issues we may face.
Grant Wilbeck Mr. Wilbeck will become a director upon the listing of our common stock. Mr. Wilbeck has served as Managing Director of Lone Star Americas Acquisitions LLC, an affiliate of ours and Lone Star, since 2013, where he focuses on origination and underwriting activities related to corporate private equity and debt investments. Previously, from 2007 to 2013, he served in various capacities at Hudson Americas L.P., an affiliate of ours and Lone Star, with asset management responsibility across all retail and restaurant operating companies focusing on operational performance, capital structure and acquisition opportunities. Prior to joining Hudson Americas, Mr. Wilbeck was at APS Financial Corp. where he was a research analyst focused on distressed debt and special situations. Mr. Wilbeck served as a member of the board of directors of Continental Building Products, Inc. from February 2014 to March 2016 and currently serves as a member of the board of directors of a number of privately held companies.
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Mr. Wilbeck brings broad expertise in financial management to the board of directors. His extensive experience in the financial markets also allows him to make valuable contributions with respect to our capital structure and financing and investing activities.
There are no family relationships among any of our directors or executive officers.
Director Compensation
We have not paid any compensation to our non-employee directors for their services as directors. However, we intend to pay compensation to independent directors following the completion of this offering. We expect to pay an annual retainer of $ per year to each independent director for his or her services, with an additional $ annual fee for service as the chairman of the board or as chairperson of a committee of the board. In addition, we expect to pay our independent directors a fee of $ for each meeting attended in person and $ for each meeting attended telephonically. We also expect independent directors to receive an annual equity grant. Such cash fees are expected to be paid quarterly in arrears.
Board of Directors
Our amended and restated certificate of incorporation will provide that our board of directors will be divided into three classes of directors, with the classes to be as nearly equal in number as possible. The members of each class will serve for a three-year term. As a result, one-third of our board of directors will be elected each year. will be class I directors, up for election in 2017, will be class II directors, up for election in 2018, and will be class III directors, up for election in 2019. See Description of Capital StockProvisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover EffectClassified Board of Directors.
Before the completion of this offering, our board of directors will establish an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will operate pursuant to a charter that will be adopted by our board of directors. Upon the closing of this offering, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act, SEC rules and regulations and NASDAQ rules.
Following this offering, Lone Star will continue to control more than 50% of the voting power of our common stock in the election of directors. Accordingly, we intend to avail ourselves of the controlled company exception available under NASDAQ rules which eliminates certain requirements, such as the requirements that a company have a majority of independent directors on its board of directors, that compensation of executive officers be determined, or recommended to the board of directors for determination, by a majority of the independent directors or a compensation committee composed solely of independent directors, and that director nominees be selected, or recommended for the board of directors selection, by a majority of the independent directors or a nominations committee composed solely of independent directors. In the event that we cease to be a controlled company, we will be required to comply with these provisions within the transition periods specified in the applicable rules. These exemptions do not modify the independence requirements for our audit committee, and we intend to comply with the applicable requirements of the SEC and NASDAQ with respect to our audit committee within the applicable time frame.
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Committees of the Board of Directors
Audit Committee
The primary responsibilities of our audit committee will be to oversee the accounting and financial reporting processes of our company as well as our subsidiary companies, and to oversee the internal and external audit processes. The audit committee will also assist the board of directors in fulfilling its oversight responsibilities by reviewing the financial information provided to stockholders and others, and the system of internal controls established by management and the board of directors. The audit committee will oversee the independent auditors, including their independence and objectivity. However, committee members will not act as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee will be empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist it in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors.
The audit committee will be composed of three members, , with serving as chair. Our board of directors has determined that each of is independent, as defined under and required by the federal securities laws and NASDAQ rules. Our board of directors has determined that qualifies as an audit committee financial expert under the federal securities laws and that each member of the audit committee has the financial sophistication required under NASDAQ rules. The rules of the SEC and NASDAQ require us to have a fully independent audit committee within one year of the date of the effectiveness of the registration statement of which this prospectus is a part and the listing of our common stock, respectively.
Compensation Committee
The primary responsibilities of our compensation committee will be to periodically review and approve the compensation and other benefits for our employees, officers and independent directors. This will include reviewing and approving corporate goals and objectives relevant to the compensation of our executive officers in light of those goals and objectives, and setting compensation for these officers based on those evaluations. Our compensation committee will also administer and have discretionary authority over the issuance of equity awards under our equity incentive plan.
The compensation committee may delegate authority to review and approve the compensation of our employees to certain of our executive officers, including with respect to awards made under our equity incentive plan. Even where the compensation committee does not delegate authority, our executive officers will typically make recommendations to the compensation committee regarding compensation to be paid to our employees and the size of equity grants under our equity incentive plan.
The compensation committee will be composed of three members, , with serving as chair. For so long as we are a controlled company, we are not required to have a compensation committee composed entirely of independent directors under NASDAQ rules.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will oversee all aspects of our corporate governance functions. The committee will make recommendations to our board of directors regarding director candidates and assist our board of directors in determining the composition of our board of directors and its committees. The nominating and corporate governance committee will be composed of three members, , with serving as chair. For so long as we are a controlled company, we are not required to have a nominating and corporate governance committee composed entirely of independent directors under NASDAQ rules.
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Code of Conduct and Ethics
Our board of directors will adopt a code of conduct and ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of our company. The code will address, among other things, conflicts of interest, compliance with disclosure controls and procedures and internal control over financial reporting, corporate opportunities and confidentiality requirements. The audit committee will be responsible for applying and interpreting our code of conduct and ethics in situations where questions are presented to it. We expect that any amendments to the code or any waivers of its requirements applicable to our principal executive, financial or accounting officer, or controller will be disclosed on our website at forterrabp.com. Our website is not part of this prospectus.
Compensation Committee Interlocks and Insider Participation
Our compensation committee will be composed of . None of our executive officers currently serves, or has served during the last completed fiscal year, as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our board of directors. For a description of the transactions between us and members of the compensation committee, and entities affiliated with such members, see the transactions described under the section entitled Certain Relationships and Related Party Transactions.
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Compensation Discussion and Analysis
In this section, the Compensation Discussion and Analysis, or CD&A, we provide an overview of our compensation philosophy and each element of our executive compensation program with regard to the compensation awarded to, earned by, or paid to our named executive officers, or NEOs, during our fiscal year ended December 31, 2015. Throughout this section, we also provide information on certain changes we have made to our NEO compensation program since December 31, 2015.
For the fiscal year ended December 31, 2015, our NEOs were:
Named Executive Officer |
Title |
|
Jeffrey Bradley |
Chief Executive Officer |
|
William Matthew Brown |
Executive Vice President, Chief Financial Officer |
|
Mark Carpenter |
President, Drainage Pipe & Products |
|
Charles L. Ward |
Senior Vice President and General Manager, Bricks |
|
Plamen Jordanoff |
Former Chief Executive Officer |
|
Mark Conte |
Former Chief Financial Officer |
|
Scott Szwejbka |
Former Senior Vice President, Pipe & Precast |
During 2015, each of our NEOs, with the exception of Mr. Ward, was employed by Forterra Pipe and Precast, LLC, and Mr. Ward was employed by Forterra Brick, LLC, both of which are wholly owned subsidiaries of ours. References in this CD&A to compensation paid by the Company include compensation paid by these entities.
Mr. Bradley commenced employment with us as Chief Executive Officer on August 31, 2015, succeeding Mr. Jordanoff, who was terminated effective September 1, 2015. Mr. Conte was terminated as Chief Financial Officer on June 5, 2015 and was succeeded by Mr. Brown, who assumed this position on August 26, 2015. Mr. Szwejbka was terminated as Senior Vice President, Pipe & Precast effective December 31, 2015. During fiscal year 2015, Mr. Carpenter served as Senior Vice President, Hanson Engineered Products, and was appointed as Senior Vice President and General Manager, Drainage Pipe & Products on January 1, 2016, following Mr. Szwejbkas termination.
Compensation Philosophy
Our compensation programs are designed to attract, motivate, retain and reward our employees in order to promote our long-term success, growth and profitability. In setting compensation levels and designing program elements, we seek to establish overall compensation levels that are internally equitable and competitive within the industries in which we compete for talent. We regularly review our executive officer compensation program with the goal of motivating our executive team to achieve our strategic goals and aligning them with the interests of our stockholders. In particular, we seek to:
| Align the base salary and incentive compensation of our executive officers to those of comparable companies of similar size in our industry to enable us to hire and retain skilled, experienced and talented individuals; |
| Focus a meaningful portion of our executive officers compensation on achieving financial metrics that are tied to the Companys performance over both short-term and long-term horizons, thereby aligning their interests to those of our stockholders; |
| Recognize and reward individual excellence; and |
| Provide balanced incentives that motivate our executives to achieve our short-term and long-term goals without incentivizing executives to take excessive risks. |
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Following the completion of this offering, the compensation committee of our board of directors will be responsible for the implementation and oversight of our compensation program for our non-employee directors and executive officers.
Elements of 2015 Compensation
The principal elements of our 2015 compensation program are described in the table that follows:
Element |
Description |
Purpose |
||
Base salary | Fixed level of annual cash compensation, reviewed annually. | Provides a competitive level of base pay designed to attract and retain qualified executives. | ||
Annual incentive compensation | Annual cash performance bonus payable based upon attainment of short-term objectives. The total target level of annual incentive compensation is set for each individual as a percentage of that individuals base salary. Annual incentive awards are then earned based on (i) the achievement of financial metrics of the Company and/or one of its segments established by Forterra Pipe and Precast LLCs and Forterra Brick, LLCs boards of directors, as applicable, and/or (ii) the achievement by that individual of certain individual goals established by Forterra Pipe and Precast LLCs board of directors, for Mr. Jordanoff, and established by Mr. Jordanoff for his direct-reports, including all other NEOs. For 2015, Messrs. Bradley and Browns annual incentives were based entirely upon the achievement of financial goals. Based on the boards and CEOs (for all NEOs other than himself) assessment of the achievement of these financial and/or personal goals, payment of the annual incentive compensation can range from 0% to 200% of the targeted amount. | Motivates executives to drive performance and rewards executives for achievement in key areas of operational and financial performance. | ||
Long-term incentive compensation | Cash-based long term incentive plan established and maintained by Concrete Holdings entitling participants to potential cash payouts upon designated liquidity events in which our direct and indirect equity holders immediately prior to this offering realize a specified internal rate of return. | Motivates and rewards executives for increasing Company value and serves to directly align executive compensation with our equity holders realized returns. |
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Element |
Description |
Purpose |
||
Benefits and perquisites |
Participation in broad-based employee plans offered to our full-time employees generally.
Relocation benefits for newly hired executives or those who are required to relocate in connection with their employment.
Use of cars leased by the Company as part of its fleet lease program, together with a fuel card.
401(k) plan Company-sponsored contribution of up to 3% of covered compensation and additional Company-sponsored match of up to 3% of covered compensation. |
Provides competitive benefits and limited perquisites to attract and retain executives. Most of the benefits offered to our executives are similarly offered to all salaried U.S. employees. |
2015 Compensation-Setting Process
For 2015, we generally retained the same compensation program elements established by HeidelbergCement prior to the Acquisition. Compensation levels in 2015 for key executive employees, including our NEOs, were set by the boards of directors of Forterra Pipe and Precast LLC and Forterra Brick, LLC, as applicable, and reflected certain adjustments commensurate with our NEOs expanded roles and responsibilities following the Acquisition. The Company did not utilize the services of a compensation consultant during 2015, but expects to engage a compensation consultant in connection with becoming a public company. As noted above, following the completion of this offering, our compensation committee will be responsible for the implementation and oversight of our compensation program for our executive officers.
Employment Agreements
Jeffrey Bradley
Forterra Pipe and Precast, LLC has entered into an employment agreement with Mr. Bradley dated as of July 8, 2015, under which he assumed the role of Chief Executive Officer as of August 31, 2015. This employment agreement establishes Mr. Bradleys initial annual base salary at $800,000 per year and a bonus potential of up to 200% of base salary (pro-rated for 2015). Mr. Bradleys employment agreement also sets forth certain severance provisions that apply in the event that he is terminated without cause (as defined in his employment agreement), resigns for good reason (as defined in his employment agreement), or terminates employment as a result of death or disability. These payments are described in further detail in the section entitled Potential Payments Upon Termination or Change in Control below and are subject to Mr. Bradleys execution and nonrevocation of a mutual general release of claims and continued compliance with the restrictive covenants contained in his employment agreement. The employment agreement contains a number of restrictive covenants, including a 12-month post termination non-competition covenant, a 12-month post termination employee and business contact non-solicitation provision, and a mutual non-disparagement covenant.
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William Matthew Brown
Forterra Pipe and Precast, LLC has entered into an amended and restated employment agreement with Mr. Brown dated as of June 28, 2016, the terms of which are similar, in all material respects, to those contained in his prior employment agreement. Pursuant to his prior employment agreement, dated July 13, 2015, Mr. Brown assumed the role of Executive Vice President and Chief Financial Officer as of August 26, 2015. This employment agreement established Mr. Browns minimum annual base salary at $350,000 per year and a bonus potential of up to 200% of base salary (pro-rated for 2015). Pursuant to this employment agreement, Mr. Browns pro-rated annual bonus for 2015 was guaranteed at a minimum of $198,333.33. Mr. Browns employment agreement also sets forth certain severance provisions that apply in the event that he is terminated without cause (as defined in his employment agreement), resigns for good reason (as defined in his employment agreement), or terminates employment as a result of death or disability. These payments are described in further detail in the section entitled Potential Payments Upon Termination or Change in Control below and are subject to Mr. Browns execution and nonrevocation of a general release of claims and continued compliance with the restrictive covenants contained in his employment agreement. The employment agreement contains a number of restrictive covenants, including a 12-month post termination non-competition covenant, a 12-month post termination employee and business contact non-solicitation provision, and a mutual non-disparagement covenant.
None of the other NEOs is currently subject to an employment agreement with the Company or any of its subsidiaries.
Separation Agreements
Plamen Jordanoff
Forterra Pipe and Precast, LLC entered into a separation agreement with Mr. Jordanoff dated as of July 27, 2015, which provides for the payment of certain severance amounts and the provision of certain benefits. The key terms of this agreement are described below in the section entitled Potential Payments Upon Termination or Change in Control.
Mark Conte
Forterra Pipe and Precast, LLC entered into a confidential separation agreement and full release of claims with Mr. Conte as of June 12, 2015. This agreement provided for the payment of certain severance amounts and the continued provision of medical, dental, and vision benefits through June 30, 2016. In addition, under the policies of Forterra Pipe and Precast, LLC, Mr. Conte was entitled to the payment of a pro-rated 2015 bonus based on the terms of the Annual Incentive Plan. The other key terms of this agreement are described below in the section entitled Potential Payments Upon Termination or Change in Control.
Scott Szwejbka
Forterra Pipe and Precast, LLC entered into a confidential separation agreement and full release of claims with Mr. Szwejbka as of December 31, 2015. This agreement provides for the payment of certain separation benefits and the continued provision of medical, dental, and vision benefits through December 31, 2016, as described below in the section entitled Potential Payments Upon Termination or Change in Control. In addition, Mr. Szwejbka was entitled to payment of his full fiscal year 2015 annual bonus based on the terms of the Annual Incentive Plan.
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Detailed Discussion of 2015 Compensation Program
Base Salary
Our NEOs base salaries are established based on external market competitiveness, Company performance, individual performance, and internal equity. Pursuant to their respective employment agreements and based upon arms length negotiations, the salaries for Messrs. Bradley and Brown were set at $800,000 and $350,000, respectively, for the 2015 fiscal year. At the start of 2015, the base salaries for Messrs. Carpenter and Ward were $267,800 and $242,098, respectively. Prior to their terminations, Messrs. Jordanoffs, Contes and Szwejbkas base salaries were $650,000, $302,508 and $300,000 respectively.
Generally, salaries are subject to annual review. However, at the time of the Acquisition, given the new duties relating to operating a stand-alone business, Mr. Jordanoffs base salary was increased from $430,500 to $650,000. Similarly, based on the additional duties encompassed with operating as a stand-alone business, Mr. Carpenters base salary was increased to $280,000, Mr. Wards base salary was increased to $250,000, and Mr. Szwejbkas base salary was increased to $275,000. Mr. Szwejbkas base salary was again increased in October of 2015 to $300,000 in recognition of his expanded role and responsibilities in connection with the Cretex Acquisition.
As a result of the 2016 annual review process, and in recognition of Mr. Browns and Mr. Carpenters expanded duties and strong performance, their base salaries were increased to $400,000 and $300,000, respectively, for the 2016 fiscal year.
Annual Incentives
The Company maintains an Annual Incentive Plan in which full-time salaried employees, including each of our NEOs participates. For 2015, each NEOs target and maximum annual bonus payouts under this plan were as follows:
NEO |
Target Bonus (as a percentage of
annual base salary) |
Maximum Bonus (as a percentage
of annual base salary) |
||||||
Jeffrey Bradley(1) |
100 | % | 200 | % | ||||
William Matthew Brown(1) |
100 | %(2) | 200 | % | ||||
Mark Carpenter |
50 | % | 100 | % | ||||
Charles L. Ward |
50 | % | 100 | % | ||||
Plamen Jordanoff |
100 | % | 200 | % | ||||
Mark Conte |
40 | % | 80 | % | ||||
Scott Szwejbka |
50 | % | 100 | % |
(1) | The bonus potentials for Messrs. Bradley and Brown were based upon their pro-rated base salary for the portion of 2015 during which they were employed by the Company. |
(2) | As described above in the section entitled Employment Agreements, per the terms of his employment agreement, Mr. Brown was guaranteed a minimum annual bonus of $198,333.33 for 2015. |
The Annual Incentive Plan for our 2016 fiscal year removes the maximum bonus provisions, allowing our NEOs to earn larger bonuses in the event of exceptional Company and individual performance.
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For 2015, annual bonuses were earned based on the achievement of certain company-wide or, for NEOs primarily responsible for the oversight of a particular division, division-level financial performance metrics as well as the achievement of individual management by objectives, or MBOs, for all of the NEOs except Messrs. Bradley and Brown. The relative weighting of each performance target for the NEOs was as follows:
NEO |
Financial Metric
(Company-wide EBITDA(1)) |
Financial Metric
(North American EBITDA(2) ) |
Financial Metric
(Division- Specific EBITDA) |
Personal MBOs | ||||||||||||
Jeffrey Bradley |
100 | % | | | | |||||||||||
William Matthew Brown |
100 | % | | | | |||||||||||
Mark Carpenter |
| 20 | % | 60 | % | 20 | % | |||||||||
Charles L. Ward |
| 20 | % | 60 | % | 20 | % | |||||||||
Plamen Jordanoff |
80 | % | | | 20 | % | ||||||||||
Mark Conte |
40 | % | | | 60 | % | ||||||||||
Scott Szwejbka |
| 20 | % | 60 | % | 20 | % |
(1) | Includes U.S., Eastern Canada and Forterra UK operations, which were part of our business during 2015. |
(2) | Includes U.S. and Eastern Canada operations. |
Individual MBOs varied for each NEO, other than Messrs. Bradley and Brown, whose 2015 annual incentives were based entirely upon the achievement of Company-wide EBITDA targets. Individual MBOs included performance metrics such as achievement of various safety metrics, working capital targets or sales and costs goals and execution on key business projects relevant to the specific NEOs primary area of responsibility.
Based on the achievement of these financial and individual performance objectives, final payouts under the 2015 Annual Incentive Plan were as follows for each NEO:
NEO |
Actual Bonus Payout |
|
Jeffrey Bradley |
$534,795 | |
William Matthew Brown |
$243,562 | |
Mark Carpenter |
$268,450 | |
Charles L. Ward |
$236,425 | |
Plamen Jordanoff |
$1,083,333 (pursuant to separation and release agreement) |
|
Mark Conte |
$50,417.95 (pro-rated based on period employed) |
|
Scott Szwejbka |
$271,318 |
Long Term Incentive Plan
Following the Acquisition, Lone Star implemented a new cash-based long term incentive plan, the LSF9 Concrete Holdings Ltd. Long Term Incentive Plan, or the LTIP. Under the LTIP, participants are granted pool units entitling them, subject to the terms of the LTIP, to a potential cash payout upon a designated liquidity event.
Generally, for purposes of the LTIP, a liquidity event occurs when:
| Lone Star Fund IX (U.S.), L.P. and/or its affiliates sell, transfer or otherwise dispose of all or a portion of their direct and indirect ownership interests in Concrete Holdings or a respective successor entity (whether through a direct sale, merger, consolidation, reorganization, or other similar transaction) to an unrelated third party for cash; |
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| a firm commitment underwritten public offering of the equity interests of Concrete Holdings or a respective successor entity is consummated that either (1) is registered under the Securities Act, or (2) results in such equity interests being admitted for trading on either the Main Market or the AIM market of the London Stock Exchange, in each case, where Lone Star Fund IX (U.S.), L.P. and/or its affiliates sell all or a portion of their direct and indirect ownership interests in Concrete Holdings or a respective successor entity, as applicable, in such offering; or |
| Concrete Holdings pays any cash distributions to Lone Star Fund IX (U.S.), L.P. and/or its affiliates (including in connection with a sale of the assets of Concrete Holdings or a respective successor entity). |
Concrete Holdings, an affiliate of ours, maintains, and is obligated for all payments under the LTIP. We are considered a successor entity of Concrete Holdings for purposes of the occurrence of a liquidity event under the LTIP. The LTIP was effective March 13, 2015. As of December 31, 2015, five of our NEOs, Messrs. Bradley, Brown, Carpenter, Jordanoff, and Szwejbka participated in the LTIP. In April of 2016, Mr. Carpenter received a revised award under the LTIP.
During fiscal year 2015, Mr. Jordanoff was awarded 400,000 pool units under the LTIP, Mr. Bradley was awarded 350,000 pool units under the LTIP, Mr. Brown was awarded 100,000 pool units under the LTIP, and Mr. Szwejbka was awarded 50,000 units under the LTIP. In April 2016, Mr. Carpenter was awarded 80,000 pool units under the LTIP (superseding a prior June 2015 grant of 50,000 pool units). The total number of pool units authorized under the LTIP is 1,000,000. The LTIP will remain outstanding following this offering. While Concrete Holdings does not expect to increase the total number of pool units authorized under the LTIP, Concrete Holdings has made additional grants to other officers in 2016 and may make future limited grants under the LTIP.
Unless there is a payment owed under the terms of the LTIP on or before August 31, 2016, which is not currently anticipated, all of the pool units granted to Mr. Jordanoff will be forfeited on September 1, 2016 in accordance with the terms of his separation and release agreement. Pursuant to the terms of his award agreement, all of the pool units granted to Mr. Szwejbka were forfeited on June 30, 2016, in connection with his termination of employment in December 2015.
Of the units granted to Mr. Bradley, subject to his continued employment, 35,000 will become vested on each of the first, second and third anniversaries of the August 15, 2015 grant date and the remainder will only become vested upon the occurrence of a liquidity event in which Lone Star Fund IX (U.S.), L.P. and its affiliates have sold, transferred or otherwise disposed of all of their direct or indirect ownership interests in Concrete Holdings to an unrelated third party for cash while Mr. Bradley (or the relevant participant) is still employed by Forterra Pipe and Precast, LLC or an affiliate, such a liquidity event referred to as an Exit Transaction.
Of the units granted to Mr. Brown, subject to his continued employment 10,000 will become vested on the second anniversary of the August 26, 2015 grant date, 5,000 will become vested on each of the third and fourth anniversaries of the grant date, and the remainder will only become vested upon the occurrence of an Exit Transaction.
However, as described in the section entitled Potential Payments Upon Termination or Change in Control below, even vested pool units held by an LTIP participant will remain subject to forfeiture in the event of a termination for cause (as defined in their respective employment agreements) or in the event that no Exit Transaction occurs by the sixth anniversary of the grant date (or fifth anniversary of the grant date for Mr. Brown) and the participant is no longer employed by Forterra Pipe and Precast, LLC or an affiliate.
The units granted to Mr. Carpenter are not subject to vesting provisions, but remain subject to forfeiture in the event of his failure to comply with certain restrictive covenants, including a
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non-competition and non-solicitation provision, his termination of employment (although he may retain all pool units for six months following a termination without cause (as determined by the LTIP administrator)), or upon the occurrence of an Exit Transaction.
Under the LTIP, in the event of a Liquidity Event while the participant is still employed, the participant will be entitled to a payment based on the full number of his then outstanding pool units, whether or not vested at the time.
The value of a participants pool units is determined as of the closing date of each liquidity event relative to that participants interest in the incentive pool, calculated as the number of outstanding pool units (whether vested or unvested) held by the individual participant, divided by the aggregate number of pool units outstanding under the LTIP. The amount of profits credited to the incentive pool under the LTIP in connection with a liquidity event is based upon the cumulative internal rate of return (pursuant to the terms of the LTIP) realized upon a liquidity event by Concrete Holdings, direct and indirect equity holders immediately prior to this offering. In addition, the incentive pool will not be credited with any amounts and no payouts will be made unless such internal rate of return is at least 15%. Payments under the LTIP, if earned pursuant to the LTIP, are made in cash within sixty days after the closing of the applicable liquidity event. This offering is not expected to trigger any payouts under the LTIP.
The amount of profits that are credited to the LTIP incentive pool upon a liquidity event are summarized in the table and narrative below:
Cumulative IRR Achieved from Aggregate LE Cash
|
Percentage of the Incremental LE Profit Amount to be
|
|
14.99% or less |
0.0% | |
Over 15% up to 16.49% |
2.50% of excess over 15% | |
Over 16.5% up to 17.99% |
5.50% of excess over 16.5% | |
Over 18% up to 19.99% |
7.00% of excess over 18% | |
Over 20% up to 22.99% |
8.00% of excess over 20% | |
Over 23% up to 25.99% |
9.00% of excess over 23% | |
Over 26% up to 28.99% |
9.75% of excess over 26% | |
Over 29% up to 31.99% |
10.00% of excess over 29% | |
Over 32% up to 34.99% |
10.50% of excess over 32% | |
Over 35% up to 44.99% |
12.25% of excess over 35% | |
Over 45% |
5.00% of excess over 45% |
Upon a liquidity event, the incentive pool will be credited with an amount equal to the LE Participation Amount, which is to be a portion of the excess of:
(i) the sum of the net cash proceeds from the event causing the liquidity event actually received by Concrete Holdings direct and indirect equity owners net of transaction costs and expenses, or the LE Cash Received, plus all prior LE Cash Received (collectively with the current LE Cash Received, the Aggregate LE Cash Received), over
(ii) the beginning equity value (as defined in the LTIP) (such excess, the LE Profit Amount).
To determine such portion, Concrete Holdings will calculate a cumulative internal rate of return, or IRR (pursuant to the terms of the LTIP) with respect to the Aggregate LE Cash Received, which will be determined separately as to each component of LE Cash Received so that the time of payment is taken into account in determining the rate of return. The incentive pool will not be credited unless and until the cumulative IRR equals or exceeds 15% but once the cumulative IRR equals or exceeds 15% then, the LE Participation Amount will be a varying percentage of the tranches of the LE Profit Amount that are required to achieve varying levels of Cumulative IRR, determined pursuant to the table above.
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In the table above, the percentage in the right-hand column in any particular row is applied only to the portion of the LE Profit Amount attributable to the incremental cumulative IRR reflected in the left-hand column of such row.
Additional Compensation and Benefit Details
We do not provide our executives, including our NEOs, with special or supplemental retirement or health benefits. Our NEOs are eligible for retirement, health and welfare benefits under the same programs and subject to the same eligibility requirements that apply to our employees generally. We believe that all of the benefits made available to our NEOs are reasonable and are intended to help us attract and retain them.
We make automatic 401(k) contributions in the amount of 3% of covered compensation for each of our employees who participates in our 401(k) plan. We will also match any contributions that the employee makes in an amount of up to 3% of the employees covered compensation, subject to limitations on contributions set by applicable federal law. In addition, certain former participants in legacy defined benefit plans maintained by an affiliate of HeidelbergCement are entitled to additional Company contributions to our 401(k) plan each year. Prior to his termination, Mr. Conte was entitled to such contributions, and currently, only Mr. Ward is entitled to such contributions. These are included in the All Other Compensation column of the Summary Compensation Table below.
In Mr. Bradleys employment agreement, Forterra Pipe and Precast, LLC agreed to pay all reasonable and documented expenses related to relocating Mr. Bradley to the Dallas/Fort Worth area in connection with his employment.
In connection with their employment, Messrs. Carpenter, Ward, and Szwejbka have been granted the use of automobiles leased by Forterra Pipe and Precast, LLC and Forterra Brick, LLC, respectively, as part of their fleet lease program, together with a fuel card that can be used for purchase of fuel for the vehicle.
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Summary Compensation Table
The following table summarizes the compensation of our NEOs for our fiscal year ended December 31, 2015.
Name and Principal Position |
Year |
Salary
($)(1) |
Bonus
($)(2) |
Non-Equity
Incentive Plan Compensation ($)(3) |
All Other
Compensation ($)(4) |
Total
($) |
||||||||||||||||||
Jeffrey Bradley |
2015 | 269,745 | | 534,795 | | 804,539 | ||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||
William Matthew Brown |
2015 | 122,051 | 198,333 | 45,228 | | 365,613 | ||||||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||||||
Mark Carpenter, |
2015 | 276,442 | | 268,450 | 26,820 | 571,712 | ||||||||||||||||||
President & General Manager, Drainage Pipe & Products | ||||||||||||||||||||||||
Charles L. Ward, |
2015 | 248,025 | | 236,425 | 13,554 | 498,003 | ||||||||||||||||||
Senior Vice President & General Manager, Bricks | ||||||||||||||||||||||||
Plamen Jordanoff |
2015 | 472,805 | | | 1,780,116 | 2,252,921 | ||||||||||||||||||
Former Chief Executive Officer | ||||||||||||||||||||||||
Mark Conte |
2015 | 131,862 | | 50,418 | 325,635 | 507,915 | ||||||||||||||||||
Former Chief Financial Officer | ||||||||||||||||||||||||
Scott Szwejbka, |
2015 | 270,750 | | 271,318 | 342,961 | 885,029 | ||||||||||||||||||
Former Senior Vice President Pipe & Precast |
(1) | Includes elective deferrals into our 401(k) plan. Salaries listed for Messrs. Bradley, Brown, Jordanoff, and Conte reflect the fact that each was only employed for a portion of the 2015 fiscal year. |
(2) | Reflects guaranteed minimum bonus amount for our 2015 fiscal year per the terms of Mr. Browns employment agreement. The additional bonus he earned under the Annual Incentive Plan for fiscal year 2015 is reflected in the Non-Equity Incentive Plan Compensation column. |
(3) | These amounts reflect payments under our Annual Incentive Program . The earned amount for Mr. Conte was pro-rated to reflect his separation from the Company on June 5, 2015. |
(4) | The All Other Compensation column for 2015 includes, as applicable for each NEO: (a) Company contributions made by Forterra Pipe and Precast LLC or Forterra Brick, LLC under our 401(k) plan with respect to such period, (b) amounts paid to lease a Company vehicle under our fleet lease program described above, and (c) severance benefits accrued or paid under the NEOs respective separation agreements, described further below in the section entitled Potential Payments upon Termination or Change-In-Control. The amounts of each benefit included for each of our NEOs is reported in the table below. |
Name |
Company
Contributions to 401(k) Plan |
Company
Vehicle Payments |
Severance
Payments |
|||||||||
Mark Carpenter |
$ | 15,900 | $ | 10,920 | | |||||||
Charles L. Ward |
$ | 11,006 | $ | 2,547 | | |||||||
Plamen Jordanoff |
$ | 15,778 | $ | 12,495 | $ | 1,751,843 | ||||||
Mark Conte |
$ | 23,127 | | $ | 302,508 | |||||||
Scott Szwejbka |
$ | 15,712 | $ | 9,033 | $ | 318,216 |
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Grants of Plan-Based Awards Table
The following table sets forth information with respect to (1) the annual cash incentive bonuses awarded to each NEO for 2015, and (2) the LTIP awards granted to each NEO for 2015.
Name |
Estimated Future Payouts under
Non-Equity Incentive Plan Awards |
|||||||||||
Threshold ($) | Target ($) | Maximum ($) | ||||||||||
Jeffrey Bradley |
||||||||||||
Annual Incentive Plan |
n/a | 267,397 | (1) | 534,795 | (1) | |||||||
LTIP |
n/a | | (2) | n/a | ||||||||
William Matthew Brown |
||||||||||||
Annual Incentive Plan |
n/a | 121,781 | (3) | 243,562 | (3) | |||||||
LTIP |
n/a | | (2) | n/a | ||||||||
Mark Carpenter |
||||||||||||
Annual Incentive Plan |
n/a | 150,000 | 300,000 | |||||||||
LTIP |
n/a | | (2) | n/a | ||||||||
Charles L. Ward |
||||||||||||
Annual Incentive Plan |
n/a | 125,000 | 250,000 | |||||||||
Plamen Jordanoff |
||||||||||||
Annual Incentive Plan |
650,000 | 1,300,000 | ||||||||||
LTIP |
n/a | | (2) | n/a | ||||||||
Mark Conte |
||||||||||||
Annual Incentive Plan |
n/a | 121,003 | 242,006 | |||||||||
Scott Szwejbka |
||||||||||||
Annual Incentive Plan |
n/a | 150,000 | 300,000 | |||||||||
LTIP |
n/a | | (2) | n/a |
(1) | Mr. Bradley was entitled to a target bonus amount equal to 100% of his base salary and a maximum bonus amount equal to 200% of his base salary, pro-rated for his period of employment during fiscal year 2015. |
(2) | Certain NEOs were granted the following number of pool units under the LTIP during fiscal year 2015, the terms of which are described in detail above in the section entitled Detailed Discussion of 2015 Compensation ProgramLong Term Incentive Plan. The value of such awards cannot be determined at the time of grant. As noted above, Mr. Carpenters 2015 grant of 50,000 pool units was replaced with a grant of 80,000 pool units in April of 2016. The pool units granted to Mr. Szwejbka were forfeited on June 30, 2016 in connection with his termination of employment. Unless there is a payment obligation that arises under the terms of the LTIP, all of the pool units granted to Mr. Jordanoff will be forfeited on September 1, 2016 in accordance with the terms of his separation and release agreement. |
Named Executive Officer |
Number of Pool Units | |||
Jeffrey Bradley |
350,000 | |||
William Matthew Brown |
100,000 | |||
Mark Carpenter |
50,000 | |||
Scott Szwejbka |
50,000 | |||
Plamen Jordanoff |
400,000 |
(3) | Mr. Brown was entitled to a target bonus amount equal to 100% of his base salary and a maximum bonus amount equal to 200% of his base salary, pro-rated for his period of employment during fiscal year 2015. In addition, he was entitled to a minimum guaranteed bonus of $198,333.33 pursuant to the terms of his employment agreement. |
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Potential Payments upon Termination or Change-in-Control
Jeffrey Bradley
Pursuant to his July 8, 2015 employment agreement, subject to execution and nonrevocation of a mutual general release of claims and continued compliance with the restrictive covenants contained in his employment agreement, which are described in the section entitled Employment Agreements above, Mr. Bradley is entitled to the following benefits in the event of a termination of his employment by Forterra Pipe and Precast, LLC without cause (as defined in his employment agreement) or a resignation by Mr. Bradley for good reason (as defined in his employment agreement): (1) continued payment of his base salary for a period of 12 months post-termination; (2) payment of a pro-rated annual bonus for the year of termination, payable at the time bonuses for such year are paid to other executives; (3) payment of 100% of his target annual bonus in a single lump sum as of the date of termination; and (4) payment or reimbursement for the cost of up to 12 months of continuation coverage provided in accordance with the Consolidated Omnibus Budget Reconciliation Act (COBRA). In the event of Mr. Bradleys death or disability, he, or his estate, as applicable, is entitled to a pro-rated annual bonus for the year of termination, payable at the time bonuses for such year are paid to other executives, and such additional payments, if any as determined by the Forterra Pipe and Precast, LLC board of directors in its sole discretion.
In addition, under his LTIP award agreement, in the event of a termination of employment for any reason other than cause (as defined in his employment agreement), Mr. Bradley is entitled to retain any vested pool units he holds as of his termination of employment for a period through the later of August 15, 2021, or the date of his termination of employment. None of Mr. Bradleys LTIP pool units are currently vested.
Assuming Mr. Bradleys employment was terminated as of December 31, 2015, the payments and benefits that would have been provided to him in connection with his separation would have been as follows:
Base
Salary Continuation |
Pro-Rated
2015 Annual Bonus |
Target
Bonus |
Health Care
Coverage Continuation(1) |
LTIP
Units |
Total | |||||||||||||||||||
Termination Without Cause or Resignation for Good Reason |
$ | 800,000 | $ | 534,795 | $ | 800,000 | $ | 23,789 | All forfeit | $ | 2,158,584 | |||||||||||||
Death or Disability |
N/A | $ | 534,795 | N/A | N/A | All forfeit | $ | 534,795 |
(1) | Based on applicable COBRA rates in effect under Forterra Pipe and Precast, LLCs group health plan as of December 31, 2015. |
William Matthew Brown
Pursuant to his July 13, 2015 employment agreement, subject to execution and nonrevocation of a general release of claims and continued compliance with the restrictive covenants contained in his employment agreement, described in the section entitled Employment Agreements above, Mr. Brown is entitled to the following benefits in the event of a termination of his employment by Forterra Pipe and Precast, LLC without cause (as defined in his employment agreement) or a resignation by Mr. Brown for good reason (as defined in his employment agreement): (1) continued payment of his base salary for a period of 12 months post-termination; (2) payment of a pro-rated annual bonus for the year of termination, payable at the time bonuses for such year are paid to other executives; and (3) availability of continuation coverage in accordance with COBRA at the rates applicable to him immediately prior to termination for a period of 12 months post-termination. In the event of Mr. Browns death or disability, he, or his estate, as applicable, is entitled to payment of a pro-rated annual bonus for the year of
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termination, payable at the time bonuses for such year are paid to other executives, and any other payment, if any, as determined by the Forterra Pipe and Precast, LLC board of directors in its sole discretion.
In addition, under his LTIP award agreement, in the event of a termination of employment for any reason other than cause (as defined in his employment agreement), Mr. Brown is entitled to retain any vested pool units he holds as of his termination of employment for a period through the later of August 26, 2020, or the date of his termination of employment. Moreover, in the event of his termination not for cause (as defined in his employment agreement) or resignation for good reason (as defined in his employment agreement), Mr. Brown will retain both his vested and unvested units for one year. None of Mr. Browns LTIP pool units are currently vested.
Assuming Mr. Browns employment was terminated as of December 31, 2015, the payments and benefits that would have been provided to him in connection with his separation would have been as follows:
Base Salary
Continuation |
Pro-Rated
2015 Annual Bonus |
Health Care
Coverage Continuation(1) |
LTIP Units | Total | ||||||||||||||||
Termination Without Cause or Resignation for Good Reason |
$ | 350,000 | $ | 243,562 | $ | 18,255 |
|
Remain outstanding
through December 31, 2016 |
|
$ | 611,817 | |||||||||
Death or Disability |
N/A | $ | 243,562 | N/A | N/A | $ | 243,562 |
(1) | Based on applicable COBRA rates in effect under Forterra Pipe and Precast, LLCs group health plan as of December 31, 2015. |
Mark Carpenter
Pursuant to an agreement dated May 9, 2014, between Mr. Carpenter and Lehigh Hanson, Inc., an affiliate of HeidelbergCement, Mr. Carpenter would have been entitled to continued payment of his base salary for a period of 12 months post-termination in the event of a termination of his employment by Forterra Pipe and Precast, LLC other than for cause prior to March 13, 2016. This agreement expired by its terms on March 13, 2016, and is no longer of any force or effect.
In addition, under the terms of our Annual Incentive Plan, in the event of Mr. Carpenters termination of employment as a result of retirement (after attaining age 55 and completing at least ten years of service), death, or disability, Mr. Carpenter, or his estate, as applicable, would have been entitled to payment of a pro-rated annual bonus for the year of termination, payable at the time bonuses for such year are paid to other executives.
Assuming Mr. Carpenters employment was terminated without cause as of December 31, 2015, the payments that would have been provided to him in connection with his separation would have been as follows.
Base Salary
Continuation |
Pro-Rated 2015
Annual Bonus |
LTIP Units(1) | Total | |||||||||||||
Termination Without Cause |
$ | 300,000 | $ | 276,442 |
|
Remain outstanding
through June 30, 2016 |
|
$ | 576,442 | |||||||
Retirement, Death, or Disability |
N/A | $ | 276,442 | N/A | $ | 276,442 |
(1) | Had he been terminated on December 31, 2015, the original 50,000 pool units granted to Mr. Carpenter would have remained outstanding through June 30, 2016. |
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Charles L. Ward
Pursuant to an agreement dated May 9, 2014, between Mr. Ward and Lehigh Hanson, Inc., Mr. Ward would have been entitled to continued payment of his base salary for a period of 12 months post-termination in the event of a termination of his employment by Forterra Pipe and Precast, LLC other than for cause prior to March 13, 2016. This agreement expired by its terms on March 13, 2016, and is no longer of any force or effect.
In addition, under the terms of our Annual Incentive Plan, in the event of Mr. Wards termination of employment as a result of retirement (after attaining age 55 and completing at least ten years of service), death, or disability, Mr. Ward, or his estate, as applicable, would have been entitled to payment of a pro-rated annual bonus for the year of termination, payable at the time bonuses for such year are paid to other executives.
Assuming Mr. Wards employment was terminated without cause as of December 31, 2015, the payments that would have been provided to him in connection with his separation would have been as follows.
Base Salary
Continuation |
Pro-Rated 2015
Annual Bonus |
Total | ||||||||||
Termination Without Cause |
$ | 250,000 | $ | 248,025 | $ | 498,025 | ||||||
Retirement, Death, or Disability |
N/A | $ | 248,025 | $ | 248,025 |
Plamen Jordanoff
Pursuant to a separation and release agreement between Mr. Jordanoff and Forterra Pipe and Precast, LLC dated as of July 27, 2015, Mr. Jordanoffs employment was terminated on September 1, 2015, and Forterra Pipe and Precast, LLC agreed to provide Mr. Jordanoff with the following severance payments and benefits: (1) continued payment of his annual base salary for a period of 12 months from his separation date; (2) payment of $1,083,333 in lieu of a pro-rated annual bonus for the 2015 fiscal year, payable at the same time 2015 annual bonuses were paid to other Company executives; (3) reimbursement of up to $75,000 in expenses actually incurred by Mr. Jordanoff in relocating outside of the state of Texas on or before March 1, 2017; and (4) continued provision of health care coverage at active employee rates for up to 12 months, which obligations ends on the date Mr. Jordanoff becomes eligible for coverage under a subsequent employers group health plan. In addition, the 400,000 pool units previously granted to Mr. Jordanoff under the LTIP are to remain outstanding through August 31, 2016, on which date all such pool units will be immediately forfeited. The continued payment and provision of such severance benefits is conditioned upon Mr. Jordanoffs continued compliance with the confidentiality, intellectual property ownership, non-competition, non-solicitation, and non-disparagement covenants contained in his March 20, 2015 employment agreement with Forterra Pipe and Precast, LLC.
The aggregate amounts that were actually payable or may become payable to Mr. Jordanoff in connection with his separation are summarized in the table below:
Benefit |
Base Salary
Continuation |
Pro-Rated 2015
Annual Bonus |
Relocation
Reimbursement |
Health Care
Coverage Continuation |
LTIP Units |
Total | ||||||||||||||||
Amount |
$ | 650,000 | $ | 1,083,333 | Up to $ | 75,000 | $ | 18,510 | (1) | Remain outstanding through August 31, 2016 | $ | 1,826,843 |
(1) | Based on applicable COBRA rates in effect under Forterra Pipe and Precast, LLCs group health plan as of December 31, 2015. |
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Mark Conte
Pursuant to a confidential separation agreement and full release of claims between Mr. Conte and Forterra Pipe and Precast, LLC executed as of June 12, 2015, Mr. Contes employment was terminated on June 5, 2015 and Forterra Pipe and Precast, LLC agreed to provide Mr. Conte with the following severance payments and benefits: (1) a lump sum payment in the amount of his annual base salary and (2) continued provision of medical, dental and vision coverage at active employee rates through June 30, 2016. Mr. Conte was not provided with continued health coverage in 2015 as he immediately commenced employment with another employer and was provided with coverage under that employers group health plan. In addition, under the terms of our Annual Incentive Plan, Mr. Conte was entitled to payment of a pro-rated annual bonus for 2015, payable at the time bonuses for such year were paid to other executives.
The aggregate amounts that were actually paid to Mr. Conte in connection with his separation are summarized in the table below:
Benefit |
Base Salary
Continuation |
Pro-Rated 2015
Annual Bonus |
Total | |||||||||
Amount |
$ | 302,508 | 50,418 | $ | 352,926 |
(1) | Based on applicable COBRA rates in effect under Forterra Pipe and Precast, LLCs group health plan as of December 31, 2015. |
Scott Szwejbka
Pursuant to a confidential separation agreement and full release of claims between Mr. Szwejbka and Forterra Pipe and Precast, LLC executed as of December 31, 2015, Mr. Szwejbkas employment was terminated on December 31, 2015 and Forterra Pipe and Precast, LLC agreed to provide Mr. Szwejbka with the following severance payments and benefits: (1) a lump sum payment in the amount of his annual base salary, less applicable taxes; and (2) continued provision of medical, dental and vision coverage at active employee rates through December 31, 2016. In addition, under the terms of our Annual Incentive Plan, Mr. Szwejbka was entitled to payment of his annual bonus for 2015, payable at the time bonuses for such year were paid to other executives.
In addition, the 50,000 pool units previously granted to Mr. Szwejbka under the LTIP were to remain outstanding through June 30, 2016, on which date all such pool units were immediately forfeited.
The aggregate amounts that were actually paid to Mr. Szwejbka in connection with his separation are summarized in the table below:
Benefit |
Base Salary
Continuation |
2015 Annual
Bonus |
Health Care
Coverage Continuation |
LTIP Units | Total | |||||||||||||
Amount |
$ | 300,000 | $ | 271,318 | $ | 18,216 | (1) |
Remain outstanding
until June 30, 2016 |
$ | 589,534 |
(1) | Based on applicable COBRA rates in effect under Forterra Pipe and Precast, LLCs group health plan as of December 31, 2015. |
2016 Stock Incentive Plan
Prior to completion of this offering, we will adopt the Forterra, Inc. 2016 Stock Incentive Plan, or the 2016 Plan. The purpose of the 2016 Plan is to promote and closely align the interests of our
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employees, officers, non-employee directors and other service providers and our stockholders by providing stock-based compensation and other performance-based compensation. The objectives of the 2016 Plan are to attract and retain the best available personnel for positions of substantial responsibility and to motivate participants to optimize the profitability and growth of the Company through incentives that are consistent with the Companys goals and that link the personal interests of participants to those of the Companys stockholders. The 2016 Plan allows for the grant of stock options, both incentive stock options and non-qualified stock options; stock appreciation rights, or SARs, alone or in conjunction with other awards; restricted stock and restricted stock units, or RSUs; and incentive bonuses, which may be paid in cash or stock or a combination thereof.
The following description of the 2016 Plan is not intended to be complete and is qualified in its entirety by the complete text of the 2016 Plan, a copy of which will be filed as an exhibit to the registration statement of which this prospectus forms a part. Stockholders and potential investors are urged to read the 2016 Plan in its entirety. Any capitalized terms which are used in this summary description but not defined here or elsewhere in this registration statement have the meanings assigned to them in the 2016 Plan.
Administration
The 2016 Plan will be administered by the compensation committee of the board of directors, or such other committee designated by the Companys board of directors to administer the plan. The compensation committee has broad authority, subject to the provisions of the 2016 Plan, to administer and interpret the 2016 Plan. All decisions and actions of the compensation committee are final.
Stock Subject to 2016 Plan
The maximum number of shares that may be issued under the 2016 Plan will not exceed % of the number of shares of our common stock outstanding immediately prior to the effectiveness of this registration statement, with the final number issuable to be determined by the board of directors, subject to certain adjustments in the event of a change in the Companys capitalization. Shares of common stock issued under the 2016 Plan may be either authorized and unissued shares or previously issued shares acquired by the Company. On termination or expiration of an unexercised option, SAR or other stock-based award under the 2016 Plan, in whole or in part, the number of shares of common stock subject to such award will again become available for grant under the 2016 Plan.
Stock Options
All stock options granted under the 2016 Plan will be evidenced by a written agreement with the participant, which provides, among other things, whether the option is intended to be an incentive stock option or a non-qualified stock option, the number of shares subject to the option, the exercise price, exercisability (or vesting), the term of the option, which may not generally exceed ten years, and other terms and conditions. Subject to the express provisions of the 2016 Plan, options generally may be exercised over such period, in installments or otherwise, as the compensation committee may determine. The exercise price for any stock option granted may not generally be less than the fair market value of the common stock subject to that option on the grant date. The exercise price may be paid in cash or such other method as determined by the compensation committee, including an irrevocable commitment by a broker to pay over such amount from a sale of the shares issuable under an option, the delivery of previously owned shares and withholding of shares deliverable upon exercise. Other than in connection with a change in the Companys capitalization, we will not, without stockholder approval, reduce the exercise price of a previously awarded option, and, at any time when the exercise price of a previously awarded option is above the fair market value of a share of common stock, we will not, without stockholder approval, cancel and re-grant or exchange such option for cash or a new award with a lower (or no) exercise price.
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Stock Appreciation Rights
SARs may be granted alone or in conjunction with all or part of a stock option. Upon exercising a SAR, the participant is entitled to receive the amount by which the fair market value of the common stock at the time of exercise exceeds the exercise price of the SAR. This amount is payable in common stock, cash, restricted stock or a combination thereof, at the compensation committees discretion.
Restricted Stock and RSUs
The compensation committee may award restricted stock and RSUs. Awards of restricted stock consist of shares of stock that are transferred to the participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. RSUs result in the transfer of shares of cash or stock to the participant only after specified conditions are satisfied. The compensation committee will determine the restrictions and conditions applicable to each award of restricted stock or RSUs, which may include performance vesting conditions.
Incentive Bonuses
Each incentive bonus will confer upon the participant the opportunity to earn a future payment tied to the level of achievement with respect to one or more performance criteria established for a specified performance period. The compensation committee will establish the performance criteria and level of achievement versus these criteria that will determine the threshold, target and maximum amount payable under an incentive bonus, which criteria may be based on financial performance and/or personal performance evaluations. Payment of the amount due under an incentive bonus may be made in cash or shares, as determined by the compensation committee.
Performance Criteria
The compensation committee may specify certain performance criteria which must be satisfied before stock options, SARs, restricted stock, RSUs, and incentive bonuses will be granted or will vest. The performance goals may vary from participant to participant, group to group, and period to period.
Transferability
Awards generally 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 SAR may be exercisable only by the participant during his or her lifetime.
Amendment and Termination
The board of directors has the right to amend, alter, suspend or terminate the 2016 Plan at any time, provided certain enumerated material amendments may not be made without stockholder approval. No amendment or alteration to the 2016 Plan or an award or award agreement will be made that would materially impair the rights of the holder, without such holders consent, however, no consent will be required if the compensation committee determines in its sole discretion and prior to the date of any change in control that such amendment or alteration either is required or advisable in order for us, the 2016 Plan or the award to satisfy any law or regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or is not reasonably likely to significantly diminish the benefits provided under such award, or that any such diminishment has been adequately compensated. The 2016 Plan will be adopted by the board of directors and the Companys sole equity holder in connection with this offering and will automatically terminate, unless earlier terminated by the board of directors, ten years after approval by the board of directors.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents information concerning the beneficial ownership of the shares of our common stock as of the date of this prospectus by (1) each person known to us to beneficially own more than 5% of the outstanding shares of our common stock, (2) the selling stockholder, (3) each of our directors and named executive officers and (4) all of our directors and executive officers as a group. The table also contains information about beneficial ownership, as adjusted, to reflect the sale of common stock in this offering assuming:
| shares of common stock outstanding as of , 2016 and shares outstanding immediately following the completion of this offering; and |
| no exercise of the underwriters option to purchase additional shares of our common stock. |
Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Shares of common stock subject to options and warrants that are exercisable or exercisable within 60 days of the date of this prospectus are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Unless indicated below, the address of each individual listed below is c/o Forterra, Inc., 511 East John Carpenter Freeway, 6th Floor, Irving, TX 75062.
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The selling stockholder may be deemed an underwriter in connection with this offering.
Name of Beneficial Owner |
Shares of
common stock beneficially owned prior to this offering |
Shares of
common stock beneficially owned after this offering assuming no exercise of underwriters option |
Shares of
common stock beneficially owned after this offering assuming full exercise of underwriters option |
|||||||||||||||||||||||||
Shares
of common stock |
Percentage
of Total Outstanding Common Stock (%) |
Number
of Shares Being Sold in this Offering |
Shares of
common stock |
Percentage
of Total Outstanding Common Stock (%) |
Shares of
common stock |
Percentage
of Total Outstanding Common Stock (%) |
||||||||||||||||||||||
5% Stockholder and Selling Stockholder |
||||||||||||||||||||||||||||
LSF9 Concrete Mid-Holdings Ltd(1) |
100 | % | % | % | ||||||||||||||||||||||||
Named Executive Officers |
||||||||||||||||||||||||||||
Jeffrey Bradley(2)(3) |
| | | | | | | |||||||||||||||||||||
William Matthew Brown(3) |
| | | | | | | |||||||||||||||||||||
Mark Carpenter(3) |
| | | | | | | |||||||||||||||||||||
Charles L. Ward |
| | | | | | | |||||||||||||||||||||
Plamen Jordanoff |
| | | | | | | |||||||||||||||||||||
Mark Conte |
| | | | | | | |||||||||||||||||||||
Scott Szwejbka |
| | | | | | | |||||||||||||||||||||
Director and Director Nominee s |
||||||||||||||||||||||||||||
Kevin Barner(3) |
| | | | | | | |||||||||||||||||||||
Robert Corcoran(3) |
| | | | | | | |||||||||||||||||||||
Samuel D. Loughlin(3) |
| | | | | | | |||||||||||||||||||||
Clint McDonnough |
| | | | | | | |||||||||||||||||||||
John McPherson |
| | | | | | | |||||||||||||||||||||
Chris Meyer(3) |
| | | | | | | |||||||||||||||||||||
Jacques Sarrazin |
| | | | | | | |||||||||||||||||||||
Chadwick Suss(3) |
||||||||||||||||||||||||||||
Kyle Volluz(3) |
| | | | | | | |||||||||||||||||||||
Grant Wilbeck(3) |
| | | | | | | |||||||||||||||||||||
All directors, director nominees and executive officers as a group ( 18 persons) |
| | | | | | |
(1) | Mid Holdings will directly own 100% of our common stock prior to this offering. Mid Holdings is a Jersey limited company and is wholly owned by Concrete Holdings, a Jersey limited company. Concrete Holdings is wholly owned by LSF9 Concrete Ltd, a Jersey limited company. LSF9 is wholly owned by LSF9 Concrete II Ltd, a Jersey limited company. LSF9 Concrete II Ltd is wholly owned by Stardust Holdings, a Bermuda limited partnership. Stardust Holdings is controlled by its general partner, LSF9 Stardust GP, LLC, a Delaware limited liability company, which is controlled by Lone Star Fund IX (U.S.), L.P., a Delaware limited partnership, which is controlled by its general partner, Lone Star Partners IX, L.P., a Bermuda exempted limited partnership, which is controlled by its general partner, Lone Star Management Co. IX, Ltd., a Bermuda exempted company, which is controlled by its sole owner (shareholder) John P. Grayken. The address for Mid Holdings, Concrete Holdings, LSF9 and LSF9 Concrete II Ltd is 47 Esplanade, St. Heiler, Jersey JE1 0BD. The address for Stardust Holdings, Lone Star Partners IX, L.P. and Lone Star Management Co. IX, Ltd. is Washington Mall, Suite 304, Third Floor, 7 Reid Street, Hamilton HM 11, Bermuda. The address for all other persons is 2711 North Haskell Avenue, Suite 1700, Dallas, Texas 75204. |
(2) | Mr. Bradley is also a Director. |
(3) | Owns interests in entities which own direct or indirect non-controlling interests in Mid Holdings and therefore expressly disclaims any beneficial ownership of our common stock owned by Mid Holdings. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationships with Lone Star and Affiliates
Lone Star currently owns all of our outstanding equity interests. Upon completion of this offering, Lone Star will own % of our outstanding common stock (or % if the underwriters exercise in full their option to purchase additional shares).
For as long as Lone Star and its affiliates continue to beneficially own shares of common stock representing more than a majority of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors and exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock and the payment of dividends. Similarly, Lone Star will have the power to determine matters submitted to a vote of our stockholders without the consent of our other stockholders, will have the power to prevent a change in our control and could take other actions that might be favorable to them. See Risk Factors.
Lone Star is not subject to any contractual obligations to retain its controlling interest, except that it has agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of the representatives. Except for this period, there can be no assurance as to the period of time during which Lone Star will maintain its beneficial ownership of our common stock following this offering. See Risk Factors. Following this period, Lone Star will have rights to cause us to register its shares as described under Registration Rights Agreement below.
Asset Advisory Agreement
Effective February 9, 2015, we entered into an Asset Advisory Agreement with Hudson Americas LLC and, for the limited purposes set forth in the agreement, Lone Star Fund IX (U.S.), L.P., both affiliates of our sole equityholder. Pursuant to the Asset Advisory Agreement, Hudson Americas provides us with certain oversight functions in connection with the management of our business and assets, including: (i) communicating and coordinating with our personnel and service providers; (ii) assisting and advising us in the pursuit of our strategic plan and managing our assets in furtherance of our strategic plan; and (iii) obtaining and maintaining all required licenses, permits, certificates, consents and other approvals with respect to our assets. In addition, Hudson Americas may, but is not required to, provide us with certain ancillary services, such as financial accounting and reporting, tax accounting, preparation and reporting, treasury, risk management, legal and compliance, record keeping and operating company oversight. Pursuant to the Asset Advisory Agreement, we pay Hudson Americas an amount equal to 110% of the actual costs of the manager and ancillary services or 110% of the hourly billing rates of the individual billing rates of the individuals performing such services, as applicable. The Asset Advisory Agreement is terminable by any party thereto upon 30 days notice from one party to the others for any reason or no reason. We paid an aggregate of $9.2 million and $3.1 million in fees under the Asset Advisory Agreement for the period from March 14, 2015 to December 31, 2015 and the six months ended June 30, 2016, respectively.
We expect to terminate the Asset Advisory Agreement in connection with the consummation of the offering.
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Registration Rights Agreement
We will enter into a registration rights agreement with Lone Star in connection with the consummation of this offering. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star. The registration rights agreement will not provide for the payment of any consideration by us to Lone Star if a registration statement for the resale of shares of common stock held by Lone Star is not declared effective or if the effectiveness is not maintained. We expect that shares of our common stock will be entitled to these registration rights following completion of this offering (or shares if the underwriters exercise in full their option to purchase additional shares). However, the underwriting agreement and lock-up agreements prohibit us from a filing any registration statement for the resale of shares of common stock held by Lone Star for a period of 180 days after the date of this prospectus without the prior consent of the representatives. Shares registered with the SEC pursuant to these registrations rights will be eligible for sale in the public markets, subject to the lock-up agreements described in the section entitled Underwriting. See Shares Eligible for Future SaleRegistration Rights Agreement.
Tax Receivable Agreement
In connection with this offering, we will enter into the tax receivable agreement with Lone Star. We and our subsidiaries have generated, or are expected to generate, the Covered Tax Benefits, which may reduce the actual liability for certain taxes that we might otherwise be required to pay. These Covered Tax Benefits include: (i) all depreciation and amortization deductions, and any offset to taxable gain or increase to taxable loss, resulting from the tax basis that we have in our assets as of the time of the consummation of this offering, (ii) the utilization of our and our subsidiaries net operating losses and tax credits, if any, attributable to periods prior to this offering, (iii) deductions in respect of payments made by Concrete Holdings to participants under its long-term incentive plan, (iv) deductions in respect of transaction expenses attributable to our acquisition of U.S. Pipe and (v) certain other tax benefits attributable to payments made under the tax receivable agreement. The tax receivable agreement provides for payments to Lone Star in an amount equal to 85% of the aggregate reduction in U.S. federal, state, local and non-U.S. income taxes payable realized by us and our subsidiaries (using an assumed combined state and local income tax rate of 5%) from the utilization of such Covered Tax Benefits.
The obligations under the tax receivable agreement will be our obligations and not obligations of our subsidiaries and are not conditioned upon Lone Star maintaining a continued direct or indirect ownership interest in us. For purposes of the tax receivable agreement, the aggregate reduction in income tax payable by us will be computed by comparing our actual income tax liability with our hypothetical liability (using an assumed combined state and local income tax rate of 5%) had we not been able to utilize the Covered Tax Benefits, taking into account several assumptions and adjustments, including, for example, that
| we will pay state and local taxes at a rate of 5%, even though our actual effective state and local tax rate may be materially lower; |
| tax benefits existing at the time of the offering are deemed to be utilized before any post-closing/after-acquired tax benefits; |
| a non-taxable transfer of assets by us to a non-consolidated entity is treated under the tax receivable agreement as a taxable sale at fair market value; and |
| a taxable sale or other taxable transfer of subsidiary stock by us is (in cases where the subsidiarys tax basis in its assets exceeds our tax basis in the subsidiarys stock) treated under the tax receivable agreement as a taxable sale of the subsidiarys assets. |
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The foregoing assumptions and adjustments could cause us to be required to make payments under the tax receivable agreement that are significantly greater than the benefits we realize in respect of the Covered Tax Benefits.
The tax receivable agreement will become effective upon the completion of this offering and will remain in effect until all such Covered Tax Benefits have been used or expired, unless the agreement is terminated early, as described below.
We expect that the payments we make under the tax receivable agreement could be substantial. Assuming no material changes in the relevant tax law, and that we and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the tax receivable agreement, we expect that future payments under the tax receivable agreement will total between approximately $ million and $ million. Depending on the amount and timing of our future earnings (if any) and on other factors, including the effect of any limitations imposed on our ability to use the Covered Tax Benefits, it is possible that all payments required under the tax receivable agreement could become due within a relatively short period of time. The actual amount and utilization of the Covered Tax Benefits, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the amount, character, and timing of our and our subsidiaries taxable income in the future.
Payments under the tax receivable agreement are generally due within a specified period of time following the filing of our tax return for the taxable year with respect to which the payment obligation arises, but interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Late payments will generally accrue interest at a rate of LIBOR plus 500 basis points.
The tax receivable agreement provides that if, at any time, we elect an early termination of the tax receivable agreement with approval of a majority of our independent directors and with Lone Stars consent, we are in material breach of our obligations under the agreement, or certain credit events described in the tax receivable agreement occur with respect to us (including a breach of the leverage covenant described below), we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits to Lone Star. Such payment would be based on certain valuation assumptions, including the assumption that we and our subsidiaries have sufficient taxable income and tax liabilities to fully utilize such tax benefits. We may elect to completely terminate the tax receivable agreement early only with the written approval of Lone Star. The tax receivable agreement also provides that upon certain mergers, asset sales, other forms of business combinations or other changes of control, our (or our successors) payments under the tax receivable agreement for each taxable year after any such event would be based on certain valuation assumptions, including the assumption that we and our subsidiaries have sufficient taxable income to fully utilize the Covered Tax Benefits. Accordingly, payments under the tax receivable agreement may be made years in advance of the actual realization, if any, of the anticipated future tax benefits and may be significantly greater than the benefits we realize in respect of the tax attributes subject to the tax receivable agreement.
In addition, were the Internal Revenue Service to successfully challenge the availability or amount of any of the Covered Tax Benefits, Lone Star would not reimburse us for any payments previously made under the tax receivable agreement, but future payments under the tax receivable agreement, if any, would be netted against any unreimbursed payments to reflect the result of any such successful challenge by the Internal Revenue Service. As a result, we could make payments under the tax receivable agreement in excess of our actual cash savings in income tax.
We have full responsibility and sole discretion over all tax matters concerning the Company. However, we will be required to notify Lone Star of any audit by a taxing authority, the outcome of
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which is reasonably expected to affect Lone Stars rights under the tax receivable agreement. We will not have the right to enter into any settlement of such an audit without the consent of Lone Star.
For so long as the tax receivable agreement remains outstanding, we are restricted from incurring debt that would restrict our ability of making payments under the tax receivable agreement or cause our consolidated net leverage ratio (the ratio of consolidated funded indebtedness less unrestricted cash to EBITDA) to exceed certain specified ratios.
Certain risks related to the tax receivable agreement are discussed in greater detail above in the section entitled Risk Factors.
Executive Officer and Director Indemnification Agreements
Our amended and restated bylaws will permit us to indemnify our executive officers and directors to the fullest extent permitted by law, subject to limited exceptions. We will enter into indemnification agreements with each of our executive officers and directors prior to the consummation of this offering that will provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf.
Review and Approval of Related Party Transactions
We will implement a written policy in connection with this offering pursuant to which the audit committee will review and approve transactions with our directors, officers and holders of more than 5% of our voting securities and their affiliates. Prior to approving any transaction with a related party, the audit committee will consider the material facts as to the related partys relationship with us or interest in the transaction. Related party transactions will not be approved unless the audit committee has approved of the transaction. We did not have a formal review and approval policy for related party transactions at the time of any transaction described above.
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The following is a summary of the material provisions of our capital stock, as well as other material terms of our amended and restated certificate of incorporation and our amended and restated bylaws, each of which as will be in effect as of the consummation of this offering. This summary does not purport to be complete and is subject to and qualified in its entirety by our amended and restated certificate of incorporation and our amended and restated bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is a part.
General
Upon consummation of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001 per share, and shares of preferred stock, par value $0.001 per share.
Common Stock
Our amended and restated certificate of incorporation will authorize the issuance of up to shares of common stock. All outstanding shares of common stock are validly issued, fully paid and nonassessable, and the shares of common stock to be issued in connection with this offering will be validly issued, fully paid and nonassessable.
The holders of our common stock will be entitled to one vote per share on all matters submitted to a vote of stockholders and our amended and restated certificate of incorporation will not provide for cumulative voting in the election of directors. Subject to preferences that may be applicable to any outstanding series of preferred stock, the holders of our common stock will receive ratably any dividends declared by our board of directors out of funds legally available for the payment of dividends. In the event of our liquidation, dissolution or winding-up, the holders of our common stock will be entitled to share ratably in all assets remaining after payment of or provision for any liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding.
Preferred Stock
Our amended and restated certificate of incorporation will provide that our board of directors has the authority, without further action by the stockholders, to issue up to shares of preferred stock. Our board of directors will be able to issue preferred stock in one or more series and determine the rights, preferences, privileges, qualifications and restrictions granted to or imposed upon our preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preferences and sinking fund terms, any or all of which may be greater than the rights of our common stock. Issuances of preferred stock could adversely affect the voting power of holders of our common stock and reduce the likelihood that holders of our common stock will receive dividend payments and payments upon liquidation. Any issuance of preferred stock could also have the effect of decreasing the market price of our common stock and could delay, deter or prevent a change in control of our company. Our board of directors does not presently have any plans to issue shares of preferred stock.
Limitations on Directors Liability
Our governing documents will limit the liability of, and require us to indemnify, our directors to the fullest extent permitted by the DGCL. The DGCL permits a corporation to limit or eliminate a directors
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personal liability to the corporation or the holders of its capital stock for breach of fiduciary duty. This limitation is generally unavailable for acts or omissions by a director which (i) were not in good faith, (ii) were the result of intentional misconduct or a knowing violation of law, (iii) the director derived an improper personal benefit from (such as a financial profit or other advantage to which the director was not legally entitled) or (iv) breached the directors duty of loyalty. The DGCL also prohibits limitations on director liability under Section 174 of the DGCL, which relates to certain unlawful dividend declarations and stock repurchases. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the settlement costs and damage awards against directors and officers pursuant to these indemnification provisions.
We maintain insurance that insures our directors and officers against certain losses and which insures us against our obligations to indemnify the directors and officers. We also intend to enter into indemnification agreements with our directors and executive officers.
Exclusive Forum Clause
Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, to the fullest extent permitted by law, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine, will be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware); in all cases subject to such court having personal jurisdiction over the indispensable parties named as defendants. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. See Risk FactorsOur certificate of incorporation includes an exclusive forum clause, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us.
Delaware Takeover Statute
Under our amended and restated certificate of incorporation, we will opt out of the provisions of Section 203 of the DGCL regulating corporate takeovers. This section prevents certain Delaware corporations, under certain circumstances, from engaging in a business combination with a stockholder who owns 15% or more of our outstanding voting stock, or an Interested Stockholder, an affiliate of an Interested Stockholder or an associate of an Interested Stockholder, in each case for three years following the date that the stockholder became an Interested Stockholder.
Provisions of Our Certificate of Incorporation and Bylaws to be Adopted and Delaware Law That May Have an Anti-Takeover Effect
Provisions of the DGCL and our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult to acquire our company by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions,
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summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of these provisions outweigh the disadvantages of discouraging certain takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms and enhance the ability of our board of directors to maximize stockholder value. However, these provisions may delay, deter or prevent a merger or acquisition of us that a stockholder might consider is in its best interest, including those attempts that might result in a premium over the prevailing market price of our common stock.
Requirements for Advance Notification of Stockholder Meetings, Nominations and Proposals
Our amended and restated bylaws will provide that special meetings of the stockholders may be called only by or at the direction of the board of directors, the chairman of our board or the chief executive officer with the concurrence of a majority of the board of directors. Our amended and restated bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers, or changes in control or management of our company.
Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as director. In order for any matter to be properly brought before a meeting, a stockholder will have to comply with such advance notice procedures and provide us with certain information. Our amended and restated bylaws will allow the presiding officer at a meeting of stockholders to adopt rules and regulations for the conduct of meetings which may have the effect of precluding the conduct of certain business at a meeting if such rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to influence or obtain control of our company.
Supermajority Voting for Amendments to Our Governing Documents
Any amendment to our amended and restated certificate of incorporation will require the affirmative vote of at least 66 2 / 3 % of the voting power of all shares of our common stock then outstanding. Our amended and restated certificate of incorporation will provide that the board of directors is expressly authorized to adopt, amend or repeal our bylaws and that our stockholders may amend our bylaws only with the approval of at least 66 2 / 3 % of the voting power of all shares of our common stock then outstanding.
No Cumulative Voting
The DGCL provides that a stockholders right to vote cumulatively in the election of directors does not exist unless the certificate of incorporation specifically provides otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.
Classified Board of Directors
Our amended and restated certificate of incorporation will provide that our board of directors will initially be divided into three classes of directors, with the classes to be as nearly equal in number as possible, designated Class I, Class II and Class III. Class I directors shall initially serve until the first annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation; Class II directors shall initially serve until the second annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation; and Class III directors shall initially serve until the third annual meeting of stockholders following the effectiveness of
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our amended and restated certificate of incorporation. Commencing with the first annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation and ending with the third annual meeting of stockholders thereafter, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term. Beginning with the fourth annual meeting of stockholders following the effectiveness of our amended and restated certificate of incorporation, directors of each class the term of which shall then expire shall be elected to hold office for a one-year term. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board of directors. Our amended and restated certificate of incorporation will provide that the number of directors will be fixed from time to time exclusively pursuant to a resolution adopted by the board of directors, but must consist of not less than three or more than 15 directors.
Removal of Directors; Vacancies
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that (i) prior to the date on which Lone Star and its affiliates cease to beneficially own, in the aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed with or without cause upon the affirmative vote of holders of at least a majority of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class and (ii) on and after the date Lone Star and its affiliates cease to beneficially own, in the aggregate, at least a majority of the voting power of all outstanding shares entitled to vote generally in the election of directors, directors may be removed only for cause and only upon the affirmative vote of holders of at least 66 2 / 3 % of the voting power of all the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. In addition, our amended and restated certificate of incorporation and amended and restated bylaws will provide that any newly created directorships and any vacancies on our board of directors will be filled only by the affirmative vote of the majority of remaining directors.
Stockholder Action by Written Consent
The DGCL permits any action required to be taken at any annual or special meeting of the stockholders to be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock entitled to vote thereon were present and voted, unless the certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation and amended and restated bylaws will preclude stockholder action by written consent after the date on which Lone Star and its affiliates cease to beneficially own, in the aggregate, at least a majority of the voting power of all outstanding shares of our stock entitled to vote generally in the election of directors.
Limitations on Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors fiduciary duties as directors. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that eliminate, to the extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer, as the case may be. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide that we must indemnify and advance reasonable expenses to our directors and officers to the fullest extent authorized by the DGCL. We will also be expressly authorized to carry directors and officers insurance for our directors, officers and certain employees for certain liabilities.
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The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit our company and our stockholders. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
There is currently no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is being sought.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. The DGCL does not require stockholder approval for any issuance of authorized shares. However, NASDAQ rules require stockholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or the then-outstanding number of shares of common stock. No assurances can be given that our shares will remain so listed. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. As discussed above, our board of directors has the ability to issue preferred stock with voting rights or other preferences, without stockholder approval. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or otherwise.
Corporate Opportunities and Transactions with Lone Star
In recognition that principals, members, directors, managers, partners, stockholders, officers, employees and other representatives of Lone Star and its affiliates (other than us) and affiliated investment funds, which we refer to as the Lone Star entities, may serve as our directors or officers, and that the Lone Star entities may engage in similar activities or lines of business that we do, our amended and restated certificate of incorporation will provide for the allocation of certain corporate opportunities between us and the Lone Star entities. Specifically, none of the Lone Star entities or any principal, member, director, manager, partner, stockholder, officer, employee or other representative of the Lone Star entities has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business that we do. In the event that any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in the corporate opportunity, and no Lone Star entity will have any duty to communicate or offer the corporate opportunity to us and may pursue or acquire such corporate opportunity for itself or direct such opportunity to another person. In addition, if one of our directors or officers who is also a principal, member, director, manager, partner, stockholder, officer, employee or other representative of any Lone Star entity acquires knowledge of a potential transaction or matter which may be a corporate opportunity for us and a Lone Star entity, we will not have any expectancy in the corporate opportunity unless the corporate opportunity is expressly offered to the person solely in his or her capacity as one of our directors or officers. See Risk Factors.
In recognition that we may engage in material business transactions with the Lone Star entities, from which we are expected to benefit, our amended and restated certificate of incorporation will provide that any of our directors or officers who are also principals, members, directors, managers,
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partners, stockholders, officers, employees or other representatives of any Lone Star entity will have fully satisfied and fulfilled his or her fiduciary duty to us and our stockholders with respect to such transaction, if:
| the transaction was approved, after being made aware of the material facts of the relationship between each of us or one of our subsidiaries and the Lone Star entity and the material terms and facts of the transaction, by (1) an affirmative vote of a majority of the members of our board of directors who do not have a material financial interest in the transaction, known as disinterested persons, or (2) an affirmative vote of a majority of the members of a committee of our board of directors consisting of members who are disinterested persons; |
| the transaction was fair to us at the time we entered into the transaction; or |
| the transaction was approved by an affirmative vote of the holders of a majority of shares of our common stock entitled to vote, excluding the Lone Star entities and any holder who has a material financial interest in the transaction. |
By becoming a stockholder in our company, you will be deemed to have received notice of and consented to these provisions of our amended and restated certificate of incorporation.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock will be American Stock Transfer & Trust Company, LLC.
Listing
We have applied to list our common stock on NASDAQ under the symbol FRTA.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is summary of certain terms of our existing indebtedness. These summaries are not complete and are qualified in their entirety by reference to the complete text of the applicable agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part.
Revolver
On March 13, 2015, LSF9 and Concrete Holdings, entered into a revolving asset-based credit agreement, or the Initial ABL Credit Agreement, with Stardust Finance Holdings, Inc., or Stardust, as initial borrower, the additional revolving borrowers party thereto, the several banks and other financial institutions party thereto as lenders, Bank of America, N.A., as successor to Credit Suisse AG, as administrative agent, and Bank of America, N.A., as collateral agent. The Initial ABL Credit Agreement was subsequently amended by the First Amendment, dated as of April 1, 2015, the Notice of Additional Revolving Borrower and Assumption Agreement, dated as of October 1, 2015, the Incremental Facility Amendment, dated as of November 10, 2015, the Agreement of Resignation, Appointment and Acceptance, dated as of April 13, 2016, the Second Amendment and Consent, dated as of April 13, 2016, and the Notice of Additional Revolving Borrower and Assumption Agreement, dated as of April 15, 2016. We refer to the Initial ABL Credit Agreement, as amended and supplemented by the foregoing, as the ABL Credit Agreement. Each of LSF9, Concrete Holdings and Stardust are affiliates of ours and of Lone Star.
The ABL Credit Agreement provides for an asset based senior secured revolving loan facility, or the Revolver, for aggregate maximum borrowings (subject to availability under a borrowing base) of up to $285.0 million, with up to $60.0 million thereof available for the issuance of letters of credit. Interest accrues on outstanding borrowings at a rate equal to LIBOR plus a margin ranging from 1.50% to 2.00% per annum, or at an alternate base rate plus a margin ranging from 0.50% to 1.00% per annum, in each case, depending on the average excess availability under the Revolver for the most recently completed calendar quarter. The Revolver also carries an unused facility fee ranging from 0.250% to 0.375% per annum, depending on the average excess availability under the Revolver for the most recently completed calendar quarter. Subject to certain exceptions, the Revolver is subject to mandatory prepayment and/or cash collateralization of letters of credit if outstanding extensions of credit exceed the borrowing base. The amount of the mandatory prepayment is the amount by which outstanding extensions of credit under the Revolver exceed the then-current borrowing base. The Revolver matures in March 2020. As of June 30, 2016, there were no borrowings and $22.6 million of letters of credit outstanding under the Revolver, resulting in available capacity under the Revolver of $262.4 million.
Guarantees; Security
The obligations of Stardust and the additional revolving borrowers under the Revolver are guaranteed by LSF9, Concrete Holdings, Stardust and each of Concrete Holdings direct and indirect wholly owned subsidiaries other than immaterial subsidiaries, unrestricted subsidiaries and certain other exceptions. The Revolver and the guarantees thereunder are secured by security interests in all of the capital stock of all direct subsidiaries and substantially all other tangible and intangible assets of Stardust, the additional revolving borrowers and each guarantor thereunder, subject in each case to certain exceptions. The liens securing the Revolver have priority over the liens securing the Senior Term Loan and Junior Term Loan, each as described below, with respect to the ABL Priority Collateral, which consists of Stardusts, the additional revolving borrowers and each guarantors current assets such as inventory, receivables, deposit and other accounts, cash and certain related assets, but are subordinated to the liens securing the Senior Term Loan and Junior Term Loan with
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respect to the Term Loan Priority Collateral, which consists of Stardusts, the additional revolving borrowers and each guarantors fixed assets such as material real property, intellectual property, equipment and fixtures and general intangibles, including equity interests in subsidiaries, and substantially all of the other assets of Stardust and the guarantors, other than ABL Priority Collateral.
Covenants
The ABL Credit Agreement contains a number of customary covenants, including those that limit or restrict the ability of us and our restricted subsidiaries to, among other things: dispose of certain assets; incur or guarantee additional indebtedness; enter into new lines of business; make investments, intercompany loans or certain payments in respect of indebtedness; incur or maintain liens; modify certain terms of our or their organizational documents, certain agreements or certain debt instruments; declare or pay dividends or make other restricted payments (including redemption of our stock); engage in certain transactions with affiliates; enter into certain sale leaseback transactions; and engage in mergers, consolidations, or the sale or disposition of substantially all of its assets. The ABL Credit Agreement also includes a financial covenant requiring a consolidated fixed charge coverage ratio for the most recent period of four consecutive fiscal quarters to be no less than 1.00:1.00, which financial covenant is only tested if excess availability under the Revolver falls below a certain threshold. At June 30, 2016, we were in compliance with all covenants set forth in the ABL Credit Agreement.
Events of Default
The ABL Credit Agreement contains a number of events of default related to, among other things, the non-payment of principal, interest or fees; violations of covenants; material inaccuracy of representations or warranties; certain bankruptcy events; certain events under the Employee Retirement Income Security Act of 1974, as amended; invalidity of guarantees or security interests; default in payment under or the acceleration of other indebtedness; material judgments; and certain change of control events.
Senior Term Loan Facility
On March 13, 2015, LSF9 and Concrete Holdings entered into a senior lien term loan credit agreement with Stardust, the several banks and other financial institutions from time to time party thereto as lenders, and Credit Suisse AG as administrative agent and as collateral agent. We refer to this agreement, as amended by the First Incremental Facility Amendment, dated as of October 1, 2015, and the Second Incremental Facility Amendment, dated as of June 17, 2016, as the Senior Lien Credit Agreement.
The Senior Lien Credit Agreement, the First Incremental Facility and the Second Incremental Facility provided for term loans in the maximum principal amounts of $635.0 million, $240.0 million and $345.0 million, respectively, totaling $1.2 billion, collectively, the Senior Term Loan. Interest accrues on outstanding borrowings under the Senior Term Loan at a rate equal to LIBOR (with a floor of 1.0%) plus a margin of 5.50% per annum, or at an alternate base rate plus a margin of 4.50% per annum. Subject to certain exceptions, the Senior Term Loan is subject to mandatory prepayment with the net cash proceeds of asset sales, insurance and condemnation recovery events, excess cash flow and certain incurrences of additional indebtedness and refinancing events. The Senior Term Loan matures in March 2022. As of June 30, 2016, there was $1,001.7 million of borrowings outstanding under the Senior Term Loan.
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Guarantees; Security
The obligations under the Senior Term Loan are guaranteed by LSF9, Concrete Holdings, and each of Concrete Holdings direct and indirect wholly owned subsidiaries other than immaterial subsidiaries, unrestricted subsidiaries and certain other exceptions. The Senior Term Loan and the guarantees thereunder are secured by security interests in all of the capital stock of all direct subsidiaries and substantially all other tangible and intangible assets of Stardust and the guarantors, subject in each case to certain exceptions and in each case whether then existed or later acquired. The liens securing the Senior Term Loan have priority over the liens securing the Junior Term Loan and the Revolver with respect to Term Loan Priority Collateral, but are subordinated to the liens securing the Revolver with respect to ABL Priority Collateral.
Covenants
The Senior Lien Credit Agreement contains a number of customary covenants, including those that limit or restrict the ability of us and our restricted subsidiaries to, among other things: dispose of certain assets; incur or guarantee additional indebtedness; enter into new lines of business; make investments, intercompany loans or certain payments in respect of indebtedness; incur or maintain liens; modify certain terms of our and their organizational documents, certain agreements or certain debt instruments; declare or pay dividends or make other restricted payments (including redemption of our stock); engage in certain transactions with affiliates; enter into certain sale leaseback transactions; or engage in mergers, consolidations, or the sale or disposition of substantially all of its assets. At June 30, 2016, we were in compliance with all covenants under the Senior Lien Credit Agreement.
Events of Default
The Senior Lien Credit Agreement contains a number of events of default related to, among other things, the non-payment of principal, interest or fees; violations of certain covenants contained in the Senior Lien Credit Agreement and related loan documents; material inaccuracy of representations or warranties; certain bankruptcy events; certain events under the Employee Retirement Income Security Act of 1974, as amended; invalidity of guarantees or security interests; material judgments; default in payment under or the acceleration of other indebtedness; and certain change of control events
Junior Term Loan Facility
On March 13, 2015, LSF9 and Concrete Holdings entered into a junior lien credit agreement with Stardust, the several banks and other financial institutions from time to time party thereto as lenders, and Credit Suisse AG as administrative agent and as collateral agent, or the Junior Lien Credit Agreement. The Junior Lien Credit Agreement provides for term loans in the aggregate maximum principal amount of $260.0 million, or the Junior Term Loan. Interest accrues on outstanding borrowings under the Junior Term Loan at a rate equal to LIBOR (with a floor of 1.0%) plus a margin of 9.50% per annum, or at an alternate base rate plus a margin of 8.50% per annum. The Junior Term Loan is subject to substantially the same mandatory prepayment requirements as the Senior Term Loan. Prepayments in respect of the Junior Term Loan are subject to a prepayment premium of 3.0% of the aggregate term loans being so prepaid for any prepayments made on or prior to March 13, 2017 and 1.0% of the aggregate term loans being so prepaid for any prepayments made after such date and on or prior to March 13, 2018. Subject to certain exceptions, the Junior Term Loan is subject to mandatory prepayment with the net cash proceeds of asset sales, insurance and condemnation recovery events, excess cash flow and certain incurrences of additional indebtedness and refinancing events. The Junior Term Loan matures in March 2023. As of June 30, 2016, there was $238.1 million of borrowings outstanding under the Junior Term Loan.
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Guarantees; Security
The obligations under the Junior Term Loan are guaranteed by the same guarantors as under the Senior Term Loan. The Junior Term Loan and the guarantees thereunder are secured by security interests in the same collateral securing Senior Term Loan. The liens securing the Junior Term Loan are subordinated to the liens securing the Senior Term Loan with respect to Term Loan Priority Collateral and subordinated to the liens securing the Revolver and the Senior Term Loan with respect to ABL Priority Collateral.
Covenants
The Junior Lien Credit Agreement contains substantially the same covenants as the Senior Lien Credit Agreement. At June 30, 2016, we were in compliance with all covenants under the Junior Term Loan.
Events of Default
The Junior Lien Credit Agreement contains substantially the same events of default as the Senior Lien Credit Agreement.
Refinancing
In connection with this offering, we expect to enter into new term loans and revolving lines of credit or otherwise refinance our long-term indebtedness.
Sale Leaseback
On April 5, 2016, we entered into sale leaseback transactions with the U.S. Property Buyer and the Canadian Property Buyer pursuant to which we sold 41 U.S. manufacturing/industrial warehouse properties and six Canadian manufacturing/industrial warehouse properties, respectively, for an aggregate purchase price of approximately $204.3 million. On April 14, 2016, we sold an additional two manufacturing/industrial warehouse properties to the U.S. Property Buyer for an aggregate purchase price of approximately $11.9 million. In connection with the sales, we agreed to lease each property back from the respective purchaser pursuant to a master lease governing the properties located in the United States, as amended, or the U.S. Master Lease, and a master lease governing the properties located in Canada, or the Canadian Master Lease.
Under the terms of the U.S. Master Lease, we lease the U.S. properties through April 4, 2036, unless the U.S. Master Lease is terminated earlier in accordance with its terms. We also have a right to extend the term of the U.S. Master Lease for a period of nine year and 11 months, subject to certain terms and conditions specifically set forth in the US Master Lease. Our initial base rent under the U.S. Master Lease is $13.4 million per annum, payable monthly, subject to an annual 2% increase. If we elect to extend the term of the U.S. Master Lease, our base rent for the first year of the extension will be the greater of 95% of the fair market rental value of the properties and an amount equal to 102% of the prior years base rent, subject to an annual increase based on changes in the Consumer Price Index, but capped at 4%. The U.S. Master Lease restricts our use of the U.S. properties to heavy manufacturing, industrial and other related uses. We are only able to sublease or assign the U.S. properties under the U.S. Master Lease with prior written consent and subject to certain restrictions. The terms of the Canadian Master Lease, pursuant to which we lease the Canadian properties, are similar as those of the U.S. Master Lease described above except that the initial base rent under the Canadian Master Lease is $3.5 million (CAD) per annum.
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Our continuing indemnification obligations under the purchase agreements are guaranteed by LSF9 in favor of each purchaser. With the exception of any claims resulting from our fraud, our aggregate liability in connection with our representations, warranties, indemnifications, covenants or other obligations are $5.0 million under the U.S. purchase agreements and $5.0 million (CAD) under the Canadian purchase agreement.
At lease inception of the Sale Leaseback, we (as the seller-lessee) were considered to have a form of prohibited continuing involvement with the properties because we provided the respective purchaser (as the buyer-lessor) with a guarantee that serves as additional collateral that reduces the buyer-lessors risk of loss. As a result, we are precluded from applying sale-leaseback accounting to the Sale Leaseback, and we have accounted for the transaction as a financing obligation. The assets subject to the Sale Leaseback remain on the balance sheet and continue to be depreciated over their remaining useful lives as a failed sale-leaseback. However, we expect to subsequently replace the current guarantor, LSF9, with the Company as the new guarantor within the next 12 months which would, at that time, allow the Sale Leaseback to qualify for sales recognition and be classified as an operating lease.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Immediately following the consummation of the offering, we will have an aggregate of shares of common stock outstanding. Of the outstanding shares, the shares sold in this offering (or shares if the underwriters exercise in full their option to purchase additional shares) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined in Rule 144 of the Securities Act, may generally be sold only in compliance with the limitations described below. The remaining outstanding shares of our common stock will be deemed restricted securities, as defined in Rule 144. We expect that Lone Star will be considered an affiliate of ours after this offering based on its expected share ownership and representation on our board of directors. Certain other of our stockholders may also be considered affiliates at that time.
We cannot predict what effect, if any, sales of shares of our common stock from time to time or the availability of shares of our common stock for future sale may have on the market price of our common stock. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock and could impair our future ability to raise capital through an offering of equity securities or otherwise. See Risk Factors.
Lock-Up Agreements
We, our officers and directors and the holder of all of our outstanding shares of common stock immediately prior to this offering will be subject to lock-up agreements with the underwriters that will restrict the sale of shares of our common stock held by them for 180 days after the date of this prospectus, subject to certain exceptions, as described in the section entitled Underwriting.
Sales of Restricted Securities
Other than the shares sold in this offering, all of the remaining shares of our common stock outstanding following the consummation of the offering will be available for sale, subject to the lock-up agreements described above, after the date of this prospectus in registered sales or pursuant to Rule 144 or another exemption from registration. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration, including under Rule 144 promulgated under the Securities Act, which is summarized below.
In general, under Rule 144, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock beneficially owned thereby for at least one year without regard to the volume limitations summarized below. However, such non-affiliate need only have beneficially owned such shares to be sold for at least six months if we have been subject to the reporting requirements of the Exchange Act for at least 90 days at the time of such sale and there is adequate current public information about us available. In either case, a non-affiliate may include the holding period of any prior owner other than an affiliate of ours.
Beginning 90 days after the date of this prospectus, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) 1% of the number of shares of our common stock then-outstanding, which will equal approximately shares immediately after the consummation of this offering; and (ii) the average weekly trading volume in our common stock on NASDAQ during the four
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calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale. Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
As a result of the provisions of Rule 144, additional shares will be available for sale in the public market upon the expiration or, if earlier, the waiver of the lock-up period provided for in the lock-up agreements, subject, in some cases, to volume limitations.
Additional Registration Statements
In addition, shares of common stock may be granted under our stock incentive plan. See Executive Compensation2016 Stock Incentive Plan. We intend to file one or more registration statements under the Securities Act after this offering to register up to shares of our common stock issued or reserved for issuance under our 2016 Stock Plan and any future equity incentive plans. These registration statements will become effective upon filing, and shares covered by these registration statements will be eligible for sale in the public market immediately after the effective dates of these registration statements, subject to any vesting restrictions and limitations on exercise under the applicable equity incentive plan, the lock-up agreements described in Underwriting and, with respect to affiliates, limitations under Rule 144.
Registration Rights Agreement
Prior to the consummation of this offering, we will enter into a registration rights agreement with Lone Star. The terms of the registration rights agreement will include provisions for demand registration rights and piggyback registration rights in favor of Lone Star. Demand registration rights require that, subject to the terms of the registration rights agreement, Lone Star will have the right to require that we register its shares under the Securities Act for sale to the public. Piggyback registration rights allow Lone Star to include its shares in any registration that we effect under the Securities Act, other than a registration effected pursuant to an exercise of demand registration rights, subject to specified exceptions. We must pay all expenses, except for underwriters discounts and commissions, incurred in connection with the exercise of these registration rights. The registration rights agreement will not provide however for the payment of any consideration by us to Lone Star if a registration statement for the resale of shares of common stock held by Lone Star is not declared effective or if the effectiveness is not maintained.
Immediately following consummation of this offering, all shares of our common stock held by Lone Star will be entitled to these registration rights. Shares registered with the SEC pursuant to these registration rights will be eligible for sale in the public markets upon effectiveness of the registration statement covering those shares. However, the underwriting agreement and lock-up agreements prohibit us from filing any registration statement for the resale of shares of common stock held by Lone Star for a period of 180 days after the date of this prospectus without the prior consent of the representatives. By exercising its registration rights and causing a large number of shares to be registered and sold in the public market, Lone Star could cause the price of the common stock to fall. In addition, any demand to include these shares in our registration statements could have a material adverse effect on our ability to raise needed capital. See Risk Factors.
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U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of certain U.S. federal income tax consequences of the acquisition, ownership, and disposition of our common stock purchased pursuant to this offering by a non-U.S. holder. As used in this prospectus, the term non-U.S. holder means a beneficial owner of 5% or less of our common stock that, for U.S. federal income tax purposes, is an individual, corporation, estate or trust and is not any of the following:
| an individual who is a citizen or resident of the United States; |
| a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in the United States or under the laws of the United States or any state thereof (including the District of Columbia); |
| an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust (i) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust, or (ii) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
An individual who is not a citizen of the United States may, subject to certain restrictions as well as limitations contained in any applicable income tax treaties, be deemed to be a resident of the United States by reason of being present in the United States for at least 31 days in the calendar year and an aggregate of at least 183 days during a three year period ending in the current calendar year (counting for such purposes all of the days present in the current year, one-third of the days present in the immediate preceding calendar year and one sixth of the days present in the second preceding calendar year). U.S. residents are generally taxed for U.S. federal income tax purposes in the same manner as U.S. citizens.
This discussion assumes that you will hold our common stock issued pursuant to this offering as a capital asset within the meaning of the Internal Revenue Code of 1986, as amended, or the Code (i.e., generally, property held for investment). This discussion does not address all aspects of U.S. federal taxation that may be relevant to a particular non-U.S. holder in light of the holders individual investment or tax circumstances, or to non-U.S. holders that are subject to special tax rules. In addition, this description of U.S. tax consequences does not address:
| U.S. state and local or non-U.S. tax consequences; |
| U.S. federal estate or gift tax consequences; |
| the U.S. net investment income tax that is imposed in addition to other U.S. income taxes (the Unearned Income Medicare Contribution) |
| specific facts and circumstances that may be relevant to a particular non-U.S. holders tax position; |
| the tax consequences for the stockholders, partners or beneficiaries of a non-U.S. holder; |
| special tax rules that may apply to some non-U.S. holders, including without limitation, banks, insurance companies, financial institutions, qualified foreign pension funds, hybrid entities, broker-dealers, tax-exempt entities, controlled foreign corporations, passive foreign investment companies or U.S. expatriates; or |
| special tax rules that may apply to a non-U.S. holder that holds our common stock as part of a straddle, hedge or conversion transaction or other integrated investment. |
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If a partnership (or other entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our common stock, the treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner of our common stock that is a partnership and partners in such a partnership should consult their tax advisors regarding the U.S. federal income tax consequences of acquiring, owning, and disposing of our common stock.
This discussion is based on current provisions of the Code, final, temporary and proposed U.S. Treasury regulations, judicial opinions, published positions of the U.S. Internal Revenue Service, or IRS, and other applicable authorities, all as in effect on the date hereof and all of which are subject to differing interpretations or change, possibly with retroactive effect. We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with respect to the tax consequences discussed herein, and there can be no assurance that the IRS will not take a position contrary to the tax consequences discussed below or that any position taken by the IRS would not be sustained.
We strongly urge you to consult your tax advisor regarding the U.S. federal tax consequences of acquiring, owning or disposing our common stock, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing jurisdiction or under any applicable tax treaty.
Dividends
We have no present intention to pay dividends on our common stock. However, if distributions of cash or property (other than certain stock distributions) are made to non-U.S. holders on shares of our common stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of earnings and profits will constitute a return of capital that is applied against and reduces the non-U.S. holders adjusted tax basis in our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the common stock and will be treated as described under Gain on Sale, Exchange or Other Taxable Disposition of Common Stock below.
Dividends paid to a non-U.S. holder that are not effectively connected with the non-U.S. holders conduct of a trade or business in the United States generally will be subject to withholding of U.S. federal income tax at the rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under an applicable income tax treaty and the requirements for and manner of claiming the benefits of such treaty (including, without limitation, the need to obtain a U.S. taxpayer identification number).
If the non-U.S. holder is engaged in a trade or business in the United States, either directly or through an entity treated as a partnership for U.S. tax purposes, and the dividends are effectively connected with the conduct of such trade or business, and, if provided in an applicable income tax treaty, are dividends attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States, then the dividends are not subject to the U.S. withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated U.S. federal income tax rates and in the manner applicable to U.S. persons. Certain certification and disclosure requirements must be complied with for effectively connected income or income attributable to a permanent establishment to be exempt from withholding. Any effectively connected dividends or dividends attributable to a permanent establishment received by a non-U.S. holder that is treated as a foreign corporation for U.S. tax purposes may be subject to an additional branch profits tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty.
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To claim the benefit of a tax treaty or an exemption from withholding because dividends are effectively connected with the conduct of a trade or business in the United States, a non-U.S. holder generally must provide to the withholding agent a properly executed IRS Form W-8BEN or W-8BEN-E, as applicable, (or successor form) for treaty benefits or IRS Form W-8ECI (or successor form) for effectively connected income, before the payment of dividends, and, if claiming the benefit of a tax treaty, generally must certify under penalties of perjury on the appropriate forms that such non-U.S. holder is not a U.S. person and is eligible for treaty benefits. These forms may need to be periodically updated. Non-U.S. holders may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund along with the required information. Special certification rules apply to certain partnerships and trusts. Accordingly, a non-U.S. holder that is a foreign partnership or a foreign trust is urged to consult its own tax advisor regarding its status under U.S. tax law and the certification requirements applicable to it.
Gain on Sale, Exchange or Other Taxable Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax, including by way of withholding, on gain recognized on a sale, exchange or other taxable disposition of our common stock unless any one of the following applies:
1. | The non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more in the taxable year of the sale, exchange or other taxable disposition and certain other requirements are met; |
2. | The gain is effectively connected with the non-U.S. holders conduct of a trade or business in the United States, directly or through an entity treated as a partnership for U.S. tax purposes and, if an applicable tax treaty requires, attributable to a U.S. permanent establishment or fixed base of such non-U.S. holder; or |
3. | We are or have been, at any time during the five-year period preceding such disposition (or the non-U.S. holders holding period, if shorter) a United States real property holding corporation, within the meaning of Section 897(c)(2) of the Code, unless our common stock is regularly traded on an established securities market and the non-U.S. holder holds no more than 5% of our outstanding common stock, directly or indirectly, during the relevant period. Generally, a United States corporation is treated as a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. |
We believe that we have not been and are not currently a United States real property holding corporation, and we do not expect to become a United States real property holding corporation. However, no assurances can be made in this regard. Furthermore, no assurances can be provided that our stock will be considered to be regularly traded on an established securities market for this purpose. |
Non-U.S. holders described in clause (1) above are taxed on their gains (including gains from sales of our common stock and net of applicable U.S. losses from sales or exchanges of other capital assets incurred during the year) at a flat rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Non- U.S. holders described in clause (2) or (3) above will be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates and in the manner applicable to U.S. persons, unless an applicable income tax treaty provides otherwise. If a non-U.S. holder described in clause (2) is a corporation, it may be subject to the additional branch profits tax at a rate equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. In addition, if we are determined to be a United
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States real property holding corporation and our common stock is not regularly traded on an established securities market, then a purchaser may be required to withhold 15% of the proceeds payable to a non-U.S. holder from a sale or other taxable disposition of our common stock.
Foreign Account Tax Compliance Act
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code, the Treasury Regulations promulgated thereunder and other official guidance (commonly referred to as FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or a non-financial foreign entity (each as defined in the Code), unless those entities comply with certain requirements under the Code and applicable U.S. Treasury regulations, which requirements may be modified by an intergovernmental agreement entered into between the United States and an applicable foreign country. Future Treasury Regulations or other official guidance may modify these requirements.
Under the applicable Treasury Regulations, withholding under FATCA generally applies to payments of dividends on our common stock, and the IRS has announced that FATCA withholding will apply to payments of gross proceeds from the sale or other disposition of such stock on or after January 1, 2019. The FATCA withholding tax will apply to all withholdable payments without regard to whether the beneficial owner of the payment would otherwise be entitled to an exemption from imposition of withholding tax pursuant to an applicable tax treaty with the United States. Under certain circumstances (including, for example, where an applicable tax treaty applies), a holder might be eligible for refunds or credits of such taxes.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in our common stock.
Information Reporting and Backup Withholding
We must report annually to the IRS, and to each non-U.S. Holder, the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. Holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information reporting may also be made available under the provisions of a specific tax treaty or agreement with the tax authorities in the country in which the non-U.S Holder resides or is established.
A non-U.S. Holder will generally be subject to backup withholding for dividends on our common stock paid to such holder (at the applicable rate), unless such holder certifies under penalties of perjury that, among other things, it is a non-U.S. Holder (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person), and otherwise complies with all applicable legal requirements.
Information reporting and backup withholding generally are not required with respect to the amount of any proceeds from the sale or other disposition of our common stock by a non-U.S. Holder outside the United States through a foreign office of a foreign broker that does not have certain specified connections to the United States. However, if a non-U.S. Holder sells or otherwise disposes its shares of our common stock through a U.S. broker or the U.S. office of a foreign broker, the broker will generally be required to report the amount of proceeds paid to the non-U.S. Holder to the IRS and also backup withhold on that amount, unless such non-U.S. Holder provides appropriate certification to the broker of its status as a non-U.S. person or otherwise establishes an exemption (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person). Information
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reporting will also apply if a non-U.S. Holder sells its shares of our common stock through a foreign broker deriving more than a specified percentage of its income from U.S. sources or having certain other connections to the United States, unless such broker has documentary evidence in its records that such non-U.S. Holder is a non-U.S. person and certain other conditions are met, or such non-U.S. Holder otherwise establishes an exemption (and the payor does not have actual knowledge or reason to know that such holder is a U.S. person).
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. Holder can be credited against the non-U.S. Holders U.S. federal income tax liability, if any, or refunded, provided that the required information is furnished to the IRS in a timely manner. Non-U.S. Holders should consult their tax advisors regarding the application of the information reporting and backup withholding rules to them.
The foregoing discussion is only a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock by non-U.S. holders. You are urged to consult your own tax advisor with respect to the particular tax consequences to you of ownership and disposition of our common stock, including the effect of any U.S., state, local, non-U.S. or other tax laws and any applicable income tax treaty.
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Goldman, Sachs & Co., Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC are acting as joint-book-running managers of the offering and are acting as representatives of the underwriters named below. Subject to certain terms and conditions stated in the underwriting agreement dated as of the date of this prospectus, each underwriter has severally agreed to purchase, and we and the selling stockholder have agreed to sell to that underwriter, the number of shares set forth opposite the underwriters name.
Underwriters |
Number of Shares |
|||
Goldman, Sachs & Co. |
||||
Citigroup Global Markets Inc. |
||||
Credit Suisse Securities (USA) LLC |
||||
|
|
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Total |
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|
|
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
The underwriters have an option to buy up to an additional shares from to cover sales by the underwriters of a greater number of shares than the total number set forth in the table above. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by the Company and the selling stockholder. Such amounts are shown assuming both no exercise and full exercise of the underwriters option to purchase additional shares.
Paid by the Company and the Selling Stockholder
No Exercise | Full Exercise | |||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. If all shares are not sold at initial offering price, the representatives may change the offering price and the other selling terms. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
We, our officers and directors and the selling stockholder have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans or the 2016 Stock Plan. See the section entitled Shares Eligible for Future Sale for a discussion of certain transfer restrictions.
Prior to the offering, there has been no public market for the shares. Consequently, the initial public offering price for the shares was determined by negotiations among us, the selling stockholder
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and the representatives. Among the factors considered in determining the initial public offering price were our results of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management and currently prevailing general conditions in the equity.
An application has been made to list the common stock on NASDAQ under the symbol FRTA.
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering, and a short position represents the amount of such sales that have not been covered by subsequent purchases. A covered short position is a short position that is not greater than the amount of additional shares for which the underwriters option described above may be exercised. The underwriters may cover any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to cover the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option described above. Naked short sales are any short sales that create a short position greater than the amount of additional shares for which the option described above may be exercised. The underwriters must cover any such naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, or may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. The underwriters are not required to engage in these activities and may end any of these activities at any time. These transactions may be effected on , in the over-the-counter market or otherwise.
We estimate that our share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ . We have agreed to reimburse the underwriters for certain of their expenses.
Conflicts of Interest
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to the Company and to persons and entities with relationships with the issuer, for which they received or will receive customary fees and expenses. An affiliate of Credit Suisse Securities (USA) LLC is a lender under the Senior Term Loan and Junior Term Loan. In addition, Citigroup Global Markets Inc. is party to certain foreign currency hedging arrangements involving the Company. Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC are each a lender, joint lead arranger and joint lead bookrunner under, and Goldman, Sachs & Co. is a lender under, the ABL Credit Agreement.
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Credit Suisse Securities (USA) LLC, who is an underwriter in this offering, or its affiliates, is expected to receive more than 5% of the net proceeds of this offering in connection with the prepayment of our outstanding indebtedness. See Use of Proceeds. Accordingly, this offering is being made in compliance with the requirements of FINRA Rule 5121, which requires that a qualified independent underwriter, as defined by the FINRA rules, participate in the preparation of the registration statement and the prospectus and exercise the usual standards of due diligence in respect thereto, and has served in that capacity and will not receive any additional fees for serving as qualified independent underwriter in connection with this offering. We have agreed to indemnify against liabilities incurred in connection with acting as a qualified independent underwriter, including liabilities under the Securities Act. To comply with FINRA Rule 5121, Credit Suisse Securities (USA) LLC will not confirm sales to any account over which it exercises discretionary authority without the specific written approval of the transaction of the accountholder.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the Company (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with the Company. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), an offer of shares to the public may not be made in that Relevant Member State, except that an offer of shares to the public may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
(a) to any legal entity which is a qualified investor as defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has implemented the relevant provisions of the 2010 Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or
(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of shares shall result in a requirement for the publication of a prospectus pursuant to Article 3 of the Prospectus Directive or any measure implementing the Prospectus Directive in a Relevant Member State and each person who initially acquires any shares or to whom an offer is made will be deemed to have represented, warranted and agreed to and with the underwriters that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.
For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of
196
sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State.
In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such financial intermediary will also be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the underwriters has been obtained to each such proposed offer or resale.
In the United Kingdom, this prospectus is only addressed to and directed as qualified investors who are (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order); or (ii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). Any investment or investment activity to which this prospectus relates is available only to relevant persons and will only be engaged with relevant persons. Any person who is not a relevant person should not act or relay on this prospectus or any of its contents.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Order) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a relevant person). This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
| released, issued, distributed or caused to be released, issued or distributed to the public in France; or |
| used in connection with any offer for subscription or sale of the shares to the public in France. |
Such offers, sales and distributions will be made in France only:
| to qualified investors ( investisseurs qualifiés ) and/or to a restricted circle of investors ( cercle restreint dinvestisseurs ), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier ; |
197
| to investment services providers authorized to engage in portfolio management on behalf of third parties; or |
| in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations ( Règlement Général ) of the Autorité des Marchés Financiers , does not constitute a public offer ( appel public à lépargne ). |
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
Hong Kong
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) (Companies (Winding Up and Miscellaneous Provisions) Ordinance) or which do not constitute an invitation to the public within the meaning of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (Securities and Futures Ordinance), or (ii) to professional investors as defined in the Securities and Futures Ordinance and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance, and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors in Hong Kong as defined in the Securities and Futures Ordinance and any rules made thereunder.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor (as defined under Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the SFA)) under Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to conditions set forth in the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor, the securities (as defined in Section 239(1) of the SFA) of that corporation shall not be transferable for 6 months after that corporation has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer in that corporations securities pursuant to Section 275(1A) of the SFA, (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore (Regulation 32).
198
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is a trust (where the trustee is not an accredited investor (as defined in Section 4A of the SFA)) whose sole purpose is to hold investments and each beneficiary of the trust is an accredited investor, the beneficiaries rights and interest (howsoever described) in that trust shall not be transferable for 6 months after that trust has acquired the shares under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person (as defined in Section 275(2) of the SFA), (2) where such transfer arises from an offer that is made on terms that such rights or interest are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction (whether such amount is to be paid for in cash or by exchange of securities or other assets), (3) where no consideration is or will be given for the transfer, (4) where the transfer is by operation of law, (5) as specified in Section 276(7) of the SFA, or (6) as specified in Regulation 32.
Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended), or the FIEA. The securities may not be offered or sold, directly or indirectly, in Japan or to or for the benefit of any resident of Japan (including any person resident in Japan or any corporation or other entity organized under the laws of Japan) or to others for reoffering or resale, directly or indirectly, in Japan or to or for the benefit of any resident of Japan, except pursuant to an exemption from the registration requirements of the FIEA and otherwise in compliance with any relevant laws and regulations of Japan.
Australia
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of
Australia (Corporations Act)) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission (ASIC). This document has not been lodged with ASIC and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
(a) | you confirm and warrant that you are either: |
(i) | a sophisticated investor under section 708(8)(a) or (b) of the Corporations Act; |
(ii) | a sophisticated investor under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountants certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made; |
(iii) | a person associated with the company under section 708(12) of the Corporations Act; or |
(iv) | a professional investor within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and |
(b) | you warrant and agree that you will not offer any of the common stock for resale in Australia within 12 months of that common stock being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act. |
199
The validity of the shares of common stock offered hereby will be passed upon for us by Gibson, Dunn & Crutcher LLP. Certain legal matters in connection with the shares of common stock offered hereby will be passed upon for the underwriters by Baker Botts L.L.P.
The combined financial statements of Forterra Building Products (Successor) at December 31, 2015 and for the period from March 14, 2015 to December 31, 2015, the combined balance sheet of HeidelbergCement A.G.s building products business in the United States and Eastern Canada (the Predecessor) at December 31, 2014 and the related combined financial statements for the period from January 1, 2015 to March 13, 2015 and for each of the two years in the period ended December 31, 2014, and the balance sheet of Forterra, Inc. at June 21, 2016, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.
The audited carve-out financial statements of Cretex Concrete Products, Inc. as of September 30, 2015 and for the fiscal period ended September 30, 2015 and as of December 27, 2014 and for the fiscal years ended December 27, 2014 and December 28, 2013 included in this Prospectus and Registration Statement have been audited by PricewaterhouseCoopers LLP, independent auditors, given on the authority of such firm as experts in auditing and accounting.
The consolidated financial statements of USP Holdings Inc. as of September 30, 2015 and 2014 and for each of the years in the three-year period ended September 30, 2015 included in this Prospectus and Registration Statement, have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report thereon, and have been included in this Prospectus and Registration Statement in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including exhibits, of which this prospectus forms a part, under the Securities Act with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement and exhibits thereto. For further information with respect to our company and the shares of common stock to be sold in this offering, reference is made to the registration statement, including the exhibits thereto. Copies of the registration statement, including the exhibits thereto, may be examined without charge at the public reference room of the SEC, 100 F Street, N.E., Washington, DC 20549. Information about the operation of the public reference room may be obtained by calling the SEC at 1-800-SEC-0330. Copies of all or a portion of the registration statement can be obtained from the public reference room of the SEC upon payment of prescribed fees. Our SEC filings, including the registration statement of which this prospectus forms a part, are also available to you for free on the SECs website at www.sec.gov. Upon consummation of this offering we will become subject to the informational and reporting requirements of the Exchange Act and will be required to file reports and other information with the SEC. You will be able to inspect and copy these reports and other information at the public reference facilities maintained by the SEC at the address noted above or obtain copies of these materials from the Public Reference Room of the SEC upon payment of prescribed fees at the address noted above or inspect them without charge at the SECs website. We intend to make available to our common stockholders annual reports containing consolidated financial statements audited by our independent registered public accounting firm.
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Page # | ||||
F-3 | ||||
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F-5 | ||||
F-6 | ||||
F-7 | ||||
F-8 | ||||
F-31 | ||||
F-32 | ||||
F-33 | ||||
F-34 | ||||
F-35 | ||||
Combined Statements of Shareholders Equity and Parent Company Net Investment |
F-36 | |||
F-37 | ||||
F-38 | ||||
F-80 | ||||
F-81 | ||||
F-82 | ||||
F-83 | ||||
F-84 | ||||
F-85 | ||||
F-86 | ||||
F-87 | ||||
F-88 | ||||
F-90 | ||||
USP Holdings Inc. Consolidated Financial Report September 30, 2015 |
F-101 | |||
F-102 | ||||
F-103 | ||||
F-104 | ||||
F-105 | ||||
F-106 | ||||
F-107 | ||||
F-109 |
F-1
Page # | ||||
F-131 | ||||
F-132 | ||||
F-133 | ||||
F-134 | ||||
Statements of Changes in Stockholders Equity on a Carve-out Basis |
F-135 | |||
F-136 | ||||
F-137 |
F-2
Unaudited Condensed Combined Financial Statements
For the six months ended June 30, 2016, and for the period from March 14, 2015 to June 30, 2015 (Successor), and for the period from January 1, 2015 to March 13, 2015 (Predecessor)
F-3
Condensed Combined Statements of Operations
(USD in thousands)
(Unaudited)
Successor | Predecessor | |||||||||||
Six months
ended June 30, |
For the period
from March 14 to June 30, |
For the period
from January 1 to March 13 |
||||||||||
2016
(unaudited) |
2015
(unaudited) |
2015 | ||||||||||
Net sales |
$ | 640,142 | $ | 251,315 | $ | 132,620 | ||||||
Cost of goods sold |
509,370 | 228,405 | 117,831 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
130,772 | 22,910 | 14,789 | |||||||||
Selling, general & administrative expenses |
(98,622 | ) | (47,716 | ) | (21,683 | ) | ||||||
Impairment and restructuring charges |
(23 | ) | (343 | ) | (542 | ) | ||||||
Earnings from equity method investee |
4,868 | 3,772 | 67 | |||||||||
Other operating income |
2,533 | 3,930 | 994 | |||||||||
|
|
|
|
|
|
|||||||
(91,244 | ) | (40,357 | ) | (21,164 | ) | |||||||
|
|
|
|
|
|
|||||||
Income (loss) from operations |
39,528 | (17,447 | ) | (6,375 | ) | |||||||
Other income (expenses) |
||||||||||||
Interest expense |
(42,129 | ) | (15,551 | ) | (84 | ) | ||||||
Other income (expense), net |
(1,179 | ) | (140 | ) | (39 | ) | ||||||
|
|
|
|
|
|
|||||||
Loss before income taxes |
(3,780 | ) | (33,138 | ) | (6,498 | ) | ||||||
Income tax (expense) benefit |
36,533 | (1,579 | ) | 742 | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
$ | 32,753 | $ | (34,717 | ) | $ | (5,756 | ) | ||||
|
|
|
|
|
|
See accompanying notes to the condensed combined financial statements
F-4
Condensed Combined Statements of Comprehensive Loss
(USD in thousands)
(Unaudited)
Successor | Predecessor | |||||||||||
Six months
ended June 30, 2016 (unaudited) |
For the period
from March 14 to June 30, 2015 (unaudited) |
For the period
from January 1 to March 13, 2015 |
||||||||||
Net income (loss) |
$ | 32,753 | (34,717 | ) | $ | (5,756 | ) | |||||
Actuarial gains on defined benefit plans, net of tax |
| | 2,645 | |||||||||
Unrealized loss on derivative activities, net of tax |
(1,427 | ) | 412 | | ||||||||
Foreign currency translation adjustment |
4,783 | (5,326 | ) | (19,751 | ) | |||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
$ | 36,109 | $ | (39,631 | ) | $ | (22,862 | ) | ||||
|
|
|
|
|
|
See accompanying notes to the condensed combined financial statements
F-5
Condensed Combined Balance Sheets
(USD in thousands)
(Unaudited)
Successor | Successor | |||||||
June 30,
2016 (unaudited) |
December
31, 2015 |
|||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 41,817 | $ | 43,590 | ||||
Receivables, net |
270,088 | 118,959 | ||||||
Inventories |
322,283 | 210,615 | ||||||
Other current assets |
16,328 | 2,844 | ||||||
|
|
|
|
|||||
Total current assets |
650,516 | 376,008 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Property, plant and equipment, net |
648,621 | 388,924 | ||||||
Goodwill |
416,231 | 75,537 | ||||||
Other intangible assets, net |
259,170 | 26,062 | ||||||
Investment in equity method investee |
56,656 | 56,289 | ||||||
Deferred tax asset |
| 3,087 | ||||||
Derivative assets |
| 9,093 | ||||||
Other long term assets |
2,916 | 3,875 | ||||||
|
|
|
|
|||||
Total assets |
$ | 2,034,110 | $ | 938,875 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities |
||||||||
Trade payables |
$ | 136,525 | $ | 96,486 | ||||
Accrued liabilities |
73,359 | 55,628 | ||||||
Deferred revenue |
15,286 | 19,498 | ||||||
Current portion of long term-debt |
| 2,191 | ||||||
|
|
|
|
|||||
Total current liabilities |
225,170 | 173,803 | ||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Deferred tax liability |
| 2,365 | ||||||
Senior Term Loan |
1,001,700 | 467,192 | ||||||
Junior Term Loan |
238,077 | 236,446 | ||||||
Financing obligation |
210,934 | | ||||||
Deferred tax liabilities |
132,978 | | ||||||
Other long term liabilities |
18,909 | 6,754 | ||||||
Derivative liability |
2,875 | | ||||||
|
|
|
|
|||||
Total liabilities |
1,830,643 | 886,560 | ||||||
|
|
|
|
|||||
Commitments and Contingencies (Note 13) |
||||||||
Equity |
||||||||
Contributed capital |
254,918 | 139,869 | ||||||
Accumulated other comprehensive loss |
(1,418 | ) | (4,768 | ) | ||||
Retained deficit |
(50,033 | ) | (82,786 | ) | ||||
|
|
|
|
|||||
Total shareholders equity |
203,467 | 52,315 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 2,034,110 | $ | 938,875 | ||||
|
|
|
|
See accompanying notes to the condensed combined financial statements
F-6
Condensed Combined Statements of Cash Flow
(USD in thousands)
(Unaudited)
See accompanying notes to the condensed combined financial statements
F-7
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
1. Organization and description of the business
Description of the business
Forterra Building Products (Forterra or the Successor) is involved in the manufacturing, sale and distribution of building materials in the United States (U.S.) and Canada. Forterras primary products are concrete drainage pipe, precast concrete structures, water transmission pipe used in drinking and wastewater systems, and bricks. These products are used in the residential, infrastructure and non-residential sectors of the construction industry.
Basis of Presentation - Successor
Forterra includes indirect wholly-owned subsidiaries of LSF9 Concrete Holdings, Ltd. (LSF9). Lone Star Funds (Lone Star), through its wholly-owned subsidiary LSF9, acquired Forterra on March 13, 2015 (the Acquisition). LSF9, which was formed on February 6, 2015 for the purpose of acquiring Forterra, had no operations prior to the date of the Acquisition. The legal entities that comprise Forterra are domiciled in the U.S. and Canada. The U.S. legal entities are Stardust Holdings (USA), LLC and its subsidiaries. The Canadian legal entities are Forterra Pipe & Precast, Ltd. and its subsidiaries and Forterra Brick Ltd.
Prior to the Acquisition, the entities comprising Forterra which were acquired by Lone Star were indirect wholly-owned subsidiaries of HeidelbergCement A.G. (HC or Parent), a publicly listed company in Germany, encompassing HCs North American building products operations (BP NAM or the Predecessor). LSF9 acquired Forterra in a business combination which also included the acquisition of HCs U.K.-based building products operations for a total initial purchase price of $1.33 billion cash, subject to customary working capital adjustments and a possible earn-out of up to $100.0 million. The acquisition of BP NAM and HCs UK-based building products was funded with an equity investment of $432.3 million and third-party debt in the amount of $940.0 million .
In the accompanying financial information, Successor refers to Forterra and Predecessor refers to BP NAM. The term Company is used throughout the combined financial statements and applies to either the Predecessor or the Successor.
The Successors combined financial statements include certain assets and liabilities historically held at LSF9, including the proportionate debt, and related interest expense, incurred by LSF9 to acquire the Company that Forterra is obligated to pay. The Companys portion of Lone Stars initial $432.3 million equity investment is $167.5 million. The Companys allocated portion of the $940.0 million of third party debt used to finance the Acquisition is $515.5 million. The remaining $424.5 million of the debt was allocated to affiliates of LSF9 that are not included in these financial statements based on the amounts affiliates of LSF9 are expected to repay and such amount has been fully repaid by affiliates. The Company and the affiliates of LSF9 were co-obligors and jointly and severally liable under terms of the initial credit agreements. In April of 2016, the Companys affiliate co-obligors were released from joint and several liability under the credit agreements and the Company is consequently the sole source of repayment for its $515.5 million share for the initial obligation under the credit agreements. See discussion of the joint and several obligations in Note 9, Debt and deferred financing costs.
U.S. Pipe Acquisition
On April 15, 2016, Forterra closed the acquisition of all of the stock of USP Holdings Inc. (USP) for a purchase price of $775.1 million, subject to customary working capital adjustments. USP is a
F-8
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
manufacturer of water transmission pipe servicing residential, commercial and infrastructure customers. The USP acquisition was financed with proceeds from a capital contribution and borrowings on LSF9s revolving credit facility.
Sherman-Dixie Acquisition
On January 29, 2016, Forterra closed the acquisition of substantially all the assets of Sherman-Dixie Concrete Industries (Sherman-Dixie) for a purchase price of $66.8 million, including customary working capital adjustments. Sherman-Dixie is a manufacturer of precast concrete structures operating in Kentucky, Tennessee, Alabama and Indiana. The Sherman Dixie acquisition was financed with proceeds from a draw on the Companys revolving credit facility.
The financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The combined financial statements include the accounts of the Company and all intercompany transactions among the Successor entities have been eliminated.
2. Summary of significant accounting policies
General
The condensed combined financial statements have been prepared in accordance with U.S. GAAP and on the same basis as our audited combined financial statements as of December 31, 2015. The condensed combined balance sheet as of June 30, 2016 and the condensed combined statements of operations, comprehensive income (loss) and cash flows for the periods presented herein are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair statement of the results of the periods shown. Certain information and note disclosures normally included in annual financial statements have been omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Because the condensed combined interim financial statements do not include all of the information and notes required by U.S. GAAP for a complete set of financial statements, they should be read in conjunction with the audited combined financial statements referred to above. The results and trends in these interim financial statements may not be indicative of results for the full year.
Basis of presentation-Predecessor
Description of Business - Predecessor
The legal entities comprising BP NAM were a component of the North American operating segment of HC and consist of U.S. operating entities that were directly owned by Lehigh Hanson, Inc. (LHI), a U.S. holding company, and Canadian operating entities that were directly owned by Hanson America Holdings (4), Ltd., a U.K. holding company.
These financial statements are labeled as predecessor because they reflect the combined predecessor historical results of operations, financial position and cash flows of BP NAM, as they were historically managed under the control of HC, in conformity with U.S. GAAP.
All intracompany transactions occurring between the predecessor entities have been eliminated. Certain transactions between the Company and HC have been included in these combined predecessor financial statements and are considered to be effectively settled at the time the
F-9
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
transaction is recorded. The total net effect of the settlement of these transactions is reflected in the combined predecessor statements of shareholders equity and Parent company net investment as net transfers (to)/from Parent, in the combined predecessor statements of cash flows as a financing activity and in the combined predecessor balance sheet as Parent company net investment.
HC used a centralized approach to cash management and financing of its operations. Historically, the majority of the Predecessors cash was transferred to HC daily and the Company was dependent on HC funding of the Companys operating and investing activities as needed. This arrangement is not reflective of the manner in which the Company would have been able to finance its operations had it been a stand-alone business separate from HC during the periods presented. Cash transfers to and from HCs cash management accounts are reflected within Parent company net investment.
The combined predecessor financial statements include certain assets and liabilities that have historically been held at the HC corporate level but are specifically identifiable or otherwise allocable to the Company. The cash and cash equivalents held by HC at the corporate level are not specifically identifiable to the Company and therefore were not allocated for any of the periods presented. Cash and cash equivalents in the combined predecessor balance sheets represent cash held locally by operations included in the combined predecessor financial statements. HC third-party debt, and the related interest expense, has not been allocated for any of the periods presented as the Company was not the legal obligor of the debt and HCs borrowings were not directly attributable to these operations.
The historical costs and expenses reflected in the combined predecessor financial statements include an allocation for certain corporate functions historically provided by HC or its wholly-owned subsidiaries. Substantially all of the Companys senior management were employed by HC and certain functions critical to the Companys operations were centralized and managed by HC. Historically, the centralized functions have included executive senior management, financial reporting, financial planning and analysis, accounting, shared services, information technology, tax, risk management, treasury, legal, human resources, land management, and strategy and development. Additionally, the Company resided in office space provided by affiliates of HC. The cost of each of these services has been allocated to the Company on the basis of the Companys relative net sales or head count as compared to that of HC depending upon which allocation methodology is more meaningful for each service.
The Company and HC believe that these allocations reasonably reflect the utilization of services provided and benefits received. However, they may differ from the cost that would have been incurred had the Company operated as a stand-alone company for the periods presented or will be incurred by the Successor. Estimating actual costs that would have been incurred if the Company had been a stand-alone company is not practicable and would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including legal services, accounting and finance services, human resources, marketing and contract support, customer support, treasury, facility and other corporate and infrastructural services. Income taxes have been accounted for in these financial statements on a separate-return basis.
Recent Accounting Guidance Adopted
In March 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis , changing the analysis that a reporting entity must perform when deciding to consolidate a legal entity. This amendment changes the evaluation of whether limited partnerships are variable interest entities or voting interest entities and eliminates the presumption that a general
F-10
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
partner should consolidate a limited partnership. All legal entities are subject to reevaluation under the revised consolidation model. The amendment is effective for fiscal years and interim periods beginning after December 15, 2015 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the beginning of the period of adoption. The Company adopted the guidance in the combined financial statements for the six months ended June 30, 2016.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, defining 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 entitys going concern presumption. Substantial doubt about an entitys 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 the financial statements are issued. If substantial doubt exists, certain disclosures are required. The provisions of this ASU are 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 Companys disclosures.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) . Topic 805 requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in this update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.
Recent Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU 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. The FASB subsequently voted to defer the application of the provisions of this standard for public companies until annual reporting periods beginning after December 15, 2017 in ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , including interim periods within that reporting period. The Company is currently evaluating whether this ASU will have a material impact on its combined financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring an entity to measure inventory within the scope of the ASU at the lower of cost and net realizable value. For public business entities, the amendments in this update are effective for
F-11
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating whether this ASU will have a material impact on its combined financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standards issuance date. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company believes this ASU will have a material impact on our combined financial statements as it will result in most of the Companys leases and associated assets being presented on the balance sheet.
3. Business combinations
Transaction Overview The Acquisition
The Successors financial statements reflect the Acquisition of the Predecessor that occurred on March 13, 2015, which was accounted for as a business combination as defined by ASC 805. Certain liabilities of the Predecessor were not assumed by the Successor including, but not limited to pension liabilities, tax and insurance related liabilities and multi-employer pension liabilities. The assets acquired and liabilities assumed are recorded at their respective fair values as of the date of the Acquisition with the excess of the purchase price over those fair values recorded as goodwill. The determination of the fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, the calculation of the fair value of inventory, property, plant and equipment, and customer related intangibles. The fair values were determined primarily using the income method using level 3 inputs as defined by ASC 820.
The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the Acquisition date:
Fair Value | ||||
Net working capital |
$ | 257,368 | ||
Property, plant and equipment |
311,191 | |||
Investment in equity method investee |
56,400 | |||
Customer backlog intangible |
4,500 | |||
Other assets and other liabilities |
(6,495 | ) | ||
|
|
|||
Net identifiable assets acquired |
$ | 622,964 | ||
Goodwill |
17,464 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 640,428 | ||
|
|
The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired. The goodwill is not expected to be deductible for tax purposes.
F-12
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Financing transactions
Consideration to fund the Acquisition was provided by an equity investment of $167.5 million and proceeds from third-party debt, net of original discount and debt issuance costs, in the amount of $472.9 million. The financing transactions included a senior term loan in the amount of $254.9 million ($241.7 million, net of $13.2 million of original issue discount and debt issuance costs), a junior term loan in the amount of $260.0 million ($233.8 million, net of $26.2 million of original issue discount and debt issuance costs) and a revolving line of credit of up to $150.0 million. Funds of $0.6 million were initially drawn from the revolving line of credit at the closing date of the Acquisition. The Company incurred debt issuance costs related to the revolving line of credit in the amount of $3.2 million.
Contingent Consideration
As discussed in Note 1, the Acquisition included contingent consideration of up to an additional $100.0 million based on the earnings of LSF9 for fiscal year 2015 as adjusted by the purchase agreement (Earn-out). The Earn-out is based on the achievement of an amount in excess of a certain minimum threshold of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), as defined by the purchase agreement, for the calendar year ended December 31, 2015. The Company determined that achieving the required threshold to trigger a payout to the Seller was not probable and, therefore, the Company did not record a contingent liability related to the Earn-out as of the Acquisition date. Subsequent to year end, the Company concluded the Earn-out was not earned and, accordingly, did not record a liability as of December 31, 2015. See further discussion of the Earn-out contingency in Note 13.
Transaction Overview - USP Holdings Inc. (USP)
On April 15, 2016, Forterra acquired all of the stock of USP Holdings Inc. for a purchase price of $775.1 million, subject to customary working capital adjustments. All outstanding stock options of USP were settled by USP with proceeds from the acquisition and were not assumed by the Company in the transaction. The acquisition is accounted for as a business combination as defined by ASC 805, Business Combinations . The Company allocated the purchase price to the individually identifiable assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. USP operates as part of the Companys Water Pipe & Products reportable segment. The excess purchase price over those fair values was recorded as goodwill. The determination of fair values of the acquired assets and assumed liabilities required significant judgment, including estimates related to customer relationships, tradename and other intangibles, calculation of the fair value of property, plant and equipment and inventory. The allocation of the purchase price is preliminary and may be subject to change upon completion of the determination of the fair value of all acquired assets and liabilities. The fair value of assets and liabilities was determined using level 3 inputs as defined by ASC 820.
F-13
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The respective preliminary fair values of the assets acquired and liabilities assumed at the acquisition date are as follows:
Fair Value | ||||
Net working capital |
$ | 149,683 | ||
Property, plant and equipment, net |
246,241 | |||
Customer relationship intangible |
179,491 | |||
Trade name intangible |
37,388 | |||
Patent intangible |
13,093 | |||
Other intangibles |
7,659 | |||
Long term liabilities |
(10,613 | ) | ||
Deferred tax liabilities |
(160,906 | ) | ||
|
|
|||
Net identifiable assets acquired |
462,036 | |||
Goodwill |
313,074 | |||
|
|
|||
Consideration transferred |
$ | 775,110 | ||
|
|
The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired. The goodwill is not expected to be deductible for tax purposes.
For the six months ended June 30, 2016 revenues and income from operations include $150.3 million and $10.6 million, respectively, attributed to USP after the acquisition date.
Transaction Overview - Sherman Dixie Concrete Industries (Sherman-Dixie)
On January 29, 2016, Forterra completed the acquisition of all of the common stock of Sherman-Dixie for a cash purchase price of $66.8 million including customary working capital adjustments. The acquisition is accounted for as a business combination as defined by ASC 805, Business Combinations . The Company allocated the purchase price to the individually identifiable assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. Sherman-Dixie will operate as part of the Companys Drainage Pipe & Products reportable segment. The excess purchase price over those fair values was recorded as goodwill. The determination of fair values of the acquired assets and assumed liabilities required significant judgment, including estimates related to contract backlog, calculation of the fair value of property, plant and equipment and inventory. The allocation of the purchase price is preliminary and may be subject to change upon completion of the determination of the fair value of all acquired assets and liabilities. The fair value of assets and liabilities was determined using level 3 inputs as defined by ASC 820.
F-14
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The respective preliminary fair values of the assets acquired and liabilities assumed at the acquisition date are as follows:
Fair Value | ||||
Net working capital |
$ | 14,293 | ||
Property, plant and equipment |
29,163 | |||
Customer relationships intangible |
5,100 | |||
Non-compete agreement intangible |
2,500 | |||
Other identifiable intangibles |
900 | |||
Deferred tax liability |
(11,189 | ) | ||
|
|
|||
Net identifiable assets acquired |
40,767 | |||
Goodwill |
25,984 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 66,751 | ||
|
|
Supplemental pro-forma information (unaudited)
If the Company had acquired USP and Sherman-Dixie on January 1, 2016, the Companys total net sales and income from continuing operations before taxes, on a pro-forma basis for the six months ended June 30, 2016 would have been approximately $816,453 and $7,184, respectively.
Transaction costs
For the six months ended June 30, 2016, for the period from March 14, 2015 to June 30, 2015, and for the period from January 1, 2015 to March 13, 2015 the Company recognized aggregate transaction costs specific to the Acquisition, Cretex acquisition, U.S. Pipe acquisition, and Sherman Dixie acquisition of $7,582, $10,588, and $2,079, respectively. Transaction costs generally include legal, accounting, valuation, and advisory fees. These costs are recorded in the combined statements of operations within selling, general & administrative expenses.
Roof Tile Divestiture
On April 12, 2016, the Company entered into and closed a Stock Purchase Agreement to sell all of its ownership interest in its roof tile business for an initial purchase price of $10.5 million subject to customary working capital adjustments. The sale of the roof tile business generated a loss of $0.8 million recorded in other income (expense), net.
4. Receivables, net
Receivables consist of the following at June 30, 2016 and December 31, 2015:
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
Trade receivables |
$ | 255,645 | $ | 108,065 | ||||
Amounts billed, but not yet paid under retainage provisions |
1,963 | 2,053 | ||||||
Other receivables |
16,598 | 12,436 | ||||||
|
|
|
|
|||||
Total receivables |
$ | 274,206 | $ | 122,554 | ||||
Less: Allowance for doubtful accounts |
(4,118 | ) | (3,595 | ) | ||||
|
|
|
|
|||||
Receivables, net |
$ | 270,088 | $ | 118,959 | ||||
|
|
|
|
F-15
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
5. Inventories
Inventories consists of the following at June 30, 2016 and December 31, 2015:
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
Finished goods |
$ | 214,137 | $ | 146,635 | ||||
Raw materials |
100,933 | 53,339 | ||||||
Work in process |
7,213 | 10,641 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 322,283 | $ | 210,615 | ||||
|
|
|
|
6. Property, plant and equipment, net
Property, plant and equipment, net consist of the following at June 30, 2016 and December 31, 2015:
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
Machinery and equipment |
$ | 388,648 | $ | 158,349 | ||||
Land, buildings and improvements |
284,381 | 243,496 | ||||||
Other equipment |
3,435 | 1,142 | ||||||
Construction-in-progress |
23,788 | 14,984 | ||||||
|
|
|
|
|||||
Total property, plant and equipment |
700,252 | 417,971 | ||||||
Less: accumulated depreciation |
(51,631 | ) | (29,047 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | 648,621 | $ | 388,924 | ||||
|
|
|
|
Depreciation expense, including depreciation of assets subject to a failed sale-leaseback discussed in Note 10 Financing Obligation (Failed sale-leaseback), totaled $27,349, $9,669, and $6,894, for the six months ended June 30, 2016, for the period March 14, 2015 to June 30, 2015 and for the period from January 1, 2015 to March 13, 2015, respectively, which is included in cost of goods sold and selling, general and administrative expenses in the combined statements of operations.
7. Goodwill and other intangible assets, net
The table below presents goodwill by operating segment as of June 30, 2016:
Successor |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks | Other | Total | |||||||||||||||
Balance at December 31, 2015 |
$ | 73,442 | $ | 2,050 | $ | 45 | $ | | $ | 75,537 | ||||||||||
Sherman-Dixie acquisition |
25,984 | | | | 25,984 | |||||||||||||||
U.S. Pipe acquisition |
| 313,074 | | | 313,074 | |||||||||||||||
Foreign currency |
1,321 | 315 | | | 1,636 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2016 |
$ | 100,747 | $ | 315,439 | $ | 45 | $ | | $ | 416,231 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-16
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Intangible assets other than goodwill at June 30, 2016 and December 31, 2015 included the following:
Weighted
average amortization period (in years) |
Gross carrying
amount as of June 30, 2016 |
Accumulated
amortization |
Net carrying value
as of June 30, 2016 |
|||||||||||||
Customer relationships |
10 | $ | 209,291 | $ | (8,157 | ) | $ | 201,134 | ||||||||
Brand names |
5 | 38,088 | (1,479 | ) | 36,609 | |||||||||||
Patents |
7 | 13,093 | (506 | ) | 12,587 | |||||||||||
Customer backlog |
1 | 9,864 | (6,497 | ) | 3,367 | |||||||||||
Non-competes |
5 | 6,277 | (804 | ) | 5,473 | |||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 276,613 | $ | (17,443 | ) | $ | 259,170 | |||||||||
|
|
|
|
|
|
|||||||||||
Weighted
average amortization period (in years) |
Gross carrying
amount at December 31, 2015 |
Accumulated
amortization |
Net carrying value
as of December 31, 2015 |
|||||||||||||
Customer relationships |
5 | $ | 24,700 | $ | (365 | ) | $ | 24,335 | ||||||||
Customer backlog |
1 | 5,182 | (3,955 | ) | 1,227 | |||||||||||
Brand names |
2 | 600 | (100 | ) | 500 | |||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 30,482 | $ | (4,420 | ) | $ | 26,062 | |||||||||
|
|
|
|
|
|
Amortization expense totaled $13,071, $1,391, and $0, for the six months ended June 30, 2016, for the period March 14, 2015 to June 30, 2015, and for the period from January 1, 2015 to March 13, 2015, respectively, which is included in selling, general and administrative expenses in the combined statements of operations.
8. Fair value measurement
The Companys financial instruments consist primarily of cash and cash equivalents, trade and other receivables, derivative instruments, accounts payable, long-term debt and accrued liabilities. The carrying value of the Companys trade receivables, trade payables, the asset based revolver and accrued liabilities approximates fair value due to their short-term maturity. The Company may adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired.
F-17
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The estimated carrying amount and fair value of the Companys financial instruments and other assets and liabilities measured and recorded at fair value on a recurring basis is as follows for the dates indicated:
Liabilities and assets classified as level 2 which are recorded at fair value are valued using observable market inputs. The fair values of derivative assets and liabilities are determined using quantitative models that utilize multiple market inputs including interest rates and exchange rates to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Company incorporates within its fair value measurements a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparties, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Companys own credit risk.
F-18
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The estimated carrying amount and fair value of the Companys financial instruments and liabilities for which fair value is only disclosed is as follows:
Successor | Fair value measurements at June 30, 2016 using | |||||||||||||||||||
Carrying
Amount June 30, 2016 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total Fair
Value June 30, 2016 |
||||||||||||||||
Non-current liabilities |
||||||||||||||||||||
Senior Term Loan |
$ | 1,001,700 | | $ | 1,008,533 | | $ | 1,008,533 | ||||||||||||
Junior Term Loan |
238,077 | | 252,525 | | 252,525 | |||||||||||||||
Financing obligation |
210,934 | | 217,404 | | 217,404 | |||||||||||||||
Successor | Fair value measurements at December 31, 2015 using | |||||||||||||||||||
Carrying
Amount December 31, 2015 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total Fair
Value December 31, 2015 |
||||||||||||||||
Non-current liabilities |
||||||||||||||||||||
Senior Term Loan |
$ | 469,383 | $ | | $ | 470,543 | $ | | $ | 470,543 | ||||||||||
Junior Term Loan |
236,446 | | 259,675 | | 259,675 |
The fair value of debt is the estimated amount LSF9 would have to pay to transfer its debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at the balance sheet date. Fair values are supported by observable market transactions when available.
9. Debt and deferred financing costs
The Companys debt consisted of the following:
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
Senior Term Loan Credit Agreement
|
$ | 1,001,700 | $ | 469,383 | ||||
Junior Term Loan Credit Agreement
|
238,077 | 236,446 | ||||||
Financing obligation, net of $6,470 of deferred transaction costs (see
|
210,934 | | ||||||
|
|
|
|
|||||
Total debt |
1,450,711 | 705,829 | ||||||
Less: current portion debt |
| (2,191 | ) | |||||
|
|
|
|
|||||
Total long-term debt |
$ | 1,450,711 | $ | 703,638 | ||||
|
|
|
|
F-19
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
In connection with the financing of the Acquisition LSF9 entered into a Senior Term Loan Credit Agreement for borrowings of $635.0 million, a Junior Term Loan Credit Agreement for borrowings of $260.0 million, and drew $45.0 million under a $150.0 million revolving credit facility (the Revolver). Approximately $515.5 million is the obligation of Forterra as a joint and several obligation under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements . See also Note 1, Basis of Presentation-Successor.
In connection with the Cretex acquisition Forterra issued additional Senior term notes of $240.0 million. In conjunction with the issuance of this debt, LSF9 incurred $71.6 million of debt issuance costs and debt discounts; of which $51.9 million is attributed to the Company debt obligation. The credit agreements are secured by substantially all of the assets of the Company.
In April 2016, LSF9 borrowed $205.0 million on the Revolver in order to finance the acquisition of U.S. Pipe of which $203.4 million was repaid during April 2016 with proceeds from an affiliated entity controlled by LSF9 but not included among the legal entities that comprise the Company. In connection with the additional proceeds obtained in April 2016 which benefited the Company, under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements, the Company assumed an additional obligation of $203.4 million that was recognized as an increase to the Companys allocated share of LSF9s outstanding Senior Term Loan balance with an associated increase in debt issuance fees and discount related to the Senior Term Loan of $8.9 million. The affiliated entity was subsequently released as a co-obligor and its joint and several liability under terms of all of the 3rd party credit agreements.
On June 17, 2016, LSF9 borrowed an incremental $345.0 million on the Senior Term Loan and used the proceeds to pay a dividend of $338.3 million, net of debt issuance costs, to the shareholders of LSF9. The dividend was recorded as a return of contributed capital. LSF9 incurred debt issuance fees and discount of $6.7 million in connection with the issuance of the debt. The incremental borrowings incur interest at the same rate as the Senior Term Loan and matures in March 2022. Under ASC 405-40 Obligations Resulting from Joint and Several Liability Arrangements, the Company recognized the full amount of the incremental borrowing, net of related issuance costs and discount, as an obligation in the combined balance sheet.
The interest rate for both the Senior Term Loan and Junior Term Loan is set at LIBOR (with a 1% floor) plus a margin of 5.50% and 9.50%, respectively. The Senior Term Loan Agreement has a weighted average effective interest rate of 7.1% for the period ended June 30, 2016 and matures March 2022. The effective interest rate of the Junior Term Loan Credit Agreement was 11.7% for the period, and the debt matures March 2023. The effective interest rate includes the effects of deferred financing fees and original issue discount and premium amortization calculated using the effective interest method.
At June 30, 2016, the Companys Revolver, which matures in March 2020, had total borrowing capacity of $285.0 million, with no amount outstanding. The Company incurred debt issuance costs of $3.8 million related to the Revolver. The available credit under the Revolver is limited by a borrowing base which includes a portion of the Companys current assets. Interest is floating, based on a reference rate plus an applicable margin. The weighted average annual interest rate on the Revolver was 2.03% for the six months ended June 30, 2016. In addition, Forterra pays a facility fee of between 25.0 and 37.5 basis points per annum based upon the utilization of the total Revolver facility. Availability under the Revolver at June 30, 2016 based on draws, and outstanding letters of credit and allowable borrowing base was $262.4 million.
F-20
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The Company incurred $33.8 million of cash interest expense for the six months ended June 30, 2016, of which $6.9 million was paid by affiliates of the Company.
As of June 30, 2016, minimum future principal payments on long-term debt are as follows:
Total | Senior Term | Junior Term | Revolver |
Financing
Obligation |
||||||||||||||||
2016 |
$ | | $ | | $ | | $ | | | |||||||||||
2017 |
| | | | | |||||||||||||||
2018 |
| | | | | |||||||||||||||
2019 |
| | | | | |||||||||||||||
2020 |
| | | | | |||||||||||||||
Thereafter: |
1,513,125 | 1,035,721 | 260,000 | | 217,404 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 1,513,125 | $ | 1,035,721 | $ | 260,000 | $ | | $ | 217,404 | |||||||||||
|
|
|
|
|
|
|
|
|
|
Covenants, Events of Default and Provisions
Under the terms of credit agreements above, LSF9 is required to comply with certain customary covenants, including among others, the limitation of indebtedness, limitations on liens, and limitations on certain cash distributions. The Revolver imposes only financial covenant, which requires LSF9 to maintain a fixed charge coverage ratio of no less than 1.00 to 1.00. The fixed charge coverage ratio is the ratio of consolidated earnings before interest, depreciation, and amortization (EBITDA) less cash payments for capital expenditures and income taxes to consolidated fixed charges (interest expense plus scheduled payments of principal on indebtedness). As of June 30, 2016, LSF9 was in compliance with the debt covenants contained in its credit facilities.
Lines of Credit and Other Debt Facilities
The Company had stand-by letters of credit outstanding of $22.6 million as of June 30, 2016 which reduce the borrowings available under the credit facilities.
Joint and several obligations
As discussed above, the Company has recorded debt on its combined balance sheet under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements. The Company and the affiliates of LSF9 were co-obligors and jointly and severally liable under terms of the LSF9s credit agreements. The Companys allocated portion of the $940.0 million of third party debt used to finance the Acquisition is $515.5 million. The initial obligation of $515.5 million was reflected on the Companys combined balance sheet at the Acquisition date as $254.9 million of Senior Term Loan, $260 million of Junior Term Loan and $0.6 million of Revolver obligations. The remaining $424.5 million of the debt was allocated to affiliates of LSF9 that are not included in these financial statements based on the amounts affiliates of LSF9 were expected to repay and such amount has been fully repaid by affiliates. In April 2016, the Companys affiliate co-obligors were released from joint and several liability under the LSF9 credit agreements. The Company is consequently the sole source of repayment for its $515.5 million share for the initial obligation under the credit agreements, as well as other obligations recorded on the balance sheet. In addition to the initial debt obligation of $515.5 million recorded by the company, during October 2015, additional LSF9 Senior Term Loan borrowings of $240 million to finance the Cretex acquisition were allocated in full to the Company.
F-21
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
In April 2016, LSF9 borrowed an additional $205 million on the Revolver to finance the USP acquisition. On April 26, 2016, affiliates of the Company under control of LSF9 but not included in Forterra repaid $203.4 million of the Revolver balance that was drawn in April 2016 and $176.7 million of the Senior Term Loan, after which the other affiliates were released as obligors to the loan and the Company became the sole source of repayment under the LSF9 debt agreement. The Company has reflected the increased obligation as an increase in the Senior Term Loan in order to reflect the change in our obligation as a result of the additional borrowings of LSF9. A proportionate amount of debt issuance costs and discount related to the increased obligation under the Senior Term Loan has also been allocated to the Company at the time of the increased obligation. Additionally in June 2016, LSF9 incurred an additional $345 million of Senior Term Loan debt used to pay a dividend of $338.3 million (recorded as a return of contributed capital) to Lone Star, which was attributed to the Company as an additional obligation under the Senior Term Loan. The amounts recorded in the combined balance sheets represent the portion of LSF9s outstanding obligation at that balance sheet date the Company was expected to repay. There are no other repayments that will be made by affiliates other than those mentioned above. As of June 30, 2016, the Company has recorded all debt held by LSF9 on its combined balance sheet as of June 30, 2016. The obligations are secured by substantially all of the assets of the Company.
10. Financing Obligation (Failed sale-leaseback)
On April 5, 2016, the Company sold properties in 47 sites throughout the U.S. and Canada to Pipe Portfolio Owner (Multi) LP and Fort-Ben Holdings (ONQC) Ltd. (collectively the Buyer) for an aggregate purchase price of approximately $204.3 million. On April 14, 2016, the Company sold additional properties in two sites located in the U.S. to Pipe Portfolio Owner (Multi) LP for an aggregate purchase price of approximately $11.9 million. In connection with these transactions, the Company and Buyer entered into master land and building lease agreements under which the Company agreed to lease back each of the properties for an initial term of twenty years, followed by one optional renewal terms of 9 years 11 months. Leaseback rental will escalate annually by 2% during the initial term and based on changes in the Consumer Price Index capped at 4% during the optional renewal period. The proceeds received from the sale leaseback transactions net of transaction costs of $6.5 million amounted to $209.7 million.
The sale-leaseback transactions are considered to have one form of prohibited continuing involvement at the inception of the lease which preclude sale-leaseback accounting for transactions involving real estate in the combined financial statements of the Company because a guarantee by LSF9 provides the buyer-lessor with additional collateral that reduces the buyer-lessors risk of loss. As a result, the assets subject to the sale-leaseback will remain on the balance sheet of the Company and continue to be depreciated. For the six months ended June 30, 2016, the Company recognized $1.3 million of depreciation expense on assets sold under the financing obligation recorded on our combined balance sheet. The aggregate proceeds are recorded as a financing obligation in the combined balance sheet.
The Company has recorded a financing obligation of $210.9 million, net of $6.5 million of deferred transaction costs, in the combined balance sheet at June 30, 2016. During the six months ended June 30, 2016 the Company recognized $4.0 million of interest expense related to payments made under the financing obligation.
F-22
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The table below shows the minimum lease payments under the failed sale-leasebacks for the years ended:
Total | ||||
2016 |
$ | 8,674 | ||
2017 |
17,695 | |||
2018 |
18,049 | |||
2019 |
18,410 | |||
2020 |
18,779 | |||
Thereafter: |
590,558 | |||
|
|
|||
$ | 672,165 | |||
|
|
11. Accrued liabilities
Accrued liabilities consist of the following at June 30, 2016 and December 31, 2015:
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
Accrued payroll and employee benefits |
$ | 28,055 | $ | 24,690 | ||||
Accrued taxes |
21,986 | 17,073 | ||||||
Accrued rebates |
13,215 | 8,021 | ||||||
Environmental & reclamation obligation |
1,953 | 903 | ||||||
Warranty |
1,692 | 2,429 | ||||||
Other miscellaneous accrued liabilities |
6,458 | 2,512 | ||||||
|
|
|
|
|||||
$ | 73,359 | $ | 55,628 | |||||
|
|
|
|
12. Derivatives and hedging
The Company uses derivatives to manage selected foreign exchange and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes, and cash flows from derivative instruments are included in net cash provided by (used in) financing activities in the combined statements of cash flows.
In May of 2015, the Company entered into the following derivative instruments: fixed-for-fixed cross currency swaps and fixed-for-float cross currency swaps. The fixed-for-float cross currency swaps are designated as cash flow hedges in accordance with ASC 815-20, Derivatives - Hedging, with the effective portion of the changes in the fair value of the derivatives recorded to accumulated other comprehensive income, and any ineffective portion reflected directly in earnings as other operating expense in the combined statements of operations. The fixed-for-fixed cross currency swaps are not designated as hedge instruments; therefore changes in fair value are recognized immediately in earnings as other operating expenses in the combined statements of operations. The fixed-for-fixed cross currency swaps entered into in May 2015 were accelerated in March 2016 for proceeds of $6.6 million. Proceeds from the settlement of the currency swaps were used to make payments on the outstanding balance on the Revolver. The Company entered into new fixed-for-fixed cross currency swaps after the settlement. These fixed-for-fixed cross currency swaps were not designated as hedge instruments and changes in fair value were recognized in earnings as other operating expenses.
F-23
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
A quantitative analysis is utilized to assess hedge effectiveness for cash flow hedges. The Company assesses the hedge effectiveness and measures the amount of ineffectiveness for the hedge relationships based on changes in spot exchange rates. For the six months ended June 30, 2016, the Company recognized a foreign exchange loss of $4.5 million in other operating income in the combined statement of operations, including a loss on settlement of $1.5 million, and $1.4 million included in other comprehensive loss related to cash flow hedges.
The Company has elected to present all derivative assets and derivative liabilities, on a net basis on its combined balance sheets when a legally enforceable International Swaps and Derivatives Association, Inc. (ISDA) Master Agreement exists. An ISDA Master Agreement is an agreement between two counterparties, which may have multiple derivative transactions with each other governed by such agreement, and such ISDA Master Agreement generally provides for the net settlement of all or a specified group of these derivative transactions, through a single payment, in a single currency, in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions. At June 30, 2016 and December 31, 2015, the Companys derivative instruments fall under an ISDA master netting agreement.
The following table presents the fair values of derivative assets and liabilities in the combined successor balance sheets:
Successor | ||||||||||||||||
June 30, 2016 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Notional
Amount |
Fair Value |
Notional
Amount |
Fair Value | |||||||||||||
Fixed-for-fixed cross currency swap |
$ | | $ | | $ | 79,531 | $ | (2,937 | ) | |||||||
Fixed-for-float cross currency swap |
81,991 | 62 | | | ||||||||||||
|
|
|
|
|||||||||||||
Total derivatives, gross |
62 | (2,937 | ) | |||||||||||||
Less: Legally enforceable master netting agreements |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Total derivatives, net |
$ | 62 | $ | (2,937 | ) | |||||||||||
|
|
|
|
|||||||||||||
Successor | ||||||||||||||||
December 31, 2015 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Notional
Amount |
Fair Value |
Notional
Amount |
Fair Value | |||||||||||||
Fixed-for-fixed cross currency swap |
$ | 79,531 | $ | 7,667 | $ | | $ | | ||||||||
Fixed-for-float cross currency swap |
81,991 | 1,426 | | | ||||||||||||
|
|
|
|
|||||||||||||
Total derivatives, gross |
9,093 | | | |||||||||||||
Less: Legally enforceable master netting agreements |
| | ||||||||||||||
|
|
|
|
|||||||||||||
Total derivatives, net |
$ | 9,093 | $ | | ||||||||||||
|
|
|
|
F-24
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The following table presents the gain (loss) recognized in the statements of operations and comprehensive income on derivative instruments in cash flow hedging relationships. Losses on hedge instruments were recorded in other operating income in the combined statements of operations:
Successor | Predecessor | |||||||
Six months
ended, 2016 |
For the
period from March 14 to June 30, 2015 |
|||||||
Cash flow hedges |
||||||||
Cross currency swaps |
||||||||
Loss on derivatives recognized in Accumulated other comprehensive loss |
$ | (1,427 | ) | $ | 412 | |||
Loss on derivatives not designated as hedges |
(2,874 | ) | (1,124 | ) |
13. Commitments and contingencies
The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Companys combined financial position, results of operations, or liquidity. Other than routine litigation incidental to the Company business, there are no material legal proceedings to which the Company is a party or to which any of the Companys properties are subject.
In connection with the Earn-out contingency described in Note 3, the Acquisition included contingent consideration of up to $100.0 million if and to the extent the 2015 financial results of the businesses acquired by Lone Star in the Acquisition, including the Company and Forterra UK, exceeded a specified Adjusted EBITDA target for fiscal year 2015, as calculated pursuant to the terms of the purchase agreement. If such Adjusted EBITDA calculation exceeds the specified target, LSF9, and therefore, Forterra would be required to pay HC an amount equal to a multiple of such excess Adjusted EBITDA, with any payment capped at $100.0 million. In April 2016, the Company provided an earn-out statement to HC demonstrating that no payment was required. On June 13, 2016, HC provided notification that it is disputing, among other things, the Companys calculation of Adjusted EBITDA under the purchase agreement and asserting that a payment should be made in the amount of $100.0 million. The Company does not believe HCs position has merit and intends to vigorously oppose HCs assertions. As of June 30, 2016, no liability for this contingency has been accrued as payment of any earn-out is not considered probable. However, the outcome of this matter is uncertain, and no assurance can be given to the ultimate outcome of the resulting proceedings. If LSF9 is unsuccessful in resolving the dispute, the Company could recognize a material charge to its earnings.
Long-term incentive plan
Following the Acquisition the Company implemented a cash-based long term incentive plan (the LTIP), which entitles the participants in the LTIP a potential cash payout upon a monetization event as defined by the LTIP. Potential monetization events include the sale of the Company, an initial public offering where Lone Star reduces its ownership interest in the Company below 50% or at Lone Stars discretion, or through certain cash distribution as defined in the LTIP. Before the payout of any cash the LTIP requires Lone Star receive a return of their investment plus a specified internal rate of return, which is calculated by comparing the return to Lone Star over the timeline of the investment in the
F-25
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Company. As of June 30, 2016, no such monetization events had occurred, and therefore no amounts were accrued in the accompanying combined balance sheets as of June 30, 2016 and December 31, 2015. The Company is contemplating an initial public offering as early as the third quarter of 2016, but the initial public offering is not expected to reach the required return on investment to trigger a payout under the LTIP.
14. Related party transactions
Successor
Hudson Advisors
The Company has an advisory agreement with Hudson Advisors, 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 incurred fees totaling $3.1 million and $3.2 million for the six months ended June 30, 2016 and for the period from March 14 to June 30, 2015, respectively, included in Selling, general and administrative expense on the combined Successor statement of operations.
Affiliates receivable
The Company pays for certain services provided for affiliates which the Company bills to its affiliates. At June 30, 2016, the Company recorded a receivable of $0.5 million for services paid on behalf of affiliates in other current assets on the Combined Balance Sheet.
Predecessor
Parent company net investment
During the Predecessor period the combined financial statements for the Company are based on the accounting records of HC. Within these records, each subsidiary of BP NAM has its own equity accounts in the books and records, as well as intercompany balances due (to)/from affiliates and operations within HC. These intercompany balances are considered by HC as part of the capital structure of these entities and are not regularly settled in cash with the affiliate counterparties. Therefore, these intercompany balances act as clearing accounts between the parties and consist of the accumulated net transactions between the Company and other entities and operations of HC and may include both operating items (allocated expenses and purchases of services and materials) and equity items (transfers of assets, cash and dividends). The Company has recorded all such equity and intercompany balances in a single caption, Parent company net investment.
Allocated expenses
The Predecessor was allocated selling, general and administrative expenses from the Parent for certain shared services of $4,112, for the period from January 1, 2015 to March 13, 2015. The allocated costs are included in costs of goods sold or selling, general and administrative expenses in the combined statements of operations. The historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by HC or its wholly-owned subsidiaries. Substantially all of the Companys senior management is employed by HC and certain functions critical to the Companys operations are centralized and managed by HC. Historically, the centralized functions have included executive senior management, financial reporting,
F-26
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
financial planning and analysis, accounting, shared services, information technology, tax, risk management, treasury, legal, human resources, land management and strategy and development. Additionally, the Company temporarily rented office space provided by affiliates of HC. The cost of each of these services has been allocated to the Company on the basis of the Companys relative net sales or head count as compared to that of HC depending upon which allocation methodology is more meaningful for each service. The Company and HC believe that these allocations reasonably reflect the utilization of services provided and benefits received. However, these amounts are not necessarily representative of the amounts that would have been incurred by the Company as a standalone entity.
15. Segment reporting
Segment information is presented in accordance with ASC 280, Segment Reporting (ASC 280), which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Companys chief operating decision maker in order to allocate resources and assess performance. The Corporate and Other segment includes expenses related to certain executive salaries, interest costs related to long-term debt, acquisition related costs, and other corporate costs that are not directly attributable to our operating segments.
Net sales from the major products sold to external customers include drainage pipe and precast products, concrete and steel water transmission pipe, and clay bricks and concrete blocks.
The Companys two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets. For purposes of evaluating segment profit, the CODM reviews earnings before interest, taxes, depreciation and amortization (EBITDA) as a basis for making the decisions to allocate resources and assess performance.
F-27
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The following tables set forth reportable segment information with respect to net sales and other financial information attributable to our reportable segments for the periods from January 1, 2016 to June 30, 2016, for the period from March 14, 2015 to June 30, 2015, for the period from January 1, 2015 to March 13, 2015:
Successor
For the six months ended June 30, 2016: |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | |||||||||||||||
Net Sales |
$ | 336,549 | $ | 229,641 | $ | 71,424 | $ | 2,528 | $ | 640,142 | ||||||||||
Income (loss) before income taxes |
52,211 | 19,343 | 3,276 | (78,610 | ) | (3,780 | ) | |||||||||||||
Depreciation and amortization |
19,551 | 16,502 | 3,992 | 375 | 40,420 | |||||||||||||||
Interest expense |
3,272 | 772 | | 38,085 | 42,129 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 75,034 | $ | 36,617 | $ | 7,268 | $ | (40,150 | ) | $ | 78,769 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 6,270 | $ | 3,403 | $ | 4,708 | 624 | $ | 15,005 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets at June 30, 2016 |
$ | 724,744 | $ | 1,122,392 | $ | 161,143 | $ | 25,831 | $ | 2,034,110 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the period from March 14 to June 30, 2015: |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | |||||||||||||||
Net Sales |
$ | 141,031 | $ | 61,888 | $ | 45,613 | $ | 2,783 | $ | 251,315 | ||||||||||
Income (loss) before income taxes |
14,460 | 3,767 | (3,779 | ) | (47,586 | ) | (33,138 | ) | ||||||||||||
Depreciation and amortization |
5,094 | 2,938 | 2,821 | 207 | 11,060 | |||||||||||||||
Interest (income)/expense |
| | | 15,551 | 15,551 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 19,554 | $ | 6,705 | $ | (958 | ) | $ | (31,828 | ) | $ | (6,527 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 2,849 | $ | 2,204 | $ | 1,993 | $ | | $ | 7,046 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets at December 31, 2015 |
$ | 626,477 | $ | 136,909 | $ | 147,699 | $ | 27,790 | $ | 938,875 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Predecessor
|
||||||||||||||||||||
For the period from January 1 to March 13, 2015: |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate and
Other |
Total | |||||||||||||||
Net Sales |
$ | 79,341 | $ | 30,464 | $ | 19,922 | $ | 2,893 | 132,620 | |||||||||||
Income (loss) before income taxes |
8,839 | (3,192 | ) | (4,000 | ) | (8,145 | ) | (6,498 | ) | |||||||||||
Depreciation and amortization |
3,231 | 1,030 | 2,505 | 128 | 6,894 | |||||||||||||||
Interest (income)/expense |
| | 18 | 66 | 84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 12,070 | $ | (2,162 | ) | $ | (1,477 | ) | $ | (7,951 | ) | $ | 480 | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 621 | $ | 1,851 | $ | 272 | $ | | $ | 2,744 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-28
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The Company is also required by ASC 280 to disclose additional information related to geographic location. The Company has operations in the United States and Canada. The Company has both revenues and long-lived assets in each country and those assets and revenues are recorded within geographic location as follows:
Property, plant and equipment, net | ||||||||
Successor | Successor | |||||||
June 30,
2016 |
December 31,
2015 |
|||||||
United States |
$ | 561,668 | $ | 305,843 | ||||
Canada |
86,953 | 83,081 | ||||||
|
|
|
|
|||||
$ | 648,621 | $ | 388,924 | |||||
|
|
|
|
Net Sales | Successor | Predecessor | ||||||||||
Six months
ended June 30, 2016 |
For the period
from March 14 to June 30, 2015 |
For the period
from January 1 to March 13, 2015 |
||||||||||
United States |
$ | 568,394 | $ | 208,150 | $ | 112,299 | ||||||
Canada |
71,748 | 43,165 | 20,321 | |||||||||
|
|
|
|
|
|
|||||||
$ | 640,142 | $ | 251,315 | $ | 132,620 | |||||||
|
|
|
|
|
|
16. Income Taxes
The Company recorded income tax benefits (expense) of $36,553, $(1,579) and $742 for the six months ended June 30, 2016, for the period from March 14, 2015 to June 30, 2015 and for the period from January 1, 2015 to March 13, 2015, respectively. The income tax benefit for the six months ended June 30, 2016 is primarily attributable to the reduction of the Companys valuation allowance and corresponding recognition of a deferred tax benefit after giving consideration to deferred income tax liabilities of $34.9 million recorded in the acquisition of Sherman-Dixie and USP. The income tax expense for the period from March 13, 2015 to June 30, 2015 is primarily attributable to the profitability of foreign operations.
17. Employee benefit plans
Defined Contribution Plans - Successor
Subsequent to the Acquisition, the Companys employees were able to participate in a 401K defined contribution plan. The Company contributes funds into this plan subject to certain limits. For the six months ended June 30, 2016, the Company recorded an expense of $6,330 for these contributions. From January 1 through March 13, 2015 and for the period from March 14, 2015 to June 30, 2016, the Company recorded an expense of $1,724 for the Predecessors participation in a similar plan sponsored by HC and $3,474 for the Successors plan.
Defined Benefit Pension Plans and Other Post-Retirement Benefits - Predecessor
Employees of the Predecessor participated in defined benefit plans as described below that were both sponsored by the Predecessor and sponsored by others. The combined Predecessor financial statements have been prepared on a historical basis reflecting the applicable liabilities and financial
F-29
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
statement disclosures related to the defined benefit plans participated in under HC. The defined benefit obligations and disclosures do not necessarily reflect the costs the Predecessor would have incurred as a stand-alone entity. The related pension and post-retirement benefit liabilities were previously allocated to the Predecessor but were retained by HC subsequent to the Acquisition of the Company.
Canadian employee benefit plans
The Canadian companies within the Predecessor sponsored several qualified and nonqualified pension plans and other postretirement benefit plans (OPEB) for substantially all of their employees. Such plans are defined benefit plans. The benefits provided under these plans are based primarily on years of credited service and final average pensionable pay as defined under the respective plan provisions. The obligations associated with these benefit plans were not retained by the Successor. The detail of the net period cost for the defined benefit plans for the period from January 1, 2015 to March 13, 2015 is shown below.
Pension and Other
Postretirement Benefits (Predecessor) |
||||
For the period from
January 1 to March 13, 2015 |
||||
Service cost |
$ | 676 | ||
Interest cost |
(3 | ) | ||
|
|
|||
Net Expense |
$ | 673 | ||
|
|
18. Investment in equity method investee
The Companys 50% investment in a joint venture that produces concrete pipe and precast concrete is $56,656 at June 30, 2016, which is included within the Drainage Pipe & Products segment. Selected historical financial data for the investee is as follows (unaudited):
Six months ended
June 30, 2016 |
||||
Net sales |
$ | 63,004 | ||
Gross profit |
18,014 | |||
Income from operations |
10,097 | |||
Net income |
10,211 |
19. Subsequent events
On August 4, 2016 the Company purchased all of the outstanding stock of Bio Clean Environmental Services, Inc. and Modular Wetland Systems, Inc. (together Modular Wetlands), California corporations which design, manufacture, distribute and sell of storm water products to end customers, for cash consideration of $30.0 million subject to customary net working capital and purchase price adjustments. Modular Wetlands will operate as part of the Companys Water Pipe & Products reportable segment.
F-30
Combined Financial Statements
As of December 31, 2015 (Successor) and 2014 (Predecessor) and for the period from March 14, 2015 to December 31, 2015 (Successor), for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013 (Predecessor)
F-31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Management
LSF9 Concrete Holdings, Ltd.
We have audited the accompanying combined balance sheets of Forterra Building Products (the Successor) as of December 31, 2015, and the related combined statements of operations, comprehensive loss, shareholders equity and cash flows for the period from March 14, 2015 to December 31, 2015. We have also audited the accompanying combined balance sheets of the North American building products operations of HeidelbergCement A.G. (the Predecessor) as of December 31, 2014 and the related combined statements of operations, comprehensive loss, parent company net investment and cash flows for the period from January 1, 2015 to March 13, 2015 and for each of the two years in the period ended December 31, 2014. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Forterra Building Products at December 31, 2015, and the combined results of its operations and its cash flows for the period from March 14, 2015 to December 31, 2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Predecessor financial statements referred to above present fairly in all material respects, the combined financial position of the Predecessor at December 31, 2014 and the combined results of its operations and cash flows for the period from January 1, 2015 to March 13, 2015 and each of the two years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
July 8, 2016
F-32
Combined Statements of Operations
(In $US thousands)
Successor | Predecessor | |||||||||||||||
For the period
from March 14 to December 31, |
For the period
from January 1 to March 13, |
Years ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
Net sales |
$ | 722,664 | $ | 132,620 | $ | 736,963 | $ | 697,948 | ||||||||
Cost of goods sold |
626,498 | 117,831 | 631,454 | 611,660 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
96,166 | 14,789 | 105,509 | 86,288 | ||||||||||||
Selling, general & administrative expenses |
(134,971 | ) | (21,683 | ) | (102,107 | ) | (87,393 | ) | ||||||||
Impairment and restructuring charges |
(1,185 | ) | (542 | ) | (4,219 | ) | (250,577 | ) | ||||||||
Earnings from equity method investee |
8,429 | 67 | 4,451 | (216 | ) | |||||||||||
Gain (loss) on sale of property, plant and equipment and business, net |
(618 | ) | 122 | 2,329 | 3,998 | |||||||||||
Other operating income |
1,450 | 872 | 4,636 | 5,234 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(126,895 | ) | (21,164 | ) | (94,910 | ) | (328,954 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations |
(30,729 | ) | (6,375 | ) | 10,599 | (242,666 | ) | |||||||||
Other income (expenses) |
||||||||||||||||
Interest expense |
(45,953 | ) | (84 | ) | | | ||||||||||
Other income (expense), net |
(326 | ) | (39 | ) | (594 | ) | 947 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
(77,008 | ) | (6,498 | ) | 10,005 | (241,719 | ) | |||||||||
Income tax (expense) benefit |
(5,778 | ) | 742 | (2,417 | ) | (2,561 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations |
(82,786 | ) | (5,756 | ) | 7,588 | (244,280 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Discontinued operations |
||||||||||||||||
Income (loss) from discontinued operations (including gain (loss) on disposal of $0, and $174, respectively) |
| | 1,976 | (3,018 | ) | |||||||||||
Income tax benefit (expense) from discontinued operations |
| | (716 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gain (loss) on discontinued operations, net of income tax |
| | 1,260 | (3,018 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | (82,786 | ) | $ | (5,756 | ) | $ | 8,848 | $ | (247,298 | ) | |||||
|
|
|
|
|
|
|
|
See accompanying notes to the combined financial statements
F-33
Combined Statements of Comprehensive Loss
(USD in thousands)
Successor | Predecessor | |||||||||||||||
For the period
from March 14 to December 31, |
For the period
from January 1 to March 13, |
For the year ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
Net income (loss) |
$ | (82,786 | ) | $ | (5,756 | ) | $ | 8,848 | $ | (247,298 | ) | |||||
Gains on derivative transactions, net of tax |
1,549 | | | | ||||||||||||
Actuarial gains on defined benefit plans, net of tax |
| 2,645 | (2,032 | ) | 4,118 | |||||||||||
Foreign currency translation adjustment |
(6,317 | ) | (19,751 | ) | (20,127 | ) | (16,717 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
$ | (87,554 | ) | $ | (22,862 | ) | $ | (13,311 | ) | $ | (259,897 | ) | ||||
|
|
|
|
|
|
|
|
See accompanying notes to the combined financial statements
F-34
(USD in thousands)
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 43,590 | $ | 42 | ||||
Receivables, net |
118,959 | 109,049 | ||||||
Inventories |
210,615 | 190,496 | ||||||
Other current assets |
2,844 | 652 | ||||||
|
|
|
|
|||||
Total current assets |
376,008 | 300,239 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Property, plant and equipment, net |
388,924 | 414,073 | ||||||
Goodwill |
75,537 | 83,674 | ||||||
Other intangible assets, net |
26,062 | | ||||||
Investment in equity method investee |
56,289 | 47,452 | ||||||
Deferred tax asset |
3,087 | | ||||||
Derivative assets |
9,093 | | ||||||
Other long term assets |
3,875 | 730 | ||||||
|
|
|
|
|||||
Total assets |
$ | 938,875 | $ | 846,168 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities |
||||||||
Trade payables |
$ | 96,486 | $ | 73,508 | ||||
Accrued liabilities |
55,628 | 50,412 | ||||||
Deferred revenue |
19,498 | 11,935 | ||||||
Current portion of long term debt |
2,191 | | ||||||
Employee benefit obligations |
| 309 | ||||||
Capital lease liability |
| 19 | ||||||
|
|
|
|
|||||
Total current liabilities |
173,803 | 136,183 | ||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Employee benefit obligations |
| 13,012 | ||||||
Deferred tax liability |
2,365 | 7,115 | ||||||
Senior Term Loan |
467,192 | | ||||||
Junior Term Loan |
236,446 | | ||||||
Other long term liabilities |
6,754 | 32,385 | ||||||
|
|
|
|
|||||
Total liabilities |
886,560 | 188,695 | ||||||
Commitments and Contingencies (Note 14) |
||||||||
Equity |
||||||||
Accumulated other comprehensive loss |
| (21,189 | ) | |||||
Accumulated net contributions from parent |
| 678,662 | ||||||
|
|
|
|
|||||
Total parent company net investment |
| 657,473 | ||||||
|
|
|
|
|||||
Contributed capital |
139,869 | | ||||||
Accumulated other comprehensive loss |
(4,768 | ) | | |||||
Retained deficit |
(82,786 | ) | | |||||
|
|
|
|
|||||
Total shareholders equity |
52,315 | | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 938,875 | $ | 846,168 | ||||
|
|
|
|
See accompanying notes to the combined financial statements
F-35
Combined Statements of Shareholders Equity and Parent Company Net Investment
(USD in thousands)
Predecessor |
Accumulated
Net Contributions from Parent |
Accumulated
Other Comprehensive Income (Loss) |
Total Parent
Company Net Investment |
|||||||||
Balance at January 1, 2013 |
$ | 1,004,636 | $ | 13,569 | $ | 1,018,205 | ||||||
Net loss |
(247,298 | ) | | (247,298 | ) | |||||||
Actuarial gains (losses) on defined benefit plans, net of tax |
| 4,118 | 4,118 | |||||||||
Foreign currency translation adjustment |
| (16,717 | ) | (16,717 | ) | |||||||
Net transfers (to)/from Parent |
(31,448 | ) | | (31,448 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
725,890 | 970 | 726,860 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
8,848 | | 8,848 | |||||||||
Actuarial gains (losses) on defined benefit plans, net of tax |
| (2,032 | ) | (2,032 | ) | |||||||
Foreign currency translation adjustment |
| (20,127 | ) | (20,127 | ) | |||||||
Net transfers (to)/from Parent |
(56,076 | ) | | (56,076 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
678,662 | (21,189 | ) | 657,473 | ||||||||
|
|
|
|
|
|
|||||||
Net loss |
(5,756 | ) | | (5,756 | ) | |||||||
Actuarial gains (losses) on defined benefit plans, net of tax |
| 2,645 | 2,645 | |||||||||
Foreign currency translation adjustment |
| (19,751 | ) | (19,751 | ) | |||||||
Net transfers (to)/from Parent |
60,910 | | 60,910 | |||||||||
|
|
|
|
|
|
|||||||
Balance at March 13, 2015 |
$ | 733,816 | $ | (38,295 | ) | $ | 695,521 | |||||
|
|
|
|
|
|
Successor |
Contributed
Capital |
Accumulated
Other Comprehensive Income (Loss) |
Retained
Deficit |
Total
Shareholders Equity |
||||||||||||
Balance at March 14, 2015 |
$ | | $ | | $ | | $ | | ||||||||
Initial capital contribution from parent |
167,482 | | | 167,482 | ||||||||||||
Return of contributed capital, net |
(27,613 | ) | | | (27,613 | ) | ||||||||||
Net loss |
| | (82,786 | ) | (82,786 | ) | ||||||||||
Gains on derivative transactions, net of tax |
| 1,549 | | 1,549 | ||||||||||||
Foreign currency translation adjustment |
| (6,317 | ) | | (6,317 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2015 |
$ | 139,869 | $ | (4,768 | ) | $ | (82,786 | ) | $ | 52,315 | ||||||
|
|
|
|
|
|
|
|
See accompanying notes to the combined financial statements
F-36
Combined Statements of Cash Flows
(USD in thousands)
Successor | Predecessor | |||||||||||||||
For the period
from March 14 to December 31, |
For the period
from January 1 to March 13, |
For the year ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||||||
Net income (loss) |
$ | (82,786 | ) | $ | (5,756 | ) | $ | 8,848 | $ | (247,298 | ) | |||||
Reconciliation of net income (loss) to net cash provided by operating activities: |
||||||||||||||||
Depreciation & amortization expense |
32,930 | 6,894 | 36,605 | 38,560 | ||||||||||||
Loss (gain) on disposal of property, plant and equipment |
618 | (122 | ) | (2,329 | ) | (3,832 | ) | |||||||||
Amortization of debt discount and issuance costs |
5,085 | | | | ||||||||||||
Impairment on property, plant, and equipment and goodwill |
1,088 | 27 | 3,977 | 248,650 | ||||||||||||
Earnings from equity method investee |
(8,429 | ) | (67 | ) | (4,451 | ) | 216 | |||||||||
Distributions from equity method investee |
8,542 | | 3,000 | | ||||||||||||
Unrealized foreign currency gains, net |
(1,391 | ) | (26 | ) | | | ||||||||||
Provision (recoveries) for doubtful accounts |
1,377 | (31 | ) | (786 | ) | 2,760 | ||||||||||
Deferred taxes |
(3,138 | ) | 2,749 | 618 | (2,671 | ) | ||||||||||
Deferred rent |
1,279 | | | | ||||||||||||
Other non-cash items |
(13 | ) | (1,736 | ) | 717 | 1,372 | ||||||||||
Change in assets and liabilities: |
||||||||||||||||
Receivables, net |
28,900 | (7,520 | ) | (9,473 | ) | 14,762 | ||||||||||
Related party receivables |
| | 617 | (504 | ) | |||||||||||
Inventories |
59,506 | (20,160 | ) | (31,395 | ) | 5,961 | ||||||||||
Other current assets |
(2,153 | ) | (855 | ) | 512 | 1,685 | ||||||||||
Trade payable and accrued liabilities |
72,422 | (20,119 | ) | 12,822 | (7,288 | ) | ||||||||||
Deferred revenue |
7,420 | (1,068 | ) | 5,911 | (20,142 | ) | ||||||||||
Capital lease liability |
| | | (252 | ) | |||||||||||
Employee benefit obligations |
| (498 | ) | 209 | (1,480 | ) | ||||||||||
Other long-term assets & liabilities |
160 | 64 | 516 | 1,187 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
121,417 | (48,224 | ) | 25,918 | 31,686 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||||||
Purchase of property, plant and equipment |
(14,705 | ) | (2,762 | ) | (22,792 | ) | (10,497 | ) | ||||||||
Proceeds from the sale of long-term assets |
2,194 | | 5,891 | 10,442 | ||||||||||||
Distribution of preferred investment from equity method investee |
| | 15,000 | | ||||||||||||
Assets and liabilities acquired, Cretex, net |
(245,100 | ) | | | | |||||||||||
Assets and liabilities acquired from HeidelbergCement, net |
(640,428 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
NET CASH USED IN INVESTING ACTIVITIES |
(898,039 | ) | (2,762 | ) | (1,901 | ) | (55 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||||||
Payments on notes payable |
| | | (153 | ) | |||||||||||
Payments on capital leases |
(17 | ) | (3 | ) | (373 | ) | (35 | ) | ||||||||
Payment of debt issuance costs |
(27,410 | ) | | | | |||||||||||
Proceeds from Senior Term Loan, net of discount |
486,104 | | | | ||||||||||||
Proceeds from Junior Term Loan, net of discount |
244,300 | | | | ||||||||||||
Proceeds from Revolver, net of discount |
45,619 | | | | ||||||||||||
Payments on Revolver |
(45,619 | ) | | | | |||||||||||
Payments on Senior Term Loan |
(5,366 | ) | | | | |||||||||||
Capital contribution from (distributions to) Predecessor Parent, net |
| 60,910 | (23,617 | ) | (31,448 | ) | ||||||||||
Capital contribution from parent |
167,482 | | | | ||||||||||||
Payments for return of contributed capital |
(42,513 | ) | | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
822,580 | 60,907 | (23,990 | ) | (31,636 | ) | ||||||||||
Effect of exchange rate changes on cash |
(2,368 | ) | (130 | ) | 10 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net change in cash and cash equivalents |
43,590 | 9,791 | 37 | (5 | ) | |||||||||||
Cash and cash equivalents balance, beginning of period |
| 42 | 5 | 10 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash and cash equivalents balance, end of period |
$ | 43,590 | $ | 9,833 | $ | 42 | $ | 5 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
SUPPLEMENTAL DISCLOSURES: |
||||||||||||||||
Cash interest paid |
$ | 25,379 | $ | | $ | | $ | | ||||||||
SUPPLEMENTAL NONCASH INVESTING AND FINANCING DISCLOSURES: |
||||||||||||||||
Fair value changes of derivative instruments recorded in OCI, net of tax |
$ | 1,549 | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Payments made on behalf of the Company by affiliates |
$ | 14,900 | $ | | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Transfers of net assets to Parent |
$ | | $ | | $ | 32,459 | $ | | ||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the combined financial statements
F-37
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
1. Organization and description of the business
Description of the business
Forterra Building Products (Forterra or the Successor) is involved in the manufacturing, sale and distribution of building materials in the United States (U.S.) and Canada. Forterras primary products are concrete drainage pipe, precast concrete structures, water transmission pipe used in drinking and wastewater systems, and bricks. These products are used in the residential, infrastructure and non-residential sectors of the construction industry.
Basis of Presentation - Successor
Forterra includes indirect wholly-owned subsidiaries of LSF9 Concrete Holdings, Ltd. (LSF9). Lone Star Funds (Lone Star), through its wholly-owned subsidiary LSF9, acquired Forterra on March 13, 2015 (the Acquisition). LSF9, which was formed on February 6, 2015 for the purpose of acquiring Forterra, had no operations prior to the date of the Acquisition. The legal entities that comprise Forterra are domiciled in the U.S. and Canada. The U.S. legal entities are Stardust Holdings (USA), LLC and its subsidiaries. The Canadian legal entities are Forterra Pipe & Precast, Ltd. and its subsidiaries and Forterra Brick Ltd.
Prior to the Acquisition, the entities comprising Forterra which were acquired by Lone Star were indirect wholly-owned subsidiaries of HeidelbergCement A.G. (HC or Parent), a publicly listed company in Germany, encompassing HCs North American building products operations (BP NAM or the Predecessor). LSF9 acquired Forterra in a business combination which also included the acquisition of HCs U.K.-based building products operations for a total initial purchase price of $1.33 billion cash, including customary working capital adjustments and a possible earn-out of up to $100.0 million. The acquisition of BP NAM and HCs UK-based building products was funded with an equity investment of $432.3 million and third-party debt in the amount of $940.0 million .
In the accompanying financial information, Successor refers to Forterra and Predecessor refers to BP NAM. The term Company is used throughout the combined financial statements and applies to either the Predecessor or the Successor.
The Successors combined financial statements include certain assets and liabilities historically held at LSF9, including the proportionate debt, and related interest expense, incurred by LSF9 to acquire the Company that Forterra is obligated to pay. The Companys portion of Lone Stars initial $432.3 million equity investment is $167.5 million. The Companys allocated portion of the $940.0 million of third party debt used to finance the Acquisition is $515.5 million. The remaining $424.5 million of the debt was allocated to affiliates of LSF9 that are not included in these financial statements based on the amounts affiliates of LSF9 are expected to repay and such amount has been fully repaid by affiliates. The Company and the affiliates of LSF9 were co-obligors and jointly and severally liable under terms of the initial credit agreements. In April of 2016, the Companys affiliate co-obligors were released from joint and several liability under the credit agreements and the Company is consequently the sole source of repayment for its $515.5 million share for the initial obligation under the credit agreements. See discussion of the joint and several obligations in Note 10, Debt and deferred financing costs.
Cretex Acquisition
On August 20, 2015, Forterra entered into a purchase agreement to acquire all the outstanding shares of Cretex Concrete Products, Inc. (Cretex) for a purchase price of $245.1 million, including customary working capital adjustments. The closing of the Cretex acquisition occurred on October 1,
F-38
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
2015. Cretex is a manufacturer of reinforced concrete pipe, box culverts, precast drainage structures, pre-stressed bridge components and ancillary precast products, expanding the Companys market footprint into the Upper Midwestern United States. The Cretex acquisition was financed with $240.0 million incremental third-party Senior debt.
The financial statements contained herein have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The combined financial statements include the accounts of the Company and all intercompany transactions among the Successor entities have been eliminated.
2. Summary of significant accounting policies
Basis of presentation - Predecessor
Description of Business - Predecessor
The legal entities comprising BP NAM were a component of the North American operating segment of HC and consist of U.S. operating entities that were directly owned by Lehigh Hanson, Inc. (LHI), a U.S. holding company, and Canadian operating entities that were directly owned by Hanson America Holdings (4), Ltd., a U.K. holding company.
These financial statements are labeled as predecessor because they reflect the combined predecessor historical results of operations, financial position and cash flows of BP NAM, as they were historically managed under the control of HC, in conformity with U.S. GAAP.
All intracompany transactions occurring between the predecessor entities have been eliminated. Certain transactions between the Company and HC have been included in these combined predecessor financial statements and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the settlement of these transactions is reflected in the combined predecessor statements of shareholders equity and Parent company net investment as net transfers (to)/from Parent, in the combined predecessor statements of cash flows as a financing activity and in the combined predecessor balance sheet as Parent company net investment.
HC used a centralized approach to cash management and financing of its operations. Historically, the majority of the Predecessors cash was transferred to HC daily and the Company was dependent on HC funding of the Companys operating and investing activities as needed. This arrangement is not reflective of the manner in which the Company would have been able to finance its operations had it been a stand-alone business separate from HC during the periods presented. Cash transfers to and from HCs cash management accounts are reflected within Parent company net investment.
The combined predecessor financial statements include certain assets and liabilities that have historically been held at the HC corporate level but are specifically identifiable or otherwise allocable to the Company. The cash and cash equivalents held by HC at the corporate level are not specifically identifiable to the Company and therefore were not allocated for any of the periods presented. Cash and cash equivalents in the combined predecessor balance sheets represent cash held locally by operations included in the combined predecessor financial statements. HC third-party debt, and the related interest expense, has not been allocated for any of the periods presented as the Company was not the legal obligor of the debt and HCs borrowings were not directly attributable to these operations.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The historical costs and expenses reflected in the combined predecessor financial statements include an allocation for certain corporate functions historically provided by HC or its wholly-owned subsidiaries. Substantially all of the Companys senior management were employed by HC and certain functions critical to the Companys operations were centralized and managed by HC. Historically, the centralized functions have included executive senior management, financial reporting, financial planning and analysis, accounting, shared services, information technology, tax, risk management, treasury, legal, human resources, land management, and strategy and development. Additionally, the Company resided in office space provided by affiliates of HC. The cost of each of these services has been allocated to the Company on the basis of the Companys relative net sales or head count as compared to that of HC depending upon which allocation methodology is more meaningful for each service.
The Company and HC believe that these allocations reasonably reflect the utilization of services provided and benefits received. However, they may differ from the cost that would have been incurred had the Company operated as a stand-alone company for the periods presented or will be incurred by the Successor. Estimating actual costs that would have been incurred if the Company had been a stand-alone company is not practicable and would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including legal services, accounting and finance services, human resources, marketing and contract support, customer support, treasury, facility and other corporate and infrastructural services. Income taxes have been accounted for in these financial statements on a separate-return basis.
Business Combinations
Assets acquired and liabilities assumed in business combination transactions, as defined by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combination , are recorded at fair value using the acquisition method of accounting. We allocate the purchase price of acquisitions based upon the fair value of each component which may be derived from various observable and unobservable inputs and assumptions. Initial purchase price allocations are preliminary and subject to revision within the measurement period, not to exceed one year from the date of the transaction. The fair value of property, plant and equipment and intangible assets may be based upon the discounted cash flow method that involves inputs that are not observable in the market (Level 3). Goodwill assigned represents the amount of consideration transferred in excess of the fair value assigned to identifiable assets acquired and liabilities assumed.
Use of estimates
The preparation of the combined financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the combined financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are based on managements best knowledge of current events and actions that the Company may undertake in the future. The more significant estimates made by management relate to fair value estimates for assets and liabilities acquired in business combinations; accrued liabilities for environmental cleanup, reclamation, pensions and other employee benefit plans, bodily injury and insurance claims; and estimates for deferred tax assets, inventory reserves, allowance for doubtful accounts and impairment of long-lived assets.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Cash and cash equivalents
Successor cash and cash equivalents include cash on hand and other highly liquid investments having an original maturity of less than three months.
Predecessor treasury activities were centralized by HC such that the net cash collections were automatically distributed to HC and reflected as Parent company net investment. At times, the Company may have had a cash balance due to timing differences.
Receivables, net
Receivables are recorded at net realizable value, which includes allowances for doubtful accounts. The Company reviews the collectability of trade receivables on an ongoing basis. The Company reserves for trade receivables determined to be uncollectible. This determination is based on the delinquency of the account, the financial condition of the customer and the Companys collection experience.
HC maintained accounts receivable securitization programs in both the United States and Canada to provide additional sources of working capital and long-term financing. Under the program, HC sold, on a revolving basis, selected trade sales invoices to either wholly-owned special purpose subsidiaries (the SPSs), which are consolidated in HC consolidated financial statements, or in Canada to an unrelated third-party commercial paper conduit. The SPSs in turn enter into agreements with an unrelated third-party commercial paper conduit to acquire long-term financing, using the accounts receivable as collateral.
Under the terms of the programs for the United States and Canada, the Company maintained effective control over the selected trade sales invoices. In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 860, Transfers and Servicing (ASC 860), the accounts receivable securitization transactions have not been accounted for as sales in the United States and Canada. The related accounts receivable are reflected in the combined predecessor financial statements. The Company was responsible for the collection of invoices sold by the Company under the securitization programs. Cash collected by the Company was remitted to the SPS who then remitted the cash collections to the buyers of the accounts receivable on a contractually agreed basis.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily receivables. The Company performs ongoing credit evaluations of its customers financial condition and generally requires no collateral from its customers. The allowances for uncollectible receivables are based upon analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due and the expected collectability of overall receivables.
Concentrations of Labor
Approximately 35% of the Companys employees are represented by collective bargaining agreements, and 25% of these employees are included in collective bargaining agreements that expire within 12 months.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Inventories
Inventories are valued at the lower of cost or market. The Companys inventories are valued using the average cost method. Inventories include materials, labor and applicable factory overhead costs. The value of inventory is adjusted for damaged, obsolete, excess and slow-moving inventory. Market value of inventory is estimated considering the impact of market trends, an evaluation of economic conditions, and the value of current orders relating to the future sales of each respective component of inventory.
Property, plant and equipment, net
Property, plant and equipment, which includes amounts recorded under capital lease arrangements, is stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets. These lives range from 20 to 40 years for buildings, 4 to 20 years for machinery and equipment, and 5 to 10 years for other equipment and lower of lease term or useful life on leasehold improvements. Repair and maintenance costs are expensed as incurred. The Companys depreciation expense is recorded in cost of goods sold and selling, general and administrative expenses in the combined statements of operations. The Company capitalizes interest during the active construction of major projects. Capitalized interest is added to the cost of the underlying assets and is depreciated over the useful lives of those assets. There was no interest capitalized for any of the periods presented in the combined financial statements.
Impairment or disposal of long-lived assets
The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment (ASC 360). ASC 360 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for impairment are significantly impacted by estimates of future prices for the Companys products, capital needs, economic trends in the construction sector and other factors. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.
The Company assesses impairment of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For purposes of evaluating impairment of long-lived assets held in use, the Company has determined this level to be the asset group level, which are defined as geographical market clusters of plants. For assets meeting the criteria for classification as held for sale under ASC 360, the impairment is assessed at the disposal group level, generally the specific plant or plants held for sale.
Goodwill and other intangible assets, net
The goodwill reflected in the combined Successor balance sheets relates to the recognition of goodwill in the Acquisition and in the Companys acquisition of Cretex Concrete Products (Cretex).
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Goodwill represents the excess of costs over the fair value of identifiable assets acquired and liabilities assumed.
The Company evaluates goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets (ASC 350). ASC 350 requires goodwill to be either qualitatively or quantitatively assessed for impairment annually (or more frequently if impairment indicators arise) for each reporting unit. The Company performs its annual impairment testing of goodwill as of October 1 of each year and in interim periods if events occur that would indicate that it is more likely than not goodwill may be impaired.
The Company evaluates its intangible assets with finite lives for indications of impairment whenever events or changes in circumstances indicate that the net book value may not be recoverable. Intangible assets with finite lives consist of customer relationships, customer backlogs, and brand names, and are amortized under a consumption method over the estimated useful lives. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business or significant negative industry or economic trends.
If this evaluation indicates that the value of the intangible asset may be impaired, the Company makes an assessment of the recoverability of the net book value of the asset over its remaining useful life. If this assessment indicates that the intangible asset is not recoverable, based on the estimated undiscounted future cash flows of the asset over the remaining amortization period, the Company reduces the net book value of the related intangible asset to fair value and may adjust the remaining amortization period.
Investment in equity method investee
The Company has an investment in a joint venture accounted for using the equity method. Under the equity method, carrying value is adjusted for the Companys share of the investees earnings and losses, as well as capital contributions to and distributions from the investee. Distributions in excess of equity method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying combined statements of cash flows. The Company classifies its share of income and loss related to its investments in its investee as a component of operating income or loss, as the Companys investments in the investee is an extension of the Companys core business operations.
The Company evaluates its investment in the equity method investee for impairment whenever events or changes in circumstances indicate that the carrying value of its investment may have experienced an other-than-temporary decline in value. If such conditions exist, the Company compares the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is other-than-temporary based on its assessment of all relevant factors, including consideration of the Companys intent and ability to retain its investment.
Derivatives and Hedge Accounting
The Company has entered into derivative instruments to mitigate interest rate and foreign exchange rate risk. Certain derivative instruments are designated for hedge accounting under ASC
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
815-20, Derivatives Hedging . Instruments that meet hedge criteria are formally designated as hedges at the inception of the instrument. Derivatives utilized by the Company include cross currency swaps.
The Companys derivative assets and liabilities are measured at fair value. Fair value related to the cash flows occurring within one year are classified as current and the fair value related to the cash flows occurring beyond one year are classified as non-current in the combined balance sheets. For those instruments designated as hedges, the Company recognizes the changes in fair value in other comprehensive income (OCI), and recognizes any ineffectiveness immediately in earnings.
Valuation of derivative assets and liabilities reflect the value of the instrument including counterparty credit risk. These values also take into account the Companys own credit standing.
Deferred Financing Costs
In conjunction with its debt, the Company recorded debt discounts and debt issuance costs totaling $51.9 million during the period March 14, 2015 to December 31, 2015. These costs are amortized over the life of the applicable debt instrument to interest expense utilizing the effective interest method. The related amortization expense of these costs was $5.1 million, and is included in interest expense on the combined statements of operations for the Successor period.
Fair value measurement
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The Companys other financial instruments consist primarily of cash and cash equivalents, trade and other receivables, accounts payable, accrued expenses, derivative financial instruments and long-term debt. The carrying value of the Companys trade and other receivables, trade payables and accrued expenses approximates fair value due to their highly liquid nature, short-term maturity, or competitive rates assigned to these financial instruments.
The Company adjusts the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Foreign currency translation
The Company uses the U.S. dollar as its functional currency for operations in the U.S. and the Canadian dollar for operations in Canada. The assets, liabilities, revenues and expenses of the Companys Canadian operations are translated in accordance with ASC 830, Foreign Currency Matters.
Environmental remediation liabilities
The Company accrues for costs associated with environmental remediation obligations when such costs are probable and reasonably estimable; if an estimated amount is likely to fall within a range and no amount within that range can be determined to be the better estimate, the minimum amount of the range is recorded. Claims for recoveries from insurance carriers and other third parties are not recorded until it is probable that the recoveries will be realized. Such accruals are adjusted as further information develops or circumstances change.
Environmental expenditures that relate to current operations or to conditions caused by past operations are expensed. Expenditures that create future benefits are capitalized.
Liabilities are recorded when environmental assessments and/or clean-ups are probable, and the costs can be reasonably estimated. At December 31, 2015 and 2014, the Company had environmental obligations of $1,803 and $1,739, respectively, which are recorded within accrued liabilities and other long-term liabilities in the combined balance sheets. The estimated range of reasonably possible loss beyond the amounts accrued is considered immaterial.
Accounting for asset retirement obligations
The Company incurs reclamation obligations as part of its brick production process. The Company recognizes the fair value of a legally enforceable liability representing an asset retirement obligation in the period in which it is incurred.
The provisions of ASC 410-20, Accounting for Asset Retirement Obligations (ASC 410), require the projected estimated reclamation obligation to be stated at fair value using assumptions that reflect the amount an external party would charge for bearing the uncertainty of guaranteeing a fixed price today for performance in the future.
Asset retirement obligations which are recorded within accrued liabilities and other long term liabilities in the combined balance sheets were $1,353 and $1,885 at December 31, 2015 and 2014, respectively.
Defined benefit pension plans and other post-retirement benefits
The Predecessors Canadian employees participated in defined benefit pension plans sponsored by the Company. The Companys U.S. salaried employees and non-union hourly employees participated in defined benefit pension plans sponsored by an affiliate of HC. Approximately 37% of the Predecessors labor force were covered by collective bargaining agreements. These plans included other Parent employees of HC affiliates that are not employees of the Company. LHI also provides certain retiree health and life insurance benefits to eligible employees who have retired from the Company. Salaried participants generally became eligible for retiree health care benefits when they retired from active service at age 60 or later. Benefits, eligibility, and cost-sharing provisions for the hourly employees vary by location and/or bargaining unit. Generally, the health care plans pay a stated percentage of most medical and dental expenses reduced for any deductible, co-payment and payments made by government programs and other group coverage. The Predecessor accounted for
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
its U.S. defined benefit pension plans as multiemployer plans under ASC 715, Compensation Benefit Plans (ASC 715) . Liability for the Predecessor defined benefit plans were retained by HC.
Additionally, the Predecessor also had employees that were covered under several union-sponsored, multiemployer pension plans. Such plans are accounted for as defined contribution plans as it is not possible to isolate the components of such plans that would collectively comprise the Companys liability. Liabilities for the Predecessor plans were retained by HC.
Income Taxes
As of the date of the Acquisition, the Successor financial statements reflect a new tax basis of accounting as the Company includes taxable entities independent of the Predecessor. Deferred tax assets and liabilities are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liability and their reported amounts, using currently enacted tax rates. The measurement of a deferred tax asset is reduced, if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.
The Company recognizes a tax benefit for uncertain tax positions if the Company believes it is more likely than not that the position will be upheld on audit based solely on the technical merits of the tax position. The Company evaluates uncertain tax positions after the consideration of all available information.
For the Predecessor periods, income tax expense and related current and deferred income taxes receivable and payable were calculated assuming that the Predecessor files hypothetical stand-alone income tax returns in Canada and hypothetical consolidated income tax returns for the U.S. building products activities. Losses and other tax attributes generated on a hypothetical stand-alone basis and hypothetical consolidated return basis are reflected as deferred tax assets, even though some of those losses or attributes may have been utilized by HCs filing entities. All hypothetical current taxes payable or receivable are deemed settled through net parent investment. All tax consequences associated with the Predecessor period were retained by HC.
Revenue recognition
Revenues are recognized by the Company when the risks and rewards associated with the transaction have been transferred to the purchaser, which is demonstrated when all the following conditions are met: evidence of a binding arrangement exists (generally, purchase orders), products have been delivered or services have been rendered, there is no future performance required, fees are fixed or determinable and amounts are collectable under normal payment terms. Sales represent the net amounts charged or chargeable in respect of services rendered and goods supplied, excluding intercompany sales. Sales are recognized net of any discounts given to the customer.
The Company bills and incurs shipping costs to third parties for the transportation of building products to customers. For the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, the Company recorded freight costs of approximately $59,943, $11,041, $69,862, and $63,301, respectively, on a gross basis within net sales and cost of goods sold in the accompanying combined statements of operations.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The Companys revenues primarily relate to product shipments. For certain engineering and construction contracts and building contracting arrangements, the Company recognizes revenue using the percentage of completion method, based on total contract costs incurred to date compared to total estimated cost at completion for each contract. Changes to total estimated contract cost or losses, if any, are recognized in the period in which they are determined. Pre-contract costs are expensed as incurred. If estimated total costs on a contract indicate a loss, the entire loss is provided for in the financial statements immediately. To the extent the Company has invoiced and collected from its customers more revenue than has been recognized as revenue using the percentage of completion method, the Company records the excess amount invoiced as deferred revenue. For the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, revenue recognized in continuing operations using the percentage of completion method amounted to 5%, 4%, 3% and 4% of total net sales, respectively.
The company generally provides limited warranties related to its products which cover manufacturing in accordance with the specifications identified on the face of our quotation or order acknowledgement and to be free of defects in workmanship or materials. The warranty periods typically extend for a limited duration of one year. The Company estimates and accrues for potential warranty exposure related to products which have been delivered.
Cost of goods sold and selling, general and administrative expenses
Cost of goods sold includes costs of production, inbound freight charges for raw materials, outbound freight to customers, purchasing and receiving costs, inspection costs and warehousing at plant distribution facilities. Selling, general and administrative costs include expenses for sales, marketing, legal, accounting and finance services, human resources, customer support, treasury and other general corporate services.
Recent Accounting Guidance Adopted
In April 2014, the FASB issued Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity . The amendments in this update change the requirements for reporting discontinued operations in Subtopic 205-20. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entitys operations and financial results. The Company adopted this ASU effective January 1, 2015.
In August 2015, the FASB issued ASU 2015-03, Interest Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost . This amendment provides guidance for deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line of credit arrangement, regardless of whether there are any outstanding borrowings on the line of credit arrangement. For term debt obligations, the Company presents debt issuance costs as a direct deduction of the carrying amount of the debt. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company early adopted this ASU effective March 14, 2015 and has presented its debt issuance costs accordingly in its financial statements.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Assets intended to simplify the presentation of deferred taxes on the balance sheet and will require an entity to present all deferred tax assets and deferred tax liabilities as non-current on the balance sheet. Under the current guidance, entities are required to separately present deferred taxes as current or non-current. Netting deferred tax assets and deferred tax liabilities by tax jurisdiction will still be required under the new guidance. The new accounting guidance is effective for annual periods beginning after December 15, 2016 with early adoption permitted. The Company early adopted ASU 2015-17 as of March 14, 2015 and applied the new guidance for all periods presented.
Recent Accounting Guidance Not Yet Adopted
In May 2014, the FASB issued ASU 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. The FASB subsequently voted to defer the application of the provisions of this standard for public companies until annual reporting periods beginning after December 15, 2017 in ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date , including interim periods within that reporting period. The Company is currently evaluating whether this ASU will have a material impact on its combined financial statements.
In March 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810), Amendments to the Consolidation Analysis , changes the analysis that a reporting entity must perform when deciding to consolidate a legal entity. This amendment changes the evaluation of whether limited partnerships are variable interest entities or voting interest entities and eliminates the presumption that a general partner should consolidate a limited partnership. All legal entities are subject to reevaluation under the revised consolidation model. The amendment is effective for fiscal years and interim periods beginning after December 15, 2015 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the beginning of the period of adoption. The adoption of ASU 2015-12 is not expected to have a material impact on the Companys combined financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring an entity to measure inventory within the scope of the ASU at the lower of cost and net realizable value. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating whether this ASU will have a material impact on its combined financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, defining 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 entitys going concern presumption. Substantial doubt about an entitys 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 the financial statements are issued. If substantial doubt exists, certain disclosures are required. The provisions of this ASU are 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 Companys disclosures.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805) . Topic 805 requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in this update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement-period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standards issuance date. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company believes this ASU will have a material impact on its combined financial statements as it will result in most of the Companys leases and associated assets being presented on the balance sheet. See also Note 14 for a summary of the Companys current operating lease commitments and Note 22 for disclosure of a significant sales-leaseback transaction the Company executed subsequent to the balance sheet date during April 2016.
3. Business combinations
Transaction Overview The Acquisition
The Successors financial statements reflect the Acquisition of the Predecessor that occurred on March 13, 2015, which was accounted for as a business combination as defined by ASC 805. Certain liabilities of the Predecessor were not assumed by the Successor including, but not limited to pension liabilities, tax and insurance related liabilities and multi-employer pension liabilities. The assets acquired and liabilities assumed are recorded at their respective fair values as of the date of the Acquisition with the excess of the purchase price over those fair values recorded as goodwill. The determination of the fair values of the acquired assets and assumed liabilities required significant judgment, including estimates impacting the determination of estimated lives of tangible and intangible assets, the calculation of the fair value of inventory, property, plant and equipment, and customer related intangibles. The fair values were determined primarily using the income method using level 3 inputs as defined by ASC 820.
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Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The following table summarizes the fair values of the assets acquired and liabilities assumed by the Company at the Acquisition date:
Fair Value | ||||
Net working capital |
$ | 257,368 | ||
Property, plant and equipment |
311,191 | |||
Investment in equity method investee |
56,400 | |||
Customer backlog intangible |
4,500 | |||
Other assets and other liabilities |
(6,495 | ) | ||
|
|
|||
Net identifiable assets acquired |
$ | 622,964 | ||
Goodwill |
17,464 | |||
|
|
|||
Consideration, net of cash acquired |
$ | 640,428 | ||
|
|
The goodwill recognized was attributable primarily to expected operating efficiencies and expansion opportunities in the business acquired. The goodwill is not expected to be deductible for tax purposes.
Financing transactions
Consideration to fund the Acquisition was provided by an equity investment of $167.5 million and proceeds from third-party debt, net of original discount and debt issuance costs, in the amount of $472.9 million. The financing transactions included a senior term loan in the amount of $254.9 million ($241.7 million, net of $13.2 million of original issue discount and debt issuance costs), a junior term loan in the amount of $260.0 million ($233.8 million, net of $26.2 million of original issue discount and debt issuance costs) and a revolving line of credit of up to $150.0 million. Funds of $0.6 million were initially drawn from the revolving line of credit at the closing date of the Acquisition. The Company incurred debt issuance costs related to the revolving line of credit in the amount of $3.2 million.
Contingent Consideration
As discussed in Note 1, the Acquisition included contingent consideration of up-to an additional $100.0 million based on the earnings of LSF9 for fiscal year 2015 as adjusted by the purchase agreement (Earn-out). The Earn-out is based on the achievement of an amount in excess of a certain minimum threshold of adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), as defined by the purchase agreement, for the calendar year ended December 31, 2015. The Company determined that achieving the required threshold to trigger a payout to the Seller was not probable and, therefore, the Company did not record a contingent liability related to the Earn-out as of the Acquisition date. Subsequent to year end, the Company concluded the Earn-out was not earned and, accordingly, did not record a liability as of December 31, 2015. See further discussion of the Earn-out in Note 14.
Transaction Overview Cretex Concrete Products (Cretex)
On August 20, 2015, Forterra entered into a purchase agreement to acquire all the outstanding shares of Cretex Concrete Products, Inc. (Cretex) for a purchase price of $245.1 million including customary working capital adjustments. The closing of the Cretex acquisition occurred on October 1, 2015 and is accounted for as a business combination as defined by ASC 805. The Company allocated
F-50
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
the purchase price to the individually identifiable assets acquired and liabilities assumed based on their estimated fair value on the date of acquisition. The fair value of assets and liabilities were determined primarily using the income method using level 3 inputs as defined by ASC 820. The excess purchase price over those fair values was recorded as goodwill. The determination of fair values of the acquired assets and assumed liabilities required significant judgment, including estimates related to contract backlog, calculation of the fair value of property, plant and equipment and inventory. The allocation of the purchase price is preliminary and may be subject to change upon completion of the determination of the fair value of all acquired assets and liabilities.
The respective preliminary fair values of the assets acquired and liabilities assumed at the acquisition date are as follows:
Fair Value | ||||
Net working capital |
$ | 69,745 | ||
Property, plant and equipment |
97,282 | |||
Customer relationship intangible |
24,700 | |||
Trade name |
600 | |||
Customer backlog intangible |
800 | |||
Other assets and other liabilities |
(7,500 | ) | ||
|
|
|||
Net identifiable assets acquired |
185,627 | |||
Goodwill |
59,473 | |||
|
|
|||
Consideration transferred, net of cash acquired |
$ | 245,100 | ||
|
|
The results of operations of Cretex have been included in the Successors combined statement of operations subsequent to the date of acquisition on October 1, 2015. The Company recognized $39.1 million in net sales related to Cretex through December 31, 2015.
Financing transactions
The purchase of Cretex was partially funded with proceeds from financing transactions totaling $240.0 million as an add-on to the aforementioned senior term loan.
Supplemental pro-forma information (unaudited)
If the Company had acquired Cretex on January 1, 2015 the Companys total net sales and loss from continuing operations before taxes, on a pro-forma basis for the year ended December 31, 2015 would have been approximately $1.0 billion and $(91.7) million, respectively, which includes both Predecessor and Successor periods in 2015.
Transaction Costs
For the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015 and for the year ended December 31, 2014, the Company recognized transaction costs specific to the Acquisition and Cretex acquisition of $13,725, $2,079, and $17,740 respectively. No transaction costs were incurred in the year ended December 31, 2013. Transaction costs generally include legal, accounting, valuation, and advisory fees. These costs are recorded in the combined statements of operations within selling, general & administrative expenses.
F-51
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
4. Receivables, net
Receivables consist of the following:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Trade receivables |
$ | 108,065 | $ | 103,825 | ||||
Amounts billed, but not yet paid under retainage provisions |
2,053 | 2,293 | ||||||
Other receivables |
12,436 | 5,167 | ||||||
|
|
|
|
|||||
Total receivables |
$ | 122,554 | $ | 111,285 | ||||
Less: Allowance for doubtful accounts |
(3,595 | ) | (2,236 | ) | ||||
|
|
|
|
|||||
Trade receivables, net |
$ | 118,959 | $ | 109,049 | ||||
|
|
|
|
The Company records provisions for doubtful accounts in selling, general and administrative expenses in the combined statements of operations. The table below summarizes the Companys allowance for doubtful accounts for the periods presented in the combined financial statements:
Predecessor |
Allowance for
doubtful accounts |
|||
Balance at January 1, 2013 |
$ | (3,153 | ) | |
Provisions for doubtful accounts |
(2,760 | ) | ||
Write-offs and adjustments |
2,216 | |||
|
|
|||
Balance at December 31, 2013 |
(3,697 | ) | ||
|
|
|||
Provisions for doubtful accounts |
786 | |||
Write-offs and adjustments |
675 | |||
|
|
|||
Balance at December 31, 2014 |
(2,236 | ) | ||
|
|
|||
Provisions for doubtful accounts |
31 | |||
Write-offs and adjustments |
(63 | ) | ||
|
|
|||
Balance at March 13, 2015 |
$ | (2,268 | ) | |
|
|
|||
Successor |
Allowance for
doubtful accounts |
|||
Balance at March 14, 2015 |
$ | (2,268 | ) | |
Provisions for doubtful accounts |
(1,377 | ) | ||
Write-offs and adjustments |
50 | |||
|
|
|||
Balance at December 31, 2015 |
$ | (3,595 | ) | |
|
|
F-52
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
5. Inventories
Inventories consist of the following:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Finished goods |
$ | 146,635 | $ | 140,004 | ||||
Raw materials |
53,339 | 46,486 | ||||||
Work in process |
10,641 | 4,006 | ||||||
|
|
|
|
|||||
Total inventories |
$ | 210,615 | $ | 190,496 | ||||
|
|
|
|
6. Property, plant and equipment, net
Property, plant and equipment, net consist of the following:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Land, buildings and improvements |
$ | 243,496 | $ | 507,214 | ||||
Machinery and equipment |
158,349 | 337,993 | ||||||
Other equipment |
1,142 | 26,433 | ||||||
Construction-in-progress |
14,984 | 21,274 | ||||||
|
|
|
|
|||||
Total property, plant and equipment |
417,971 | 892,914 | ||||||
Less: accumulated depreciation |
(29,047 | ) | (478,841 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | 388,924 | $ | 414,073 | ||||
|
|
|
|
Depreciation expense totaled $28,613, $6,894, $36,605, and $38,560 for the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, respectively, which is included in cost of goods sold and selling, general and administrative expenses in the combined statements of operations.
Impairments
The Company recorded impairment charges primarily in conjunction with plant closings undertaken for purposes of market consolidation and recognized asset impairment charges for its property, plant and equipment of $1,088, $27, $3,977 and $12,011 for the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015, and for the years ended December 31, 2014 and 2013, respectively. Asset impairments are included in impairment and restructuring charges on the combined statements of operations.
Transfers
During 2014, the Predecessor transferred to HC certain property, plant and equipment of $25,107 related to sites historically included in BP North America because such sites were not included in the Acquisition.
F-53
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
7. Goodwill and other intangible assets, net
In connection with the Acquisition and the Cretex acquisition, the Company recognized goodwill of $17.5 million and $59.5 million, respectively. On an annual basis, the Company performs step one of its goodwill impairment test by comparing the fair value of each reporting unit with its carrying value. Only certain of the Companys reporting units have goodwill subsequent to the Acquisition of the Company and Cretex acquisition. The Company completed annual assessments as of October 1 of each reporting period. In 2013, one reporting unit, Water Pipe & Products, failed step one and the Company recorded a goodwill impairment charge of $236,639 during the year ended December 31, 2013 based on the amount by which the carrying value of the reporting unit exceeded the fair value of the identifiable assets and liabilities of the reporting unit. There were no other impairments recorded to goodwill during the reporting periods included in the combined financial statements.
Goodwill at December 31, 2014 of $83,674 was eliminated upon consummation of the Acquisition in connection with the Successors accounting for the business combination.
The following table presents the changes in the net carrying value of goodwill by reportable segment:
Successor |
Drainage
Pipe & Products |
Water Pipe
& Products |
Bricks | Other | Total | |||||||||||||||
March 14, 2015 |
$ | 15,139 | $ | 2,280 | $ | 45 | $ | | $ | 17,464 | ||||||||||
Acquisition of Cretex |
59,473 | | | | 59,473 | |||||||||||||||
Foreign Currency |
(1,170 | ) | (230 | ) | | | (1,400 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2015 |
$ | 73,442 | $ | 2,050 | $ | 45 | $ | | $ | 75,537 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Intangible assets other than goodwill at December 31, 2015 included the following:
Weighted
average amortization period (in years) |
Gross carrying
value as of December 31, 2015 |
Accumulated
amortization |
Net carrying
value as of December 31, 2015 |
|||||||||||||
Customer relationships |
5 | $ | 24,700 | $ | (365 | ) | $ | 24,335 | ||||||||
Customer backlog |
1 | 5,182 | (3,955 | ) | 1,227 | |||||||||||
Brand names |
2 | 600 | (100 | ) | 500 | |||||||||||
|
|
|
|
|
|
|||||||||||
Total intangible assets |
$ | 30,482 | $ | (4,420 | ) | $ | 26,062 | |||||||||
|
|
|
|
|
|
Amortization expense was $4,317 for the period from March 14, 2015 to December 31, 2015.
F-54
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
In the future the Company expects to incur amortization expense on these intangible assets for the years ended December 31 as follows:
Years ending December 31: |
||||
2016 |
$ | 8,575 | ||
2017 |
6,083 | |||
2018 |
4,132 | |||
2019 |
2,910 | |||
2020 |
2,034 | |||
Thereafter |
2,328 | |||
|
|
|||
Total future amortization expense |
$ | 26,062 | ||
|
|
8. Fair Value Measurement
The Companys financial instruments consist primarily of cash and cash equivalents, trade and other receivables derivative instruments, accounts payable, long-term debt and accrued liabilities. The carrying value of the Companys trade receivables, trade payables, the asset based revolver and accrued liabilities approximates fair value due to their short-term maturity. The Company may adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired.
The estimated carrying amount and fair value of the Companys financial instruments and other assets and liabilities measured and recorded at fair value on a recurring basis is as follows for the dates indicated:
The fair values of derivative assets and liabilities are determined using quantitative models that utilize multiple market inputs including interest rates and exchange rates to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Company incorporates within its fair value measurements a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparties, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Companys own credit risk.
F-55
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The estimated carrying amount and fair value of the Companys financial instruments and liabilities for which fair value is only disclosed is as follows:
Successor | Fair value measurements at December 31, 2015 using | |||||||||||||||||||
Carrying Amount
December 31, 2015 |
Quoted Prices
in Active Markets for Identical Assets (Level 1) |
Significant Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Total Fair Value
December 31, 2015 |
||||||||||||||||
Non-current liabilities |
||||||||||||||||||||
Senior Term Loan |
$ | 469,383 | $ | | $ | 470,543 | $ | | $ | 470,543 | ||||||||||
Junior Term Loan |
236,446 | | 259,675 | | 259,675 |
The fair value of debt is the estimated amount LSF9 would have to pay to transfer its debt, including any premium or discount attributable to the difference between the stated interest rate and market rate of interest at the balance sheet date. Fair values are supported by observable market transactions when available.
Deferred compensation is valued using cash surrender value of Company-owned life insurance. The fair values of benefit plan assets and the related disclosure are included in Note 21, Employee Benefit Plans.
9. Derivatives and hedging
The Company uses derivatives to manage selected foreign exchange and interest rate exposures. The Company does not use derivative instruments for speculative trading purposes, and cash flows from derivative instruments are included in net cash provided by (used in) financing activities in the combined statements of cash flows.
In May of 2015, the Company entered into the following derivative instruments: fixed-for-fixed cross currency swaps and fixed-for-float cross currency swaps. The fixed-for-float cross currency swaps are designated as cash flow hedges in accordance with ASC 815-20, Derivatives Hedging, with the effective portion of the changes in the fair value of the derivatives recorded to accumulated other comprehensive income, and any ineffective portion reflected directly in earnings as other operating expense in the combined statements of operations. The fixed-for-fixed cross currency swaps are not designated as hedge instruments; therefore changes in fair value are recognized immediately in earnings as other operating income (expense) in the combined statements of operations.
A quantitative analysis is utilized to assess hedge effectiveness for cash flow hedges. The Company assesses the hedge effectiveness and measures the amount of ineffectiveness for the hedge relationships based on changes in spot exchange rates. For the period from March 14, 2015 to December 31, 2015, the Company recognized foreign exchange gain of $1.9 million in the combined statement of operations, and $1.5 million included in other comprehensive income (loss) related to cash flow hedges, net of taxes of $0 and $0, respectively.
The Company has elected to present all derivative assets and derivative liabilities, on a net basis on its combined balance sheets when a legally enforceable International Swaps and Derivatives Association, Inc. (ISDA) Master Agreement exists. An ISDA Master Agreement is an agreement
F-56
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
between two counterparties, which may have multiple derivative transactions with each other governed by such agreement, and such ISDA Master Agreement generally provides for the net settlement of all or a specified group of these derivative transactions, through a single payment, in a single currency, in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions. At December 31, 2015, the Companys derivative instruments fall under an ISDA master netting agreement, however the Companys derivative instruments included only assets at the balance sheet date, thus no netting of derivatives is included.
The following table presents the fair values of derivative assets and liabilities in the combined successor balance sheet:
Successor | ||||||||||||||||
December 31, 2015 | ||||||||||||||||
Level 2 | ||||||||||||||||
Derivative Assets | Derivative Liabilities | |||||||||||||||
Notional
Amount |
Fair Value |
Notional
Amount |
Fair Value | |||||||||||||
Fixed-for-fixed cross currency swap |
$ | 79,531 | $ | 7,667 | | | ||||||||||
Fixed-for-float cross currency swap |
81,991 | 1,426 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total derivatives, gross |
9,093 | | ||||||||||||||
Less: Legally enforceable master netting agreements |
| |||||||||||||||
|
|
|
|
|||||||||||||
Total derivatives, net |
$ | 9,093 | $ | | ||||||||||||
|
|
|
|
The following table presents the gain (loss) recognized in earnings on derivative instruments in cash flow hedging relationships in the combined statements of operations:
Successor | ||||
March 14 -
December 31, |
||||
2015 | ||||
Cash flow hedges |
||||
Cross currency swaps |
||||
Gain on derivatives recognized in Accumulated other comprehensive income |
$ | 1,549 | ||
Gain on derivatives not designated as hedges |
8,331 |
The estimated net amount of existing gains at December 31, 2015 expected to be reclassified into earnings within the next 12 months total $0.5 million.
F-57
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
10. Debt and deferred financing costs
The Companys debt consisted of the following:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Senior Term Loan Credit Agreement |
||||||||
interest at 6.50%, net of debt issue costs and original issue discount of $20,129 |
$ | 469,383 | $ | | ||||
Junior Term Loan Credit Agreement |
||||||||
interest at 10.50%, net of debt issue costs and original issue discount of $23,554 |
236,446 | | ||||||
|
|
|
|
|||||
Total debt |
705,829 | | ||||||
Less: current portion debt |
(2,191 | ) | | |||||
|
|
|
|
|||||
Total long-term debt |
$ | 703,638 | $ | | ||||
|
|
|
|
In connection with the financing of the Acquisition, LSF9 entered into a Senior Term Loan Credit Agreement for borrowings of $635.0 million, a Junior Term Loan Credit Agreement for borrowings of $260.0 million, and drew $45.0 million under a $150.0 million revolving credit facility (the Revolver). Approximately $515.5 million is the obligation of Forterra as a joint and several obligation under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements. See also Note 1, Basis of Presentation-Successor.
In connection with the Cretex acquisition, the Company issued additional Senior term notes of $240.0 million. In conjunction with the issuance of debt related to the Acquisition and the Cretex acquisition, LSF9 incurred $71.6 million of debt issuance costs and debt discounts; of which $51.9 million is attributed to the Company debt obligation.
The Company early adopted ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, and classified debt issuance costs as contra-liabilities as of December 31, 2015. As the Company had no prior debt balances, the adoption of ASU 2015-03 required no retrospective adjustment or changes to previously reported balances.
All of the Companys debt instruments are unconditionally guaranteed by the Company and all its subsidiaries jointly and severally. The credit agreements are secured by substantially all of the assets of the Company. On November 10, 2015, the Company modified the Revolver and increased its available borrowing capacity to $250.0 million. The interest rate for both the Senior Term Loan and Junior Term Loan is set at LIBOR (with a 1% floor) plus a margin of 5.50% and 9.50%, respectively. The Senior Term Loan Credit Agreement has a weighted average effective interest rate of 7.2% for the year ended December 31, 2015 and matures March 2022. The effective interest rate of the Junior Term Loan Credit Agreement was 11.7% for the period, and the debt matures March 2023. The effective interest rate includes the effects of deferred financing fees and original issue discount and premium amortization calculated using the effective interest method.
At December 31, 2015, the Companys Revolver, which matures in March 2020, had total borrowing capacity of $250.0 million, none of which was outstanding. The available credit under the Revolver is limited by a borrowing base which includes a portion of the Companys current assets.
F-58
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Interest is floating, based on a reference rate plus an applicable margin. The weighted average annual interest rate on the Revolver was 1.94% for the period March 14, 2015 through December 31, 2015. In addition, Forterra pays a facility fee of between 25.0 and 37.5 basis points per annum based upon the utilization of the total Revolver facility. Availability under the Revolver at December 31, 2015 based on draws, and outstanding letters of credit and allowable borrowing base was $231.0 million.
For the period from March 13, 2015 to December 31, 2015, cash payments for interest totaled $40.3 million, of which $14.9 million was paid by affiliates of the Company.
As of December 31, 2015, minimum future principal payments on long-term debt are as follows:
Total | Senior Term Loan | Junior Term Loan | ||||||||||
2016 |
$ | 2,191 | $ | 2,191 | $ | | ||||||
2017 |
| | | |||||||||
2018 |
| | | |||||||||
2019 |
| | | |||||||||
2020 |
| | | |||||||||
Thereafter: |
747,321 | 487,321 | 260,000 | |||||||||
|
|
|
|
|
|
|||||||
$ | 749,512 | $ | 489,512 | $ | 260,000 |
Covenants, Events of Default and Provisions
Under the terms of credit agreements above, LSF9 is required to comply with certain customary covenants, including among others, the limitation of indebtedness, limitations on liens, and limitations on certain cash distributions. The Revolver imposes only financial covenant, which requires LSF9 to maintain a fixed charge coverage ratio of no less than 1.00 to 1.00. The fixed charge coverage ratio is the ratio of consolidated earnings before interest, depreciation, and amortization (EBITDA) less cash payments for capital expenditures and income taxes to consolidated fixed charges (interest expense plus scheduled payments of principal on indebtedness). As of December 31, 2015, LSF9 was in compliance with the debt covenants contained in its credit facilities.
Lines of Credit and Other Debt Facilities
The Company had stand-by letters of credit outstanding of $15.8 million as of December 31, 2015 which reduce the borrowings available under the credit facilities.
Joint and several obligations
As discussed above, the Company has recorded debt on its combined balance sheet under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements. The Company and the affiliates of LSF9 were co-obligors and jointly and severally liable under terms of the LSF9s credit agreements. The Companys allocated portion of the $940.0 million of third party debt used to finance the Acquisition is $515.5 million. The initial obligation of $515.5 million was reflected on the Companys combined balance sheet at the Acquisition date as $254.9 million of Senior Term Loan, $260 million of Junior Term Loan and $0.6 million of Revolver obligations. The remaining $424.5 million of the debt was allocated to affiliates of LSF9 that are not included in these financial statements based on the amounts affiliates of LSF9 were expected to repay and such amount has been fully repaid by affiliates. In April of 2016, the Companys affiliate co-obligors were released from joint and several liability under
F-59
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
the LSF9 credit agreements. The Company is consequently the sole source of repayment for its $515.5 million share for the initial obligation under the credit agreements, as well as other obligations recorded on the balance sheet. In addition to the initial debt obligation of $515.5 million recorded by the company, during October 2015, additional LSF9 Senior Term Loan borrowings of $240 million to finance the Cretex acquisition were allocated in full to the Company.
The amounts recorded at December 31, 2015 in the combined balance sheets represent the portion of LSF9s outstanding obligation as of the balance sheet date the Company was expected to repay. The obligations are secured by substantially all of the assets of the Company.
Repayments on the Revolver of $44.4 million made by affiliates during the period ended December 31, 2015 were applied to the initial Revolver balance when determining the amount to allocate to the Company. The Company allocated related debt issuance costs and discount in proportion to the debt instrument recorded. The Company allocated interest expense based on the total amounts allocated by debt instrument.
11. Accrued liabilities
Accrued liabilities consist of the following for the years ended December 31, 2015 and 2014:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Accrued payroll and employee benefits |
$ | 24,690 | $ | 26,058 | ||||
Accrued taxes |
17,073 | 10,597 | ||||||
Accrued rebates |
8,021 | 7,280 | ||||||
Warranty |
2,429 | 1,644 | ||||||
Shut down and restructuring costs |
| 1,474 | ||||||
Other miscellaneous accrued liabilities |
3,415 | 3,359 | ||||||
|
|
|
|
|||||
$ | 55,628 | $ | 50,412 | |||||
|
|
|
|
12. Other long-term liabilities
Other long-term liabilities consist of the following for the years ended December 31, 2015 and 2014:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Workers compensation |
$ | 1,458 | $ | 10,536 | ||||
Deferred rent |
1,386 | | ||||||
Environmental remediation liability |
1,315 | 1,654 | ||||||
Asset retirement obligations |
938 | 1,637 | ||||||
Legal |
628 | | ||||||
Insurance |
527 | 3,451 | ||||||
Employee benefits |
| 10,408 | ||||||
Tax related provision |
| 2,216 | ||||||
Other miscellaneous long-term liabilities |
502 | 2,483 | ||||||
|
|
|
|
|||||
$ | 6,754 | $ | 32,385 | |||||
|
|
|
|
F-60
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
13. Income taxes
Successor
As of the date of the Acquisition, the combined Successor financial statements reflect a new tax basis of accounting as the Company includes taxable entities independent of the Predecessor. Deferred tax assets and liability are recognized principally for the expected tax consequences of temporary differences between the tax basis of assets and liability and their reported amounts, using currently enacted tax rates. All tax consequences associated with the Predecessor period were retained by HC.
Predecessor
The Companys U.S. and non-U.S. operations have been historically included in certain HC consolidated tax returns. The tax provisions have been prepared on a stand-alone basis, as if the business was a separate group of companies under common ownership although the Company was included in the HC entities tax returns. The operations have been combined as if they were filing on a consolidated basis for U.S. and state income tax purposes as they were historically included in the consolidated U.S. Income tax returns and certain consolidated or unitary group state returns of the prior parent entity. The non-U.S. tax provision has been determined on a stand-alone basis for each non-U.S. affiliate as these entities have historically filed stand-alone returns as required by the jurisdiction in which they operate.
The Companys income (loss) from continuing operations before income taxes for the period March 14, 2015 to December 31, 2015, January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013 was as follows:
Successor | Predecessor | |||||||||||||||
For the
period from March 14 to December 31, |
For the
period from January 1 to March 13, |
Years ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
U.S. companies |
$ | (95,417 | ) | $ | (6,265 | ) | $ | (4,382 | ) | $ | (250,128 | ) | ||||
Canadian companies |
18,409 | (233 | ) | 14,387 | 8,409 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income (loss) from continuing operations before income taxes |
$ | (77,008 | ) | $ | (6,498 | ) | $ | 10,005 | $ | (241,719 | ) | |||||
|
|
|
|
|
|
|
|
F-61
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The rate reconciliation for continuing operations presented below is based on the U.S. federal statutory tax rate of 35% because the predominant business activity is in the U.S.:
Successor | Predecessor | |||||||||||||||
Period Ended
December 31, 2015 |
Period Ended
March 13, 2015 |
Year Ended
December 31, 2014 |
Year Ended
December 31, 2013 |
|||||||||||||
Income (loss) from continuing operations |
$ | (77,008 | ) | $ | (6,498 | ) | $ | 10,005 | $ | (241,719 | ) | |||||
Income tax expense at statutory rate of 35% |
$ | 26,953 | $ | 2,274 | $ | (3,502 | ) | $ | 84,602 | |||||||
State income taxes, net of federal benefit |
1,984 | | (70 | ) | (62 | ) | ||||||||||
Foreign rate differential |
1,784 | (226 | ) | 1,401 | 727 | |||||||||||
Non-deductible expenses |
(527 | ) | | (497 | ) | | ||||||||||
Change in valuation allowance |
(35,738 | ) | (2,223 | ) | (602 | ) | (4,812 | ) | ||||||||
Goodwill impairment |
| | | (82,825 | ) | |||||||||||
Non-deductible transaction costs |
(558 | ) | | | | |||||||||||
Other |
324 | 917 | 853 | (191 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income tax (expense) benefit |
$ | (5,778 | ) | $ | 742 | $ | (2,417 | ) | $ | (2,561 | ) | |||||
|
|
|
|
|
|
|
|
The net deferred tax assets (liabilities) balances were comprised of the following components as of December 31, 2015 and 2014:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Deferred tax assets: |
||||||||
Inventory |
$ | 8,952 | $ | 1,110 | ||||
Reserves and accrued liabilities |
11,449 | 19,760 | ||||||
Net operating losses (NOLs) |
18,030 | 106,599 | ||||||
Capitalized transaction costs |
2,271 | | ||||||
Intangible assets |
2,599 | 14,620 | ||||||
Other assets |
54 | 1,392 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
43,355 | 143,481 | ||||||
|
|
|
|
|||||
Valuation allowance |
(37,988 | ) | (92,507 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets, net |
$ | 5,367 | $ | 50,974 | ||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Fixed assets |
$ | (3,393 | ) | $ | (50,336 | ) | ||
Derivatives |
(179 | ) | | |||||
Other liabilities |
(1,073 | ) | (7,753 | ) | ||||
|
|
|
|
|||||
Total deferred tax liabilities |
(4,645 | ) | (58,089 | ) | ||||
|
|
|
|
|||||
Net deferred tax asset (liability) |
$ | 722 | $ | (7,115 | ) | |||
|
|
|
|
F-62
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The income tax benefits (expenses) from continuing operations for the period March 14, 2015 to December 31, 2015, January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013 are as follows:
As of December 31, 2015, the Company has tax loss carryforwards as follows:
Amount |
Expiration
Date |
|||||
Federal net operating losses |
$ | 38,512 | 2035 | |||
State net operating losses |
$ | 21,324 | 2030-2035 | |||
Foreign net operating losses |
$ | 1,633 | 2033-2035 |
Income tax expense and related current and deferred income taxes receivable and payable for the periods ending March 13, 2015 and December 31, 2013 and 2014 are calculated assuming hypothetical stand-alone income tax returns filed in Canada and its provinces and hypothetical consolidated income tax return for the Predecessors U.S. and state activities. The related tax provision amounts for the period ending December 31, 2015 were calculated based on the Companys standalone activity post-acquisition. The Successor has recorded a full valuation allowance against its net deferred tax assets in the amount of $37,988 as management has concluded the deferred tax assets are not more likely than not to be realized at December 31, 2015. In any event, if the valuation allowance was not recorded, deferred tax assets of $5.2 million would be unavailable to benefit the Company because of interest expense that was paid by an affiliate and not by the Company and therefore is not deductible in the Companys tax return (see Note 15 Related party transactions). In addition, Lone Star intends to enter into a Tax Receivables Agreement and accordingly, even in the event the Company generates taxable income in future periods, the Company may not realize the benefit of a large portion of the NOLs as the majority of the benefit would be paid to Lone Star. Historically, the U.S. companies were included in the consolidated U.S. income tax return and certain consolidated or unitary group state returns of LHI. The Companys deferred tax assets and liabilities for the period ending December 31, 2014 are determined on the hypothetical basis described above and do not reflect the amount that would be determined for the Company on a standalone basis. The federal and state net operating loss carryover amounts include interest deductions in the Successor period ended December 31, 2015 that are the result of carve-out accounting adjustments, which will
F-63
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
not be included in the actual net operating loss carryover available to reduce future tax liability. All hypothetical current taxes payable or receivable prior to March 13, 2015 are deemed settled through net parent investment. All tax attributers of the predecessor remain with HC under terms of the Acquisition.
Uncertain tax positions
The Company is subject to audit examinations at federal, state, local, and foreign levels by tax authorities in those jurisdictions who may challenge the treatment or reporting of any tax return item. The tax matters challenged by the tax authorities are typically complex; therefore, the ultimate outcomes of these challenges are subject to uncertainty. Taxable years after 2009 are still open for examination for the U.S. and Canada.
Each period the Company assesses uncertain tax positions for recognition, measurement and effective settlement. Benefits from uncertain tax positions are measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. Where it has been determined that our tax return filing position does not satisfy the more-likely-than-not recognition threshold, no tax benefits are recorded. The Company has uncertain tax positions related to its Canadian operations that are subject to an indemnification from HC.
14. Commitments and contingencies
As of December 31, 2015, the Company had outstanding surety bonds in the amount of $121.3 million to secure performance commitments. The Company also had letters of credit outstanding of $15.8 million with no amounts withdrawn as of December 31, 2015.
The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the Companys combined financial position, results of operations, or liquidity. Other than routine litigation incidental to the Companys business, there are no material legal proceedings to which the Company is a party or to which any of the Companys properties are subject.
In connection with the Earn-out contingency described in Note 3, the Acquisition included contingent consideration of up to $100.0 million if and to the extent the 2015 financial results of the businesses acquired by Lone Star in the Acquisition, including the Company and Forterra UK, exceeded a specified Adjusted EBITDA target for fiscal year 2015, as calculated pursuant to the terms of the purchase agreement. If such Adjusted EBITDA calculation exceeds the specified target, LSF9, and therefore, Forterra would be required to pay HC an amount equal to a multiple of such excess Adjusted EBITDA, with any payment capped at $100.0 million. In April 2016, the Company provided an earn-out statement to HC demonstrating that no payment was required. On June 13, 2016, HC provided notification that it is disputing, among other things, the Companys calculation of Adjusted EBITDA under the purchase agreement and asserting that a payment should be made in the amount of $100.0 million. The Company does not believe HCs position has merit and intends to vigorously oppose HCs assertions. As of December 31, 2015, no liability for this contingency has been accrued as payment of any earn-out is not considered probable. However, the outcome of this matter is uncertain, and no assurance can be given to the ultimate outcome of the resulting proceedings. If LSF9 is unsuccessful in resolving the dispute, the Company could recognize a material charge to its earnings.
F-64
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Operating leases
The Company leases certain property and equipment for various periods under non-cancelable operating leases. Future minimum lease payments under such agreements as of December 31, 2015 were approximately:
2016 |
$ | 2,691 | ||
2017 |
2,061 | |||
2018 |
1,707 | |||
2019 |
775 | |||
2020 |
526 | |||
Thereafter |
2,504 | |||
|
|
|||
$ | 10,264 | |||
|
|
Long-term incentive plan
Following the Acquisition the Company implemented a cash-based long term incentive plan (the LTIP), which entitles the participants in the LTIP a potential cash payout upon a monetization event as defined by the LTIP. Potential monetization events include the sale of the Company, an initial public offering where Lone Star reduces its ownership interest in the Company below 50% or at Lone Stars discretion, or through certain cash distribution as defined in the LTIP. Before the payout of any cash the LTIP requires Lone Star receive a return of their investment plus a specified internal rate of return, which is calculated by comparing the return to Lone Star over the timeline of the investment in the Company. As of December 31, 2015, no such monetization events had occurred, and therefore no amounts were accrued in the accompanying combined balance sheet as of December 31, 2015. The Company is contemplating an initial public offering as early as the third quarter of 2016, but the initial public offering is not expected to reach the required return on investment to trigger a payout under the LTIP.
Asset retirement obligations (ARO)
The Company incurs reclamation obligations as part of its brick production processes. The Company recognizes the present value of the fair value of a legally enforceable liability representing an asset retirement obligation in the period in which it is incurred. Accretion of the liability is recorded in other operating income. It also recognizes an asset representing the anticipated costs of dismantling machinery and equipment (tear-down costs) and depreciates the asset over the remaining life of the equipment. The Company recorded the following ARO liabilities as of December 31, 2015 and 2014:
Successor | Predecessor | |||||||
December 31,
2015 |
December 31,
2014 |
|||||||
Beginning balance |
$ | 1,885 | $ | 1,515 | ||||
Reclamation adjustment |
24 | 170 | ||||||
FV adjustment |
(139 | ) | | |||||
Locations sold |
(248 | ) | | |||||
Spend |
(262 | ) | | |||||
Accretion |
93 | 200 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 1,353 | $ | 1,885 | ||||
Current portion |
(415 | ) | (248 | ) | ||||
|
|
|
|
|||||
Long-term portion |
$ | 938 | $ | 1,637 | ||||
|
|
|
|
F-65
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
15. Related party transactions
Predecessor
Parent company net investment
During the Predecessor period the combined Predecessor financial statements for the Company are based on the accounting records of HC. Within these records, each subsidiary of BP has its own equity accounts in the books and records, as well as intercompany balances due (to)/from affiliates and operations within HC. These intercompany balances are considered by HC as part of the capital structure of these entities and are not regularly settled in cash with the affiliate counterparties. Therefore, these intercompany balances act as clearing accounts between the parties and consist of the accumulated net transactions between the Company and other entities and operations of HC and may include both operating items (allocated expenses and purchases of services and materials) and equity items (transfers of assets, cash and dividends). The Company has recorded all such equity and intercompany balances in a single caption, Parent company net investment.
The following table presents the components of net transfers to Parent for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013 were as follows:
Net transfer category |
2015 | 2014 | 2013 | |||||||||
Cash clearing and other financing activities |
$ | 64,280 | $ | 3,092 | $ | 486 | ||||||
Corporate allocations |
(4,112 | ) | (23,576 | ) | (29,373 | ) | ||||||
Contribution of net assets to Parent |
| (32,459 | ) | | ||||||||
Current income taxes federal and state |
742 | (3,133 | ) | (2,561 | ) | |||||||
|
|
|
|
|
|
|||||||
$ | 60,910 | $ | (56,076 | ) | $ | (31,448 | ) | |||||
|
|
|
|
|
|
Allocated expenses
The Company was allocated selling, general and administrative expenses from the Parent for certain shared services of $4,112, $23,576 and $29,373 for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013, respectively. The allocated costs are included in costs of goods sold or selling, general and administrative expenses in the combined Predecessor statements of operations. The historical costs and expenses reflected in our combined financial statements include an allocation for certain corporate functions historically provided by HC or its wholly-owned subsidiaries. Substantially all of the Predecessors senior management was employed by HC and certain functions critical to the Predecessors operations were centralized and managed by HC. Historically, the centralized functions have included executive senior management, financial reporting, financial planning and analysis, accounting, shared services, information technology, tax, risk management, treasury, legal, human resources, land management and strategy and development. Additionally, the Company temporarily rented office space provided by affiliates of HC. The cost of each of these services has been allocated to the Predecessor on the basis of the Predecessors relative net sales or head count as compared to that of HC depending upon which allocation methodology is more meaningful for each service. The Company and HC believe that these allocations reasonably reflect the utilization of services provided and benefits received by the Predecessor. However, these amounts are not necessarily representative of the amounts that would have been incurred by the Predecessor as a separate entity.
F-66
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Successor
Contributed capital
The initial contributed capital of LSF9 allocated to the Company was $167.5 million at the date of the Acquisition. During the period from March 14, 2015 to December 31, 2015, the Company paid certain transaction and other costs for affiliates that are recorded as distributions in these financial statements. Likewise, an affiliate not included in these financial statements paid $14.9 million of interest on behalf of the Company. The above activity is recorded net as a return of contributed capital of $27,613 in these financial statements.
Transition Services Agreement (TSA)
The Company is no longer part of HC and its affiliates, but did have a Transition Services Agreement with HC providing for corporate overhead services. Per the TSA, the services are to be provided to the Successor for a period of up to 18 months, and may be terminated at will with proper notice by the Successor. The initial services provided primarily consisted of certain accounting, information technology, human resources, and other general and administrative services associated with the Successors transition to a stand-alone company.
Cement Supply Agreement
The Company entered into an agreement with HC and its affiliates for the continued supply of cement, in which the Company agreed to source a minimum percentage of such materials consumed at prevailing market prices as defined in the agreements.
Hudson Advisors
The Company has an advisory agreement with Hudson Advisors, 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 incurred fees totaling $9,151 for the period March 14 through December 31, 2015 for these services included in selling, general and administrative costs on the combined Successor statement of operations. For fiscal year 2014 and 2013, no services were provided.
Related party payables and activity
The Predecessor had net payables to affiliates totaling $0.7 million at December 31, 2014 that were net settled in consummation of the Acquisition. At December 31, 2015, the Successor has payables to affiliates totaling $3.2 million that are regularly settled in cash. Purchases of raw materials from affiliates of the Predecessor for the years ended December 31, 2014 and 2013 were $45.4 million and $47.2 million, respectively.
16. Segment reporting
During the Successor period in 2015, the Company realigned its business segment reporting structure as a result of the change in the Chief Operating Decision Maker (CODM). The segment data below reflects business segment information as managed by the Successor, and comparative financial data for the historical periods of the Predecessor have been presented to conform to the current segment structure. The accounting policies for our segments follow the Companys accounting policies.
F-67
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Segment information is presented in accordance with ASC 280, Segment Reporting (ASC 280), which establishes standards for reporting information about operating segments. It also establishes standards for related disclosures about products and geographic areas. Operating segments are defined as components of an enterprise that engage in business activities that earn revenues, incur expenses and prepare separate financial information that is evaluated regularly by the Companys chief operating decision maker in order to allocate resources and assess performance. The Corporate and Other segment includes expenses related to certain executive salaries, interest costs related to long-term debt, acquisition related costs, and other corporate costs that are not directly attributable to our operating segments.
Net sales from the major products sold to external customers include drainage pipe and precast products, concrete and steel water transmission pipe, and clay bricks and concrete blocks.
The Companys two geographic areas consist of the United States and Canada for which it reports net sales, fixed assets and total assets. For purposes of evaluating segment profit, the CODM reviews EBITDA as a basis for making the decisions to allocate resources and assess performance.
F-68
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The following tables set forth reportable segment information of the Company with respect to net sales and other financial information attributable to our reportable segments for the period from March 14, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013:
Successor For the period March 14 - December 31, 2015: |
Drainage
Pipe & Products |
Water Pipe
& Products |
Bricks |
Corporate
and Other |
Total | |||||||||||||||
Net sales |
$ | 431,723 | $ | 167,417 | $ | 118,389 | $ | 5,135 | $ | 722,664 | ||||||||||
Income (loss) from continuing operations before income taxes |
48,216 | 6,824 | (8,401 | ) | (123,647 | ) | (77,008 | ) | ||||||||||||
Depreciation and amortization |
16,792 | 7,944 | 7,680 | 514 | 32,930 | |||||||||||||||
Interest (income)/expense |
(5 | ) | | 181 | 45,777 | 45,953 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 65,003 | $ | 14,768 | $ | (540 | ) | $ | (77,356 | ) | $ | 1,875 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 10,648 | $ | 4,719 | $ | 4,677 | $ | | $ | 20,044 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets as of December 31, 2015 |
$ | 626,477 | $ | 136,909 | $ | 147,699 | $ | 27,790 | $ | 938,875 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Predecessor For the period January 1 - March 13, 2015: |
Drainage
Pipe & Products |
Water Pipe
& Products |
Bricks |
Corporate
and Other |
Total | |||||||||||||||
Net sales |
$ | 79,341 | $ | 30,464 | $ | 19,922 | $ | 2,893 | $ | 132,620 | ||||||||||
Income (loss) from continuing operations before income taxes |
8,839 | (3,192 | ) | (4,000 | ) | (8,145 | ) | (6,498 | ) | |||||||||||
Depreciation and amortization |
3,231 | 1,030 | 2,505 | 128 | 6,894 | |||||||||||||||
Interest (income)/expense |
| | 18 | 66 | 84 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 12,070 | $ | (2,162 | ) | $ | (1,477 | ) | $ | (7,951 | ) | $ | 480 | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 621 | $ | 1,851 | $ | 272 | $ | | $ | 2,744 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the year ended December 31, 2014: |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate
and Other |
Total | |||||||||||||||
Net sales |
$ | 436,754 | $ | 149,864 | $ | 139,537 | $ | 10,808 | $ | 736,963 | ||||||||||
Income (loss) from continuing operations before income taxes |
64,686 | 6,412 | (2,078 | ) | (59,015 | ) | 10,005 | |||||||||||||
Depreciation and amortization |
16,011 | 4,968 | 12,981 | 2,645 | 36,605 | |||||||||||||||
Interest (income)/expense |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 80,697 | $ | 11,380 | $ | 10,903 | $ | (56,370 | ) | $ | 46,610 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 7,386 | $ | 13,403 | $ | 4,505 | $ | | $ | 25,294 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets as of December 31, 2014 |
$ | 455,050 | $ | 188,889 | $ | 190,591 | $ | 11,638 | $ | 846,168 | ||||||||||
|
|
|
|
|
|
|
|
|
|
F-69
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
For the year ended December 31, 2013: |
Drainage
Pipe & Products |
Water
Pipe & Products |
Bricks |
Corporate
and Other |
Total | |||||||||||||||
Net sales |
$ | 372,060 | $ | 171,773 | $ | 145,500 | $ | 8,615 | $ | 697,948 | ||||||||||
Income (loss) from continuing operations before income taxes |
10,937 | (218,555 | ) | 2,594 | (36,695 | ) | (241,719 | ) | ||||||||||||
Depreciation and amortization |
17,396 | 4,929 | 14,163 | 2,072 | 38,560 | |||||||||||||||
Interest (income)/expense |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
EBITDA |
$ | 28,333 | $ | (213,626 | ) | $ | 16,757 | $ | (34,623 | ) | $ | (203,159 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Capital expenditures |
$ | 3,263 | $ | 4,279 | $ | 2,889 | $ | 136 | $ | 10,567 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The Water Pipe & Products segment net loss of $218,903 for the year ended December 31, 2013 is inclusive of $248,650 of impairment charges to property, plant and equipment, and goodwill.
In addition, the Company also has an investment in an equity method investee included in the following segment:
Successor | Predecessor | |||||||
At December 31,
2015 |
At December 31,
2014 |
|||||||
Drainage Pipe & Products |
$ | 56,289 | $ | 47,452 | ||||
|
|
|
|
The Company is also required by ASC 280 to disclose additional information related to geographic location. The Company has operations in both the United States and Canada. The Company has both property, plant and equipment and net sales in each country and those property, plant and equipment and net sales are recorded within each applicable geographic location as follows:
Net Sales | ||||||||||||||||
Successor | Predecessor | |||||||||||||||
For the period from
March 14 to December 31, |
For the period from
January 1 to March 13, |
Years ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
United States |
$ | 585,809 | $ | 112,299 | $ | 592,959 | $ | 559,169 | ||||||||
Canada |
136,855 | 20,321 | 144,004 | 138,779 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 722,664 | $ | 132,620 | $ | 736,963 | $ | 697,948 | |||||||||
|
|
|
|
|
|
|
|
F-70
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
17. Discontinued operations and assets held for sale
In the Predecessor periods, certain plants and facilities were determined to be outside of the scope of the Acquisition, and as such were presented as held for sale on the combined balance sheets and discontinued operations on the combined statements of operations. As of September 30, 2014, the Company distributed $16,421 representing the net assets of the Maple Grove structural precast manufacturing business (Maple Grove) in the United States to HC. HC sold Maple Grove to a third party on October 31, 2014; therefore, the results of Maple Grove operations through September 30, 2014 and for the years ended December 31, 2014 and 2013 are reflected as discontinued operations. Cash flows relating to all plants that met the ASC 360 criteria for held for sale classification as of December 31, 2014 are included in discontinued operations.
The following table shows the components of discontinued operations for the years ended December 31, 2014 and 2013:
Predecessor | ||||||||
December 31, | ||||||||
2014 | 2013 | |||||||
Revenues |
$ | 34,824 | $ | 35,079 | ||||
|
|
|
|
|||||
Gain (loss) from operations of discontinued operations before income tax |
1,976 | (2,844 | ) | |||||
Gain (loss) on disposal of discontinued operations |
| (174 | ) | |||||
Income tax benefit (expense) from discontinued operations |
(716 | ) | | |||||
|
|
|
|
|||||
Gain (loss) on discontinued operations, net of tax |
$ | 1,260 | $ | (3,018 | ) | |||
|
|
|
|
Cash flows relating to all plants that met the ASC 360 criteria for held for sale classification as of December 31, 2013 are included in discontinued operations for all periods presented if those plants were part of a component that was disposed of during the periods presented.
In 2013, the Company sold its roof tile business in the western region of the United States for total proceeds of $1,847, resulting in a loss of $174. The Company no longer operates a roof tile business in the western region of the United States.
18. Impairment and restructuring charges
The Company recorded impairment and restructuring charges for the period from March 1, 2015 to December 31, 2015, for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013 as follows:
Successor | Predecessor | |||||||||||||||
For the period
from March 14 to December 31, |
For the period
from January 1 to March 13, |
For the years ended
December 31, |
||||||||||||||
2015 | 2015 | 2014 | 2013 | |||||||||||||
Impairment of property, plant and equipment (Note 6) |
$ | 1,088 | $ | 27 | $ | 3,977 | $ | 12,011 | ||||||||
Restructuring charges |
97 | 515 | 242 | 1,927 | ||||||||||||
Impairment of goodwill and other intangibles (Note 7) |
| | | 236,639 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,185 | $ | 542 | $ | 4,219 | $ | 250,577 | |||||||||
|
|
|
|
|
|
|
|
F-71
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The Company periodically initiates programs to reduce costs and improve operating effectiveness. These programs include the closing of plants and the termination of portions of the workforce. As part of these plans, the Company incurs severance, lease and other contract termination costs.
19. Investments in equity method investee
On July 20, 2012, the Company entered into a joint venture agreement with a company that produces concrete pipe and precast to form Concrete Pipe & Precast LLC (CP&P). The Company contributed plant assets and related inventory from nine operating locations as part of the agreement to form CP&P and in return for the contribution the Company obtained a 50% ownership stake in the joint venture through its 500 Common Unit voting shares in CP&P. The Company owns 50% of CP&P voting common stock. The Company also received 150 preferred units redeemable for $100 each, or a $15,000 preferred interest in CP&P, for which the Company received a preferred return of $209 and $437 during 2014 and 2013, respectively, which is included in other income in the combined statements of operations.
The Company has recorded its investment in the Common Unit voting shares in accordance with ASC 323, Investments Equity Method and Joint Ventures (ASC 323), under the equity method of accounting. The preferred interest is accounted for by the Company as an interest-bearing receivable. In July 2014, the Companys 150 preferred units in the amount of $15,000 were redeemed for cash.
As part of the Acquisition the Company determined the fair value of the assets purchased, including its investment in CP&P, in accordance with ASC 805. As part of that process the Company assigned a value of $56,335 to the investment as of the date of Acquisition. As of December 31, 2015 and 2014, the Companys investment in CP&P amounted to $56,289 and $47,452, respectively. At December 31, 2015, the difference between the amount at which the Companys investment is carried and the amount of the Companys share of the underlying equity in net assets of CP&P was approximately $13,605. This difference relates to the Companys fair value assessment of the investment as part of the Acquisition, and this basis difference was primarily attributed to the value of land and equity method goodwill associated with the investment.
Select historical financial data of the investee is as follows (unaudited):
At December 31,
2015 |
At December 31,
2014 |
|||||||||||
Current assets |
$ | 30,922 | $ | 26,067 | ||||||||
Non-current assets |
72,513 | 75,264 | ||||||||||
Current liabilities |
13,297 | 11,459 | ||||||||||
Non-current liabilities |
20,319 | 18,542 | ||||||||||
For the years ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Net sales |
$ | 123,888 | $ | 111,753 | $ | 100,150 | ||||||
Gross profit |
29,508 | 21,750 | 15,278 | |||||||||
Income from operations |
15,049 | 8,333 | 4,120 | |||||||||
Net income |
16,090 | 8,746 | 259 |
F-72
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
20. Contract revenue
Certain of the Companys businesses recognize contract revenue from their engineering and construction as well as building contracting arrangements using the percentage of completion method.
Revenue recognized in excess of amounts billed is classified as a current asset within receivables, net on the combined balance sheets. Amounts billed to clients in excess of revenue recognized to date are classified as a current liability within deferred revenue on the combined balance sheets. Revenues recognized in excess of billings were $2,288 and $1,281 as of December 31, 2015 and 2014, respectively. The Company anticipates that substantially all incurred cost associated with contract work in progress as of December 31, 2015 will be billed and collected in 2016. Billings in excess of revenue recognized was $2,457 and $1,423 as of December 31, 2015 and 2014, respectively. Additionally, the Company also records balances billed, but not yet paid by customers under retainage provisions related to these contracts as part of receivables, net, within the combined balance sheets. The amount of receivables due under retainage provisions as of December 31, 2015 and 2014 was $1,227 and $1,419, respectively.
Certain of the Companys businesses also enter into agreements to provide inventory to customers for long-term construction projects. Revenue recognition is based on shipments of the respective goods ordered by the customer as these shipments represent substantive performance. The billings for these goods manufactured for the customer are based on contract terms and may or may not coincide with shipments of the goods, which gives rise to either unbilled or deferred revenue. The Company records revenue recognized in excess of amounts billed as a current asset within receivables, net on the combined balance sheets.
Revenue recognized in excess of billings for these contractual arrangements were $7,453 and $3,537 as of December 31, 2015 and 2014, respectively. Amounts billed to clients in excess of revenue recognized to date are classified as a current liability within deferred revenue on the combined predecessor balance sheets. Billings in excess of revenue recognized for these milestone contracts were $18,186 and $10,097 as of December 31, 2015 and 2014, respectively. Additionally, the Company also records balances billed, but not yet paid by customers under retainage provisions as part of trade receivables, net, within the combined balance sheets. The amount of receivables due under retainage provisions as of December 31, 2015 and 2014 was $826 and $874, respectively.
21. Employee benefit plans
Defined Contribution Plans - Successor
Subsequent to the Acquisition, the Companys employees, including employees covered by collective bargaining agreements were able to participate in 401K defined contribution plans. The Company contributes funds into the plans subject to certain limits. For the period March 14, 2015 through December 31, 2015, the Company recorded an expense of $8,244 for these contributions. From January 1 through March 13, 2015, the Company recorded an expense of $1,724 for the Predecessors participation in a similar plan sponsored by HC.
The Companys employees that are covered by collective bargaining agreements were historically participants in several union-sponsored, multi-employer pension plans (union-sponsored plans) for all periods included in the Predecessor financial statements. Neither the Company nor HC or its affiliates administered the union-sponsored plans. Contributions to the plans were determined in accordance with the provisions of negotiated labor contracts. The plans were accounted for as defined
F-73
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
contribution plans as it is not possible to isolate the components of such plans that would collectively comprise the Companys liability. In the event of plan termination or the Companys withdrawal from a multi-employer plan, the Company may be liable for a portion of the plans unfunded vested benefit obligation, if any. In connection with the Acquisition, HC indemnified the Successor against liabilities that might arise as a result of withdrawal from the plans, net of any tax benefit that might result from tax deductible payments to settle the withdrawal liability. As of December 31, 2015, the Company had no remaining employees covered by multi-employer plans. The Company has received one notice of its exit liability from the associated plan. Affiliates of HC have reimbursed the Company for the exit liability, net of estimated federal income tax subsequent to year end. The remaining plans have not communicated amounts associated with the Companys exit from the plans and Company has not recorded an associated liability as the amount of the liability, if any, not estimable.
Defined Benefit Pension Plans and Other Post-Retirement Benefits - Predecessor
Employees of the Predecessor participated in defined benefit plans as described below that were both sponsored by the Predecessor and sponsored by others. The combined Predecessor financial statements have been prepared on a historical basis reflecting the applicable liabilities and financial statement disclosures related to the defined benefit plans participated in under HC. The defined benefit obligations and disclosures do not necessarily reflect the costs the Predecessor would have incurred as a stand-alone entity. The related pension and post-retirement benefit liabilities were previously allocated to the Predecessor but were retained by HC subsequent to the Acquisition of the Company.
Canadian employee benefit plans
The Canadian companies within the Predecessor sponsored several qualified and nonqualified pension plans and other postretirement benefit plans (OPEB) for substantially all of their employees. Such plans are defined benefit plans. The benefits provided under these plans are based primarily on years of credited service and final average pensionable pay as defined under the respective plan provisions. Contributions totaled $2,028 for the year ended December 31, 2014.
The Predecessors plan assets were accounted for at fair value. The Predecessors asset allocations by level within the fair value hierarchy as of December 31, 2014 are presented in the table below for the Predecessors defined benefit plans:
Asset Class: | Level 1 | Level 2 | Total | |||||||||
Equity |
$ | | $ | 14,226 | $ | 14,226 | ||||||
Fixed Income |
| 25,292 | 25,292 | |||||||||
|
|
|
|
|
|
|||||||
Fair value of plan assets |
$ | | $ | 39,518 | $ | 39,518 | ||||||
|
|
|
|
|
|
Fixed income funds include investments in government obligations, corporate bonds, agency obligations and asset-backed securities.
F-74
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
Amounts recognized on the combined Predecessor balance sheet as of December 31, 2014 were:
Pension Benefits |
Other
Postretirement Benefits |
|||||||||||||||
Overfunded
Plans |
Underfunded
Plans |
Total | ||||||||||||||
Benefit obligation |
$ | (4,579 | ) | $ | (38,999 | ) | $ | (9,261 | ) | $ | (52,839 | ) | ||||
Fair value of plan assets |
4,598 | 34,920 | | 39,518 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Funded status |
19 | (4,079 | ) | (9,261 | ) | (13,321 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance sheet recognition: |
||||||||||||||||
Non-current benefit asset |
19 | | | 19 | ||||||||||||
Non-current benefit liability |
| (4,079 | ) | (8,952 | ) | (13,031 | ) | |||||||||
Current benefit liability |
| | (309 | ) | (309 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 19 | $ | (4,079 | ) | $ | (9,261 | ) | $ | (13,321 | ) | ||||||
|
|
|
|
|
|
|
|
Reconciliation of pension obligations and plan assets
The reconciliation of the beginning and ending balances of the pension obligation and the fair value of the plans assets for the Canadian defined benefit retirement plans and other postretirement benefits for the year ended December 31, 2014, are as follows:
Pension
Benefits |
Other
Postretirement Benefits |
Total | ||||||||||
Benefit obligation at December 31, 2013 |
$ | 42,067 | $ | 8,880 | $ | 50,947 | ||||||
Service cost |
829 | 50 | 879 | |||||||||
Interest cost |
1,867 | 395 | 2,262 | |||||||||
Employee contributions |
66 | | 66 | |||||||||
Actuarial losses, net |
5,482 | 1,071 | 6,553 | |||||||||
Gross Benefits Paid |
(2,811 | ) | (304 | ) | (3,115 | ) | ||||||
Exchange rate changes |
(3,922 | ) | (831 | ) | (4,753 | ) | ||||||
|
|
|
|
|
|
|||||||
Benefit obligation at December 31, 2014 |
$ | 43,578 | $ | 9,261 | $ | 52,839 | ||||||
|
|
|
|
|
|
|||||||
Pension
Benefits |
Other
Postretirement Benefits |
Total | ||||||||||
Fair value of plan assets at December 31, 2013 |
$ | 38,692 | $ | | $ | 38,692 | ||||||
Actual return on plan assets |
5,425 | | 5,425 | |||||||||
Employer contributions |
1,724 | 304 | 2,028 | |||||||||
Employee contributions |
66 | | 66 | |||||||||
Benefits paid |
(2,811 | ) | (304 | ) | (3,115 | ) | ||||||
Exchange rate changes |
(3,578 | ) | | (3,578 | ) | |||||||
|
|
|
|
|
|
|||||||
Fair value of plan assets at December 31, 2014 |
$ | 39,518 | $ | | $ | 39,518 | ||||||
|
|
|
|
|
|
The unrecognized net actuarial loss (gain) recorded in Accumulated other comprehensive loss, pretax, for the year ended December 31, 2014 are $5,482 related to pension benefits and $1,071 related to other postretirement benefits.
F-75
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
The components of net periodic pension costs for retirement benefits for the Canadian pension and other postretirement benefits are summarized below for the years ended December 31, 2014 and 2013:
Pension Benefits | ||||||||
2014 | 2013 | |||||||
Service cost |
$ | 829 | $ | 948 | ||||
Interest cost |
1,867 | 1,865 | ||||||
Expected return on plan assets |
(1,853 | ) | (1,925 | ) | ||||
Curtailment gain recognized |
| | ||||||
Past service cost recognized |
19 | 20 | ||||||
Net loss/(gain) amortization |
300 | 616 | ||||||
|
|
|
|
|||||
Net Expense |
$ | 1,162 | $ | 1,524 | ||||
|
|
|
|
|||||
Other Postretirement
Benefits |
||||||||
2014 | 2013 | |||||||
Service cost |
$ | 50 | $ | 62 | ||||
Interest cost |
395 | 374 | ||||||
Expected return on plan assets |
| | ||||||
Curtailment gain recognized |
| | ||||||
Past service cost recognized |
(48 | ) | (52 | ) | ||||
Net loss/(gain) amortization |
| 20 | ||||||
|
|
|
|
|||||
Net Expense |
$ | 397 | $ | 404 | ||||
|
|
|
|
Pretax other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
2014 | 2013 | |||||||
Actuarial (gain) loss, net |
$ | 2,981 | $ | (6,087 | ) | |||
Amortization of net actuarial (gains) losses, net |
(300 | ) | 636 | |||||
Amortization of prior year service costs |
29 | (32 | ) | |||||
|
|
|
|
|||||
Net amount recognized in other comprehensive income (loss) |
$ | 2,710 | $ | (5,483 | ) | |||
|
|
|
|
U.S. employee benefit plans
The Predecessors U.S.-based employees were covered by defined benefit and defined contribution plans that were sponsored by others, including affiliates. There were no U.S. benefit plans sponsored by the Predecessor.
Plans sponsored by affiliates
Approximately 38% of the Predecessors active U.S.-based employees were vested in a defined benefit pension plan sponsored by LHI. This defined benefit plan covered other HC employees that are not employees of the Predecessor. LHI froze this defined benefit plan effective December 31, 2013 for all non-union U.S.-based employees, except for those who were within five years of their social security retirement date. LHI provided certain OPEB to eligible salaried and hourly non-union employees who have retired from the Predecessor, including primarily retiree health and life insurance
F-76
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
benefits. These OPEB benefits were frozen in 2006 for all U.S.-based non-union employees, except for a small number of grandfathered employees who met certain age and employment service criteria. Approximately 8% of the Predecessors active employees were grandfathered and eligible for retiree life insurance and retiree health care benefits should they retire with LHI at age 60 or later. Benefits, eligibility and cost-sharing provisions for hourly union employees vary by bargaining unit. Generally, the health care plans pay a stated percentage of most medical expenses, reduced for any deductible, copayment and payments made by government programs and other group coverage. In 2013, LHI announced changes to its retiree health care plans that covered retirees age 65 and older. This change did not impact any retirees who had retired under a collective bargaining agreement. Beginning in 2013, LHI stopped providing company-sponsored health care plans to retirees age 65 and older; rather it began providing a subsidy for each eligible retiree to purchase health care coverage best suited for his/her circumstance.
The related pension and OPEB have not been allocated to the Predecessor for the U.S. plans and have not been presented in the accompanying balance sheet since the obligation is and will remain a liability of the HC. The Predecessor recorded $1,642 and $1,634 for the years ended December 31, 2014 and 2013, respectively, in pension and other post-retirement benefits expense related to its U.S. employees, which has been reflected within costs of goods sold and selling, general and administrative expenses in the accompanying combined Predecessor statement of operations. The pension and OPEB expense recorded by the Predecessor for plans sponsored by affiliates includes expenses of $569 and $662, for the years ended December 31, 2014 and 2013, respectively, which are included in the allocated expenses described in Note 15.
LHI made contributions to the plans for the Predecessors employees that participate in pension and other post-retirement benefit plans sponsored by LHI. For purposes of these combined Predecessor financial statements the Predecessor accounts for its activities affecting these plans as if these single-employer plans sponsored by LHI were multi-employer plans in accordance with ASC 715.
LHI also sponsors several defined contribution pension plans covering substantially all of the Predecessors employees. Eligible employees may contribute a portion of their base compensation to the plans, and their contributions are matched by the Predecessor at rates specified in the plans. The Predecessor made contributions to the plans sponsored by LHI for its employees that participate in the plans. These contributions totaled $1,724, $8,936 and $8,683 for the period from January 1, 2015 to March 13, 2015 and for the years ended December 31, 2014 and 2013, respectively, which are recorded within costs of goods sold and selling, general, and administrative expenses in the combined Predecessor statement of operations. The recorded expenses related to the defined contribution pension plans are reflected within costs of goods sold and selling, general and administrative expenses in the accompanying combined Predecessor statements of operations. These expenses are not included in the allocated expenses described in Note 15.
22. Subsequent events
Sherman-Dixie Acquisition
On January 29, 2016 the Company purchased all of the outstanding stock of Sherman-Dixie Concrete Industries, Inc., a Tennessee corporation, which manufactures and sells concrete pipe, box culverts, precast concrete utility products, storm and sanitary civil engineered systems and specialty engineered retainage systems in the Southeast market for cash consideration of $66.8 million including
F-77
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
customary net working capital adjustments. Sherman-Dixie Concrete Industries, Inc. will operate as part of the Companys Drainage Pipe & Products reportable segment. The acquisition was financed through a draw on the Companys existing Revolver.
Sale-Leaseback Transaction
On April 5, 2016, the Company, through its subsidiaries in North America, sold properties in 47 sites throughout the U.S. and Canada to Pipe Portfolio Owner (Multi) LP and Fort-Ben Holdings (ONQC) Ltd. (collectively the Buyer) for an aggregate purchase price of approximately $204.3 million. On April 14, 2016, the Company sold additional properties in two sites located in the U.S. to Pipe Portfolio Owner (Multi) LP for an aggregate purchase price of approximately $11.9 million. The Company and Buyer contemporaneously entered into master land and building lease agreements under which the Company agreed to lease back each of the properties for an initial term of twenty years, followed by one optional renewal terms of 9 years 11 months. Leaseback rental will escalate annually by 2% during the initial term and based on changes in the Consumer Price Index capped at 4% during the optional renewal period. The net proceeds received from the sale leaseback transactions amounted to approximately $209.7 million, net of taxes and transaction costs.
The sale-leaseback transactions are considered to have one form of prohibited continuing involvement at the inception of the lease which preclude sale-leaseback accounting for transactions involving real estate in the combined financial statements of the Company because a guarantee by LSF9 provides the buyer-lessor with additional collateral that reduces the buyer-lessors risk of loss. As a result, the assets subject to the sale-leaseback will remain on the balance sheet of the Company and continue to be depreciated. The aggregate proceeds received are recorded as a financing obligation in the combined balance sheet.
U.S. Pipe Acquisition
The Company acquired substantially all of the stock of USP Holdings Inc., a ductile iron pipe producer, on April 15, 2016 for an initial purchase price of $775.1 million, which was funded with a $205.0 million borrowing by LSF9 on the Revolver, a portion of the proceeds of the above referenced sale-leaseback and a capital contribution of $402.1 million from our parent. USP Holdings Inc. will operate as part of the Companys Water Pipe & Products reportable segment.
Roof Tile Divestiture
On April 12, 2016, the Company entered into and closed a Stock Purchase Agreement to sell all of its ownership interest in its roof tile business for an initial price of $10.5 million, subject to customary working capital adjustments.
Changes to debt obligations and borrowing capacity
In April 2016, the Companys total borrowing capacity under its Revolver was increased from $250.0 million to $285.0 million.
In April 2016, LSF9 borrowed $205.0 million on the Revolver in order to finance the acquisition of US Pipe, as noted above, of which $203.4 million was repaid during April 2016 with proceeds from an affiliated entity controlled by LSF9 but not included among the legal entities that comprise Forterra. In
F-78
FORTERRA BUILDING PRODUCTS
Notes to Combined Financial Statements
(USD in thousands, unless stated otherwise)
connection with the additional proceeds obtained in April 2016 which benefited the Company, under ASC 405-40, Obligations Resulting from Joint and Several Liability Arrangements, the Company assumed an additional obligation of $203.4 million that was recognized as an increase to the Companys allocated share of LSF9s outstanding Senior Term Loan balance. The affiliated entity was subsequently released as a co-obligor and its joint and several liability under terms of all of the 3 rd party credit agreements. The increase in April 2016 in the Senior Term Loan recognizes the allocable amount of LSF9s outstanding obligation at that time that will be repaid by the Company. There are no further repayments by affiliates of the Company after April 2016.
On June 17, 2016, LSF9 borrowed an incremental $345.0 million on the Senior Term Loan and used the proceeds to pay a dividend of the same amount to the shareholders of LSF9. LSF9 incurred debt issuance fees and discount of $6.7 million in connection with the issuance of the debt. The incremental borrowings incur interest at the same rate as the Senior Term Loan (see Note 10) and matures in March 2022. Under ASC 405-40 Obligations Resulting from Joint and Several Liability Arrangements , Forterra will recognize the full amount of the incremental borrowing, net of related issuance costs and discount, as an obligation during the second quarter of 2016.
F-79
Balance Sheet at June 21, 2016 (inception)
F-80
Report of Independent Registered Public Accounting Firm
The Board of Directors and Management
Forterra, Inc.
We have audited the accompanying balance sheet of Forterra, Inc. as of June 21, 2016 (inception). This balance sheet is the responsibility of the Companys management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall balance sheet presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Forterra, Inc. at June 21, 2016 (inception), in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Dallas, Texas
July 8, 2016
F-81
Balance Sheet
At June 21, 2016 (inception)
The accompanying notes are an integral part of this balance sheet.
F-82
Notes to Balance Sheet
As of June 21, 2016 (inception)
1. Organization and Nature of the Business
Forterra, Inc. (the Company) was formed on June 21, 2016 (inception). The initial stockholder of the Company is LSF9 Stardust Holdings, L.P., which holds the 1,000 common shares authorized, issued and outstanding.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of financial position is prepared in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP). The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates or assumptions that affect the reported amounts and disclosures in the financial statements. Actual future results could differ from these estimates and assumptions.
On the date of incorporation, the sole shareholder, LSF9 Stardust Holdings, L.P. acquired 1,000 common shares of the Companys authorized common shares for a consideration of $0.01 per share, or total consideration of ten dollars.
F-83
Condensed Unaudited Consolidated Financial
Statements for six month period ended March 31,
2016 and March 31, 2015
F-84
Condensed Consolidated Balance Sheets (unaudited)
March 31,
2016 |
September 30,
2015 |
|||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 2,181,860 | $ | 4,259,576 | ||||
Trade receivables |
85,573,897 | 101,841,294 | ||||||
Inventories |
95,320,884 | 89,213,052 | ||||||
Other current assets |
10,387,766 | 4,234,587 | ||||||
Deferred income taxes |
2,446,158 | 2,597,008 | ||||||
|
|
|
|
|||||
Total current assets |
195,910,565 | 202,145,517 | ||||||
|
|
|
|
|||||
Noncurrent assets |
||||||||
Property, plant and equipment, net |
152,629,268 | 164,245,140 | ||||||
Intangibles, net |
19,004,764 | 20,075,427 | ||||||
Deferred financing costs, net |
3,030,687 | 3,694,531 | ||||||
Goodwill |
44,678,190 | 44,678,190 | ||||||
|
|
|
|
|||||
Total noncurrent assets |
219,342,909 | 232,693,288 | ||||||
|
|
|
|
|||||
Total assets |
$ | 415,253,474 | $ | 434,838,805 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities |
||||||||
Excess of checks over bank balances |
$ | 7,177,938 | $ | 3,371,861 | ||||
Trade payables |
29,882,856 | 40,870,530 | ||||||
Accrued expenses: |
||||||||
Compensation and related |
4,092,916 | 6,316,313 | ||||||
Rebates |
3,084,944 | 4,670,093 | ||||||
Backcharges |
1,414,220 | 1,634,781 | ||||||
Property tax |
846,736 | 1,961,139 | ||||||
Current portion workers compensation |
1,636,145 | 3,382,316 | ||||||
Other current liabilities |
6,584,113 | 5,569,847 | ||||||
Income taxes payable |
| 4,965,334 | ||||||
Revolver loan |
72,983,909 | 80,661,540 | ||||||
Current portion long-term debt |
9,352,882 | 9,352,882 | ||||||
|
|
|
|
|||||
Total current liabilities |
137,056,659 | 162,756,636 | ||||||
|
|
|
|
|||||
Noncurrent Liabilities |
||||||||
Long-term debt net of current portion |
169,273,422 | 173,949,863 | ||||||
Workers compensation net of current portion |
6,524,107 | 5,859,046 | ||||||
Deferred income taxes |
36,151,075 | 38,093,814 | ||||||
Postretirement benefit obligation |
2,523,797 | 2,862,394 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
214,472,401 | 220,765,117 | ||||||
|
|
|
|
|||||
Total liabilities |
351,529,060 | 383,521,753 | ||||||
|
|
|
|
|||||
Stockholders Equity |
||||||||
Preferred stock; $.001 par value; authorized 150,000 shares
|
| | ||||||
Common stock; $.001 par value; authorized 150,000 shares;
|
85 | 85 | ||||||
Additional paid in capital |
68,152,681 | 69,218,667 | ||||||
Accumulated deficit |
(45,080,030 | ) | (56,365,673 | ) | ||||
Accumulated other comprehensive income |
651,678 | 567,134 | ||||||
|
|
|
|
|||||
Total USP Holdings Inc. stockholders equity |
23,724,414 | 13,420,213 | ||||||
|
|
|
|
|||||
Noncontrolling interest |
40,000,000 | 37,896,839 | ||||||
|
|
|
|
|||||
Total stockholders equity |
63,724,414 | 51,317,052 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 415,253,474 | $ | 434,838,805 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-85
USP HOLDINGS INC.
Condensed Consolidated Statements of Operations (unaudited)
For The Six Months Ended March 31,
2016 | 2015 | |||||||
Net sales |
$ | 292,729,717 | $ | 287,695,483 | ||||
Cost of goods sold |
236,322,417 | 252,295,896 | ||||||
|
|
|
|
|||||
Gross profit |
56,407,300 | 35,399,587 | ||||||
|
|
|
|
|||||
Expenses: |
||||||||
Selling, general and administrative expenses |
25,652,010 | 23,929,312 | ||||||
Acquisition related costs (Note 2) |
| 958,938 | ||||||
Restructuring (Note 13) |
727,806 | | ||||||
Impairment of long-lived assets (Note 13) |
376,568 | | ||||||
Gain on fire related transactions (Note 14) |
(250,000 | ) | (3,553,848 | ) | ||||
Amortization of intangibles |
1,070,663 | 140,556 | ||||||
|
|
|
|
|||||
27,577,047 | 21,474,958 | |||||||
|
|
|
|
|||||
Income from operations |
28,830,253 | 13,924,629 | ||||||
|
|
|
|
|||||
Other income (expense): |
||||||||
Gain on bargain purchase of a business (Note 2) |
| 277,264 | ||||||
Amortization of deferred financing costs |
(663,844 | ) | (444,445 | ) | ||||
Interest income |
(422 | ) | 729 | |||||
Interest expense |
(10,829,227 | ) | (8,041,188 | ) | ||||
Other income, net |
652,353 | 44,461 | ||||||
|
|
|
|
|||||
(10,841,140 | ) | (8,163,179 | ) | |||||
|
|
|
|
|||||
Income before income taxes |
17,989,113 | 5,761,450 | ||||||
Income tax expense |
(5,702,528 | ) | (2,595,225 | ) | ||||
|
|
|
|
|||||
Net income |
12,286,585 | 3,166,225 | ||||||
Less: Net income noncontrolling interest |
1,000,942 | 760,097 | ||||||
|
|
|
|
|||||
Net income attributable to USP Holdings Inc. |
$ | 11,285,643 | $ | 2,406,128 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-86
USP HOLDINGS INC.
Condensed Consolidated Statements of Comprehensive Income (unaudited)
For The Six Months Ended March 31,
2016 | 2015 | |||||||
Net income |
$ | 12,286,585 | $ | 3,166,225 | ||||
Other comprehensive income: |
||||||||
Postretirement changes other than net periodic benefit cost, net of tax |
120,777 | 497,493 | ||||||
|
|
|
|
|||||
Comprehensive income |
12,407,362 | 3,663,718 | ||||||
Less: Comprehensive income attributable to noncontrolling interest |
1,037,175 | 909,345 | ||||||
|
|
|
|
|||||
Comprehensive income attributable to USP Holdings Inc. |
$ | 11,370,187 | $ | 2,754,373 | ||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-87
USP HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows (unaudited)
For The Six Months Ended March 31,
2016 | 2015 | |||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 12,286,585 | $ | 3,166,225 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation |
18,961,080 | 17,223,488 | ||||||
Amortization of deferred financing costs |
663,844 | 444,445 | ||||||
Impairment of long-lived assets |
376,568 | | ||||||
Amortization of intangibles |
1,070,663 | 140,556 | ||||||
Provision for doubtful accounts |
13,000 | (17,276 | ) | |||||
Loss on sale of property and equipment |
256,914 | 85,280 | ||||||
Deferred income taxes |
(1,791,889 | ) | 143,167 | |||||
Gain on bargain purchase of a business (Note 2) |
| (277,264 | ) | |||||
Changes in assets and liabilities, net of effect of business acquisitions: |
||||||||
Trade receivables, net |
16,254,397 | 11,736,655 | ||||||
Inventories |
(6,107,832 | ) | (3,177,221 | ) | ||||
Other assets |
(6,153,179 | ) | (6,034,449 | ) | ||||
Excess of checks over bank balances |
3,806,077 | 713,004 | ||||||
Accounts payable |
(11,052,726 | ) | (18,374,485 | ) | ||||
Accrued expenses and other current and long-term liabilities |
(5,428,174 | ) | (5,749,325 | ) | ||||
Income taxes payable |
(4,965,334 | ) | (1,531,646 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
18,189,994 | (1,508,846 | ) | |||||
|
|
|
|
|||||
Cash Flows from Investing Activities |
||||||||
Acquisition of businesses |
| (10,815,919 | ) | |||||
Purchase of property, plant and equipment |
(7,924,100 | ) | (8,644,118 | ) | ||||
Proceeds from sale of long-term assets |
10,462 | 134,599 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(7,913,638 | ) | (19,325,438 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities |
||||||||
Payments of deferred financing costs |
| (845,000 | ) | |||||
Repurchase of stock |
| (21,525,740 | ) | |||||
Distributions |
| (45,768,407 | ) | |||||
Net borrowings under revolver loan |
(7,677,631 | ) | 32,702,897 | |||||
Proceeds on long-term debt financing |
| 54,782,714 | ||||||
Principal payments on long-term debt financing |
(4,676,441 | ) | (1,279,087 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(12,354,072 | ) | 18,067,377 | |||||
|
|
|
|
|||||
Decrease in cash |
(2,077,716 | ) | (2,766,907 | ) | ||||
Cash: |
||||||||
Beginning of period |
4,259,576 | 3,675,087 | ||||||
|
|
|
|
|||||
End of period |
$ | 2,181,860 | $ | 908,180 | ||||
|
|
|
|
(Continued)
F-88
USP HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows (unaudited) (Continued)
For The Six Months Ended March 31,
2016 | 2015 | |||||||
Supplemental Disclosures of Cash Flow Information
|
$ | 10,935,437 | $ | 7,885,721 | ||||
|
|
|
|
|||||
Income taxes paid |
$ | 18,535,481 | $ | 9,354,373 | ||||
|
|
|
|
|||||
Supplemental Disclosure of Noncash Operating Activities |
||||||||
Postretirement changes other than net periodic benefit costs |
$ | 120,777 | $ | 497,493 | ||||
|
|
|
|
|||||
Supplemental Schedules of Noncash Investing and Financing Activities Acquisition of Businesses (Note 2) |
||||||||
Assets acquired |
$ | | $ | 12,817,587 | ||||
Liabilities assumed |
| (1,724,404 | ) | |||||
|
|
|
|
|||||
Net assets acquired |
| 11,093,183 | ||||||
Less gain on bargain purchase of a business (Note 2) |
| (277,264 | ) | |||||
|
|
|
|
|||||
$ | | $ | 10,815,919 | |||||
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
F-89
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: USP Holdings Inc. (the Company) is a diversified holding company, which owns entities that manufacture a broad line of ductile iron pipe, restraint joint products and other products. These products are sold primarily to waterworks distributors, contractors, municipalities, utilities and other governmental agencies, primarily in the United States, on credit terms approximating 60 days.
Preparation of Interim Financial Statements: Our unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
The condensed consolidated balance sheet at September 30, 2015 has been derived from, but does not include, all the disclosures contained in the audited consolidated financial statements as of and for the year ended September 30, 2015. In managements opinion, our unaudited condensed consolidated statements include all adjustments and accruals that are necessary for a fair presentation of the results of all interim periods reported herein and all such adjustments are of a normal, recurring nature.
The accompanying condensed consolidated financial statements include our accounts and the accounts of our wholly-owned direct and indirect subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
The preparation of these condensed consolidated financial statements requires management to make judgments and estimates that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results may differ from these estimates under different assumptions or conditions.
The interim financial statements contained in this report should be read in conjunction with the audited consolidated financial statements and footnotes thereto included in USP Holdings Inc. Consolidated Financial Report for the year ended September 30, 2015.
Recent accounting pronouncements : In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-09 Topic 606, Revenue from Contracts with Customers , and amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidance and provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that will be applied to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that the Company will recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that the Company expects to be entitled to in exchange for those goods or services. The standard allows either full or modified retrospective adoption. Early adoption is not permitted. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The new rules will become effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The principal-versus-agent implementation
F-90
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1. Nature of Business and Significant Accounting Policies(Continued)
guidance in ASC 2014-09 were modified by ASU 2016-08 issued in March 2016 as discussed below. The Company is in the process of evaluating the impact the amendment will have on the condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in ASU 2016-08, a specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer. Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. ASU 2016-08 has the same effective date as ASU 2014-09, as amended by ASU 2015-14. The Company is required to adopt ASU 2016-08 using the same transition method it uses to adopt ASU 2014-09. The Company is currently evaluating the impact the adoption of ASU 2014-09, ASU 2015-14 and ASU 2016-08 will have on its condensed consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring an entity to measure inventory within the scope of the ASU at the lower of cost and net realizable value. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating whether this ASU will have a material impact on its condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, defining 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 entitys going concern presumption. Substantial doubt about an entitys 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 the financial statements are issued. If substantial doubt exists, certain disclosures are required. The provisions of this ASU are 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 Companys disclosures.
In February 2015, the FASB issued ASU 2015-02 Topic 810, Amendments to the Consolidation Analysis . ASU 2015-02 amends current consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with variable interest entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. All legal entities are subject to reevaluation under the revised consolidation model. The adoption of ASU 2015-02 is not expected to have a material impact on the Companys condensed consolidated financial position, results of operations or cash flows.
F-91
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 1. Nature of Business and Significant Accounting Policies(Continued)
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), which requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in this update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement-period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company is still evaluating whether this ASU will have a material impact on its condensed consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 Topic 740, Balance Sheet Classification of Deferred Taxes , which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company is currently evaluating whether this ASU will have a material impact on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standards issuance date. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company believes this ASU will have a material impact on its condensed consolidated financial statements as it will result in most of the Companys leases and associated assets being presented on the balance sheet.
In August 2015, the FASB issued ASU 2015-15, as ASU 2015-03 did not specifically address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 allows an entity to continue to defer and present debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03 and ASU 2015-15 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. Had the Company adopted this guidance early, other assets would have been lower by approximately $3,060,687 and $3,694,531 with corresponding decreases in debt as of March 31, 2016 and September 30, 2015, respectively. The adoption of this standard will have no impact on the Companys results of operations, cash flows or net assets.
F-92
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2. Acquisition of Businesses
On December 16, 2014, the Company acquired substantially all of the assets of Metalfit (Metalfit, S.A. de C.V. and Metalfit, Inc.) for total consideration of $10,815,919. This transaction will allow the Company to grow by entering new markets. The assets acquired and liabilities assumed were recorded at their fair value. In connection with the transaction, the Company incurred $958,938 of transaction costs which are included in operating expenses for the six month period ended March 31, 2015.
The following tables summarize the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 10,815,919 | ||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 3,088,846 | ||
Inventory |
3,086,000 | |||
Prepaid expenses and other assets |
152,411 | |||
Property and equipment |
5,750,330 | |||
Intangibles customer relationships |
660,000 | |||
Intangibles non-compete |
20,000 | |||
Intangibles backlog of orders |
25,000 | |||
Intangibles trademarks |
35,000 | |||
|
|
|||
12,817,587 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Accounts payable and accrued expenses |
1,724,404 | |||
|
|
|||
1,724,404 | ||||
|
|
|||
Total identifiable net assets acquired |
11,093,183 | |||
Gain on bargain purchase of a business |
(277,264 | ) | ||
|
|
|||
$ | 10,815,919 | |||
|
|
Amount | Useful Life | |||||||
Intangibles customer relationships |
$ | 660,000 | 5 | |||||
Intangibles non-compete |
20,000 | 5 | ||||||
Intangibles backlog of orders |
25,000 | 1 | ||||||
Intangibles trademarks |
35,000 | 1 | ||||||
|
|
|||||||
$ | 740,000 | |||||||
|
|
|||||||
Weighted average useful life (in years) |
4.7 | |||||||
|
|
On August 10, 2015, the Company acquired the shares of Custom Fab, LLC for total consideration of $43,884,339. This transaction will allow the Company to realize significant synergy savings and provide better service to the customer base. The assets acquired and liabilities assumed were recorded at their fair value. In connection with the transaction, the Company incurred $1,162,703 of transaction costs which are included in operating expenses for the year ended September 30, 2015. Goodwill of $19,559,759 was recorded as part of the acquisition. Approximately $775,000 of the goodwill is deductible for income tax purposes.
F-93
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 2. Acquisition of Businesses(Continued)
The following tables summarize the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 43,071,848 | ||
Due to seller |
812,491 | |||
|
|
|||
$ | 43,884,339 | |||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 7,103,841 | ||
Inventory |
7,547,000 | |||
Prepaid expenses and other assets |
670,731 | |||
Property and equipment |
13,315,932 | |||
Intangibles customer relationships |
8,170,000 | |||
Intangibles non-compete |
460,000 | |||
Intangibles backlog of orders |
90,000 | |||
Intangibles trademarks |
2,550,000 | |||
|
|
|||
39,907,504 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Excess of checks over bank balances |
282,158 | |||
Accounts payable and accrued expenses |
8,051,240 | |||
Deferred income taxes |
7,249,526 | |||
|
|
|||
15,582,924 | ||||
|
|
|||
Total identifiable net assets acquired |
24,324,580 | |||
Goodwill |
19,559,759 | |||
|
|
|||
$ | 43,884,339 | |||
|
|
Amount | Useful Life | |||||||
Intangibles customer relationships |
$ | 8,170,000 | 6 | |||||
Intangibles non-compete |
460,000 | 5 | ||||||
Intangibles backlog of orders |
90,000 | 1 | ||||||
Intangibles trademarks |
2,550,000 | 10 | ||||||
|
|
|||||||
$ | 11,270,000 | |||||||
|
|
|||||||
Weighted average useful life (in years) |
6.8 | |||||||
|
|
F-94
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 3. Inventory
Inventory as of:
March 31,
2016 |
September 30,
2015 |
|||||||
Raw materials |
$ | 27,548,824 | $ | 28,492,730 | ||||
Work-in-process |
3,258,223 | 1,787,707 | ||||||
Finished goods |
48,614,071 | 45,098,645 | ||||||
Supplies |
16,420,577 | 14,589,761 | ||||||
|
|
|
|
|||||
95,841,695 | 89,968,843 | |||||||
Less: excess and obsolete reserve |
520,811 | 755,791 | ||||||
|
|
|
|
|||||
$ | 95,320,884 | $ | 89,213,052 | |||||
|
|
|
|
Note 4. Property and Equipment
Property and equipment as of:
March 31,
2016 |
September 30,
2015 |
|||||||
Machinery and equipment |
$ | 179,906,979 | $ | 176,660,673 | ||||
Land and mineral resources |
31,972,500 | 31,972,500 | ||||||
Buildings |
19,388,974 | 18,998,567 | ||||||
Pipe molds |
13,867,237 | 13,670,932 | ||||||
Construction in progress |
12,150,717 | 10,177,646 | ||||||
Land improvements |
3,543,154 | 3,282,911 | ||||||
Computer software |
1,172,453 | 1,104,867 | ||||||
|
|
|
|
|||||
262,002,014 | 255,868,096 | |||||||
Less: accumulated depreciation |
109,372,746 | 91,622,956 | ||||||
|
|
|
|
|||||
$ | 152,629,268 | $ | 164,245,140 | |||||
|
|
|
|
Depreciation expense was $18,961,080 and $17,223,488 for the six months ended March 31, 2016 and 2015, respectively.
F-95
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 5. Intangible Assets and Goodwill
The following is a summary of goodwill and intangible assets as of March 31, 2016:
Gross Carrying
Amount |
Accumulated
Amortization |
Carrying
Values |
Estimated
Useful Life |
|||||||||||||
Amortizing: |
||||||||||||||||
Trademarks |
$ | 3,685,000 | $ | 380,027 | $ | 3,304,973 | 1-14 years | |||||||||
Customer relationships |
9,210,000 | 1,182,141 | 8,027,859 | 5-6 years | ||||||||||||
Backlog of orders |
115,000 | 83,957 | 31,043 | 1 year | ||||||||||||
Non-compete |
535,000 | 97,111 | 437,889 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
13,545,000 | 1,743,236 | 11,801,764 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Non-amortizing: |
||||||||||||||||
Trademarks |
7,203,000 | | 7,203,000 | Indefinite | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 20,748,000 | $ | 1,743,236 | $ | 19,004,764 | |||||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 44,678,190 | $ | | $ | 44,678,190 | Indefinite | |||||||||
|
|
|
|
|
|
The following is a summary of goodwill and intangible assets as of September 30, 2015:
Gross Carrying
Amount |
Accumulated
Amortization |
Carrying
Values |
Estimated
Useful Life |
|||||||||||||
Amortizing: |
||||||||||||||||
Trademarks |
$ | 3,685,000 | $ | 192,424 | $ | 3,492,576 | 1-14 years | |||||||||
Customer relationships |
9,210,000 | 403,463 | 8,806,537 | 5-6 years | ||||||||||||
Backlog of orders |
115,000 | 31,069 | 83,931 | 1 year | ||||||||||||
Non-compete |
535,000 | 45,617 | 489,383 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
13,545,000 | 672,573 | 12,872,427 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Non-amortizing: |
||||||||||||||||
Trademarks |
7,203,000 | | 7,203,000 | Indefinite | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 20,748,000 | $ | 672,573 | $ | 20,075,427 | |||||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 44,678,190 | $ | | $ | 44,678,190 | Indefinite | |||||||||
|
|
|
|
|
|
Aggregate future annual amortization expense for amortizing intangible assets is as follows:
Years ending September 30, |
||||
2016 |
$ | 1,013,290 | ||
2017 |
1,997,571 | |||
2018 |
1,997,571 | |||
2019 |
1,986,536 | |||
2020 |
1,814,250 | |||
Thereafter |
2,992,546 | |||
|
|
|||
$ | 11,801,764 | |||
|
|
F-96
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 5. Intangible Assets and Goodwill (Continued)
Goodwill is not amortized. The Company reviews goodwill for impairment annually, and whenever events or changes in circumstances indicate its carrying amount may not be recoverable. Based on the Companys review for potential indicators of impairment performed during the six months ended March 31, 2016 and the fiscal year ended September 30, 2015, there were no indicators of impairment.
Note 6. Revolving Credit Facility
On August 10, 2015, the Company amended its credit agreement with a financial institution to increase the revolver loan to a commitment of $112,000,000 secured by inventory and accounts receivable. The revolver is subject to a borrowing base calculation that is derived from a percentage of eligible receivables and inventory. As of March 31, 2016, the revolver had borrowings of $72,983,909 and letters of credit of $3,350,000 outstanding with $25,539,177 remaining available on the commitment. The credit agreement contains a fixed charge ratio covenant and matures on July 23, 2018. As of March 31, 2016, the stated interest rate is prime rate (3.50% at March 31, 2016) plus an applicable margin based on the revolver average excess availability. The effective interest rate is 4.594% as of March 31, 2016. The revolver loan is included in current liabilities in the accompanying condensed consolidated balance sheets due to the fact that the credit agreement has a subjective acceleration clause and requires a traditional lockbox to be in place.
Note 7. Long-Term Debt
Long-term debt consists of:
March 31,
2016 |
September 30,
2015 |
|||||||
Term Loan 1 |
$ | 10,704,172 | $ | 11,596,186 | ||||
Term Loan 2 |
4,000,000 | 5,000,000 | ||||||
Term Loan 3 |
13,922,132 | 16,706,559 | ||||||
Subordinated Debt |
150,000,000 | 150,000,000 | ||||||
|
|
|
|
|||||
Total |
178,626,304 | 183,302,745 | ||||||
Less: Current Portion |
9,352,882 | 9,352,882 | ||||||
|
|
|
|
|||||
Total Long-Term Debt |
$ | 169,273,422 | $ | 173,949,863 | ||||
|
|
|
|
Annual principal payments on long-term debt for the following years is as follows:
Years ending September 30, |
||||
2016 |
$ | 4,676,440 | ||
2017 |
9,352,882 | |||
2018 |
14,596,982 | |||
2019 |
150,000,000 | |||
|
|
|||
$ | 178,626,304 | |||
|
|
Note 8. Commitments and contingencies
Legal Matters
The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the
F-97
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 8. Commitments and contingencies(Continued)
Companys financial position, results of operations, or liquidity. Other than routine litigation incidental to the Company business, there are no material legal proceedings to which the Company is a party or to which any of the Companys properties are subject .
Note 9. Related-Party Transactions
On April 2, 2012, the Company entered into a management agreement with Comvest Advisors, LLC and Wynnchurch Capital, Ltd, the managers of USP Holdings Inc. The Company has to pay an annual management fee related to services performed on the Companys operations and development and implementation of strategies for improving the operating, marketing and financial performance. This fee totaled $250,000 for each of the six months ended March 31, 2016 and 2015. As of March 31, 2016, $110,000 remained payable to the related parties and is included in other accrued expenses on the condensed consolidated balance sheet.
Note 10. Employee Benefit Plans
Postretirement Benefits Other than Pensions
The Company provides certain medical and life insurance benefits for certain retirees hired prior to November 21, 2004. The plan covers former union employees of the Griffin Pipe Council Bluffs location hired prior to November 21, 2004, former union employees of the Griffin Pipe Lynchburg location hired prior to November 24, 2002 and salaried and non-union employees of Griffin Pipe hired prior to October 1, 2001. The plan was amended in 2014 to eliminate the postretirement benefits for active employees.
The Company made contributions of $299,348 and $324,602 for the six month periods ended March 31, 2016 and 2015, respectively.
Net postretirement benefit cost for the six months ended March 31, 2016 and 2015 consisted of the following components:
Six months ended: | ||||||||
March 31,
2016 |
March 31,
2015 |
|||||||
Interest costs |
$ | 59,476 | $ | 86,302 | ||||
|
|
|
|
|||||
Net postretirement benefit cost |
$ | 59,476 | $ | 86,302 | ||||
|
|
|
|
Note 11. Stockholders Equity
Common Stock
Each share of common stock is entitled to one vote and shall be identical in all respects and shall entitle the holder to the same rights and privileges.
Stock options
On April 1, 2012, the Company created the USP Holdings Inc. 2012 stock option plan. The purpose of the plan is to promote the success and enhance the value of the Company by linking the personal interests of the members of the board of directors and key employees to those of the
F-98
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 11. Stockholders Equity(Continued)
Companys stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns for the Companys stockholders. The stock option plan provides for 7,494 options available to be awarded. The options that are awarded may be redeemed for cash or Company stock only upon the occurrence of a change in control event, as defined in the agreement, based on a prescribed formula, are not transferable and are forfeited upon termination of employment. Because full vesting is not complete until a change in control event is consummated, no compensation expense has been recorded for the six months ended March 31, 2016 and 2015. The plan was vested and settled as a part of the sale to Forterra Building Products on April 15, 2016 as referenced in Note 15 Subsequent Events.
Note 12. Griffin Pipe Products Co., LLC Council Bluffs Facility
The Council Bluffs, Iowa facility acquired during the Griffin acquisition was idled in April 2014 due to industry demand. The Company has retained maintenance personnel at the facility to exercise the equipment in anticipation of an eventual restart. During the 2015 planning process, the Company developed a detailed startup plan for the facility. The Company continuously monitors market demands and production requirements to assess the need for additional capacity and the restart of the facility.
At March 31, 2016, the Company believes there are no events or circumstances that indicate that the carrying amounts of these idle assets are not recoverable or exceed their fair value.
Since the date of acquisition, January 31, 2014, $11,040,089 was recorded in depreciation expense related to these assets. These assets are recorded in the noncurrent section of the Companys condensed consolidated balance sheet.
The following is a summary of idle assets:
March 31, 2016 |
September 30,
2015 |
|||||||
Machinery and equipment |
$ | 23,467,808 | $ | 23,419,808 | ||||
Land and mineral resources |
2,080,000 | 2,080,000 | ||||||
Buildings |
1,401,563 | 1,401,563 | ||||||
Pipe molds |
1,891,509 | 1,891,509 | ||||||
Construction in progress |
466,157 | 464,412 | ||||||
Computer software |
134,705 | 134,705 | ||||||
|
|
|
|
|||||
$ | 29,441,742 | $ | 29,391,997 | |||||
Less: accumulated depreciation |
11,040,089 | 8,388,011 | ||||||
|
|
|
|
|||||
$ | 18,401,653 | $ | 21,003,986 | |||||
|
|
|
|
Note 13. Restructuring Costs
During the six months ended March 31, 2016, the Company closed three plants located in Fontana, California, Portland, Oregon and Ocala, Florida. The plants were closed to save costs as production was consolidated into other plants in the geographic regions. The related charges are included in the restructuring, asset impairment and cost of goods sold lines in the Companys accompanying condensed consolidated statements of operations. The planned actions relating to this
F-99
USP HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
Note 13. Restructuring Costs(Continued)
restructure were substantially completed at the end of March 31, 2016 with some continuing costs at the Ocala, Florida location expected through the end of October 2016. The total cost expended in closing these plants during the six months ended March 31, 2016 was $1,365,884.
The following is a summary of the plant closure costs incurred during the six months ended March 31, 2016:
As of March 31, 2016 the Company had a remaining liability of approximately $17,000 for severance payment obligations.
Note: 14. Significant Event
On April 29, 2014, the Company experienced a fire at its Bessemer, Alabama manufacturing facility that damaged a production line.
The Company maintains insurance for both property damage and business interruption relating to catastrophic events. Business interruption covers lost profits and other costs incurred. Non-refundable insurance recoveries received in excess of the net book value of damaged assets, cleanup and post-event costs are recognized as income in the period received.
The Company received the final insurance recovery of $250,000 during the six months ended March 31, 2016 bringing the total insurance recoveries received related to this event to $9,291,239. No additional amounts are expected to be received related to insurance recoveries and no additional costs are expected to be incurred.
Note: 15. Subsequent Events
On April 15, 2016, the Company was acquired by Forterra Building Products (Forterra) pursuant to an agreement, dated as of February 12, 2016. Under the terms of the agreement, Forterra paid approximately $775.1 million in cash, subject to certain closing adjustments, for all outstanding shares of the Company, retirement of the existing indebtedness of approximately $253.4 million and retirement of the noncontrolling interest of $40.0 million as of the transaction closing date.
F-100
Consolidated Financial Report
September 30, 2015
F-101
To the Board of Directors
USP Holdings Inc.
Birmingham, Alabama
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of USP Holdings Inc. which comprise the consolidated balance sheets as of September 30, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders equity, and cash flows for each of the three years in the period ended September 30, 2015, and the related notes to the consolidated financial statements, (collectively financial statements).
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of USP Holdings Inc. as of September 30, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2015 in accordance with accounting principles generally accepted in the United States of America.
/s/ RSM US LLP
Schaumburg, Illinois
June 30, 2016
F-102
September 30,
2015 | 2014 | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash |
$ | 4,259,576 | $ | 3,675,087 | ||||
Accounts receivable, less allowance for doubtful accounts of $1,264,000 and $994,000 at September 30, 2015 and 2014, respectively |
101,841,294 | 89,948,780 | ||||||
Inventory, net |
89,213,052 | 79,718,509 | ||||||
Prepaid expenses and other current assets |
4,234,587 | 2,336,047 | ||||||
Deferred income taxes |
2,597,008 | 1,905,421 | ||||||
|
|
|
|
|||||
Total current assets |
202,145,517 | 177,583,844 | ||||||
|
|
|
|
|||||
Noncurrent assets |
||||||||
Property and equipment, net |
164,245,140 | 159,294,518 | ||||||
Intangibles, net |
20,075,427 | 8,777,091 | ||||||
Deferred financing costs, net |
3,694,531 | 3,553,264 | ||||||
Goodwill |
44,678,190 | 25,118,431 | ||||||
|
|
|
|
|||||
Total noncurrent assets |
232,693,288 | 196,743,304 | ||||||
|
|
|
|
|||||
Total assets |
$ | 434,838,805 | $ | 374,327,148 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current Liabilities |
||||||||
Excess of checks over bank balances |
$ | 3,371,861 | $ | 4,688,259 | ||||
Trade accounts payable |
40,870,530 | 52,487,679 | ||||||
Accrued expenses: |
||||||||
Compensation and related |
6,316,313 | 5,388,296 | ||||||
Rebates |
4,670,093 | 4,133,651 | ||||||
Backcharges |
1,634,781 | 701,267 | ||||||
Property tax |
1,961,139 | 2,240,170 | ||||||
Current portion workers compensation |
3,382,316 | 3,679,708 | ||||||
Restructuring |
||||||||
Other |
5,569,847 | 4,165,117 | ||||||
Income taxes payable |
4,965,334 | 1,531,646 | ||||||
Revolver loan |
80,661,540 | 41,257,780 | ||||||
Current portion long-term debt |
9,352,882 | 3,069,810 | ||||||
|
|
|
|
|||||
Total current liabilities |
162,756,636 | 123,343,383 | ||||||
|
|
|
|
|||||
Noncurrent Liabilities |
||||||||
Long-term debt net of current portion |
173,949,863 | 113,426,563 | ||||||
Workers compensation net of current portion |
5,859,046 | 7,750,730 | ||||||
Deferred income taxes |
38,093,814 | 32,751,062 | ||||||
Postretirement benefit obligation |
2,862,394 | 4,673,702 | ||||||
|
|
|
|
|||||
Total noncurrent liabilities |
220,765,117 | 158,602,057 | ||||||
|
|
|
|
|||||
Total liabilities |
383,521,753 | 281,945,440 | ||||||
|
|
|
|
|||||
Stockholders Equity |
||||||||
Preferred stock; $.001 par value; authorized 150,000 shares
|
| 21 | ||||||
Common stock; $.001 par value; authorized 150,000 shares;
|
85 | 85 | ||||||
Additional paid in capital |
69,218,667 | 97,531,386 | ||||||
Accumulated deficit |
(56,365,673 | ) | (32,374,329 | ) | ||||
Accumulated other comprehensive income (loss) |
567,134 | (129,356 | ) | |||||
|
|
|
|
|||||
Total USP Holdings Inc. stockholders equity |
13,420,213 | 65,027,807 | ||||||
|
|
|
|
|||||
Noncontrolling interest |
37,896,839 | 27,353,901 | ||||||
|
|
|
|
|||||
Total stockholders equity |
51,317,052 | 92,381,708 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 434,838,805 | $ | 374,327,148 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements.
F-103
Consolidated Statements of Operations
For The Years Ended September 30,
2015 | 2014 | 2013 | ||||||||||
Net revenues |
$ | 618,119,413 | $ | 521,126,977 | $ | 432,141,581 | ||||||
Cost of goods sold |
516,560,943 | 459,615,075 | 382,449,175 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
101,558,470 | 61,511,902 | 49,692,406 | |||||||||
|
|
|
|
|
|
|||||||
Expenses: |
||||||||||||
Selling, general and administrative expenses |
47,573,349 | 41,050,853 | 44,256,930 | |||||||||
Transaction costs (Note 2) |
2,121,641 | 1,093,714 | 113,875 | |||||||||
Restructuring (Note 18) |
| 5,321,362 | | |||||||||
Gain on fire related transactions (Note 19) |
(6,289,234 | ) | (715,547 | ) | | |||||||
Amortization of intangibles |
562,441 | 130,909 | | |||||||||
|
|
|
|
|
|
|||||||
43,968,197 | 46,881,291 | 44,370,805 | ||||||||||
|
|
|
|
|
|
|||||||
Income from operations |
57,590,273 | 14,630,611 | 5,321,601 | |||||||||
|
|
|
|
|
|
|||||||
Other income (expense): |
||||||||||||
Gain on bargain purchase of a business (Note 2) |
277,264 | | | |||||||||
Loss on contract settlement (Note 2) |
| | (2,590,000 | ) | ||||||||
Amortization of deferred financing costs |
(1,064,033 | ) | (1,332,640 | ) | (313,722 | ) | ||||||
Interest income |
164 | 14,783 | 33,202 | |||||||||
Interest expense |
(19,110,828 | ) | (15,581,077 | ) | (4,284,300 | ) | ||||||
Other income, net |
899,882 | | ||||||||||
|
|
|
|
|
|
|||||||
(18,997,551 | ) | (16,898,934 | ) | (7,154,820 | ) | |||||||
|
|
|
|
|
|
|||||||
Income (loss) before income taxes |
38,592,722 | (2,268,323 | ) | (1,833,219 | ) | |||||||
Income taxes |
(13,358,216 | ) | 2,965,235 | 1,368,050 | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
25,234,506 | 696,912 | (465,169 | ) | ||||||||
Less: Net income (loss) noncontrolling interest |
3,457,443 | (1,417,661 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net income (loss) attributable to USP Holdings Inc. |
$ | 21,777,063 | $ | 2,114,573 | $ | (465,169 | ) | |||||
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-104
Consolidated Statements of Comprehensive Income (Loss)
For The Years Ended September 30,
2015 | 2014 | 2013 | ||||||||||
Net income (loss) |
$ | 25,234,506 | $ | 696,912 | $ | (465,169 | ) | |||||
Other comprehensive income (loss): |
||||||||||||
Postretirement changes other than net periodic benefit cost, net of tax |
994,985 | (184,794 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
26,229,491 | 512,118 | (465,169 | ) | ||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest |
3,755,938 | (1,473,099 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) attributable to USP Holdings Inc. |
$ | 22,473,553 | $ | 1,985,217 | $ | (465,169 | ) | |||||
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-105
Consolidated Statements of Changes in Stockholders Equity
For The Years Ended September 30,
Preferred
Stock |
Common
Stock |
Additional
paid in capital |
Accumulated
Deficit |
Accumulated
Other Comprehensive (Loss) Income |
Noncontrolling
Interest |
Total
Stockholders Equity |
||||||||||||||||||||||
Balance, October 1, 2012 |
$ | 54 | $ | 61 | $ | 60,634,885 | $ | 84,389,164 | $ | | $ | | $ | 145,024,164 | ||||||||||||||
Repurchase of stock(1) |
(33 | ) | | (33,036,475 | ) | | | | (33,036,508 | ) | ||||||||||||||||||
Distributions |
| | | (118,412,897 | ) | | | (118,412,897 | ) | |||||||||||||||||||
Net loss |
| | | (465,169 | ) | | | (465,169 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2013 |
$ | 21 | $ | 61 | $ | 27,598,410 | $ | (34,488,902 | ) | $ | | $ | | $ | (6,890,410 | ) | ||||||||||||
Repurchase of stock(1) |
| | (240,000 | ) | | | | (240,000 | ) | |||||||||||||||||||
Issuance of stock |
| 24 | 74,999,976 | | | | 75,000,000 | |||||||||||||||||||||
Acquisition of noncontrolling interest |
| | | | | 24,000,000 | 24,000,000 | |||||||||||||||||||||
Accretion of noncontrolling interest |
| | (4,827,000 | ) | | | 4,827,000 | | ||||||||||||||||||||
Net income |
| | | 2,114,573 | | (1,417,661 | ) | 696,912 | ||||||||||||||||||||
Other comprehensive income, postretirement changes other than net periodic benefit costs, net of tax |
| | | | (129,356 | ) | (55,438 | ) | (184,794 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2014 |
$ | 21 | $ | 85 | $ | 97,531,386 | $ | (32,374,329 | ) | $ | (129,356 | ) | $ | 27,353,901 | $ | 92,381,708 | ||||||||||||
Repurchase of stock(1) |
(21 | ) | | (21,525,719 | ) | | | | (21,525,740 | ) | ||||||||||||||||||
Distributions |
| | | (45,768,407 | ) | | | (45,768,407 | ) | |||||||||||||||||||
Accretion of noncontrolling interest |
| | (6,787,000 | ) | | | 6,787,000 | | ||||||||||||||||||||
Net income |
| | | 21,777,063 | | 3,457,443 | 25,234,506 | |||||||||||||||||||||
Other comprehensive income, postretirement changes other than net periodic benefit costs, net of tax |
| | | | 696,490 | 298,495 | 994,985 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, September 30, 2015 |
$ | | $ | 85 | $ | 69,218,667 | $ | (56,365,673 | ) | $ | 567,134 | $ | 37,896,839 | $ | 51,317,052 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Purchased for retirement, not re-issuable |
See Notes to Consolidated Financial Statements.
F-106
Consolidated Statements of Cash Flows
For The Years Ended September 30,
2015 | 2014 | 2013 | ||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income (loss) |
$ | 25,234,506 | $ | 696,912 | $ | (465,169 | ) | |||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||||||
Depreciation |
34,839,254 | 29,223,226 | 21,346,591 | |||||||||
Amortization of deferred financing costs |
1,064,033 | 1,332,640 | 313,722 | |||||||||
Write-off of intangible trade name and trademarks |
| | 239,000 | |||||||||
Amortization of intangibles |
562,441 | 130,909 | | |||||||||
Provision for doubtful accounts |
12,462 | (433,453 | ) | 527,867 | ||||||||
Loss on sale of property and equipment |
1,248,417 | 1,478,886 | 1,771,517 | |||||||||
Deferred income taxes |
(3,258,446 | ) | (10,550,963 | ) | (8,705,068 | ) | ||||||
Gain on bargain purchase of a business (Note 2) |
(277,264 | ) | | | ||||||||
Gain on fire related transactions |
| (715,547 | ) | | ||||||||
Insurance proceeds from fire |
| 2,000,000 | | |||||||||
Changes in assets and liabilities, net of effect of business acquisitions: |
||||||||||||
Accounts receivable |
(1,832,848 | ) | (7,254,321 | ) | 16,271,214 | |||||||
Inventories |
1,138,458 | 9,421,541 | 1,861,257 | |||||||||
Prepaid expenses and other current and long-term assets |
(1,052,773 | ) | 4,215,579 | 1,541,022 | ||||||||
Excess of checks over bank balances |
(1,598,556 | ) | (1,063,584 | ) | (7,049,022 | ) | ||||||
Accounts payable |
(20,205,919 | ) | 5,561,946 | (11,221,267 | ) | |||||||
Accrued expenses and other current and long-term liabilities |
(873,482 | ) | (5,899,006 | ) | (5,828,391 | ) | ||||||
Income taxes payable |
3,434,820 | 3,346,130 | (8,569,300 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
38,435,103 | 31,490,895 | 2,033,973 | |||||||||
|
|
|
|
|
|
|||||||
Cash Flows from Investing Activities |
||||||||||||
Acquisition of businesses |
(53,887,767 | ) | (73,542,786 | ) | (4,461,500 | ) | ||||||
Purchase of property and equipment |
(21,967,547 | ) | (25,890,553 | ) | (12,604,685 | ) | ||||||
Proceeds from sale of property and equipment |
294,014 | 809,254 | 725,839 | |||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(75,561,300 | ) | (98,624,085 | ) | (16,340,346 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash Flows from Financing Activities |
||||||||||||
Payments of deferred financing costs |
(1,205,299 | ) | | (4,425,850 | ) | |||||||
Repurchase of stock |
(21,525,740 | ) | (240,000 | ) | (33,036,508 | ) | ||||||
Proceeds from issuance of stock |
| 75,000,000 | | |||||||||
Distributions |
(45,768,407 | ) | | (118,412,897 | ) | |||||||
Net borrowings under revolver loan |
39,403,760 | (4,987,702 | ) | 46,245,483 | ||||||||
Proceeds on long-term debt financing |
71,489,273 | | 119,822,000 | |||||||||
Principal payments on long-term debt financing |
(4,682,901 | ) | (3,069,809 | ) | (255,818 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
37,710,686 | 66,702,489 | 9,936,410 | |||||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash |
584,489 | (430,701 | ) | (4,369,963 | ) | |||||||
Cash: |
||||||||||||
Beginning of year |
3,675,087 | 4,105,788 | 8,475,751 | |||||||||
|
|
|
|
|
|
|||||||
End of year |
$ | 4,259,576 | $ | 3,675,087 | $ | 4,105,788 | ||||||
|
|
|
|
|
|
(Continued)
F-107
USP HOLDINGS INC.
Consolidated Statements of Cash Flows (Continued)
For The Years Ended September 30,
2015 | 2014 | 2013 | ||||||||||
Supplemental Disclosures of Cash Flow Information |
||||||||||||
Interest paid |
$ | 18,856,995 | $ | 15,591,882 | $ | 4,106,376 | ||||||
|
|
|
|
|
|
|||||||
Income taxes paid |
$ | 9,350,517 | $ | 4,313,966 | $ | 15,905,318 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Disclosure of Noncash Operating Activities |
||||||||||||
Postretirement changes other than net periodic benefit costs |
$ | 994,985 | $ | (184,794 | ) | $ | | |||||
|
|
|
|
|
|
|||||||
Supplemental Schedules of Noncash Investing and Financing Activities |
||||||||||||
Acquisition of Businesses (Note 2) |
||||||||||||
Assets acquired |
$ | 52,725,091 | $ | 109,846,990 | $ | 1,147,000 | ||||||
Liabilities assumed |
(17,307,328 | ) | (34,108,135 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net identifiable assets acquired |
35,417,763 | 75,738,855 | 1,147,000 | |||||||||
Goodwill |
19,559,759 | 21,803,931 | 3,314,500 | |||||||||
|
|
|
|
|
|
|||||||
Net assets acquired |
54,977,522 | 97,542,786 | 4,461,500 | |||||||||
Less due to seller |
(812,491 | ) | | | ||||||||
Less gain on bargain purchase of a business (Note 2) |
(277,264 | ) | | | ||||||||
Noncontrolling interest |
| (24,000,000 | ) | | ||||||||
|
|
|
|
|
|
|||||||
$ | 53,887,767 | $ | 73,542,786 | $ | 4,461,500 | |||||||
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-108
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: USP Holdings Inc. (the Company) is a diversified holding company, which owns entities that manufacture a broad line of ductile iron pipe, restraint joint products and other products. These products are sold primarily to waterworks distributors, contractors, municipalities, utilities and other governmental agencies, primarily in the United States, on credit terms approximating 60 days.
Significant accounting policies are as follows:
Principles of consolidation: The consolidated financial statements include the accounts of the Companys wholly-owned subsidiaries, including one of its subsidiaries, Griffin Pipe Products Co., LLC, (Griffin) which is 70% owned. All significant intercompany accounts and transactions have been eliminated.
Noncontrolling interest: Noncontrolling interests represent the portion of equity in the subsidiary not attributable directly or indirectly, to USP Holdings Inc. The profit or loss derived from the performance of the subsidiary is allocated to net income attributable to the noncontrolling interest in the consolidated statements of operations .
The former owners of Griffin have an option to put the 30% noncontrolling interest after a holding period of 24 months. The value of the put is either the greater of (a) 5 times EBITDA of Griffin Pipe Products Co., LLC over the previous 12 months or (b) 7.5% of the value of USP Holdings Inc. In no event shall the put value exceed $40,000,000. In the event of a sale of USP Holdings Inc., the put will be automatically exercised. For the year ended September 30, 2015, the value of the put related to the noncontrolling interest was estimated based on the value of USP Holdings Inc. accreted for 20 months of the 24-month holding period. The valuation increased the noncontrolling interest $6,787,000 and $4,827,000 for the years ended September 30, 2015 and 2014, respectively.
Accumulated other comprehensive income (loss): The Companys accumulated other comprehensive income (loss) is comprised of postretirement changes other than net periodic benefit cost.
Accounting policies: The Company follows accounting standards established by the Financial Accounting Standards Board (the FASB) to ensure consistent reporting of financial condition, results of operations, and cash flows. References to Generally Accepted Accounting Principles (GAAP) in these footnotes are to the FASB Accounting Standards Codification, sometimes referred to as the Codification or ASC.
Accounting estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign operations: The Companys foreign subsidiary (Metalfit) is located in Monterrey, Mexico and was acquired in the year ending September 30, 2015 as described in Note 2 Acquisition of Businesses. The facility produces ductile iron castings for valves and fittings for the water and wastewater market. Over 90% of Metalfits production is shipped to the United States.
F-109
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
The functional currency of the Companys foreign operation is the U.S. dollar. Assets located outside the U.S. at September 30, 2015 and 2014 are $17,905,314 and $0, respectively. Currency gains and losses are recognized through the settlement of transactions denominated in other than the local currency. The Company recognized currency gains from transactions of $899,882, $0 and $0 for the years ended September 30, 2015, 2014 and 2013, respectively, all of which are included in other income on the Companys consolidated statements of operations.
Cash: The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits.
Accounts receivable : Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Accounts receivable are written off when deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received.
Inventory: Inventory is valued at the lower of cost or market, with cost determined using the first-in, first-out method. To minimize risk of excess or obsolete inventory, the Company evaluates inventory levels and expected usage on a periodic basis and records valuation allowances as required. The Companys work-in-process and finished goods inventory includes capitalized direct labor and overhead expenses.
Property and equipment: Property and equipment is recorded at cost. Depreciation is recognized utilizing the straight-line method over the estimated useful lives of the assets. Building improvements are amortized over the lesser of the useful life of the asset or the lease. Major improvements that extend the useful life are capitalized and charged to expense through depreciation. When equipment is retired or sold, the net carrying amount is eliminated with any gain or loss on disposal recognized in the year of disposal.
Long-lived assets : Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset group may not be recoverable in accordance with FASB accounting and disclosure guidance on accounting for the impairment or disposal of long-lived assets. This is accomplished by comparing the carrying value of the asset group to the estimated future net undiscounted cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future net cash flows be less than carrying value, the Company would recognize an impairment loss at that date. An impairment loss would be measured by comparing the amount by which the carrying value exceeds fair value (estimated discounted future cash flows or appraisal of assets) of the long-lived asset. To date, management has determined that no impairment of long-lived assets exists.
Intangibles: The Company has recorded intangible assets related to Company trademarks, customer relationships, backlog of orders and non-competition agreements. These costs are being amortized over 1 to 14 years, the estimated useful lives of the assets, using the straightline method. The Company also has an intangible asset which is not being amortized because it has an indefinite life.
F-110
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
Deferred financing costs: The Company capitalizes costs associated with the issuance of third party borrowing arrangements. These costs are amortized using the effective interest method, over the term of the debt agreement. Accumulated amortization of deferred financing costs was $2,786,619 and $1,722,586 as of September 30, 2015 and 2014, respectively. Deferred financing costs were $1,064,033, $1,332,640 and $313,722 for the years ended September 30, 2015, 2014 and 2013, respectively.
Goodwill: Goodwill relates to the Companys acquisitions and represents the excess of the purchase price over the fair value of the identifiable net assets acquired. The Company evaluates goodwill and intangible assets in accordance with ASC 350, Goodwill and Other Intangible Assets. ASC 350 requires goodwill to be either qualitatively or quantitatively assessed for impairment annually (or more frequently if impairment indicators arise) for each reporting unit. The Company has three reporting units consisting of US Pipe, US Pipe Fabrication, and US Pipe Mexico. The Company performs its annual impairment testing of goodwill as of the fiscal year-end of each year and in interim periods if events occur that would indicate that the net book value of goodwill may be impaired.
The goodwill impairment test is a two-step process. The first step of the impairment analysis compares the fair value of the reporting unit to the net book value of the reporting unit. In determining fair value of the reporting units, a discounted cash flow model is typically used. If the results of the first step demonstrate that the net book value is greater than the fair value, the Company must proceed to step two of the analysis. Step two of the analysis compares the implied fair value of goodwill to its net book value amount. If the net book value amount of goodwill exceeds its implied fair value, an impairment loss is recognized equal to that excess.
We completed our annual impairment assessments for the years ended September 30, 2015, 2014 and 2013 and concluded that goodwill was not impaired in any of those years.
Postretirement benefits other than pensions: The Company provides certain medical and life insurance benefits for certain retirees. The plan covers former union employees of the Griffin Pipe Council Bluffs location hired prior to November 21, 2004, former union employees of the Griffin Pipe Lynchburg location hired prior to November 24, 2002 and salaried and non-union employees of Griffin Pipe hired prior to October 1, 2001 (Note 13).
Fair value of financial instruments: For assets and liabilities that are measured using quoted prices in active markets (Level 1), total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs, discounts or blockage factors. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities (Level 2), adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques (Level 3), and not based on market exchange, dealer, or broker traded transactions. These valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
The carrying amounts of cash, accounts receivable, accounts payable, and the revolver loan approximate the fair value due to the immediate or short-term maturity of these financial instruments.
F-111
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
The fair value of debt approximates the carrying value based on comparisons of terms (maturity, interest rate, etc.) to comparable debt offerings in the marketplace. There are no other financial instruments for which fair value differs materially from carrying value.
Revenue recognition: Revenues earned through manufactured products are recognized when each of the following conditions has been met: an arrangement exists, title has transferred, there is a fixed price, and collectability is reasonably assured, which is generally upon shipment.
Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company has not recorded a reserve for any tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. The Company files tax returns in all appropriate jurisdictions, which include a federal tax return and various state tax returns. The open tax years for these jurisdictions are 2012, 2013, 2014 and 2015, which statutes expire in 2016, 2017, 2018 and 2019, respectively. When and if applicable, potential interest and penalty costs are accrued as incurred, with expenses recognized in selling, general and administrative expenses in the consolidated statements of operations. As of September 30, 2015 and 2014, the Company had no liability for unrecognized tax benefits.
Shipping costs : The Companys invoices include amounts for shipping and handling costs. The Company recognizes these billings as revenue and includes the associated costs in cost of goods sold.
Recent accounting pronouncement : In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09 Topic 606, Revenue from Contracts with Customers , and amended its standards related to revenue recognition. This amendment replaces all existing revenue recognition guidance and provides a single, comprehensive revenue recognition model for all contracts with customers. The standard contains principles that will be applied to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that the Company will recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that the Company expects to be entitled to in exchange for those goods or services. The standard allows either full or modified retrospective adoption. Early adoption is not permitted. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendment also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to fulfill a contract. The new rules will become effective for annual reporting periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company is in the process of evaluating the impact the amendment will have on the consolidated financial statements.
F-112
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
In March 2016, the FASB issued ASU 2016-08 Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) , which amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in ASU 2016-08, a specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer. Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. ASU 2016-08 has the same effective date as ASU 2014-09, as amended by ASU 2015-14. The Company is required to adopt ASU 2016-08 using the same transition method it uses to adopt ASU 2014-09. The Company is currently evaluating the impact the adoption of ASU 2014-09, ASU 2015-14 and ASU 2016-08 will have on its consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory, requiring an entity to measure inventory within the scope of the ASU at the lower of cost and net realizable value. For public business entities, the amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company is currently evaluating whether this ASU will have a material impact on its consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern, defining 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 entitys going concern presumption. Substantial doubt about an entitys 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 the financial statements are issued. If substantial doubt exists, certain disclosures are required. The provisions of this ASU are 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 Companys disclosures.
In February 2015, the FASB issued ASU 2015-02 Topic 810, Amendments to the Consolidation Analysis . ASU 2015-02 amends current consolidation guidance by modifying the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis of reporting entities that are involved with variable interest entities. ASU 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. All legal entities are subject to reevaluation under the revised consolidation model. The adoption of ASU 2015-02 is not expected to have a material impact on the Companys consolidated financial position, results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805), which requires an acquirer to retrospectively adjust provisional amounts recognized in a business combination during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in this update require that the acquirer recognize adjustments to
F-113
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
provisional amounts that are identified during the measurement-period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same periods financial statements, the effect on earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company is still evaluating whether this ASU will have a material impact on its consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17 Topic 740, Balance Sheet Classification of Deferred Taxes , which simplifies the presentation of deferred income taxes. ASU 2015-17 requires that deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. ASU 2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016 (and interim periods within those fiscal years) with early adoption permitted. ASU 2015-17 may be either applied prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. The Company is currently evaluating whether this ASU will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), amending the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted as of the standards issuance date. ASU 2016-02 requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company believes this ASU will have a material impact on its consolidated financial statements as it will result in most of the Companys leases and associated assets being presented on the balance sheet.
In August 2015, the FASB issued ASU 2015-15, Simplifying the Presentation of Debt Issuance Costs and the Imputation of Interest , as ASU 2015-03 did not specifically address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 allows an entity to continue to defer and present debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03 and ASU 2015-15 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this standard will have no impact on the Companys results of operations, cash flows or net assets.
Subsequent events : The Company evaluated subsequent events through June 30, 2016, the date the consolidated financial statements were available to be issued.
F-114
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 1. Nature of Business and Significant Accounting Policies (Continued)
On April 15, 2016, the Company was acquired by Forterra Building Products (Forterra) pursuant to an agreement, dated as of February 12, 2016. Under the terms of the agreement, Forterra paid approximately $775.1 million in cash, subject to certain closing adjustments, for all outstanding shares of the Company, retirement of the existing indebtedness of approximately $253.4 million and retirement of the noncontrolling interest of $40.0 million as of the transaction closing date.
Note 2. Acquisition of Businesses
Fiscal Year 2013 Acquisition:
On August 1, 2013, the Company acquired certain assets of Troy Foundry Specialist, LLC (Seller) for total consideration of $7,051,500. This transaction will allow the Company greater control over material handling and purchasing. The assets acquired were recorded at their fair value. In connection with the transaction, the Company incurred $113,875 of transaction costs which are included in operating expenses for the year ended September 30, 2013. Goodwill of $3,314,500 was recorded as part of the acquisition. The goodwill was assigned to the US Pipe reporting unit of the Company, and is deductible for tax purposes. The loss on contract settlement totaling $2,590,000 pertains to the settlement of unfavorable pre-existing contractual relationships with the Seller.
The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 7,051,500 | ||
Less: Loss on contract settlement |
2,590,000 | |||
|
|
|||
Cash consideration attributed to business acquisition |
$ | 4,461,500 | ||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Property and equipment |
$ | 1,147,000 | ||
|
|
|||
1,147,000 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Accounts payable and accrued expenses |
| |||
|
|
|||
| ||||
|
|
|||
Total identifiable net assets acquired |
1,147,000 | |||
Goodwill |
3,314,500 | |||
|
|
|||
$ | 4,461,500 | |||
|
|
Fiscal Year 2014 Acquisitions:
On October 31, 2013, the Company acquired certain assets of Fab Pipe LLC (Seller) for total consideration of $3,542,786. This transaction will allow the Company to grow by entering new markets. The assets acquired and liabilities assumed were recorded at their fair value. In connection with the transaction, the Company incurred $157,030 of transaction costs which are included in operating expenses for the year ended September 30, 2014. Goodwill of $292,943 was recorded as part of the acquisition and is deductible for tax purposes.
F-115
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 2. Acquisition of Businesses (Continued)
The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 3,542,786 | ||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 1,208,254 | ||
Inventory |
1,559,696 | |||
Property and equipment |
119,385 | |||
Intangibles customer relationships |
380,000 | |||
Intangibles non-compete |
55,000 | |||
Intangibles trademarks |
170,000 | |||
|
|
|||
3,492,335 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Accounts payable |
224,669 | |||
Accrued salaries and wages |
17,432 | |||
Accrued 401K program |
391 | |||
|
|
|||
242,492 | ||||
|
|
|||
Total identifiable net assets acquired |
3,249,843 | |||
Goodwill |
292,943 | |||
|
|
|||
$ | 3,542,786 | |||
|
|
The fair value of the gross amount of accounts receivable is $1,209,754 of which $1,500 is expected to be uncollectable.
Amounts assigned to acquired intangible assets and their approximate weighted-average useful lives are summarized as follows:
Amount | Useful Life | |||||||
Trademarks |
$ | 170,000 | 15 | |||||
Customer relationships |
380,000 | 6 | ||||||
Non-compete |
55,000 | 5 | ||||||
|
|
|||||||
$ | 605,000 | |||||||
|
|
|||||||
Weighted average useful life (in years) |
8.4 | |||||||
|
|
On January 31, 2014, the Company acquired a 70% interest in Griffin Pipe Products Co., LLC (Seller) for total consideration of $70,000,000. This acquisition was funded by issuance of $75,000,000 of common stock to existing stockholders. This transaction will allow the Company to realize significant synergy savings and provide better service to the customer base. The assets acquired and liabilities assumed were recorded at their fair value. The 30% noncontrolling interest was valued at 30% of the implied enterprise value discounted 20% for lack of liquidity. In connection with the transaction, the Company incurred $936,684 of transaction costs which are included in operating expenses for the year ended September 30, 2014. Goodwill of $21,510,988 was recorded as part of the acquisition and is deductible for tax purposes.
F-116
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 2. Acquisition of Businesses (Continued)
The following table summarizes the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 70,000,000 | ||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 16,661,514 | ||
Inventory |
31,909,892 | |||
Prepaid expenses and other assets |
1,934,579 | |||
Property and equipment |
54,748,670 | |||
Intangible trademarks |
1,100,000 | |||
|
|
|||
106,354,655 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Excess of checks over bank balances |
731,957 | |||
Accounts payable and accrued expenses |
16,935,786 | |||
Compensation and related |
2,153,806 | |||
Rebates |
37,613 | |||
Backcharges |
535,331 | |||
Property tax |
528,060 | |||
Workers compensation |
5,300,000 | |||
Postretirements benefits obligation |
6,610,000 | |||
Other |
1,033,090 | |||
|
|
|||
33,865,643 | ||||
|
|
|||
Total identifiable net assets acquired |
72,489,012 | |||
Goodwill |
21,510,988 | |||
Non-controlling interest |
(24,000,000 | ) | ||
|
|
|||
$ | 70,000,000 | |||
|
|
The fair value of the gross amount of accounts receivable is $17,100,514 of which $439,000 is expected to be uncollectable.
The fair value of the noncontrolling interest was estimated by applying the income approach and a cost approach. The fair value measurement is based on significant inputs that are not observable in the market and, therefore represents a Level 3 measurement as defined by GAAP. Key assumptions include a discount rate of 16% and a 20% discount for lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest. As of the close of the transaction the Company estimated the value of the noncontrolling interest at $24,000,000.
As part of the purchase agreement the seller acquired an option to put the 30% noncontrolling interest after a holding period of 24 months. The value of the put is either the greater of (a) 5 times EBITDA of Griffin Pipe Products Co., LLC over the previous 12 months or (b) 7.5% of the value of USP Holdings Inc. In no event shall the put value exceed $40,000,000. In the event of a sale of USP Holdings Inc. the put will be automatically exercised. For the year ended September 30, 2014, the value of the put related to the noncontrolling interest was estimated based on the value of USP Holdings Inc. accreted for 8 months of the 24 month holding period. The valuation increased the noncontrolling interest $4,827,000 for the year ended September 30, 2014.
F-117
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 2. Acquisition of Businesses (Continued)
Amounts assigned to acquired intangible assets and their useful lives are summarized as follows:
Amount | Useful Life | |||||||
Trademarks |
$ | 1,100,000 | 14 | |||||
|
|
Fiscal Year 2015 Acquisitions:
On December 16, 2014, the Company acquired substantially all of the assets of Metalfit (Metalfit, S.A. de C.V. and Metalfit, Inc.) (Seller) for total consideration of $10,815,919. This transaction will allow the Company to grow by entering new markets. The assets acquired and liabilities assumed were recorded at their fair value. In connection with the transaction, the Company incurred $958,938 of transaction costs which are included in operating expenses for the year ended September 30, 2015.
The following tables summarize the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 10,815,919 | ||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 3,088,846 | ||
Inventory |
3,086,000 | |||
Prepaid expenses and other assets |
152,411 | |||
Property and equipment |
5,750,330 | |||
Intangibles customer relationships |
660,000 | |||
Intangibles non-compete |
20,000 | |||
Intangibles backlog of orders |
25,000 | |||
Intangibles trademarks |
35,000 | |||
|
|
|||
12,817,587 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Accounts payable and accrued expenses |
1,724,404 | |||
|
|
|||
1,724,404 | ||||
|
|
|||
Total identifiable net assets acquired |
11,093,183 | |||
Gain on bargain purchase of a business |
(277,264 | ) | ||
|
|
|||
$ | 10,815,919 | |||
|
|
Amount | Useful Life | |||||||
Intangibles customer relationships |
$ | 660,000 | 5 | |||||
Intangibles non-compete |
20,000 | 5 | ||||||
Intangibles backlog of orders |
25,000 | 1 | ||||||
Intangibles trademarks |
35,000 | 1 | ||||||
|
|
|||||||
$ | 740,000 | |||||||
|
|
|||||||
Weighted average useful life (in years) |
4.7 | |||||||
|
|
F-118
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 2. Acquisition of Businesses (Continued)
On August 10, 2015, the Company acquired the shares of Custom Fab, LLC (Custom Fab) for total consideration of $43,884,339. This transaction will allow the Company to realize significant synergy savings and provide better service to the customer base. The assets acquired and liabilities assumed were recorded at their fair value. In connection with the transaction, the Company incurred $1,162,703 of transaction costs which are included in operating expenses for the year ended September 30, 2015. Goodwill of $19,559,759 was recorded as part of the acquisition. Approximately $775,000 of the goodwill is deductible for income tax purposes.
The following tables summarize the consideration paid and the fair value of the assets acquired and liabilities assumed at the acquisition date.
Consideration: |
||||
Cash |
$ | 43,071,848 | ||
Due to seller |
812,491 | |||
|
|
|||
$ | 43,884,339 | |||
|
|
|||
Recognized amounts of identifiable assets acquired: |
||||
Accounts receivable |
$ | 7,103,841 | ||
Inventory |
7,547,000 | |||
Prepaid expenses and other assets |
670,731 | |||
Property and equipment |
13,315,932 | |||
Intangibles customer relationships |
8,170,000 | |||
Intangibles non-compete |
460,000 | |||
Intangibles backlog of orders |
90,000 | |||
Intangibles trademarks |
2,550,000 | |||
|
|
|||
39,907,504 | ||||
|
|
|||
Recognized amounts of identifiable liabilities assumed: |
||||
Excess of checks over bank balances |
282,158 | |||
Accounts payable and accrued expenses |
8,051,240 | |||
Deferred income taxes |
7,249,526 | |||
|
|
|||
15,582,924 | ||||
|
|
|||
Total identifiable net assets acquired |
24,324,580 | |||
Goodwill |
19,559,759 | |||
|
|
|||
$ | 43,884,339 | |||
|
|
Amount | Useful Life | |||||||
Intangibles customer relationships |
$ | 8,170,000 | 6 | |||||
Intangibles non-compete |
460,000 | 5 | ||||||
Intangibles backlog of orders |
90,000 | 1 | ||||||
Intangibles trademarks |
2,550,000 | 10 | ||||||
|
|
|||||||
$ | 11,270,000 | |||||||
|
|
|||||||
Weighted average useful life (in years) |
6.8 | |||||||
|
|
F-119
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 3. Inventory
Inventory as of September 30, 2015 and 2014 is as follows:
September 30, | ||||||||
2015 | 2014 | |||||||
Raw materials |
$ | 28,492,730 | $ | 17,270,935 | ||||
Work-in-process |
1,787,707 | 1,535,288 | ||||||
Finished goods |
45,098,645 | 49,311,337 | ||||||
Supplies |
14,589,761 | 14,753,028 | ||||||
|
|
|
|
|||||
89,968,843 | 82,870,588 | |||||||
Less: excess and obsolete reserve |
755,791 | 3,152,079 | ||||||
|
|
|
|
|||||
$ | 89,213,052 | $ | 79,718,509 | |||||
|
|
|
|
Note 4. Property and Equipment
Property and equipment as of September 30, 2015 and 2014 is as follows:
September 30, | ||||||||
2015 | 2014 | |||||||
Machinery and equipment |
$ | 176,660,673 | $ | 143,938,976 | ||||
Land and mineral resources |
31,972,500 | 31,036,000 | ||||||
Buildings |
18,998,567 | 13,962,317 | ||||||
Pipe molds |
13,670,932 | 12,380,954 | ||||||
Construction in progress |
10,177,646 | 12,629,795 | ||||||
Land improvements |
3,282,911 | 2,538,137 | ||||||
Computer software |
1,104,867 | 951,473 | ||||||
|
|
|
|
|||||
255,868,096 | 217,437,652 | |||||||
Less: accumulated depreciation |
91,622,956 | 58,143,134 | ||||||
|
|
|
|
|||||
$ | 164,245,140 | $ | 159,294,518 | |||||
|
|
|
|
Depreciation expense was $34,839,254, $29,223,226 and $21,346,591 for the years ended September 30, 2015, 2014 and 2013, respectively.
F-120
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 5. Intangible Assets and Goodwill
The following is a summary of goodwill and intangible assets as of September 30, 2015:
Gross Carrying
Amount |
Accumulated
Amortization |
Carrying
Values |
Estimated
Useful Life |
|||||||||||||
Amortizing: |
||||||||||||||||
Trademarks |
$ | 3,685,000 | $ | 192,424 | $ | 3,492,576 | 1-14 years | |||||||||
Customer relationships |
9,210,000 | 403,463 | 8,806,537 | 5-6 years | ||||||||||||
Backlog of orders |
115,000 | 31,069 | 83,931 | 1 year | ||||||||||||
Non-compete |
535,000 | 45,617 | 489,383 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
13,545,000 | 672,573 | 12,872,427 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Non-amortizing: |
||||||||||||||||
Trademarks |
7,203,000 | | 7,203,000 | Indefinite | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 20,748,000 | $ | 672,573 | $ | 20,075,427 | |||||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 44,678,190 | $ | | $ | 44,678,190 | Indefinite | |||||||||
|
|
|
|
|
|
Aggregate future annual expense for amortizing intangible assets is as follows:
Years ending September 30, |
||||
2016 |
$ | 2,087,627 | ||
2017 |
1,997,571 | |||
2018 |
1,997,571 | |||
2019 |
1,987,489 | |||
2020 |
1,815,298 | |||
Thereafter |
2,986,871 | |||
|
|
|||
$ | 12,872,427 | |||
|
|
The following is a summary of goodwill and intangible assets as of September 30, 2014:
Gross Carrying
Amount |
Accumulated
Amortization |
Carrying
Values |
Estimated
Useful Life |
|||||||||||||
Amortizing: |
||||||||||||||||
Trademarks |
$ | 170,000 | $ | 10,389 | $ | 159,611 | 15 years | |||||||||
Trademarks |
1,100,000 | 52,381 | 1,047,619 | 14 years | ||||||||||||
Customer relationships |
380,000 | 58,055 | 321,945 | 6 years | ||||||||||||
Non-compete |
55,000 | 10,084 | 44,916 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
1,705,000 | 130,909 | 1,574,091 | ||||||||||||||
|
|
|
|
|
|
|||||||||||
Non-amortizing: |
||||||||||||||||
Trademarks |
7,203,000 | | 7,203,000 | Indefinite | ||||||||||||
|
|
|
|
|
|
|||||||||||
$ | 8,908,000 | $ | 130,909 | $ | 8,777,091 | |||||||||||
|
|
|
|
|
|
|||||||||||
Goodwill |
$ | 25,118,431 | $ | | $ | 25,118,431 | Indefinite | |||||||||
|
|
|
|
|
|
F-121
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 5. Intangible Assets and Goodwill (Continued)
The changes in the carrying value of goodwill for the years ended September 30, 2015 and 2014 are as follows:
Amount | ||||
Balance, September 30, 2013 |
$ | 3,314,500 | ||
Goodwill acquired during the year Fab Pipe LLC |
292,943 | |||
Goodwill acquired during the year Griffin Pipe Products Co. |
21,510,988 | |||
|
|
|||
Balance, September 30, 2014 |
25,118,431 | |||
Goodwill acquired during the year Custom Fab, LLC |
19,559,759 | |||
|
|
|||
Balance, September 30, 2015 |
$ | 44,678,190 | ||
|
|
Note 6. Revolving Credit Facility
On July 23, 2013, the Company amended its credit agreement with a financial institution to increase the revolver loan to a commitment of $90,000,000 secured by inventory and accounts receivable. The revolver is subject to a borrowing base calculation that is derived from a percentage of eligible receivables and inventory. As of September 30, 2014, the revolver had borrowings of $41,257,780 and letters of credit of $3,580,000 outstanding with $45,162,220 remaining available on the commitment. The credit agreement contains a fixed charge ratio covenant and matures on July 23, 2018. As of September 30, 2014, the stated interest rate is prime rate (3.25%) plus an applicable margin based on the revolver average excess availability. The effective interest rate was 4.45% as of September 30, 2014.
On August 10, 2015, the Company again amended its credit agreement with that financial institution to increase the revolver loan to a commitment of $112,000,000 secured by inventory and accounts receivable. The revolver is subject to a borrowing base calculation that is derived from a percentage of eligible receivables and inventory. As of September 30, 2015, the revolver had borrowings of $80,661,540 and letters of credit of $3,350,000 outstanding with $27,720,460 remaining available on the commitment. The credit agreement contains a fixed charge ratio covenant and matures on July 23, 2018. As of September 30, 2015, the stated interest rate is prime rate (3.25%) plus an applicable margin based on the revolver average excess availability. The effective interest rate is 4.45% as of September 30, 2015 and 2014.
The revolver loan is included in current liabilities in the accompanying consolidated balance sheets for both September 30, 2015 and 2014 due to the fact that the credit agreement has a subjective acceleration clause and requires a traditional lockbox to be in place.
F-122
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 7. Long-Term Debt
Long-term debt at September 30, 2015 and 2014, consists of:
September 30, | ||||||||
2015 | 2014 | |||||||
Term Loan 1 |
$ | 11,596,186 | $ | 8,301,929 | ||||
Term Loan 2 |
5,000,000 | 3,194,444 | ||||||
Term Loan 3 |
16,706,559 | | ||||||
Subordinated Debt |
150,000,000 | 105,000,000 | ||||||
|
|
|
|
|||||
Total |
183,302,745 | 116,496,373 | ||||||
Less: Current Portion |
9,352,882 | 3,069,810 | ||||||
|
|
|
|
|||||
Total Long-Term Debt |
$ | 173,949,863 | $ | 113,426,563 | ||||
|
|
|
|
On July 23, 2013, the Company entered into a credit agreement with a financial institution for Term Loan 1 in the amount of $9,822,000. On February 20, 2015, the outstanding principal was $7,717,285 and the Company amended the loan agreement to increase the principal to $12,488,200. The monthly principal payment is $148,669. The stated interest rate is prime rate (3.25% at September 30, 2015 and 2014) plus a margin of 2.25%. The loan matures on July 23, 2018. The loan is secured by the property and equipment of the Company and had an outstanding balance of $11,596,186 and $8,301,929 as of September 30, 2015 and 2014, respectively. The credit agreement contains a fixed charge ratio covenant.
In addition, on July 23, 2013, the Company entered into a credit agreement with a financial institution for Term Loan 2 in the amount of $5,000,000. On February 20, 2015, the outstanding principal was $2,500,000 and the Company amended the loan agreement to increase the principal to $7,511,800. The monthly principal payment is $166,667. The interest rate is prime rate (3.25% at September 30, 2015 and 2014) plus a margin of 3.25%. The loan matures on July 23, 2018. The loan is secured by substantially all the assets of the Company and had an outstanding balance of $5,000,000 and $3,194,444 as of September 30, 2015 and 2014, respectively. The credit agreement contains a fixed charge ratio covenant. In conjunction with the fire proceeds (Note 19) the Company made a permitted prepayment on the term note in the amount of $1,259,833 during 2015.
In addition, on August 10, 2015, the Company entered into a credit agreement with a financial institution for Term Loan 3 in the amount of $16,706,559. The monthly principal payment is $464,071. The interest rate is prime rate (3.25% at September 30, 2015) plus a margin of 4.25%. The loan matures on July 23, 2018. The loan is secured by substantially all the assets of the Company and had an outstanding balance of $16,706,559 as of September 30, 2015. The credit agreement contains a fixed charge ratio covenant.
All of the above noted term loans are with the same financial institution.
Also on July 23, 2013, the Company entered into a credit agreement with a different financial institution for a subordinated term loan in the amount of $105,000,000. On February 20, 2015, the Company amended the loan agreement to increase the principal to $150,000,000. The loan is subordinated to the previous three term loans. The stated interest rate as of September 30, 2015 and 2014 is the higher of LIBOR or 3% plus a margin of 9% and is paid monthly. The maturity date is October 23, 2018. The credit agreement contains a total debt ratio and fixed charge ratio covenant and restrictions on capital spending. This subordinated term loan is secured by the Companys inventory and property and equipment.
F-123
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 7. Long-Term Debt(Continued)
Annual principal payments on long-term debt for the following years are as follows:
Years ending September 30, |
||||
2016 |
$ | 9,352,882 | ||
2017 |
9,352,882 | |||
2018 |
14,596,981 | |||
2019 |
150,000,000 | |||
|
|
|||
$ | 183,302,745 | |||
|
|
Note 8. Stockholders Equity
Common Stock
Each share of common stock is entitled to one vote and shall be identical in all respects and shall entitle the holder to the same rights and privileges.
Stock Options
On April 1, 2012, the Company created the USP Holdings Inc. 2012 stock option plan. The purpose of the plan is to promote the success and enhance the value of the Company by linking the personal interests of the members of the board of directors and key employees to those of the Companys stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns for the Companys stockholders. The stock option plan provides for 7,494 options available to be awarded. The options that are awarded may be redeemed for cash or Company stock only upon the occurrence of a change in control event, as defined in the agreement, based on a prescribed formula, are not transferable and are forfeited upon termination of employment. Because full vesting is not complete until a change in control event is consummated, no compensation expense has been recorded for the years ended September 30, 2015, 2014 or 2013.
A summary of option activity under the Plan as of September 30, 2015, and changes during the year then ended is presented below:
Shares |
Weighted
Average Exercise Price |
Weighted-
Average Remaining Contractual Term |
||||||||||
Outstanding at September 30, 2014 |
5,526 | $ | 474 | |||||||||
Granted |
| | ||||||||||
Forfeited or expired |
(170 | ) | 100 | |||||||||
|
|
|||||||||||
Outstanding at September 30, 2015 |
5,356 | $ | 486 | 6.64 | ||||||||
|
|
|||||||||||
Vested at September 30, 2015 |
3,649 | $ | 357 | 6.59 | ||||||||
|
|
|||||||||||
Exercisable at September 30, 2015 |
| |||||||||||
|
|
F-124
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 8. Stockholders Equity (Continued)
The unrecognized compensation expense at September 30, 2015 is approximately $540,000.
Note 9. Income Taxes
Significant components of the deferred tax assets and liabilities as of September 30, 2015 and 2014, are as follows:
September 30, | ||||||||
2015 | 2014 | |||||||
Deferred tax assets: |
||||||||
Trade accounts receivable |
$ | 387,468 | $ | 230,039 | ||||
Inventories |
1,695,300 | 1,268,294 | ||||||
Accrued expenses |
704,054 | 626,585 | ||||||
Investment in Griffin Pipe Products Co., LLC |
672,206 | 845,847 | ||||||
Other assets |
170,414 | 145,040 | ||||||
|
|
|
|
|||||
3,629,442 | 3,115,805 | |||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment U.S. |
(33,554,524 | ) | (33,406,270 | ) | ||||
Intangibles |
(4,596,648 | ) | (335,680 | ) | ||||
Prepaid expenses |
(241,888 | ) | (219,496 | ) | ||||
Postretirement benefit obligation |
(540,128 | ) | | |||||
Property and equipment foreign |
(14,462 | ) | | |||||
Intangible assets foreign |
(178,598 | ) | | |||||
|
|
|
|
|||||
(39,126,248 | ) | (33,961,446 | ) | |||||
|
|
|
|
|||||
$ | (35,496,806 | ) | $ | (30,845,641 | ) | |||
|
|
|
|
Deferred tax assets and liabilities are presented in the accompanying consolidated balance sheets as follows:
September 30, | ||||||||
2015 | 2014 | |||||||
Current assets |
$ | 2,544,934 | $ | 1,905,421 | ||||
Current assets foreign |
52,074 | | ||||||
Long-term liabilities |
(37,900,754 | ) | (32,751,062 | ) | ||||
Long-term liabilities foreign |
(193,060 | ) | | |||||
|
|
|
|
|||||
$ | (35,496,806 | ) | $ | (30,845,641 | ) | |||
|
|
|
|
F-125
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 9. Income Taxes (Continued)
The provision (benefit) for income taxes consisted of the following for the years ended September 30, 2015, 2014 and 2013:
September 30, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Current U.S. |
$ | 16,449,575 | $ | 7,585,728 | $ | 7,337,018 | ||||||
Deferred U.S. |
(3,280,603 | ) | (10,550,963 | ) | (8,705,068 | ) | ||||||
Current foreign |
167,087 | | | |||||||||
Deferred foreign |
22,157 | | | |||||||||
|
|
|
|
|
|
|||||||
. |
$ | 13,358,216 | $ | (2,965,235 | ) | $ | (1,368,050 | ) | ||||
|
|
|
|
|
|
The Companys effective income tax rate differs from the statutory federal income tax rate of 35% primarily as a result of state income taxes, certain non-deductible expenses, tax credits utilized and the effects of the noncontrolling interest. The Company does not have any net operating loss carry forwards as of September 30, 2015.
Note 10. Operating Leases
The Company leases offices, warehouse facilities and equipment under non-cancelable operating leases with unrelated parties expiring at various dates through 2024. Rent expense for the years ended September 30, 2015, 2014 and 2013, was $8,155,045, $6,785,057 and $2,575,121, respectively.
Future minimum annual commitments under operating leases are as follows:
Years ending September 30, |
||||
2016 |
$ | 7,801,811 | ||
2017 |
6,453,158 | |||
2018 |
5,692,188 | |||
2019 |
3,820,688 | |||
2020 |
2,622,987 | |||
Thereafter |
7,452,647 | |||
|
|
|||
$ | 33,843,479 | |||
|
|
Note 11. Retirement Plan
The Company sponsors a defined contribution 401(k) plan for substantially all employees. The plan allows all eligible employees to make elective pretax contributions in an amount not to exceed limits established by the Internal Revenue Service. The plan provides for the Company to make a required matching contribution. The plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 and regulations established by the Internal Revenue Service and Department of Labor. The assets and liabilities of the plan are not included in the Companys consolidated financial statements as they are those of the plan and not the Company. The Company contributions made to the plan and recognized as expense totaled $1,900,184, $1,391,704 and $748,468 for the years ended September 30, 2015, 2014 and 2013, respectively.
F-126
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 12. Related-Party Transactions
On April 2, 2012, the Company entered into a management agreement with Comvest Advisors, LLC and Wynnchurch Capital, Ltd, the managers of USP Holdings Inc. The Company has to pay an annual management fee related to services performed on the Companys operations and development and implementation of strategies for improving the operating, marketing and financial performance. This fee totaled $500,000 for each of the years ended September 30, 2015, 2014 and 2013. As of September 30, 2015 and 2014, $110,000 remained payable to the related parties and is included in other accrued expenses on the consolidated balance sheets.
Note 13. Employee Benefit Plans
Postretirement Benefits Other than Pensions
The Company provides certain medical and life insurance benefits for certain retirees hired prior to November 21, 2004. The plan covers former union employees of the Griffin Pipe Council Bluffs location hired prior to November 21, 2004, former union employees of the Griffin Pipe Lynchburg location hired prior to November 24, 2002 and salaried and non-union employees of Griffin Pipe hired prior to October 1, 2001. The plan was amended in 2014 to eliminate the postretirement benefits for active employees.
The following table sets forth the postretirement benefit plans funded status and amounts recognized in the Companys consolidated financial statements at September 30, 2015 and 2014.
September 30, | ||||||||
2015 | 2014 | |||||||
Change in benefit obligation |
||||||||
Benefit obligation beginning of year |
$ | 5,246,045 | $ | | ||||
Benefit obligation acquired as part of Griffin Pipe Products Co., LLC |
| 6,610,000 | ||||||
Curtailment |
(1,814,019 | ) | ||||||
Actuarial net gain (loss) |
(1,658,309 | ) | 706,576 | |||||
Interest costs |
172,604 | 149,743 | ||||||
Benefits paid |
(572,343 | ) | (406,255 | ) | ||||
|
|
|
|
|||||
Benefit obligation end of year |
$ | 3,187,997 | $ | 5,246,045 | ||||
|
|
|
|
|||||
Change in plan assets |
||||||||
Fair value of plan assets beginning of year |
$ | | $ | | ||||
Employer contribution |
572,343 | 406,255 | ||||||
Benefits paid |
(572,343 | ) | (406,255 | ) | ||||
|
|
|
|
|||||
Fair value of plan assets end of year |
$ | | $ | | ||||
|
|
|
|
|||||
Funded status |
$ | (3,187,997 | ) | $ | (5,246,045 | ) | ||
|
|
|
|
|||||
Amounts recognized in the consolidated balance sheets |
||||||||
Current liabilities |
$ | 325,603 | $ | 572,343 | ||||
Noncurrent liabilities |
2,862,394 | 4,673,702 | ||||||
|
|
|
|
|||||
Net amounts recognized |
$ | 3,187,997 | $ | 5,246,045 | ||||
|
|
|
|
|||||
Amounts recognized in accumulated other comprehensive income, net of tax |
$ | (994,985 | ) | $ | 184,794 | |||
|
|
|
|
F-127
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 13. Employee Benefit Plans (Continued)
The current liabilities amount is included in other accruals on the consolidated balance sheets.
The plan is unfunded with annual benefit obligations paid from current operating funds.
The economic assumptions used in determining the actuarial present value of the projected benefit obligations of the plan as of September 30, 2015 and 2014, were as follows:
September 30, | ||||||||||||||||
2015 | 2014 | |||||||||||||||
Projected benefit obligations: |
||||||||||||||||
Weighted average discount rate |
3.93 | % | 3.48 | % | ||||||||||||
Health care trend rate |
||||||||||||||||
Current rate |
7.00 | % | 6.50 | % | ||||||||||||
Ultimate rate/year reached |
4.50 | % | /2025 | 4.00 | % | /2032 |
The assumed health care and contribution trend rates as of September 30, 2015 ranged from 7% in 2015 trending downward to 4.5% in 2032.
The following postretirement benefits payments, which reflect expected future service, as appropriate are expected to be paid as follows:
Years ending September 30, |
||||
2016 |
$ | 325,603 | ||
2017 |
301,389 | |||
2018 |
286,995 | |||
2019 |
279,301 | |||
2020 |
264,846 | |||
2021 2025 |
994,074 |
Net postretirement benefit cost for the years ended September 30, 2015 and 2014 consisted of the following components:
September 30, | ||||||||
2015 | 2014 | |||||||
Interest costs |
$ | 172,604 | $ | 149,743 | ||||
|
|
|
|
|||||
Net postretirement benefit cost |
$ | 172,604 | $ | 149,743 | ||||
|
|
|
|
The effect of a 1% increase and a 1% decrease in the health care trend rate on the benefit obligation and aggregate of service cost plus interest cost is $12,459 and ($12,055), respectively, at September 30, 2015 .
Note 14. Major Customers
Major customers are those customers who account for 10% or more of the Companys total net sales or customers with an accounts receivable balance in excess of 10% of current assets. The Company had net sales to one customer totaling $178,630,206, $150,341,210 and $107,249,805 for the years ended September 30, 2015, 2014 and 2013, respectively. Outstanding receivables with this customer were 16.3% and 18.9% of total current assets at September 30, 2015 and 2014, respectively.
F-128
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 15. Self-Insurance
The Company is partially self-insured for employee health and dental programs as well as workers compensation. The Company pays medical expenses up to a maximum of $350,000 per employee per year. For workers compensation, the Company pays claims up to a maximum of $500,000. Costs in excess of these amounts are covered by insurance. Costs resulting from self-insured claims are charged to income when incurred.
Note 16. General Litigation
The Company is subject to various claims and legal proceedings that arise in the ordinary course of its business activities. While the results of litigation and claims cannot be predicted with certainty, in the opinion of management, none of these actions is expected to have a material adverse effect on the Company, its results of operations or its financial position.
Note 17. Griffin Pipe Products Co., LLC Council Bluffs Facility
The Council Bluffs, Iowa facility acquired during the Griffin acquisition was idled in April 2014 due to industry demand. The Company has retained maintenance personnel at the facility to exercise the equipment in anticipation of an eventual restart. During the 2015 planning process, the Company developed a detailed startup plan for the facility. The Company continuously monitors market demands and production requirements to assess the need for additional capacity and the restart of the facility.
At September 30, 2015, the Company believes there are no events or circumstances that indicate that the carrying amounts of these idle assets are not recoverable or exceed their fair value.
Since the date of acquisition, January 31, 2014, $8,388,011 was recorded in depreciation expense related to these assets. These assets are recorded in the noncurrent section of the Companys consolidated balance sheet.
The following is a summary of idle assets as of September 30, 2015 and 2014:
September 30, | ||||||||
2015 | 2014 | |||||||
Machinery and equipment |
$ | 23,419,808 | $ | 23,060,389 | ||||
Land and mineral resources |
2,080,000 | 2,080,000 | ||||||
Buildings |
1,401,563 | 1,405,834 | ||||||
Pipe molds |
1,891,509 | 1,935,085 | ||||||
Construction in progress |
464,412 | 408,815 | ||||||
Computer software |
134,705 | 134,705 | ||||||
|
|
|
|
|||||
29,391,997 | 29,024,828 | |||||||
Less: accumulated depreciation |
8,388,011 | 3,132,688 | ||||||
|
|
|
|
|||||
$ | 21,003,986 | $ | 25,892,140 | |||||
|
|
|
|
Note 18. Restructuring Costs
On March 1, 2014, the Company announced plans to restructure its operations into three foundry locations. The Company believes this plan will enhance the profit potential of the business. This action resulted in the temporary closure of operations at the Council Bluffs, Iowa facility. The related charges
F-129
USP HOLDINGS INC.
Notes to Consolidated Financial Statements
Note 18. Restructuring Costs (Continued)
are included in the restructuring line in the Companys accompanying consolidated statements of operations. The planned actions relating to this restructure were completed at the end of September 30, 2014. The cost of this restructuring was $5,321,362.
The following is a summary of restructuring costs incurred:
Severance benefits |
$ | 2,546,077 | ||
Inventory disposal, return and transfer costs |
2,258,476 | |||
Contract cancellations |
485,579 | |||
Other |
31,230 | |||
|
|
|||
$ | 5,321,362 | |||
|
|
The changes in the liabilities related to restructuring for the year ended September 30, 2014 are as follows:
Amount | ||||
Balance, September 30, 2013 |
$ | | ||
Charges to expense |
5,321,362 | |||
Cash payments |
(5,289,976 | ) | ||
|
|
|||
Balance, September 30, 2014 |
$ | 31,386 | ||
|
|
The restructuring liability of $31,386 represents severance payment obligations. This liability was paid in fiscal year 2015, as such no restructuring liability exists at September 30, 2015.
Note 19. Significant Event
On April 29, 2014, the Company experienced a fire at its Bessemer, Alabama manufacturing facility that damaged a production line.
The Company maintains insurance for both property damage and business interruption relating to catastrophic events. Business interruption covers lost profits and other costs incurred. Non-refundable insurance recoveries received in excess of the net book value of damaged assets, cleanup and post-event costs are recognized as income in the period received.
The Company incurred costs related to the clean-up and repair of the facility and equipment repairs totaling $203,646 and $10,300,000 for the years ended September 30, 2015 and 2014, respectively. In the years ended September 30, 2015 and 2014, the Company received $7,041,239 and $2,000,000, respectively, of insurance reimbursements associated with these costs. In the year ended September 30, 2015, the Company recorded expenses of $548,359 related to proceeds under the Companys property loss insurance coverage. In the year ended September 30, 2014, the Company recorded a gain of $715,547 related to proceeds received to replace fixed assets under the Companys property loss insurance coverage.
The total amount of insurance recoveries related to this event as of September 30, 2015 is $9,041,239. No additional amounts are expected to be received related to insurance recoveries and no additional costs are expected to be incurred.
F-130
Cretex Concrete Products, Inc.
Carve-out Financial Statements
For the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013
F-131
To the Management
of Forterra Building Products, Inc.
We have audited the accompanying financial statements of Cretex Concrete Products, Inc., a wholly owned subsidiary of Forterra Building Products, Inc., which comprise the balance sheets as of September 30, 2015 and December 27, 2014, and the related statements of operations, changes in stockholders equity [on a carve-out basis], and of cash flows for the fiscal period ended September 30, 2015, December 27, 2014, and December 28, 2013.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cretex Concrete Products, Inc. as of September 30, 2015 and December 27, 2014, and the results of its operations and its cash flows for the fiscal period ended September 30, 2015, December 27, 2014, and December 28, 2013 in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers, LLP
Minneapolis, Minnesota
July 8, 2016
F-132
CRETEX CONCRETE PRODUCTS, INC.
CARVE-OUT STATEMENTS OF OPERATIONS
(In $US thousands)
Period ended
September 30, |
Fiscal year ended
December 27, |
Fiscal year ended
December 28, |
||||||||||
2015 | 2014 | 2013 | ||||||||||
Net sales |
$ | 149,284 | $ | 175,470 | $ | 160,267 | ||||||
Cost of goods sold |
121,969 | 147,613 | 135,608 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
27,315 | 27,857 | 24,659 | |||||||||
Selling, general and administrative expenses |
(11,962 | ) | (15,082 | ) | (14,252 | ) | ||||||
Gain on sale of property, plant and equipment, net |
310 | 227 | 502 | |||||||||
|
|
|
|
|
|
|||||||
(11,652 | ) | (14,855 | ) | (13,750 | ) | |||||||
|
|
|
|
|
|
|||||||
Income from operations |
15,663 | 13,002 | 10,909 | |||||||||
Other expenses |
||||||||||||
Interest expense |
(1,029 | ) | (1,226 | ) | (1,551 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 14,634 | $ | 11,776 | $ | 9,358 | ||||||
|
|
|
|
|
|
See accompanying notes to the carve-out financial statements
F-133
CRETEX CONCRETE PRODUCTS, INC.
(in $US thousands)
September 30,
2015 |
December 27,
2014 |
|||||||
ASSETS |
||||||||
Current assets |
||||||||
Trade receivables |
36,878 | 13,006 | ||||||
Inventories |
38,383 | 34,627 | ||||||
Other current assets |
1,234 | 862 | ||||||
|
|
|
|
|||||
Total current assets |
76,495 | 48,495 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Property, plant and equipment, net |
55,956 | 58,482 | ||||||
Other long-term assets |
59 | 179 | ||||||
|
|
|
|
|||||
Total assets |
$ | 132,510 | $ | 107,156 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Trade payables |
$ | 8,670 | $ | 4,894 | ||||
Advances from customers |
1,983 | 3,124 | ||||||
Accrued liabilities |
4,319 | 4,032 | ||||||
Employee benefit obligations |
1,016 | 4,451 | ||||||
Taxes other than income taxes |
2,177 | 1,607 | ||||||
Current maturities - long term debt |
| 500 | ||||||
Accounts payable to related parties |
144 | 138 | ||||||
|
|
|
|
|||||
Total current liabilities |
18,309 | 18,746 | ||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Note payable to parent company |
35,400 | 15,243 | ||||||
Long-term debt, less current maturities |
| 9,000 | ||||||
Incentive compensation |
525 | 525 | ||||||
|
|
|
|
|||||
Total liabilities |
54,234 | 43,514 | ||||||
|
|
|
|
|||||
Commitments and contingencies (Note 8) |
||||||||
Stockholders equity |
||||||||
Common stock, $10.00 par value - 3,000 shares authorized; |
||||||||
1,829 shares issued and outstanding |
18 | 18 | ||||||
Additional paid in capital |
23,669 | 23,669 | ||||||
Retained earnings |
54,589 | 39,955 | ||||||
|
|
|
|
|||||
Total stockholders equity |
78,276 | 63,642 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 132,510 | $ | 107,156 | ||||
|
|
|
|
See accompanying notes to the carve-out financial statements
F-134
CRETEX CONCRETE PRODUCTS, INC.
Statements of Changes in Stockholders Equity on a Carve-out Basis
(in $US thousands)
Common
stock |
Additional paid
in capital |
Retained
earnings |
Total
stockholders equity |
|||||||||||||
Period ended September 30, 2015 |
||||||||||||||||
Balance, December 28, 2014 |
$ | 18 | $ | 23,669 | $ | 39,955 | $ | 63,642 | ||||||||
Net Income |
| | 14,634 | 14,634 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, September 30, 2015 |
18 | 23,669 | 54,589 | 78,276 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fiscal year ended December 27, 2014 |
||||||||||||||||
Balance, December 29, 2013 |
$ | 18 | $ | 23,669 | $ | 33,666 | $ | 57,353 | ||||||||
Net Income |
| | 11,776 | 11,776 | ||||||||||||
Distributions to parent |
| | (5,487 | ) | (5,487 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, December 27, 2014 |
18 | 23,669 | 39,955 | 63,642 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fiscal year ended December 28, 2013 |
||||||||||||||||
Balance, December 30, 2012 |
$ | 18 | $ | 23,669 | $ | 24,308 | $ | 47,995 | ||||||||
Net Income |
| | 9,358 | 9,358 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, December 28, 2013 |
18 | 23,669 | 33,666 | 57,353 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to the carve-out financial statements
F-135
CRETEX CONCRETE PRODUCTS, INC.
Carve-out Statements of Cash Flows
(in $US thousands)
Period ended
September 30, |
Fiscal year
ended December 27, |
Fiscal year
ended December 28, |
||||||||||
2015 | 2014 | 2013 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 14,634 | $ | 11,776 | $ | 9,358 | ||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||||||
Depreciation and amortization expense |
5,342 | 6,524 | 6,066 | |||||||||
Bad debts |
| 6 | 43 | |||||||||
Amortization of deferred financing fees |
161 | 19 | 1 | |||||||||
(Gain) on disposal of property, plant and equipment |
(310 | ) | (227 | ) | (502 | ) | ||||||
Change in assets and liabilities: |
||||||||||||
Trade receivables, net |
(23,872 | ) | 2,601 | (1,568 | ) | |||||||
Inventories |
(3,755 | ) | (5,975 | ) | (4,253 | ) | ||||||
Other assets |
(415 | ) | (49 | ) | 470 | |||||||
Trade payables |
4,038 | (756 | ) | 836 | ||||||||
Other current liabilities |
(3,711 | ) | 2,872 | 512 | ||||||||
Other long-term liabilities |
| 39 | (19 | ) | ||||||||
|
|
|
|
|
|
|||||||
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
(7,888 | ) | 16,830 | 10,944 | ||||||||
|
|
|
|
|
|
|||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Proceeds from the sale of plant, property, and equipment, net |
324 | 509 | 522 | |||||||||
Purchases of property, plant and equipment |
(3,093 | ) | (9,066 | ) | (12,651 | ) | ||||||
|
|
|
|
|
|
|||||||
NET CASH USED IN INVESTING ACTIVITIES |
(2,769 | ) | (8,557 | ) | (12,129 | ) | ||||||
|
|
|
|
|
|
|||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Proceeds from long-term debt |
| 2,670 | 7,330 | |||||||||
Principal payments on long-term debt |
(9,500 | ) | (500 | ) | | |||||||
Repayments of parent company note |
(132,092 | ) | (186,918 | ) | (167,539 | ) | ||||||
Borrowings on parent company note |
152,249 | 181,962 | 161,575 | |||||||||
Payments of deferred financing fees |
| | (181 | ) | ||||||||
Distributions to parent company |
| (5,487 | ) | | ||||||||
|
|
|
|
|
|
|||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
10,657 | (8,273 | ) | 1,185 | ||||||||
|
|
|
|
|
|
|||||||
Net change in cash and cash equivalents |
| | | |||||||||
Cash and cash equivalents balance, beginning of period |
| | | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents balance, end of period |
| | | |||||||||
|
|
|
|
|
|
|||||||
SUPPLEMENTAL DISCLOSURES: |
||||||||||||
Cash paid for interest |
106 | 132 | | |||||||||
Non cash investing and financing activity |
||||||||||||
Purchase of property, plant and equipment in accounts payable |
230 | 492 | 54 | |||||||||
Transfers of property, plant and equipment to (from) related parties |
| 876 | (45 | ) |
See accompanying notes to the carve-out financial statements
F-136
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
1. Organization and description of the business
Cretex Concrete Products, Inc. (CCP or the Company) carve-out financial statements (the CCP Carve-out Financial Statements) present the historical carve-out results of operations, changes in stockholders equity and cash flows as of and for the period ended September 30, 2015, December 27, 2014 and December 28, 2013, and present the historical carve-out financial position as of September 30, 2015 and December 27, 2014. The Company is a division of Cretex Companies, Inc (Cretex or the Parent company). The CCP Carve-out Financial Statements have been derived from the accounting records of Cretex on a carve-out basis. The CCP Carve-out Financial Statements results do not necessarily reflect what the financial position, results of operations, changes in stockholders equity or cash flows would have been if CCP had been a separate entity.
On October 1, 2015 HBP Pipe & Precast, LLC (subsequently renamed Forterra Pipe & Precast, LLC, hereinafter, Forterra) acquired 100% of the outstanding common stock of CCP. CCP is a manufacturer of reinforced concrete pipe, box culverts, precast drainage structure, prestressed bridge components and ancillary precast products in the Midwestern section of the United States (the Midwest).
The CCP Carve-out Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). These principles are established by the Financial Accounting Standards Board. The preparation of the CCP Carve-out Financial Statements in accordance with U.S. GAAP requires that management make estimates and assumptions and use judgment regarding the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities for the periods presented herein.
Amounts presented herein are in thousands of U.S. dollars unless otherwise noted.
2. Significant accounting policies
Basis of presentation
These financial statements were prepared from the accounting records of Cretex on a carve-out basis. Preparation of the carve-out basis financial statements included making certain adjustments to present the historical records on a basis as if CCP had been a separate entity. These adjustments include adjustments of corporate allocations to amounts representative of full allocations reflective of the benefits CCP received.
Cretex uses a centralized approach to cash management and financing of its operations. CCP does not maintain cash accounts at the entity level and all cash receipts are remitted into a bank account of the Parent company and disbursements are drawn off of a bank account of the Parent company for the benefit of CCP. This arrangement is not reflective of the manner in which the Company would have been able to finance and provide for working capital for its operations had it been a stand-alone business separate from Cretex during the periods presented. Cash transfers to and from the Parent companys accounts are reflected within the note payable to parent company.
The carve-out financial statements include certain assets and liabilities that have historically been held at the Parent company corporate level but are specifically identifiable or otherwise allocable to the Company. The cash and cash equivalents held by Cretex at the corporate level are not specifically identifiable to the Company and therefore were not allocated for any of the periods presented. Cretex
F-137
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
management allocated a proportion of the corporate third-party debt to the Company through the note payable to parent company (Parent note). The Parent note functioned as a form of permanent financing for the Company with changes during the period representing excess net receipts used to pay down the balance or excess net payments which increased the draw on the Parent note. The Parent company charged CCP interest on the Parent note at a rate reflective of the third party interest rates paid by the Parent company. The Company was a joint and severally liable guarantor of the corporate third party debt, along with the other subsidiaries of the Parent company. Proceeds from the sale of CCP to Forterra were used to extinguish certain existing debt of Cretex.
The historical costs and expenses reflected in the carve-out financial statements include an allocation for certain corporate functions historically provided by the Parent company. Historically, the centralized functions have included executive senior management, financial reporting, financial planning and analysis, information technology, tax, risk management, treasury, legal, human resources, safety and strategy and development. The cost of each of these services has been allocated to the Company on the basis of the Companys relative head count and for general and administrative expenses on the basis of revenues relative to overall Cretex revenues. The Company believes that these allocations reasonably reflect the utilization of services provided and benefits received. However, they may differ from the cost that would have been incurred had the Company operated as a stand-alone company for the periods presented. Actual costs that would have been incurred if the Company had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including legal services, accounting and finance services, human resources, marketing and contract support, customer support, treasury, facility and other corporate and infrastructural services.
Use of estimates
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are based on managements best knowledge of current events and actions that the Company may undertake in the future. The more significant estimates made by management relate to bodily injury and insurance claims which were determined by the Parent company based on the number and severity of claims historically and the estimated costs going forward, as well as estimates for inventory reserves, allowance for doubtful accounts, allocation of corporate expenses, profit sharing, bonuses and other compensation related items and impairment of long-lived assets.
Accounting periods
The Companys fiscal year ends on the last Saturday in December. Accordingly, each fiscal year normally consists of 13 four-week periods, or accounting periods, accounting for 364 days in the aggregate. The period ended September 30, 2015 consists of 39 weeks and 4 days, or 277 days. Fiscal 2014 and 2013 both contained 52 weeks.
F-138
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
Cash and cash equivalents
The Company does not hold any cash or cash equivalents. Treasury activities, including activities related to the Company, are centralized by Cretex such that the net cash collections are automatically distributed to Cretex and reflected in the Parent note.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily receivables. The Company performs ongoing credit evaluations of its customers financial condition and generally requires no collateral other than partial advance payments or deposits from its customers on major projects. The allowances for uncollectible receivables are based upon analysis of economic trends in the construction industry, detailed analysis of the expected collectability of accounts receivable that are past due and the expected collectability of overall receivables.
Trade receivables, net
Trade receivables are recorded at net realizable value, which includes allowances for doubtful accounts. The Company reviews the collectability of trade receivables on an ongoing basis. The Company reserves for trade receivables determined to be uncollectible. This determination is based on the delinquency of the account, the financial condition of the customer and the Companys collection experience.
Inventories
Inventories are valued at the lower of cost or market. The Companys inventories are valued using the average cost method which approximates first in first out (FIFO) inventory costing. Inventories include materials, labor and applicable factory overhead costs. The value of inventory is adjusted for damaged, obsolete, excess and slow-moving inventory. Market value of inventory is estimated considering the impact of market trends, an evaluation of economic conditions and the value of current orders relating to the future sales of each respective component of inventory.
Property, plant and equipment, net
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets. These lives range from 15 to 33 years for buildings, 5 to 15 years for machinery and equipment, 5 to 10 years for molds and rings, 5 to 15 years for automobiles and trucks, and lower of lease term or useful life on leasehold improvements. Repair and maintenance costs are expensed as incurred. The Companys depreciation expenses are recorded in cost of goods sold and selling, general and administrative expenses in the carve-out statements of operations.
Impairment or disposal of long-lived assets
The Company evaluates the recoverability of its long-lived assets in accordance with the provisions of ASC 360, Property, Plant and Equipment (ASC 360). ASC 360 requires that long-lived
F-139
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. Such evaluations for impairment are significantly impacted by estimates of future prices for the Companys products, capital needs, economic trends in the construction sector and other factors. If such assets are considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount of the assets exceeds their fair value. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.
The Company assesses impairment of long-lived assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For purposes of evaluating impairment of long-lived assets held in use, the Company has determined this level to be the asset group level, which is defined as the individual CCP plants. For assets meeting the criteria for classification as held for sale under ASC 360, the impairment is assessed at the disposal group level, generally the specific plant or plants held for sale.
Defined benefit pension plans and other post-retirement benefits
The Companys employees participate in defined benefit pension plans that are sponsored by Cretex. The pension plans are the Cretex Salaried Pension Plan that was frozen in 2008 and the Cretex Hourly Pension Plan that was frozen during the period 2008 to 2011. These plans include other Cretex employees that are not employees of the Company. Cretex also provides certain retiree health and life insurance benefits to eligible employees who have retired from the Company. Due to their separation from Cretex on October 1, 2015, participating CCP employees were offered the choice of annuity or lump sum settlement payout options. Both plans were terminated by Cretex effective December 31, 2015.
The Company also has employees covered by collective bargaining agreements that provide for defined benefit pension plans. These plans include the Central States Southeast and Southwest Areas Pension Plan that the Company withdrew from effective April 28, 2013, Construction Industry Laborers Pension Fund and Minnesota Laborers Pension Fund that the Company withdrew from effective January 31, 2015 and the Central Pension Fund of International Union of Operating Engineers which is under a collective bargaining agreement that expires on May 31, 2018.
The Company accounts for its defined benefit pension plans as multiemployer plans under ASC 715, Compensation Benefit Plans (ASC 715) . In the sale of CCP to Forterra, Cretex assumed responsibility for all future liabilities and payments for the defined benefit pensions plans.
Fair value measurement
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value
F-140
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
Level 2 Inputs Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The Companys other financial instruments consist primarily of trade and other receivables, accounts payable, accrued expenses and long-term debt. The carrying value of the Companys trade and other receivables, trade payables and accrued expenses approximates fair value due to their highly liquid nature, short term maturity, or competitive rates assigned to these financial instruments.
The Company may adjust the carrying amount of certain nonfinancial assets to fair value on a non-recurring basis when they are impaired.
Revenue recognition
Revenues are recognized by the Company when the risks and rewards associated with the transaction have been transferred to the purchaser, which is demonstrated when all the following conditions are met: evidence of a binding arrangement exists (generally, purchase orders), products have been delivered or services have been rendered, there is no future performance required, fees are fixed or determinable and amounts are collectable under normal payment terms. Sales represent the net amounts charged or chargeable in respect of services rendered and goods supplied. Sales are recognized net of any discounts given to the customer and sales or use taxes.
The Company incurs shipping costs to third parties for the transportation of products to customers and builds the cost of freight into the prices charged to customers for the delivered product. For the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, the Company recorded freight costs of $17,498, $21,621, and $18,212, respectively, on a gross basis within cost of products sold in the accompanying carve-out statements of operations.
The Company recognizes revenue at the time the final delivery reaches the customer. In most case final delivery to the customers is within the same day that the shipment is picked up by a third party hauler. The Company also ships lighting pole bases monthly under a consignment arrangement. The consignment sales are not recognized as revenue until the customer reports that the product has been sold.
Cost of goods sold and selling, general and administrative expenses
Cost of goods sold includes costs of production, inbound freight charges for raw materials, outbound freight to customers, purchasing and receiving costs, inspection costs, warehousing at plant
F-141
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
facilities and pension expenses. Selling, general and administrative costs also include expenses for sales, marketing, legal, accounting and finance services, human resources, customer support, treasury and other general corporate services. Advertising expense totaled $120, $131, and $209 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in selling, general and administrative expenses in the carve-out statements of operations.
Income taxes
Income taxes on operating results have not been accounted for in these financial statements as Cretex has elected S Corporation status providing for the pass through of the assessment of income taxes to the owners of Cretex stock and CCP has made a valid qualified subchapter S subsidiary income tax election (QSub) under internal revenue code (IRC) section 1361. The election of QSub status was approved with an effective date of January 3, 2007.
The Company has not engaged in, nor is a party to, any tax-sharing arrangements with the Parent company or any other related or non-related parties.
Recent accounting pronouncements
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus-agent implementation guidance and illustrations in ASU 2014-09. Among other things, ASU 2016-08 clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in ASU 2016-08, a specified good or service is a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer. Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others. ASU 2016-08 has the same effective date as ASU 2014-09, as amended by ASU 2015-14. The Company is required to adopt ASU 2016-08 using the same transition method it uses to adopt ASU 2014-09. The Company is currently evaluating the impact the adoption of ASU 2014-09, ASU 2015-14 and ASU 2016-08 will have on our financial statements.
In February 2016, the FASB issued ASU 2016-02, which requires a lessee to recognize assets and liabilities on the balance sheet for leases with lease terms greater than 12 months. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. Accordingly, the standard is effective for us on January 1, 2019 using a modified retrospective approach. We are currently evaluating the impact that the standard will have on our financial statements.
In August 2015, The FASB issued ASU 2015-15, as ASU 2015-03 did not specifically address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. ASU 2015-15 allows an entity to continue to defer and present debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03 and ASU 2015-15 is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have
F-142
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
2. Significant accounting policies (Continued)
not been previously issued. Had the Company adopted this guidance early, other assets would have been lower by approximately $0 and $161 with corresponding decreases in debt as of September 30, 2015 and December 27, 2014, respectively. The adoption of this standard will have no impact on the Companys results of operations, cash flows or net assets.
In July 2015, the FASB issued ASU 2015-11, which simplifies the accounting for the valuation of all inventory not accounted for using the last-in first-out (LIFO) method by prescribing that inventory be valued at the lower of cost and net realizable value. ASU 2015-11 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and for interim periods beginning after December 15, 2017 for private entities on a prospective basis. We are currently evaluating the impact that the standard will have on our financial statements.
3. Trade receivables, net
Receivables consist of the following:
September 30,
2015 |
December 27,
2014 |
|||||||
Trade receivables |
$ | 36,988 | $ | 13,116 | ||||
Less: Allowance for doubtful accounts |
(110 | ) | (110 | ) | ||||
|
|
|
|
|||||
Total trade receivables |
$ | 36,878 | $ | 13,006 | ||||
|
|
|
|
The Company recorded provisions for doubtful accounts of approximately $0, $6 and $43 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in selling, general and administrative expenses in the carve-out statements of operations.
4. Inventories
Inventory consists of the following:
September 30,
2015 |
December 27,
2014 |
|||||||
Finished goods |
$ | 33,185 | $ | 30,120 | ||||
Raw materials |
6,090 | 4,772 | ||||||
Reserve for excess and slow moving |
(892 | ) | (265 | ) | ||||
|
|
|
|
|||||
Total inventory |
$ | 38,383 | $ | 34,627 | ||||
|
|
|
|
As of each period end all projects were complete and the Company had no work in process inventory.
F-143
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
5. Property, plant and equipment, net
Property, plant and equipment, net consist of the following:
September 30,
2015 |
December 27,
2014 |
|||||||
Land |
$ | 5,895 | $ | 5,895 | ||||
Land improvements |
7,722 | 6,757 | ||||||
Buildings |
21,740 | 20,955 | ||||||
Machinery and equipment |
99,079 | 99,356 | ||||||
Molds and rings |
18,753 | 18,708 | ||||||
Autos and trucks |
6,491 | 6,824 | ||||||
Construction-in-progress |
1,481 | 2,557 | ||||||
|
|
|
|
|||||
Total property, plant and equipment |
161,161 | 161,052 | ||||||
Less: accumulated depreciation |
(105,205 | ) | (102,570 | ) | ||||
|
|
|
|
|||||
Property, plant and equipment, net |
$ | 55,956 | $ | 58,482 | ||||
|
|
|
|
The company did not have any equipment classified as capital leases as of September 30, 2015 and December 27, 2014, respectively.
Depreciation expense totaled $5,342, $6,524, and $6,066 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in cost of goods sold and selling, general and administrative expenses in the carve-out statements of operations.
Permanently idled facility
At the end of 2010, the Company closed and permanently idled the facility in Prairie City, Iowa and wrote the value down to $93. The facility was transferred to a related party, Cretex Properties, Inc., at the end of 2014 (see note 9 Related party transactions).
The property had not been sold during the carve-out financial statement period and did not meet the criteria to be presented as held for sale prior to the transfer to Cretex Properties, Inc. As such, the net book value of the Prairie City land has been segregated from property, plant and equipment, net as it is not a part of long-term operating assets and is reflected in the Other long-term assets section of the carve-out financial statements. The Company is leasing out the site and received rental payments for the property of $15, $20 and $25 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively.
Plant closures
At the end of 2014 the Company closed down 5 plants located in Duluth, Minnesota, Grand Forks and Fargo, North Dakota, and Riverton and Casper, Wyoming. The production at these plants was transferred to, and replaced by, new and existing plants with newer facilities, higher capacities and improved production capabilities. The Grand Forks, Fargo and Riverton locations were transferred to a related party, Cretex Properties, Inc., at the end of 2014 (see note 9 Related party transactions). The Duluth location is being retained by the Company as a storage and shipping yard. The lease on the
F-144
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
5. Property, plant and equipment, net (Continued)
Casper location expired at the end of 2014 and was not renewed by the Company. In connection with the plant closures and the Prairie City plant that was closed in 2010, the Company recognized $258, $19 and $76 in shutdown costs on the plant locations for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in cost of goods sold in the carve-out statements of operations.
Plant openings
A new plant was opened in Hawley, Minnesota (Hawley plant) in the fall of 2014 after construction began in 2013. Construction of the plant began in 2013 and was financed through a loan supported by industrial development revenue bonds (Revenue bonds) of the city of Hawley, Minnesota (Hawley). During the construction period, the Company capitalized $139 and $47 in interest costs during construction for the fiscal years ended December 27, 2014 and December 28, 2013, respectively. The Hawley plant replaced production at the Grand Forks and Fargo, North Dakota and the Duluth, Minnesota plants.
In February 2015 the Company opened a new plant in Bar Nunn, Wyoming (Bar Nunn plant) replacing the Casper, Wyoming plant that was closed at the end of 2014. In connection with the openings of the Hawley plant and the Barr Nunn plant the company incurred $375, $334 and $19 in start up costs for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in cost of goods sold in the carve-out statements of operations.
6. Other long-term assets
Other long-term assets consisted of the following:
September 30,
2015 |
December 27,
2014 |
|||||||
Deferred financing fees |
$ | | $ | 161 | ||||
Other long-term assets |
59 | 18 | ||||||
|
|
|
|
|||||
Total other long-term assets |
$ | 59 | $ | 179 | ||||
|
|
|
|
7. Accrued liabilities
Accrued liabilities consisted of the following:
September 30,
2015 |
December 27,
2014 |
|||||||
Salaries, wages and other compensation |
$ | 4,023 | $ | 3,826 | ||||
Other liabilities |
296 | 206 | ||||||
|
|
|
|
|||||
Total accrued liabilities |
$ | 4,319 | $ | 4,032 | ||||
|
|
|
|
F-145
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
8. Commitments and contingencies
As of September 30, 2015, the Company had outstanding surety bonds in the amount of $11,359 to secure performance commitments.
Operating leases
The Company leases certain property and equipment for various periods under noncancelable operating leases. Rent expense, net of applicable rental income, totaled $944, $1,101, and $924 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively, which is included in cost of goods sold and selling, general and administrative expenses in the carve-out statements of operations. The Companys future minimum lease payments under such agreements at September 30, 2015 were approximately:
Fiscal years ending: |
||||
December 26, 2015 |
$ | 228 | ||
December 31, 2016 |
820 | |||
December 30, 2017 |
653 | |||
December 29, 2018 |
618 | |||
December 28, 2019 |
266 | |||
Thereafter |
84 | |||
|
|
|||
$ | 2,669 | |||
|
|
Capital leases
The Company had no capital lease obligations under any of the periods reported.
Legal matters
The Company is involved in legal proceedings and litigation in the ordinary course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect either individually or in the aggregate on the Companys carve-out financial position, results of operations, or liquidity. Other than routine litigation incidental to the Company business, there are no material legal proceedings to which the Company is a party or to which any of the Companys properties are subject. In the sale of CCP to Forterra, Cretex assumed responsibility for all future liabilities and payments for legal matters.
The Company is a joint and several guarantor, along with substantially all of the Cretex subsidiaries, of the Parent company third party debt covered by credit agreements for revolver and term loans with total credit lines of $160 million. In addition, the Company is a joint and several guarantor, along with substantially all of the Cretex subsidiaries, of the Parent company senior secured notes and private shelf facility with total credit lines of approximately $50 million.
9. Related party transactions
Note payable parent company
The carve-out financial statements for the Company are based on the accounting records of Cretex. Treasury functions are centralized by the Parent company and all cash receipts and
F-146
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
9. Related party transactions (Continued)
disbursements on behalf of CCP are comingled in the cash balances of the Parent company. These cash transaction are settled into the note payable parent company (Parent note). Adjustments made from the accounting records of Cretex for the purposes of these carve-out financial statements, have been settled into the Parent note as they would have been had they been reflected in the ongoing accounting records of Cretex.
Through the Parent note Cretex management has allocated a proportion of the corporate third-party debt to the Company. The Parent note functions as a form of permanent financing for the Company with changes during the period representing excess net receipts used to pay down the balance or excess net payments which increase the draw on the Parent note. Interest expense is charged on the Parent note at a rate reflective of the third party interest rates paid by Cretex. During the periods included in the carve-out financial statements the contractual rate was 4.0% per annum. The Company was a joint and severally liable guarantor of the corporate third party debt, along with the other subsidiaries of the Parent company.
During the fiscal year ended December 27, 2014 the Company made a non-operating cash distribution to the Parent company of $5,487 that increased the Parent note.
Allocated expenses
The Company was allocated selling, general and administrative expenses from the Parent company for certain shared services of $2,782, $3,487 and $2,712 for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively. The allocated costs are included in selling, general and administrative expenses in the carve-out statements of operations. The historical costs and expenses reflected in our carve-out financial statements include an allocation for certain corporate functions historically provided by Cretex. The Parent companys senior management oversees the operations of CCP and is employed by the Parent company and certain functions critical to the Companys operations are centralized and managed by Cretex. Historically, the centralized functions have included executive senior management, financial reporting, financial planning and analysis, accounting, shared services, information technology, tax, risk management, treasury, legal, human resources, land management and strategy and development. The cost of each of these services has been allocated to the Company on the basis of revenue as compared to that of the Parent company for corporate general and administrative expenses and head count as compared to that of the Parent company for human resources, safety and information technology related support costs. The Company and Cretex believe that these allocations reasonably reflect the utilization of services provided and benefits received. However, these amounts are not necessarily representative of the amounts that would have been incurred by the company as a separate entity.
Related party payables and activity
The Company has primarily operated independently of the other Cretex subsidiaries with the exception of Elk River Machine Company (Elk River) from which CCP purchased jackets, forms, rings, liners and repairs. CCP purchased approximately $742, $1,337 and $488 of goods and services from Elk River for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, respectively. Payment for the goods and services is settled in the month
F-147
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
9. Related party transactions (Continued)
following the receipt of the goods and services through the Parent note. The Company had $144 and $138 in outstanding related party payables to Elk River as of September 30, 2015 and December 27, 2014.
Transfers of property, plant and equipment
The Company has transferred various property, plant and equipment to, and received from, various Cretex subsidiaries during the periods covered by the carve-out financial statements. Transfers of property, plant and equipment are reflected at net book value with reductions recorded to the Parent note for property transferred out and additions to the note for Properties transferred in. During the period ended December 27, 2014, the Company transferred out $876 net book value of property, plant and equipment with no additional consideration received. Additionally, during the period ended December 28, 2013 the Company received in $45 net book value of property, plant and equipment with no additional consideration paid.
10. Long term debt
In addition to the Parent note described in note 9, the Company also had a loan agreement (Hawley loan) supported by industrial development revenue bonds (Revenue bonds) of the city of Hawley, Minnesota (Hawley). The loan agreement and Revenue bonds were issued to finance the construction of a CCP manufacturing facility located in Hawley (Hawley plant). The total amount of the loan was for $10.0 million with amounts held in escrow until requisitions were approved for the reimbursement of expenses on the Hawley plant. The company requisitioned and received approximately $7.3 million in December 2013 with the remaining $2.7 million requisitioned in early 2014.
The principal amount of the Hawley loan amortizes in equal monthly installments over the term of the loan until the maturity date of December 1, 2038. Monthly principal payments are being made on the loan based on a 20 year amortization at the rate of $500 per year. The Hawley loan contains customary provisions relating to prepayments, affirmative covenants, negative covenants and events of default. The interest rate per annum applicable to the Hawley loan is based on a fluctuating rate of interest determined by reference to a LIBOR Index Rate plus the applicable spread of approximately 80 basis points.
The outstanding principal balance of the Hawley loan was $9,500 at December 27, 2014. The Hawley loan was paid in full on September 22, 2015 by the Parent company.
11. Employee benefit plans
The Companys employees participate in defined benefit pension plans that are sponsored by Cretex. The pension plans are the Cretex Salaried Pension Plan (Salaried Plan) that was frozen in 2008 and the Cretex Hourly Pension Plan (Hourly Plan) that was frozen during the period 2008 to 2011. These plans include other Cretex employees that are not employees of the Company. Cretex also provides certain retiree health and life insurance benefits to eligible employees who have retired from the Company. Due to their separation from Cretex on October 1, 2015, participating CCP employees were offered the choice of annuity or lump sum settlement payout options. Both plans were terminated by Cretex effective December 31, 2015.
F-148
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
11. Employee benefit plans (Continued)
The Salaried Plan and Hourly Plan are accounted for as multiemployer plans. During the year ended December 28, 2013 the required minimum payments attributable to CCP for the plans were $544 and $477 for the Salaried Plan and the Hourly Plan, respectively. There were no minimum payments required for the period ended September 30, 2015 or the fiscal year ended December 27, 2014. Due to the sale of CCP to Forterra, the withdrawal of the CCP employees from the plans may trigger a withdrawal liability. This liability has not been determined and is not included in the carve-out financial statements. In the sale of CCP to Forterra, Cretex assumed responsibility for all future liabilities and payments for these defined benefit pensions plans.
In addition, the Company has participated in a number of multiemployer defined benefit pension plans under collective bargaining agreement (CBA) terms that cover the Companys union-represented employees. Cretex, on behalf of the Company, contributes to these plans. The risks of participating in these multiemployer plans differ from those of single-employer plans in the following aspects:
| Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. |
| If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be assumed by the remaining participating employers. |
| If the Company chooses to stop participating in a multiemployer plan, it may be required to pay the plan an amount based on the underfunded status of the plan, referred to as a withdrawal liability. |
The Companys participation in these plans is outlined in the below table. The EIN/Pension Plan Number column provides the Employee Identification Number (EIN) and the three-digit plan number. The most recent Pension Protection Act (PPA) zone status available is for the plan years ended December 31, 2015, 2014 and 2013 (unless otherwise noted). The zone status information was determined from the plans annual funding notices. Among other contributing factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are between 65 and 80 percent funded, and plans in the green zone are at least 80 percent funded. The FIP/RP Status column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date of the collective-bargaining agreements. For the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013, none of the Companys plan contributions, excluding withdrawal payments, represented 5% or greater of the total plan contributions. The Company did not pay any surcharge payments during 2015, 2014 or 2013.
F-149
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
11. Employee benefit plans (Continued)
Pension Fund |
EIN Pension
Plan Number |
PPA Zone Status |
FIP/RP
Status |
Contributions Made |
Expiration Date
of CBA |
Funded % | ||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||||||
Central States SE & SW Areas Pension Plan |
36-6044243001 | Red | Red | Red | Yes | $ | | $ | 2,061 | $ | | Withdrawn | 47.9 | % | 48.4 | % | 47.6 | % | ||||||||||||||||||||||||||||||
Construction Industry Laborers Pension Fund |
43-6060737001 | Green | Green | Green | No | | 187 | 210 |
|
Withdrawn in
1/31/2015 |
|
91.7 | % | 90.3 | % | 88.1 | % | |||||||||||||||||||||||||||||||
Minnesota Laborers Pension Fund |
41-6159599001 | Green | Green | Green | No | 3,563 | | 116 | Withdrawn | |||||||||||||||||||||||||||||||||||||||
Central Pension Fund of International Union of Operating Engineers |
36-6052390001 | Green | Green | Green | No | | 101 | 151 |
|
CBA expires
5/31/2018 |
|
93.7 | % | 90.3 | % | 87.8 | % | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
$ | 3,563 | $ | 2,349 | $ | 477 | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
On July 16, 2014, the Parent company executed a Settlement Agreement and Release with the Central States SE and SW Areas Pension Plan (Central States plan) resulting in a final withdrawal settlement payment. CCP participated in the Central States plan through various collective bargaining agreements along with other subsidiaries of the Parent company. The portion of the final withdrawal settlement payment attributable to the Company is $2,061 and is reflected as a liability in the carve-out financial statements as of December 29, 2012.
During February 2015, the Company negotiated the replacement of the Construction Industry Laborers Pension Fund with a Company (single-employer) sponsored 401(k) plan at its last contributing plant, triggering the complete withdrawal liability assessment from the fund. On December 4, 2015, the Parent company executed a settlement agreement and release resulting in a final withdrawal settlement payment of $253.
During 2014, the Parent company negotiated the replacement of the Minnesota Laborers Pension Fund with a Company (single-employer) sponsored 401(k) plan at its last contributing plant, triggering the complete withdrawal liability assessment from the fund. On February 9, 2015, the Parent company received notice from the fund of its complete withdrawal liability assessment of $3,915. The Parent company filed a Request for Review, as provided under ERISA, appealing the methodology used by the fund. Under the withdrawal assessment, the Parent company was required to make quarterly payments of $113 commencing on April 10, 2015. On June 10, 2015, the Parent company executed a settlement agreement and release resulting in a final withdrawal settlement payment of $3,450. The plan also retained the quarterly withdrawal installment of $113 paid in 2015.
Replacement of multiemployer pension plans with Company (single-employer) sponsored retirement plans may require the Parent company to pay withdrawal liabilities if the plans are
F-150
CRETEX CONCRETE PRODUCTS, INC.
Notes to Carve-out Financial Statements
(In $US thousands)
11. Employee benefit plans (Continued)
underfunded at the time of the withdrawal. As described above, the information available pertaining to the plans is at minimum two years preceding September 30, 2015, therefore the estimate of the Companys withdrawal liability is as if it was assessed during, or preceding, September 30, 2015. Factors that impact funded status of plans include, but not limited to, investment performance, changes in participant demographics, funding improvement and rehabilitation plans, adjustments to benefits, changes in the number of contributing employers, changes in actuarial assumptions and utilization of extended amortization provisions.
Due to uncertainty regarding future factors that could trigger withdrawal liability, as well as the absence of specific information regarding the plans current financial situation, the Company was unable to determine the specific amount and timing of the future withdrawal liabilities for the Central Pension Fund of International Union of Operating Engineers and therefore did not record a withdrawal liability for the period ended September 30, 2015 and the fiscal years ended December 27, 2014 and December 28, 2013.
In the sale of CCP to Forterra, Cretex assumed responsibility for all future liabilities and payments for all of the defined benefit pensions plans.
12. Subsequent events
In accordance with ASC 855 subsequent Events, the Company has reviewed and updated its subsequent events through June 27, 2016, the date the financial statements were issued.
On October 1, 2015 Forterra acquired 100% of the outstanding common stock of CCP as discussed in footnote 1. The operations of CCP have been integrated into Forterra operations effective on October 1, 2015. As a part of the purchase agreement for the acquisition by Forterra, certain current and future liabilities of CCP were assumed by the Parent company including pension obligations, accrued profit sharing, accrued bonuses and deferred compensation.
In addition, a transition services agreement (TSA) was signed between Forterra and the Parent company specifying the provision of certain services including data provision and access to historical records, assistance in contract assignment, human resources assistance, general administrative services, training, information technology and other support services. These services run from a period of 6 to 24 months depending upon the service. Provision of certain services over a 6 month period are provided by the Parent company at a cost to Forterra estimated at approximately $30 per month.
On April 5, 2016 Forterra sold properties throughout its portfolio, including the properties acquired with CCP, to two unrelated third parties, Pipe Portfolio Owner (Multi) LP. and Fort-Ben Holdings (ONQC) Ltd. (collectively the Buyer). Forterra and Buyer contemporaneously entered into master land and building agreements under which Forterra agreed to lease back each of the properties for an initial twenty year term. Forterra is responsible for all real property taxes and specified insurance and maintenance costs. Forterra has options to extend each lease for an additional 9 years and 11 months.
F-151
Shares
Forterra, Inc.
Common Stock
PROSPECTUS
, 2016
Until , 2016 (25 days after the date of this prospectus), all dealers that buy, sell or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table shows the costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale and distribution of the securities being registered. Except as otherwise noted, we will pay all of these amounts. All amounts except the SEC registration fee, the FINRA fee and the NASDAQ listing fee are estimated.
SEC Registration Fee |
$ | 10,070 | ||
FINRA Filing Fee |
15,500 | |||
NASDAQ Listing Fee |
* | |||
Printing and Engraving Costs |
* | |||
Legal Fees and Expenses |
* | |||
Accounting Fees and Expenses |
* | |||
Transfer Agent and Registrar Fees and Expenses |
* | |||
Miscellaneous Expenses |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be provided by amendment. |
Item 14. Indemnification of Directors and Officers.
Our amended and restated certificate of incorporation will provide that, to the fullest extent permitted by the Delaware General Corporate Law, or the DGCL, no director shall be personally liable to our company or its stockholders for monetary damages for breach of fiduciary duty as a director. Our amended and restated bylaws will provide that each person who was or is party or is threatened to be made a party to, or was or is otherwise involved in, any threatened, pending or completed proceeding by reason of the fact that he or she is or was a director or officer of our company or was serving at the request of our company as a director, officer, employee, agent or trustee of another entity shall be indemnified and held harmless by us to the full extent authorized by the DGCL against all expense, liability and loss actually and reasonably incurred in connection therewith, subject to certain limitations.
Section 145(a) of the DGCL authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to a threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the persons conduct was unlawful.
Section 145(b) of the DGCL provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another
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corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
The DGCL also provides that indemnification under Sections 145(a) and (b) can only be made upon a determination that indemnification of the present or former director, officer or employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Sections 145(a) and (b). Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of directors who are not a party to the action at issue (even though less than a quorum), (2) by a majority vote of a designated committee of these directors (even though less than a quorum), (3) if there are no such directors, or these directors authorize, by the written opinion of independent legal counsel, or (4) by the stockholders.
Section 145(g) of the DGCL also empowers a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.
Section 102(b)(7) of the DGCL permits a corporation to provide for eliminating or limiting the personal liability of one of its directors for any monetary damages related to a breach of fiduciary duty as a director, as long as the corporation does not eliminate or limit the liability of a director for acts or omissions which (1) were in bad faith, (2) were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, (3) the director derived an improper personal benefit from (such as a financial profit or other advantage to which such director was not legally entitled) or (4) breached the directors duty of loyalty.
We will enter into indemnification agreements with each of our executive officers and directors that provide, in general, that we will indemnify them to the fullest extent permitted by law in connection with their service to us or on our behalf.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement will provide for indemnification of our directors and officers by the underwriters against certain liabilities.
Item 15. Recent Sale of Unregistered Securities.
We have not sold any securities, registered or otherwise, within the past three years, except for the common stock of Forterra, Inc. issued upon incorporation on June 21, 2016 to our sole stockholder, LSF9 Stardust Holdings, L.P. The issuance of the common stock was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof as a transaction by an issuer not involving any public offering.
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Item 16. Exhibits and Financial Data Schedules.
(a) Exhibit Index
See the Exhibit Index following the signature page.
(b) Financial Statement Schedule
None. Financial statement schedules have been omitted because the information is included in our combined financial statements included elsewhere in this Registration Statement.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Irving, state of Texas, on August 15, 2016.
Forterra, Inc. |
||
By: |
/s/ William Matthew Brown |
Name: William Matthew Brown | ||
Title: Executive Vice President and Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, as amended, the following persons have signed this Registration Statement in the capacities and on the date indicated.
* Jeffrey Bradley |
Chief Executive Officer (Principal Executive Officer), Director |
August 15, 2016 | ||
/s/ William Matthew Brown William Matthew Brown |
Executive Vice President and Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer) |
August 15, 2016 | ||
* Kyle S. Volluz |
Director |
August 15, 2016 |
* By:
|
/s/ William Matthew Brown
|
Name: William Matthew Brown | ||
Title: Attorney-in-Fact |
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EXHIBIT INDEX
Exhibit
|
Description of Exhibit |
|
1.1* | Form of Underwriting Agreement. | |
2.1** + | Purchase Agreement, dated as of December 23, 2014, by and between HBMA Holdings LLC, Structherm Holdings Limited, Hanson America Holdings (4) Limited, Hanson Packed Products Limited and LSF9 Stardust Holdings LLC, and, solely for the purposes of Section 9.08 and Article IX thereto, HeidelbergCement AG. | |
2.2** | Amendment No. 1 to the Purchase Agreement, dated as of January 21, 2015, by and between HBMA Holdings LLC, Structherm Holdings Limited, Hanson America Holdings (4) Limited, Hanson Packed Products Limited and LSF9 Stardust Holdings LLC. | |
2.3** | Assignment and Amendment to the Purchase Agreement, dated as of March 13, 2015, by and between LSF9 Stardust Holdings LLC and LSF9 Concrete Ltd, and solely for the purposes of Article III thereto, HBMA Holdings LLC, Structherm Holdings Limited, Hanson America Holdings (4) Limited, Hanson Packed Products Limited, Stardust Acquisition I Company, LLC, Stardust Acquisition II Company, LLC, LSF9 Concrete UK Ltd, Stardust Canada Acquisition I Ltd And Stardust Canada Acquisition II Ltd. | |
2.4** + | Stock Purchase Agreement, dated as of August 20, 2015, by and among HBP Pipe & Precast LLC, Cretex Companies, Inc. and Cretex Concrete Products, Inc. | |
2.5** + | Purchase Agreement, dated as of January 29, 2016, by and among Forterra Pipe & Precast, LLC, Sherman-Dixie Concrete Industries, Inc., the shareholders named therein, and PKD Partnership. | |
2.6** + | Stock Purchase Agreement, dated as of February 12, 2016, by and among Forterra Pipe & Precast, LLC, USP Holdings Inc., the stockholders and optionholders of USP Holdings Inc. named therein, and Alabama Seller Rep Inc. | |
3.1 | Amended and Restated Certificate of Incorporation of the Registrant to be adopted. | |
3.2 | Amended and Restated Bylaws of the Registrant to be adopted. | |
4.1 | Form of Registration Rights Agreement between Forterra, Inc. and LSF9 Concrete Mid-Holdings Ltd. | |
4.2* | Form of Certificate of Common Stock of the Registrant. | |
5.1 | Form of Opinion of Gibson, Dunn & Crutcher LLP. | |
10.1** | Senior Lien Term Loan Credit Agreement dated as of March 13, 2015, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., as borrower, the lenders party thereto, and Credit Suisse AG as administrative agent. | |
10.2** | First Incremental Facility Amendment to the Senior Lien Term Loan Credit Agreement, dated as of October 1, 2015, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., the guarantors party thereto, the lenders party thereto, and Credit Suisse AG as administrative agent. | |
10.3** | Second Incremental Facility Amendment to the Senior Lien Term Loan Credit Agreement, dated as of June 17, 2016, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., the guarantors party thereto, the lenders party thereto, and Credit Suisse AG as administrative agent. | |
10.4** | Junior Lien Term Loan Credit Agreement dated as of March 13, 2015, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., as borrower, the lenders party thereto, and Credit Suisse AG as administrative agent. |
Exhibit
|
Description of Exhibit |
|
10.5** | ABL Credit Agreement dated as of March 13, 2015, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., as initial borrower, the additional revolving borrowers party thereto, the lenders party thereto, Credit Suisse AG as administrative agent, and Bank of America, N.A. as collateral agent. | |
10.6** | First Amendment to ABL Credit Agreement, dated as of April 1, 2015, by and among LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., the additional revolving borrowers party thereto, the guarantors party thereto, the lenders party thereto and Credit Suisse AG as administrative agent. | |
10.7** | Incremental Facility Amendment to ABL Credit Agreement, dated as of November 10, 2015, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., the additional revolving borrowers party thereto, the guarantors party thereto, the lenders party thereto, Credit Suisse AG, Cayman Islands Branch, as administrative agent, and Bank of America, N.A. as collateral agent. | |
10.8** | Second Amendment and Consent to ABL Credit Agreement, dated as of April 13, 2016, by and among LSF9 Concrete Ltd, LSF9 Concrete Holdings Ltd, Stardust Finance Holdings, Inc., the additional revolving borrowers party thereto, the guarantors party thereto, the lenders party thereto, and Bank of America, N.A. as collateral agent and administrative agent. | |
10.9 | Master Land and Building Lease, dated April 5, 2016, by and among Forterra Pipe & Precast, LLC, Forterra Pressure Pipe, Inc., Forterra Concrete Products, Inc. and Forterra Concrete Industries, Inc., as Tenant, and Pipe Portfolio Owner (MULTI) LP, as Landlord. | |
10.10 | First Amendment to Master Land and Building Lease, dated April 14, 2016 by and among Forterra Pipe & Precast, LLC, Forterra Pressure Pipe, Inc., Forterra Concrete Products, Inc., Forterra Concrete Industries, Inc. and Pipe Portfolio Owner (MULTI) LP. | |
10.11 | Master Land and Building Lease, dated April 5, 2016, by and among, Forterra Pipe & Precast, Ltd., Forterra Pressure Pipe, Inc., and Forterra Pipe & Precast Quebec, Ltd., as Tenant, and FORT-BEN Holdings (ONQC) LTD., as Landlord. | |
10.12** | Amended and Restated Limited Liability Company Agreement of Concrete Pipe & Precast, LLC, dated as of August 3, 2012, by and among Concrete Pipe & Precast, LLC, Americast, Inc. and Hanson Pipe & Precast LLC. | |
10.13** | Asset Advisory Agreement, dated as of February 9, 2015, by and between Hudson Americas LLC, LSF9 Stardust Holdings, L.P., and Lone Star Fund IX (U.S.), L.P. for purposes of Section 7(a). | |
10.14 | Form of Tax Receivable Agreement. | |
10.15 | Form of Indemnification Agreement for executive officers and directors. | |
10.16**# | Employment Agreement between HBP Pipe and Precast LLC and Jeff Bradley dated as of July 8, 2015. | |
10.17**# | Amended and Restated Employment Agreement between Forterra Pipe & Precast, LLC and William Matthew Brown dated as of June 28, 2016. | |
10.18**# | Separation and Release Agreement between Plamen Jordanoff and HBP Pipe and Precast LLC dated as of July 27, 2015 | |
10.19**# | Confidential Separation Agreement and Full Release of Claims between Mark Conte and Forterra Pipe and Precast, LLC executed as of June 12, 2015. | |
10.20**# | Confidential Separation Agreement and Full Release of Claims between Scott Szwejbka and Forterra Pipe and Precast, LLC executed as of December 31, 2015. | |
10.21**# | LSF9 Concrete Holdings Ltd. Long Term Incentive Plan (with form of award agreement). | |
10.22# | Forterra, Inc. 2016 Stock Incentive Plan. |
Exhibit
|
Description of Exhibit |
|
10.23#* | Form of Grant Notice for 2016 Stock Incentive Plan Nonqualified Stock Options Award. | |
10.24#* | Form of Grant Notice for 2016 Stock Incentive Plan Incentive Stock Options Award. | |
10.25#* | Form of Grant Notice for 2016 Stock Incentive Plan Restricted Stock Award. | |
10.26#* | Form of Grant Notice for 2016 Stock Incentive Plan Restricted Stock Unit Award. | |
21.1** | Subsidiaries of the Registrant. | |
23.1 | Consent of Ernst & Young LLP. | |
23.2 | Consent of PricewaterhouseCoopers LLP. | |
23.3 | Consent of RSM US LLP. | |
23.4 | Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1). | |
23.5** | Consent of Freedonia Custom Research, Inc. | |
23.6** | Consent of Freedonia Group, Inc. | |
24.1** | Powers of Attorney. | |
99.1** | Consent to be Named of Kevin Barner. | |
99.2** | Consent to be Named of Robert Corcoran. | |
99.3** | Consent to be Named of Samuel D. Loughlin. | |
99.4** | Consent to be Named of Clint McDonnough. | |
99.5** | Consent to be Named of John McPherson. | |
99.6** | Consent to be Named of Chris Meyer. | |
99.7** | Consent to be Named of Jacques Sarrazin. | |
99.8** | Consent to be Named of Chadwick Suss. | |
99.9** | Consent to be Named of Grant Wilbeck. |
* | To be filed by amendment. |
** | Previously filed. |
# | Denotes management compensatory plan or arrangement |
+ | Certain schedules to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedules will be furnished supplementally to the SEC upon request. |
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
FORTERRA, INC.
(a Delaware corporation)
Lori Browne, Senior Vice President and General Counsel of Forterra, Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation), does hereby certify as follows:
1. The name of the Corporation is Forterra, Inc.
2. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 21, 2016.
3. This Amended and Restated Certificate of Incorporation has been duly adopted pursuant to Sections 242 and 245 of the Delaware General Corporation Law.
4. The original Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is Forterra, Inc.
ARTICLE II
AGENT
The address of the Corporations registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the DGCL).
ARTICLE IV
STOCK
Section 4.1 Authorized Stock . The aggregate number of shares which the Corporation shall have authority to issue is , of which shall be designated as Common Stock, par value $0.001 per share (the Common Stock), and shall be designated as Preferred Stock, par value $0.001 per share (the Preferred Stock).
Section 4.2 Common Stock .
(a) Voting . Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided , however , that,
except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate of Incorporation, including any certificate of designations relating to any series of Preferred Stock (each hereinafter referred to as a Preferred Stock Designation), that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Preferred Stock Designation).
(b) Dividends . Subject to the rights of the holders of any outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive dividends out of any funds of the Corporation legally available therefor when, as and if declared by the Board of Directors.
(c) Liquidation . Upon the dissolution, liquidation or winding up of the Corporation, subject to the rights of the holders of any outstanding series of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive the assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares held by them.
Section 4.3 Preferred Stock . The Preferred Stock may be issued from time to time in one or more series. Subject to limitations prescribed by law and the provisions of this Article IV, the Board of Directors is hereby authorized to provide by resolution and by causing the filing of a Preferred Stock Designation for the issuance of the shares of Preferred Stock in one or more series, and to establish from time to time the number of shares to be included in each such series, and to fix the designations, powers, preferences, and relative, participating, optional or other rights, if any, and the qualifications, limitations or restrictions, if any, of the shares of each such series.
The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:
(i) the number of shares constituting such series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares in any such series then outstanding), and the distinctive designation of such series, which may be by distinguishing number, letter or title;
(ii) the dividend rate on the shares of such series, if any, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of such series;
(iii) whether the shares of such series shall have voting rights (including multiple, fractional or no votes per share) in addition to the voting rights provided by law, and, if so, the terms of such voting rights;
(iv) whether the shares of such series shall have conversion rights, and, if so, the terms and conditions of such rights, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(v) whether or not the shares of such series shall be redeemable, and if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption rates;
(vi) whether a sinking fund shall be provided for the redemption or purchase of shares of such series, and, if so, the terms and the amount of such sinking fund;
(vii) the restrictions, if any, on the issuance of the same series or of any other class or series;
(viii) the rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series; and
(ix) any other relative rights, powers, preferences and qualifications, limitations or restrictions of such series.
Section 4.4 No Class Vote on Changes in Authorized Number of Shares of Stock . Subject to the rights of the holders of any outstanding series of Preferred Stock, the number of authorized shares of any class or classes of stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of at least a majority of the voting power of the stock entitled to vote thereon, irrespective of the provisions of Section 242(b)(2) of the DGCL.
ARTICLE V
BOARD OF DIRECTORS
Section 5.1 Number . Except as otherwise provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), the Board of Directors shall consist of not fewer than three nor more than 15 directors, the exact number to be determined from time to time solely by resolution adopted by the affirmative vote of a majority of the directors then in office; provided , however , that it is not less than one-third of the total number of directors then authorized.
Section 5.2 Classification; Vacancies; Removal .
(a) The Board of Directors (other than those directors elected by the holders of any series of Preferred Stock provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation) (the Preferred Stock Directors)) shall be divided into three classes, as nearly equal in number as possible, designated Class I, Class II and Class III. Class I directors shall initially serve until the first annual meeting of stockholders following the effectiveness of this Section 5.2; Class II directors shall initially serve until the second annual meeting of stockholders following the effectiveness of this Section 5.2; and Class III directors shall initially serve until the third annual meeting of stockholders following the effectiveness of this Section 5.2. Commencing with the first annual meeting of stockholders following the effectiveness of this Section 5.2 and ending with third annual meeting of stockholders following the effectiveness of this Section 5.2, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term and until the election and qualification of their respective successors in office. Commencing with the fourth annual meeting of stockholders following the effectiveness of this Section 5.2, directors of each class the term of which shall then expire shall be elected to hold office for a one-year term and until the election and qualification of their respective successor in office. In case of any increase or decrease, from time to time prior to the sixth annual meeting of stockholders following the effectiveness of this Section 5.2, in the number of directors (other than Preferred Stock Directors), the number of directors in each class shall be apportioned as nearly equal as possible. The Board of Directors is authorized to assign members of the Board of Directors already in office to Class I, Class II or Class III, with such assignment becoming effective as of the effectiveness of this Section 5.2.
(b) Subject to the rights of the holders of any outstanding series of Preferred Stock, and unless otherwise required by law, newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office and entitled to vote thereon, even though less than a quorum of the Board of Directors, or by the sole remaining director. Any director so chosen shall hold office until the next election of directors of the class for which such director shall have been chosen, as applicable, and until his or her successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
(c) Except for such additional directors, if any, as are elected by the holders of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), and unless otherwise restricted by law, (i) prior to the date on which Lone Star Fund IX (U.S.), L. P., a Delaware limited partnership, and its Affiliates (as defined in Section 12.5) (collectively, the Lone Star Entities) cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, any director, or the entire Board of Directors, may be removed from office, with or without cause upon the affirmative vote of holders of a majority of the voting power of the stock outstanding and entitled to vote thereon, and (ii) on and after the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, any director, or the entire Board of Directors, may be removed from office, only for cause and only upon the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon.
(d) During any period when the holders of any series of Preferred Stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), and upon commencement and for the duration of the period during which such right continues: (i) the then otherwise total authorized number of directors of the Corporation shall automatically be increased by such number of directors that the holders of any series of Preferred Stock have a right to elect, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant to said provisions and (ii) each Preferred Stock Director shall serve until such Preferred Stock Directors successor shall have been duly elected and qualified, or until such directors right to hold such office terminates pursuant to said provisions, whichever occurs earlier, subject to his or her earlier death, disqualification, resignation or removal. In case any vacancy shall occur among the Preferred Stock Directors, a successor may be elected by the holders of Preferred Stock pursuant to said provisions. Except as otherwise provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to said provisions, the terms of office of all such Preferred Stock Directors elected by the holders of such Preferred Stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate and the total authorized number of directors of the Corporation shall be reduced accordingly.
Section 5.3 Powers . Subject to the provisions of the DGCL and to any limitations in this Certificate of Incorporation relating to action required to be approved by the stockholders, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 5.4 Election; Annual Meeting of Stockholders .
(a) Ballot Not Required . The directors of the Corporation need not be elected by written ballot unless the Bylaws of the Corporation so provide.
(b) Notice . Advance notice of nominations for the election of directors, and of business other than nominations, to be proposed by stockholders for consideration at a meeting of stockholders of the Corporation shall be given in the manner and to the extent provided in the Bylaws of the Corporation.
(c) Annual Meeting . The annual meeting of stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, if any, either within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix.
ARTICLE VI
STOCKHOLDER ACTION
Prior to the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, except as otherwise provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), any action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. References in this Article VI to written consent shall be deemed to include a telegram, cablegram or other electronic transmission consenting to an action to be taken if such transmission complies with Section 228(d) of the DGCL. On and after the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, except as otherwise provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), no action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of stockholders may be effected by written consent of stockholders in lieu of a meeting of stockholders.
ARTICLE VII
SPECIAL MEETINGS OF STOCKHOLDERS
Except as otherwise required by law, and except as otherwise provided for or fixed pursuant to the provisions of Article IV hereof (including any Preferred Stock Designation), a special meeting of the stockholders of the Corporation may be called at any time only by the Board of Directors or the Chairman of the Board of Directors, or by the Chief Executive Officer with the concurrence of a majority of the Board of Directors. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting.
ARTICLE VIII
BUSINESS COMBINATIONS WITH INTERESTED STOCKHOLDER
The Corporation hereby expressly states that it shall not be bound or governed by, or otherwise subject to, Section 203 of the DGCL.
ARTICLE IX
EXISTENCE
The Corporation shall have perpetual existence.
ARTICLE X
AMENDMENT
Section 10.1 Amendment of Certificate of Incorporation . The Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all powers, preferences and rights of any nature conferred upon stockholders, directors or any other persons by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to this reservation; provided , however , that except as otherwise provided in this Certificate of Incorporation and in addition to any requirements of law, the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, voting together as a single class, shall be required to adopt, amend or repeal any provision of this Certificate of Incorporation.
Section 10.2 Amendment of Bylaws . In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation. Except as otherwise provided in this Certificate of Incorporation or the Bylaws of the Corporation, and in addition to any requirements of law, the affirmative vote of at least 66 2/3% of the voting power of the stock outstanding and entitled to vote thereon, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal any provision of the Bylaws of the Corporation.
ARTICLE XI
LIABILITY OF DIRECTORS
Section 11.1 No Personal Liability . To the fullest extent permitted by the DGCL as the same exists or as may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.
Section 11.2 Transactions Involving the Lone Star Entities . Any Affiliate of the Lone Star Entities who serves as a director or officer of the Corporation shall be deemed to have fully satisfied and fulfilled his or her fiduciary duties to the Corporation and its stockholders with respect to any contract or transaction between the Corporation or any of its subsidiaries, on the one hand, and one or more Lone Star Entities, on the other hand, if: (a) the material facts as to such Affiliates and the Lone Star Entities relationship to or interest in such contract or transaction are disclosed or are
known to the Board of Directors or a committee thereof consisting solely of disinterested directors of the Corporation, and the Board of Directors or such committee in good faith authorizes such contract or transaction by (i) in the case of the Board of Directors, the affirmative vote of a majority of the disinterested directors on the Board of Directors, even though less than a quorum of the Board of Directors, or (ii) in the case of such committee, the affirmative vote of a majority of the members of such committee; (b) the material facts as to such Affiliates and the Lone Star Entities relationship to or interest in such contract or transaction are disclosed or are known to the stockholders of the Corporation entitled to vote thereon, and such contract or transaction is specifically approved in good faith by vote of the stockholders (excluding the Lone Star Entities and any stockholder that has a material financial interest in the contract or transaction); or (c) such contract or transaction is fair as to the Corporation as of the time it enters into such contract or transaction.
Section 11.3 Amendment or Repeal . Any amendment, alteration or repeal of this Article XI that adversely affects any right of a director shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
ARTICLE XII
COMPETITION AND CORPORATE OPPORTUNITIES
Section 12.1 General . In recognition and anticipation that (a) certain directors, principals, officers, employees and/or other representatives of the Lone Star Entities may serve as directors or officers of the Corporation, (b) the Lone Star Entities and their respective Affiliates may now engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, and (c) members of the Board of Directors who are not employees of the Corporation (Non-Employee Directors) and their respective Affiliates may now engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, the provisions of this Article XII are set forth to regulate and define the conduct of certain affairs of the Corporation with respect to certain classes or categories of business opportunities as they may involve the Lone Star Entities, the Non-Employee Directors or their respective Affiliates and the powers, rights, duties and liabilities of the Corporation and its directors, officers and stockholders in connection therewith.
Section 12.2 No Duty to Refrain, Communicate or Offer . None of (a) any Lone Star Entity or any of its Affiliates or (b) any Non-Employee Director or his or her Affiliates (the Persons (as defined below) identified in (a) and (b) above being referred to, collectively, as Identified Persons and, individually, as an Identified Person) shall have any duty to refrain from, directly or indirectly, (i) engaging in a corporate opportunity in the same or similar business activities or lines of business in which the Corporation or any of its Affiliates now engages or proposes to engage or (ii) otherwise competing with the Corporation, and, to the fullest extent permitted by the DGCL, no Identified Person shall be liable to the Corporation or its stockholders for breach of any fiduciary duty solely by reason of the fact that such Identified Person engages in any such activities. The Corporation hereby renounces any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity which may be a corporate opportunity for an Identified Person and the Corporation or any of its Affiliates, except as provided in Section 12.3. In the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself and the Corporation or any of its Affiliates, such Identified Person shall have no duty to communicate or offer such transaction or other business opportunity to the Corporation or any of its Affiliates and, to the fullest extent permitted by the DGCL, shall not be liable to the Corporation or its stockholders for breach of any fiduciary duty as a stockholder or director of the Corporation solely by reason of the fact that such Identified Person pursues or acquires such corporate opportunity for itself or himself, or offers or directs such corporate opportunity to another Person.
Section 12.3 Corporate Opportunities Offered in Capacity as a Director of the Corporation . The Corporation does not renounce its interest in any corporate opportunity offered to any Non-Employee Director if such opportunity is expressly offered to such Non-Employee Director solely in his or her capacity as a director of the Corporation and the provisions of Section 12.2 shall not apply to any such corporate opportunity.
Section 12.4 Opportunities Not Deemed Corporate Opportunities . In addition to and notwithstanding the foregoing provisions of this Article XII, a corporate opportunity shall not be deemed to be a potential corporate opportunity for the Corporation if it is a business opportunity that the Corporation is not permitted to undertake under the terms of Article III or that the Corporation is not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the Corporations business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable expectancy.
Section 12.5 Definitions . For purposes of this Certificate of Incorporation, (a) Affiliate shall mean (i) in respect of a Lone Star Entity, any Person that, (A) is directly or indirectly, controlled by such Lone Star Entity, controls such Lone Star Entity or is under common control with such Lone Star Entity or (B) is a principal, member, director, manager, partner, stockholder, officer, employee or other representative of any of the foregoing (other than the Corporation and any entity that is controlled by the Corporation), (ii) in respect of a Non-Employee Director, any Person that, directly or indirectly, is controlled by such Non-Employee Director (other than the Corporation and any entity that is controlled by the Corporation) and (iii) in respect of the Corporation, any Person that, directly or indirectly, is controlled by the Corporation, and (b) Person shall mean any individual, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other entity.
Section 12.6 Notice and Consent . To the fullest extent permitted by law, any Person purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of Article XI, this Article XII and Article XIII.
ARTICLE XIII
FORUM FOR ADJUDICATION OF DISPUTES
Section 13.1 Forum. Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, and subject to applicable jurisdictional requirements, the sole and exclusive forum for any stockholder (including any beneficial owner) to bring internal corporate claims (as defined below) shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware). For purposes of this Article XIII, internal corporate claims means claims, including claims in the right of the Corporation: (a) that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or (b) as to which the DGCL confers jurisdiction upon the Court of Chancery. If any action the subject matter of which is within the scope of this Article XIII is filed in a court other than a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) (a Foreign Action) by any stockholder (including any beneficial owner), such stockholder shall be deemed to have consented to: (a) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce this Article XIII and (b) having service of process made upon such stockholder in any such action by service upon such stockholders counsel in the Foreign Action as agent for such stockholder.
Section 13.2 Enforceability. If any provision of this Article XIII shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provision in any other circumstance and of the remaining provisions of this Article XIII (including, without limitation, each portion of any sentence of this Article XIII containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities or circumstances shall not in any way be affected or impaired thereby.
ARTICLE XIV
EFFECTIVE TIME
This Amended and Restated Certificate of Incorporation shall become effective as of Eastern Daylight Time on , 2016.
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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed, signed and acknowledged by Lori Browne, Senior Vice President and General Counsel of the Corporation, this day of , 2016.
FORTERRA, INC. | ||
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By: | Lori Browne | |
Title: | Senior Vice President and General Counsel |
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
FORTERRA, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
Section 1.1 Registered Office . The registered office of the Corporation shall be fixed in the Certificate of Incorporation of the Corporation.
Section 1.2 Other Offices . The Corporation may also have an office or offices, and keep the books and records of the Corporation, except as otherwise required by law, at such other place or places, either within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Annual Meeting . The annual meeting of stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, if any, either within or without the State of Delaware, on such date, and at such time as the Board of Directors shall fix. The Board of Directors may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board of Directors.
Section 2.2 Special Meeting . Except as otherwise required by law, and except as otherwise provided for or fixed pursuant to the Certificate of Incorporation, including any certificate of designations relating to any series of Preferred Stock (hereinafter referred to as a Preferred Stock Designation ), a special meeting of the stockholders of the Corporation may be called at any time only by the Board of Directors or the Chairman of the Board of Directors, or by the Chief Executive Officer with the concurrence of a majority of the Board of Directors. The Board of Directors may postpone, reschedule or cancel any special meeting of stockholders previously scheduled by the Board of Directors.
Section 2.3 Notice of Stockholders Meetings .
(a) Whenever stockholders are required or permitted to take any action at a meeting, notice of the place, if any, date, and time of the meeting of stockholders, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for determining the stockholders entitled to notice of the meeting) and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given. The notice shall be given not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. In the case of a special meeting, the purpose or purposes for which the meeting is called also shall be set forth in the notice. Notice may be given personally, by mail or by electronic transmission in accordance with Section 232 of the General Corporation Law of the State of Delaware (the DGCL ). If mailed, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to each stockholder at such stockholders address as it appears on the records of the Corporation.
Notice by electronic transmission shall be deemed given as provided in Section 232 of the DGCL. An affidavit that notice has been given, executed by the Secretary, Assistant Secretary or any transfer agent or other agent of the Corporation, shall be prima facie evidence of the facts stated in the notice in the absence of fraud. Notice shall be deemed to have been given to all stockholders who share an address if notice is given in accordance with the householding rules set forth in Rule 14a-3(e) under the Securities Exchange Act of 1934 (the Exchange Act ) and Section 233 of the DGCL.
(b) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the place, if any, date and time thereof, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board of Directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 7.6(a), and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.
Section 2.4 Organization .
(a) Meetings of stockholders shall be presided over by the Chairman of the Board of Directors, if any, or in his or her absence, by another person designated by the Board of Directors. The Secretary, or in his or her absence, an Assistant Secretary, or in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of the meeting shall appoint, shall act as secretary of the meeting and keep a record of the proceedings thereof.
(b) The date and time of the opening and the closing of the polls for each matter upon which the stockholders shall vote at a meeting of stockholders shall be announced at the meeting. The Board of Directors may adopt such rules and regulations for the conduct of any meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of the meeting shall have the authority to adopt and enforce such rules and regulations for the conduct of any meeting of stockholders and the safety of those in attendance as, in the judgment of the chairman, are necessary, appropriate or convenient for the conduct of the meeting. Rules and regulations for the conduct of meetings of stockholders, whether adopted by the Board of Directors or by the chairman of the meeting, may include, without limitation, establishing: (i) an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders entitled to vote at the meeting, their duly authorized and constituted proxies and such other persons as the chairman of the meeting shall permit; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; (v) limitations on the time allotted for consideration of each agenda item and for questions and comments by participants; (vi) regulations for the opening and closing of the polls for balloting and matters which are to be voted on by ballot (if any); and (vii) procedures (if any) requiring attendees to provide the Corporation advance notice of their intent to attend the meeting. Subject to any rules and regulations adopted by the Board of Directors, the chairman of the meeting may convene and, for any or no reason, from time to time, adjourn and/or recess any meeting of stockholders pursuant to Section 2.7. The chairman of the meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power to declare that a nomination or other business was not properly brought before the meeting if the facts warrant (including if a determination is made, pursuant to Section 2.10(c)(i) of these Bylaws, that a nomination or other business was not made or proposed, as the case may be, in accordance with Section 2.10 of these Bylaws), and if such chairman should so declare, such nomination shall be disregarded or such other business shall not be transacted.
Section 2.5 List of Stockholders . The officer who has charge of the stock ledger shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, provided , however , that if the record date for determining the stockholders entitled to vote is less than 10 days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the 10th day before the meeting date. Such list shall be arranged in alphabetical order and shall show the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing in this Section 2.5 shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least 10 days prior to the meeting (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (b) during ordinary business hours at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise required by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 2.5 or to vote in person or by proxy at any meeting of stockholders.
Section 2.6 Quorum . Except as otherwise required by law, the Certificate of Incorporation (including any Preferred Stock Designation) or these Bylaws, at any meeting of stockholders, a majority of the voting power of the stock outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business; provided , however , that where a separate vote by a class or series or classes or series is required, a majority of the voting power of the stock of such class or series or classes or series outstanding and entitled to vote on that matter, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to such matter. If a quorum is not present or represented at any meeting of stockholders, then the chairman of the meeting, or a majority of the voting power of the stock present in person or represented by proxy at the meeting and entitled to vote thereon, shall have power to adjourn or recess the meeting from time to time in accordance with Section 2.7 until a quorum is present or represented. Subject to applicable law, if a quorum initially is present at any meeting of stockholders, the stockholders may continue to transact business until adjournment or recess, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, but if a quorum is not present at least initially, no business other than adjournment or recess may be transacted.
Section 2.7 Adjourned or Recessed Meeting . Any annual or special meeting of stockholders, whether or not a quorum is present, may be adjourned or recessed for any reason from time to time by the chairman of the meeting, subject to any rules and regulations adopted by the Board of Directors pursuant to Section 2.4(b), and may be adjourned for any reason from time to time by a majority of the voting power of the stock present in person or represented by proxy at the meeting and entitled to vote thereon. At any such adjourned or recessed meeting at which a quorum may be present, any business may be transacted that might have been transacted at the meeting as originally called.
Section 2.8 Voting .
(a) Except as otherwise required by law or the Certificate of Incorporation (including any Preferred Stock Designation), each holder of stock of the Corporation entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of such stock held of record by such holder that has voting power upon the subject matter in question.
(b) Except as otherwise required by law, the Certificate of Incorporation (including any Preferred Stock Designation), these Bylaws or any law, rule or regulation applicable to the Corporation or its securities, at each meeting of stockholders at which a quorum is present, all corporate actions to be taken by vote of the stockholders shall be authorized by the affirmative vote of at least a majority of the voting power of the stock present in person or represented by proxy and entitled to vote on the subject matter, and where a separate vote by class or series or classes or series is required, if a quorum of such class or series or classes or series is present, such act shall be authorized by the affirmative vote of at least a majority of the voting power of the stock of such class or series or classes or series present in person or represented by proxy and entitled to vote on the subject matter. Voting at meetings of stockholders need not be by written ballot.
Section 2.9 Proxies . Every stockholder entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more persons authorized to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or executed new proxy bearing a later date.
Section 2.10 Notice of Stockholder Business and Nominations .
(a) Annual Meeting .
(i) Nominations of persons for election to the Board of Directors and the proposal of business other than nominations to be considered by the stockholders may be made at an annual meeting of stockholders only (A) pursuant to the Corporations notice of meeting (or any supplement thereto), (B) by or at the direction of the Board of Directors (or any authorized committee thereof) or (C) by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.10(a) is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.10(a). For the avoidance of doubt, the foregoing clause (C) shall be the exclusive means for a stockholder to make nominations or propose other business (other than a proposal included in the Corporations proxy statement pursuant to and in compliance with Rule 14a-8 under the Exchange Act) at an annual meeting of stockholders.
(ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of the foregoing paragraph, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and, in the case of business other than nominations, such business must be a proper subject for stockholder action. To be timely, a stockholders notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business (as defined in Section 2.10(c)(ii) below) on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding years annual meeting; provided , however , that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the date on which public announcement (as defined in Section 2.10(c)(ii) below) of the date of such meeting is first made by the Corporation. In no event shall an adjournment or recess of an annual meeting, or a postponement of an annual meeting for which notice of the meeting has already been given to stockholders or with respect to which there has been a public announcement of the date of the meeting, commence a new
time period (or extend any time period) for the giving of a stockholders notice as described above. Such stockholders notice shall set forth:
(A) as to each person whom the stockholder proposes to nominate for election or re-election as a director (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act, and (2) such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected; provided , however , that, in addition to the information required in the stockholders notice pursuant to this Section 2.10(a)(ii)(A), the Corporation may require each such person to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such person to serve as a director of the Corporation, including information relevant to a determination whether such person can be considered an independent director;
(B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend the Bylaws of the Corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any substantial interest (within the meaning of Item 5 of Schedule 14A under the Exchange Act) in such business of such stockholder and the beneficial owner (within the meaning of Section 13(d) of the Exchange Act), if any, on whose behalf the proposal is made;
(C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made or the other business is proposed:
(1) the name and address of such stockholder, as they appear on the Corporations books, and the name and address of such beneficial owner,
(2) the class or series and number of shares of stock of the Corporation which are owned of record by such stockholder and such beneficial owner as of the date of the notice, and a representation that the stockholder will notify the Corporation in writing within five business days after the record date for such meeting of the class or series and number of shares of stock of the Corporation owned of record by the stockholder and such beneficial owner as of the record date for the meeting (except as otherwise provided in Section 2.10(a)(iii) below), and
(3) a representation that the stockholder intends to appear in person or by proxy at the meeting to make such nomination or propose such business;
(D) as to the stockholder giving the notice or, if the notice is given on behalf of a beneficial owner on whose behalf the nomination is made or the other business is proposed, as to such beneficial owner, and if such stockholder or beneficial owner is an entity, as to each director, executive, managing member or control person of such entity (any such individual or control person, a control person):
(1) the class or series and number of shares of stock of the Corporation which are beneficially owned (as defined in Section 2.10(c)(ii) below) by such stockholder or beneficial owner and by any control person as of the date of the notice, and a representation that the stockholder will notify the Corporation in writing within five business days after the record date for such meeting of the class or series and number of shares of stock of the Corporation beneficially owned by such stockholder or beneficial owner and by any control person as of the record date for the meeting (except as otherwise provided in Section 2.10(a)(iii) below),
(2) a description of any agreement, arrangement or understanding with respect to the nomination or other business between or among such stockholder, beneficial owner or control person and any other person, including without limitation any
agreements that would be required to be disclosed pursuant to Item 5 or Item 6 of Exchange Act Schedule 13D (regardless of whether the requirement to file a Schedule 13D is applicable) and a representation that the stockholder will notify the Corporation in writing within five business days after the record date for such meeting of any such agreement, arrangement or understanding in effect as of the record date for the meeting (except as otherwise provided in Section 2.10(a)(iii) below),
(3) a description of any agreement, arrangement or understanding (including without limitation any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholders notice by, or on behalf of, such stockholder, beneficial owner or control person, the effect or intent of which is to mitigate loss, manage risk or benefit from changes in the share price of any class or series of the Corporations stock, or maintain, increase or decrease the voting power of the stockholder, beneficial owner or control person with respect to securities of the Corporation, and a representation that the stockholder will notify the Corporation in writing within five business days after the record date for such meeting of any such agreement, arrangement or understanding in effect as of the record date for the meeting (except as otherwise provided in Section 2.10(a)(iii) below), and
(4) a representation whether the stockholder or the beneficial owner, if any, will engage in a solicitation with respect to the nomination or other business and, if so, the name of each participant in such solicitation (as defined in Item 4 of Schedule 14A under the Exchange Act) and whether such person intends or is part of a group which intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporations stock required to approve or adopt the business to be proposed (in person or by proxy) by the stockholder.
(iii) Notwithstanding anything in Section 2.10(a)(ii) above or Section 2.10(b) below to the contrary, if the record date for determining the stockholders entitled to vote at any meeting of stockholders is different from the record date for determining the stockholders entitled to notice of the meeting, a stockholders notice required by this Section 2.10 shall set forth a representation that the stockholder will notify the Corporation in writing within five business days after the record date for determining the stockholders entitled to vote at the meeting, or by the opening of business on the date of the meeting (whichever is earlier), of the information required under clauses (ii)(C)(2) and (ii)(D)(1)-(3) of this Section 2.10(a), and such information when provided to the Corporation shall be current as of the record date for determining the stockholders entitled to vote at the meeting.
(iv) This Section 2.10(a) shall not apply to a proposal proposed to be made by a stockholder if the stockholder has notified the Corporation of his or her intention to present the proposal at an annual or special meeting only pursuant to and in compliance with Rule 14a-8 under the Exchange Act and such proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such meeting.
(v) Notwithstanding anything in this Section 2.10(a) to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting is increased and there is no public announcement by the Corporation naming all of the nominees for directors or specifying the size of the increased Board of Directors made by the Corporation at least ten days prior to the last day a stockholder may deliver a notice in accordance with Section 2.10(a)(ii) above, a stockholders notice required by this Section 2.10(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the 10 th day following the day on which such public announcement is first made by the Corporation.
(b) Special Meeting . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporations notice of meeting (i) by or at the direction of the Board of Directors (or any authorized committee thereof) or (ii) provided that one or more directors are to be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time the notice provided for in this Section 2.10(b) is delivered to the Secretary of the Corporation, who is entitled to vote at the meeting and upon such election and who delivers a written notice setting forth the information required by Section 2.10(a) above. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting, if the notice required by this Section 2.10(b) shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall an adjournment, recess or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholders notice as described above.
(c) General .
(i) Except as otherwise required by law, only such persons who are nominated in accordance with the procedures set forth in this Section 2.10 shall be eligible to be elected at any meeting of stockholders of the Corporation to serve as directors and only such other business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.10. Except as otherwise required by law, each of the Chairman of the Board of Directors, the Board of Directors and the chairman of the meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 2.10 (including whether a stockholder or beneficial owner solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in compliance with such stockholders representation as required by clause (a)(ii)(D)(4) of this Section 2.10). If any proposed nomination or other business is not in compliance with this Section 2.10, then except as otherwise required by law, the chairman of the meeting shall have the power to declare that such nomination shall be disregarded or that such other business shall not be transacted. Notwithstanding the foregoing provisions of this Section 2.10, unless otherwise required by law, or otherwise determined by the Chairman of the Board of Directors, the Board of Directors or the chairman of the meeting, if the stockholder does not provide the information required under clauses (a)(ii)(C)(2) and (a)(ii)(D)(1)-(3) of this Section 2.10 to the Corporation within the time frames specified herein, or if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or other business, such nomination shall be disregarded and such other business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 2.10, to be considered a qualified representative of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or authorized by a writing executed by such stockholder (or a reliable reproduction or electronic transmission of the writing) delivered to the Corporation prior to the making of such nomination or proposal at such meeting by such stockholder stating that such person is authorized to act for such stockholder as proxy at the meeting of stockholders.
(ii) For purposes of this Section 2.10, the close of business shall mean 6:00 p.m. local time at the principal executive offices of the Corporation on any calendar day, whether or not the day is a business day, and a public announcement shall mean disclosure in a press release reported by the
Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. For purposes of clause (a)(ii)(D)(1) of this Section 2.10, shares shall be treated as beneficially owned by a person if the person beneficially owns such shares, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Regulations 13D and 13G thereunder or has or shares pursuant to any agreement, arrangement or understanding (whether or not in writing): (A) the right to acquire such shares (whether such right is exercisable immediately or only after the passage of time or the fulfillment of a condition or both), (B) the right to vote such shares, alone or in concert with others and/or (C) investment power with respect to such shares, including the power to dispose of, or to direct the disposition of, such shares.
(iii) Nothing in this Section 2.10 shall be deemed to affect any rights of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation (including any Preferred Stock Designation).
Section 2.11 Action by Written Consent .
(a) Prior to the date on which Lone Star Fund IX (U.S.), L.P., a Delaware limited partnership, and its affiliates (collectively, the Lone Star Entities ) cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, except as otherwise provided for or fixed pursuant to the Certificate of Incorporation (including any Preferred Stock Designation), any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. On and after the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, except as otherwise provided for or fixed pursuant to the Certificate of Incorporation (including any Preferred Stock Designation), any action required or permitted to be taken by stockholders of the Corporation must be effected at a duly held meeting of stockholders of the Corporation at which a quorum is present or represented, and may not be effected by written consent of stockholders in lieu of a meeting of stockholders.
(b) To be effective, a written consent must be delivered to the Corporation by delivery to its registered office, its principal place of business or an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered in the manner required by this Section 2.11 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation in accordance with this Section 2.11. Any person executing a consent may provide, whether through instruction to an agent or otherwise, that such a consent shall be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made, and if evidence of such instruction or provision is provided to the Corporation, such later effective time shall serve as the date of signature. Unless otherwise provided, any such consent shall be revocable prior to its becoming effective.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Corporation in the manner required by this Section 2.11.
Section 2.12 Inspectors of Election . Before any meeting of stockholders, the Corporation may, and shall if required by law, appoint one or more inspectors of election to act at the meeting and make a written report thereof. Inspectors may be employees of the Corporation. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. Inspectors need not be stockholders. No director or nominee for the office of director at an election shall be appointed as an inspector at such election.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the validity of proxies and ballots;
(b) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors;
(c) count and tabulate all votes and ballots; and
(d) certify the determination of the number of shares represented at the meeting, and the count of all votes and ballots.
Section 2.13 Meetings by Remote Communications . The Board of Directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication in accordance with Section 211(a)(2) of the DGCL. If authorized by the Board of Directors in its sole discretion, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communication (a) participate in a meeting of stockholders and (b) be deemed present in person and vote at a meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder; (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
ARTICLE III
DIRECTORS
Section 3.1 Powers . Subject to the provisions of the DGCL and to any limitations in the Certificate of Incorporation relating to action required to be approved by the stockholders, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities these Bylaws expressly confer upon it, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these Bylaws required to be exercised or done by the stockholders.
Section 3.2 Number and Election . Except as otherwise provided for or fixed pursuant to the Certificate of Incorporation (including any Preferred Stock Designation), the Board of Directors shall consist of such number of directors as shall be determined from time to time solely by resolution adopted by the affirmative
vote of a majority of the directors then in office; provided , however , that it is not less than one-third of the total number of directors then authorized. At any meeting of stockholders at which directors are to be elected, directors shall be elected by a plurality of the votes cast. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed.
Section 3.3 Vacancies . Subject to the rights of the holders of any outstanding series of Preferred Stock, and unless otherwise required by law, newly created directorships resulting from any increase in the authorized number of directors and any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office and entitled to vote thereon, even though less than a quorum, or by the sole remaining director and any director so chosen shall hold office until the next election of directors or the next election of the class for which such director shall have been chosen, as applicable, and until his or her successor shall have been duly elected and qualified. No decrease in the authorized number of directors shall shorten the term of any incumbent director.
Section 3.4 Resignations and Removal .
(a) Any director may resign at any time upon notice given in writing or by electronic transmission to the Board of Directors, the Chairman of the Board of Directors or the Secretary of the Corporation. Such resignation shall take effect upon delivery, unless the resignation specifies a later effective date or time or an effective date or time determined upon the happening of an event or events. Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
(b) Except for such additional directors, if any, as are elected by the holders of any series of Preferred Stock as provided for or fixed pursuant to the Certificate of Incorporation (including any Preferred Stock Designation), and unless otherwise restricted by law, (i) prior to the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, any director, or the entire Board of Directors, may be removed from office, with or without cause upon the affirmative vote of holders of a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, voting together as a single class, and (ii) on and after the date on which the Lone Star Entities cease to beneficially own, in the aggregate, a majority of the voting power of the stock outstanding and entitled to vote generally in the election of directors, any director, or the entire Board of Directors, may be removed from office, only for cause and only upon the affirmative vote of at least 66 2 / 3 % of the voting power of the stock outstanding and entitled to vote thereon.
Section 3.5 Regular Meetings . Regular meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, on such date or dates and at such time or times, as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required.
Section 3.6 Special Meetings . Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board of Directors, the Chief Executive Officer or a majority of the directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place, within or without the State of Delaware, date and time of such meetings. Notice of each such meeting shall be given to each director, if by mail, addressed to such director at his or her residence or usual place of business, at least five days before the day on which such meeting is to be held, or shall be sent to such director by electronic transmission, or be delivered personally or by telephone, in each case at least 24 hours prior to the time set for such meeting. A notice of special meeting need not state the purpose of such meeting, and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting.
Section 3.7 Participation in Meetings by Conference Telephone . Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board of Directors or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at such meeting.
Section 3.8 Quorum and Voting . Except as otherwise required by law, the Certificate of Incorporation or these Bylaws, a majority of the authorized number of directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the vote of a majority of the directors present at a duly held meeting at which a quorum is present shall be the act of the Board of Directors. The chairman of the meeting or a majority of the directors present may adjourn the meeting to another time and place whether or not a quorum is present. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.
Section 3.9 Board of Directors Action by Written Consent Without a Meeting . Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or any committee thereof, may be taken without a meeting, provided that all members of the Board of Directors or committee, as the case may be, consent in writing or by electronic transmission to such action, and the writing or writings or electronic transmission or transmissions are filed with the minutes or proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form. Any person (whether or not then a director) may provide, whether through instruction to an agent or otherwise, that a consent to action shall be effective at a future time (including a time determined upon the happening of an event), no later than 60 days after such instruction is given or such provision is made and such consent shall be deemed to have been given at such effective time so long as such person is then a director and did not revoke the consent prior to such time. Any such consent shall be revocable prior to its becoming effective.
Section 3.10 Chairman of the Board . The Chairman of the Board shall preside at meetings of stockholders and directors and shall perform such other duties as the Board of Directors may from time to time determine. If the Chairman of the Board is not present at a meeting of the Board of Directors, another director chosen by the Board of Directors shall preside.
Section 3.11 Rules and Regulations . The Board of Directors shall adopt such rules and regulations not inconsistent with the provisions of law, the Certificate of Incorporation or these Bylaws for the conduct of its meetings and management of the affairs of the Corporation as the Board of Directors shall deem proper.
Section 3.12 Fees and Compensation of Directors . Directors may receive such compensation, if any, for their services on the Board of Directors and its committees, and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors.
Section 3.13 Emergency Bylaws . In the event of any emergency, disaster or catastrophe, as referred to in Section 110 of the DGCL, or other similar emergency condition, as a result of which a quorum of the Board of Directors or a standing committee of the Board of Directors cannot readily be convened for action, then the director or directors in attendance at the meeting shall constitute a quorum. Such director or directors in attendance may further take action to appoint one or more of themselves or other directors to membership on any standing or temporary committees of the Board of Directors as they shall deem necessary and appropriate.
ARTICLE IV
COMMITTEES
Section 4.1 Committees of the Board of Directors . The Board of Directors may designate one or more committees, each such committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent permitted by law and provided in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation. All committees of the Board of Directors shall keep minutes of their meetings and shall report their proceedings to the Board of Directors when requested or required by the Board of Directors.
Section 4.2 Meetings and Action of Committees . Unless the Board of Directors provides otherwise by resolution, any committee of the Board of Directors may adopt, alter and repeal such rules and regulations not inconsistent with the provisions of law, the Certificate of Incorporation or these Bylaws for the conduct of its meetings as such committee may deem proper.
ARTICLE V
OFFICERS
Section 5.1 Officers . The officers of the Corporation may consist of a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents, a Secretary, a Treasurer, a Controller and such other officers as the Board of Directors may from time to time determine, each of whom shall be elected by the Board of Directors, each to have such authority, functions or duties as set forth in these Bylaws or as determined by the Board of Directors. Each officer shall be elected by the Board of Directors and shall hold office for such term as may be prescribed by the Board of Directors and until such persons successor shall have been duly elected and qualified, or until such persons earlier death, disqualification, resignation or removal. Any number of offices may be held by the same person; provided , however , that no officer shall execute, acknowledge or verify any instrument in more than one capacity if such instrument is required by law, the Certificate of Incorporation or these Bylaws to be executed, acknowledged or verified by two or more officers. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.
Section 5.2 Compensation . The salaries of the officers of the Corporation and the manner and time of the payment of such salaries shall be fixed and determined by the Board of Directors and may be altered by the Board of Directors from time to time as it deems appropriate, subject to the rights, if any, of such officers under any contract of employment.
Section 5.3 Removal, Resignation and Vacancies . Any officer of the Corporation may be removed, with or without cause, by the Board of Directors, without prejudice to the rights, if any, of such officer under any contract to which it is a party. Any officer may resign at any time upon notice given in writing or by electronic transmission to the Corporation, without prejudice to the rights, if any, of the Corporation under any contract to which such officer is a party. If any vacancy occurs in any office of the Corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and until a successor shall have been duly elected and qualified.
Section 5.4 Chief Executive Officer . The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, shall be responsible for corporate policy and strategy, and shall report directly to the Board of Directors. Unless otherwise provided in these Bylaws, all other officers of the Corporation shall report directly to the Chief Executive Officer or as otherwise determined by the Chief Executive Officer. The Chief Executive Officer shall, if present and in the absence of the Chairman of the Board of Directors, preside at meetings of the stockholders.
Section 5.5 President . The President shall be the chief operating officer of the Corporation, with general responsibility for the management and control of the operations of the Corporation. The President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors or the Chief Executive Officer may from time to time determine.
Section 5.6 Chief Financial Officer . The Chief Financial Officer shall exercise all the powers and perform the duties of the office of the chief financial officer and in general have overall supervision of the financial operations of the Corporation. The Chief Financial Officer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time determine.
Section 5.7 Vice Presidents . Each Vice President shall have such powers and duties as shall be prescribed by his or her superior officer, the Chief Executive Officer or the President. A Vice President shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time determine.
Section 5.8 Treasurer . The Treasurer shall supervise and be responsible for all the funds and securities of the Corporation, the deposit of all moneys and other valuables to the credit of the Corporation in depositories of the Corporation, borrowings and compliance with the provisions of all indentures, agreements and instruments governing such borrowings to which the Corporation is a party, the disbursement of funds of the Corporation and the investment of its funds, and in general shall perform all of the duties incident to the office of the Treasurer. The Treasurer shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer may from time to time determine.
Section 5.9 Controller . The Controller shall be the chief accounting officer of the Corporation. The Controller shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer, the President or the Chief Financial Officer may from time to time determine.
Section 5.10 Secretary . The powers and duties of the Secretary are: (i) to act as Secretary at all meetings of the Board of Directors, of the committees of the Board of Directors and of the stockholders and to record the proceedings of such meetings in a book or books to be kept for that purpose; (ii) to see that all notices required to be given by the Corporation are duly given and served; (iii) to act as custodian of the seal of the Corporation and affix the seal or cause it to be affixed to all certificates of stock of the Corporation and to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; (iv) to have charge of the books, records and papers of the Corporation and see that the reports, statements and other documents required by law to be kept and filed are properly kept and filed; and (v) to perform all of the duties incident to the office of Secretary. The Secretary shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer or the President may from time to time determine.
Section 5.11 Additional Matters . The Chief Executive Officer and the Chief Financial Officer of the Corporation shall have the authority to designate employees of the Corporation to have the title of Vice
President, Assistant Vice President, Assistant Treasurer or Assistant Secretary. Any employee so designated shall have the powers and duties determined by the officer making such designation. The persons upon whom such titles are conferred shall not be deemed officers of the Corporation unless elected by the Board of Directors.
Section 5.12 Checks; Drafts; Evidences of Indebtedness . From time to time, the Board of Directors shall determine the method, and designate (or authorize officers of the Corporation to designate) the person or persons who shall have authority, to sign or endorse all checks, drafts, other orders for payment of money, notes, bonds, debentures or other evidences of indebtedness that are issued in the name of or payable by the Corporation, and only the persons so authorized shall sign or endorse such instruments.
Section 5.13 Corporate Contracts and Instruments; How Executed . Except as otherwise provided in these Bylaws, the Board of Directors may determine the method, and designate (or authorize officers of the Corporation to designate) the person or persons who shall have authority, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation. Such authority may be general or confined to specific instances. Unless so authorized, or within the power incident to a persons office or other position with the Corporation, no person shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 5.14 Signature Authority . Unless otherwise specifically determined by the Board of Directors or otherwise provided by law or these Bylaws, contracts, evidences of indebtedness and other instruments or documents of the Corporation may be executed, signed or endorsed: (i) by the Chief Executive Officer or the President; or (ii) by the Chief Financial Officer, any Vice President, Treasurer, Secretary or Controller, in each case only with regard to such instruments or documents that pertain to or relate to such persons duties or business functions.
Section 5.15 Action with Respect to Securities of Other Corporations or Entities . The Chief Executive Officer or any other officer of the Corporation authorized by the Board of Directors or the Chief Executive Officer is authorized to vote, represent, and exercise on behalf of the Corporation all rights incident to any and all shares or other equity interests of any other corporation or entity or corporations or entities, standing in the name of the Corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.
Section 5.16 Delegation . The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding the foregoing provisions of this Article V.
ARTICLE VI
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Section 6.1 Right to Indemnification . Each person who was or is a party or is threatened to be made a party to, or was or is otherwise involved in, any action, suit, arbitration, alternative dispute mechanism, inquiry, judicial, administrative or legislative hearing, investigation or any other threatened, pending or completed proceeding, whether brought by or in the right of the Corporation or otherwise, including any and all appeals, whether of a civil, criminal, administrative, legislative, investigative or other nature (hereinafter a proceeding ), by reason of the fact that he or she is or was a director or an officer of the Corporation or while a director or officer of the Corporation is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an indemnitee ), or by reason of anything done or not done by him or her in any such capacity, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement by or on behalf of the indemnitee) actually and reasonably incurred by such indemnitee in connection therewith; provided , however , that, except as otherwise required by law or provided in Section 6.3 with respect to proceedings to enforce rights under this Article VI, the Corporation shall indemnify any such indemnitee in connection with a proceeding, or part thereof, initiated by such indemnitee (including claims and counterclaims, whether such counterclaims are asserted by (i) such indemnitee, or (ii) the Corporation in a proceeding initiated by such indemnitee) only if such proceeding, or part thereof, was authorized or ratified by the Board of Directors.
Section 6.2 Right to Advancement of Expenses . In addition to the right to indemnification conferred in Section 6.1, an indemnitee shall, to the fullest extent not prohibited by law, also have the right to be paid by the Corporation the expenses (including attorneys fees) incurred in defending any proceeding with respect to which indemnification is required under Section 6.1 in advance of its final disposition (hereinafter an advancement of expenses ); provided , however , that an advancement of expenses shall be made only upon delivery to the Corporation of an undertaking (hereinafter an undertaking ), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision of a court of competent jurisdiction from which there is no further right to appeal (hereinafter a final adjudication ) that such indemnitee is not entitled to be indemnified for such expenses under this Article VI or otherwise.
Section 6.3 Right of Indemnitee to Bring Suit . If a request for indemnification under Section 6.1 is not paid in full by the Corporation within 60 days, or if a request for an advancement of expenses under Section 6.2 is not paid in full by the Corporation within 20 days, after a written request has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation in a court of competent jurisdiction in the State of Delaware seeking an adjudication of entitlement to such indemnification or advancement of expenses. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit to the fullest extent permitted by law. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met any applicable standard of conduct for indemnification set forth in the DGCL. Further, in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard of conduct for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under applicable law, this Article VI or otherwise shall be on the Corporation.
Section 6.4 Non-Exclusivity of Rights . The rights to indemnification and to the advancement of expenses conferred in this Article VI shall not be exclusive of any other right which any person may have or hereafter acquire under any law, agreement, vote of stockholders or disinterested directors, provisions of a certificate of incorporation or bylaws or otherwise.
Section 6.5 Insurance . The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Section 6.6 Indemnification of Employees and Agents of the Corporation . The Corporation may, to the extent and in the manner permitted by applicable law, and to the extent authorized from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation.
Section 6.7 Nature of Rights . The rights conferred upon indemnitees in this Article VI shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitees heirs, executors and administrators. Any amendment, alteration or repeal of this Article VI that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment, alteration or repeal.
Section 6.8 Settlement of Claims . Notwithstanding anything in this Article VI to the contrary, the Corporation shall not be liable to indemnify any indemnitee under this Article VI for any amounts paid in settlement of any proceeding effected without the Corporations written consent, which consent shall not be unreasonably withheld, or for any judicial award if the Corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such proceeding.
Section 6.9 Subrogation . In the event of payment under this Article VI, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.
Section 6.10 Severability . If any provision or provisions of this Article VI shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not by themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, all portions of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent of the parties that the Corporation provide protection to the indemnitee to the fullest enforceable extent.
ARTICLE VII
CAPITAL STOCK
Section 7.1 Certificates of Stock . The shares of the Corporation shall be represented by certificates, provided , however , that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, if any, or the Chief Executive Officer or President or a Vice President, and by the Chief Financial Officers or Treasurer or an Assistant Treasurer, or the Secretary of the Corporation or an Assistant Secretary, of the Corporation certifying the number of shares owned by such holder in the Corporation. Any or all such signatures may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.
Section 7.2 Special Designation on Certificates . If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided , however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this Section 7.2 or Sections 156, 202(a) or 218(a) of the DGCL or with respect to this Section 7.2 a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly required by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
Section 7.3 Transfers of Stock . Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation upon authorization by the registered holder thereof or by such holders attorney thereunto authorized by a power of attorney duly executed and filed with the Secretary of the Corporation or a transfer agent for such stock, and if such shares are represented by a certificate, upon surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of any taxes thereon; provided , however , that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer.
Section 7.4 Lost Certificates . The Corporation may issue a new share certificate or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate or the owners legal representative to give the Corporation a bond (or other adequate security) sufficient to indemnify it against any claim that may be made against it (including any expense or liability) on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. The Board of Directors may adopt such other provisions and restrictions with reference to lost certificates, not inconsistent with applicable law, as it shall in its discretion deem appropriate.
Section 7.5 Registered Stockholders . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
Section 7.6 Record Date for Determining Stockholders .
(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjourned meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, unless otherwise required by law, not be more than 60 nor less than
10 days before the date of such meeting. If the Board of Directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjourned meeting; provided , however , that the Board of Directors may fix a new record date for the determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 days prior to such action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
(c) Unless otherwise restricted by the Certificate of Incorporation (including any Preferred Stock Designation), in order that the Corporation may determine the stockholders entitled to express consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record, other than the Lone Star Entities, seeking to have stockholders express consent to corporate action in writing without a meeting shall, by written notice to the Secretary of the Corporation, request that the Board of Directors fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date upon which such request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 7.6(c)). If no record date has been fixed by the Board of Directors pursuant to the first sentence of this Section 7.6(c) or otherwise within 10 days after the date upon which such request is received, the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board of Directors is required by law, shall be the first date after the expiration of such 10 day time period following the date on which a signed written consent setting forth the action taken or proposed to be taken was delivered to the Corporation in accordance with Section 2.11. If no record date has been fixed by the Board of Directors pursuant to the first sentence of this Section 7.6(c), the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting if prior action by the Board of Directors is required by law, shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
Section 7.7 Regulations . To the extent permitted by applicable law, the Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue, transfer and registration of shares of stock of the Corporation.
Section 7.8 Waiver of Notice . Whenever notice is required to be given under any provision of the DGCL or the Certificate of Incorporation or these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of
objecting at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, the Board of Directors or a committee of the Board of Directors need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws.
ARTICLE VIII
GENERAL MATTERS
Section 8.1 Fiscal Year . The fiscal year of the Corporation shall be such 12 consecutive months as the Board of Directors may designate.
Section 8.2 Corporate Seal . The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary of the Corporation. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.
Section 8.3 Reliance Upon Books, Reports and Records . Each director and each member of any committee designated by the Board of Directors shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other persons professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
Section 8.4 Subject to Law and Certificate of Incorporation . All powers, duties and responsibilities provided for in these Bylaws, whether or not explicitly so qualified, are qualified by the Certificate of Incorporation and applicable law.
ARTICLE IX
AMENDMENTS
Section 9.1 Amendments . In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, amend or repeal these Bylaws. Except as otherwise provided in the Certificate of Incorporation or these Bylaws, and in addition to any requirements of law, the affirmative vote of at least 66 2 / 3 % of the voting power of the stock outstanding and entitled to vote thereon, voting together as a single class, shall be required for the stockholders to adopt, amend or repeal, or adopt any provision inconsistent with, any provision of these Bylaws.
The foregoing Amended and Restated Bylaws were adopted by the Board of Directors effective 2016.
Exhibit 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this Agreement ) is made as of by and among Forterra, Inc., a Delaware corporation (the Company ), and LSF9 Concrete Mid-Holdings Ltd (the Original Holder ) as of , 2016.
RECITALS
A. The Original Holder has requested that it be granted certain registration rights with respect to the shares of the Companys Common Stock (as defined below) held by the Original Holder as more fully set forth herein.
B. The Company has agreed to grant the Original Holder such registration rights as more fully set forth herein.
AGREEMENT
In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Definitions . As used in this Agreement, capitalized terms not otherwise defined herein shall have the meanings ascribed to them below:
Affiliate means, with respect to any specified Person, any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with, such specified Person.
Business Day means any day that is not a Saturday, Sunday or other day on which banks are required or authorized by law to be closed in The City of New York.
Common Stock means the common stock, par value $0.001 per share, of the Company, and any equity securities issued or issuable in exchange for or with respect to the Common Stock by way of a stock dividend, stock split or combination of shares or in connection with a reclassification, recapitalization, merger, consolidation or other reorganization or otherwise.
Common Stock Equivalent means all options, warrants and other securities convertible into, or exchangeable or exercisable for (at any time or upon the occurrence of any event or contingency and without regard to any vesting or other conditions to which such securities may be subject), Common Stock.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
FINRA means the Financial Industry Regulatory Authority, Inc.
Holder or Holders means the Original Holder and any Person who shall acquire and hold Registrable Securities in accordance with the terms of this Agreement.
Issuer Free Writing Prospectus means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of Registrable Securities.
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Majority Participating Holders means Participating Holders holding more than 50% of the Registrable Securities proposed to be included in any offering of Registrable Securities by such Participating Holders pursuant to Section 2.1 or Section 2.2.
Participating Holder means a Holder who shall have properly submitted a written request for inclusion of such Holders Registrable Securities in a registration pursuant to Section 2.1 or 2.2 hereof.
Person means any individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, person, trust, association, organization or other entity or any governmental or regulatory body or other agency or authority or political subdivision thereof, including any successor, by merger or otherwise, of any of the foregoing.
Registrable Securities means (i) shares of Common Stock held by the Original Holder as of the date hereof, (ii) shares of Common Stock issued or issuable, directly or indirectly, in exchange for or with respect to the Common Stock referenced in clause (i) above and (iii) any other shares of Common Stock owned or hereafter acquired by the Original Holder. Any particular Registrable Securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities shall have been sold to the public pursuant to Rule 144 (or any successor provision) under the Securities Act or (C) such securities shall cease to be outstanding.
Registration Expenses means all fees and expenses incurred in connection with the Companys performance of or compliance with the provisions of Article II, including, without limitation: (i) all registration, listing, qualification and filing fees (including FINRA filing fees); (ii) fees and expenses of compliance with state securities or blue sky laws (including counsel fees in connection with the preparation of a blue sky and legal investment survey and FINRA filings); (iii) printing and copying expenses; (iv) messenger and delivery expenses; (v) expenses incurred in connection with any road show; (vi) fees and disbursements of counsel for the Company; (vii) with respect to each registration, the fees and disbursements of one counsel for the Participating Holder(s) selected by the Majority Participating Holders, in the case of a registration pursuant to Section 2.2; (viii) fees and disbursements of independent public accountants, including the expenses of any audit or comfort letter, and fees and expenses of other persons, including special experts, retained by the Company; (ix) underwriter fees, excluding discounts and commissions, and any other expenses which are customarily borne by the issuer or seller of securities in a public equity offering; and (x) all internal expenses of the Company (including all salaries and expenses of officers and employees performing legal or accounting duties).
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 Demand Registrations .
(a) (i) Subject to Section 2.1(c), at any time or from time to time after the six-month anniversary of the first date on which the Company shall have effected the registration under the Securities Act of any shares of Common Stock, one or more Holders shall have the right to require the Company to file a registration statement under the Securities Act covering Registrable Securities with an aggregate value of $10,000,000 or greater (based on the market price of the Common Stock as of the date of the Demand Registration Request (as defined below)), by delivering a written request therefor to the Company specifying the number of Registrable Securities to be included in such registration by such Holders and the intended method of distribution thereof. All such requests by any Holder pursuant to this Section 2.1(a)(i) are referred to as Demand Registration Requests , the registrations so requested are referred to as Demand Registrations and the Holders making such demand for registration are referred to as the Initiating Holders . As promptly as practicable but no later than ten days after receipt of a Demand Registration Request, the Company shall give written notice (a Demand Exercise Notice ) of such Demand Registration Request to all Holders.
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(ii) The Company, subject to Sections 2.3 and 2.7, shall include in a Demand Registration (A) the Registrable Securities of the Initiating Holders and (B) the Registrable Securities of any other Holder that shall have made a written request to the Company within the time limits specified below for inclusion in such registration. Any such request from the other Holders must be delivered to the Company within 15 days after the receipt of the Demand Exercise Notice and must specify the maximum number of Registrable Securities intended to be disposed of by such other Holder.
(iii) The Company, as expeditiously as possible but subject to Section 2.1(c), shall use its commercially reasonable efforts to effect such Demand Registration.
(b) Registrations under this Section 2.1 shall be on such appropriate registration form of the SEC for the disposition of such Registrable Securities in accordance with the intended method of disposition thereof, which form shall be selected by the Company and shall be reasonably acceptable to the Majority Participating Holders.
(c) The Demand Registration rights granted in Section 2.1(a) to the Holders are subject to the following limitations:
(i) the Company shall not be required to cause a registration pursuant to Section 2.1(a) to be filed within 90 days or to be declared effective within a period of 180 days after the effective date of any other registration statement of the Company filed pursuant to the Securities Act;
(ii) if, in the opinion of outside counsel to the Company, any registration of Registrable Securities would require disclosure of information not otherwise then required by law to be publicly disclosed and, in the good faith judgment of the board of directors of the Company, such disclosure is reasonably likely to adversely affect any material financing, acquisition, corporate reorganization or merger or other material transaction or event involving the Company or otherwise have a material adverse effect on the Company (a Valid Business Reason ), the Company may postpone or withdraw a filing of a registration statement relating to a Demand Registration Request until such Valid Business Reason no longer exists, but in no event shall the Company avail itself of such right for more than 90 days, in the aggregate, in any period of 365 consecutive days (such period of postponement or withdrawal under this clause (ii), the Postponement Period ); and the Company shall give notice to the Participating Holder(s) of its determination to postpone or withdraw a registration statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof; and
(iii) the Company shall not be obligated to effect more than five Demand Registrations under Section 2.1(a) for benefit of the Holders.
If the Company shall give any notice of postponement or withdrawal of any registration statement pursuant to clause (ii) above, the Company shall not register any equity security of the Company during the period of postponement or withdrawal. Each Holder agrees that, upon receipt of any notice from the Company that the Company has determined to withdraw any registration statement pursuant to clause (ii) above, such Holder will discontinue its disposition of Registrable Securities pursuant to such registration statement. If the Company shall have withdrawn or prematurely terminated a registration statement filed under Section 2.1(a)(i), the Company shall not be considered to have effected an effective registration for the purposes of this Agreement until the Company shall have filed a new registration statement covering the Registrable Securities covered by the withdrawn registration statement and such registration statement shall have been declared effective and shall not have been withdrawn. If the Company shall give any notice of withdrawal or postponement of a registration statement pursuant to clause (ii) above, at such time as the Valid Business Reason that caused such withdrawal or postponement no longer exists (but in no event more than 90 days after the date of the postponement or withdrawal), the Company shall use its commercially reasonable efforts to effect the registration under the Securities Act of the Registrable Securities covered by the withdrawn or postponed registration statement in accordance with this Section 2.1.
(d) The Company, subject to Sections 2.3 and 2.7, may elect to include in any registration statement and offering made pursuant to Section 2.1(a)(i), (i) authorized but unissued shares of Common Stock or shares of Common Stock held by the Company as treasury shares and/or (ii) any other shares of Common Stock that are requested to be
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included in such registration pursuant to the exercise of piggyback rights granted by the Company that are not inconsistent with the rights granted in, or otherwise conflict with the terms of, this Agreement ( Additional Piggyback Rights ); provided , however , that such inclusion shall be permitted only to the extent that it is pursuant to and subject to the terms of the underwriting agreement or arrangements, if any, entered into by the Participating Holders.
(e) A Holder may withdraw its Registrable Securities from a Demand Registration at any time. If all such Holders do so, the Company shall cease all efforts to secure registration and such registration nonetheless shall be deemed a Demand Registration for purposes of this Section 2.1 unless (i) the withdrawal is made following withdrawal or postponement of such registration by the Company pursuant to a Valid Business Reason as contemplated by Section 2.1(c)(ii), (ii) the withdrawal is based on the reasonable determination of the Initiating Holders that there has been, since the date of the Demand Registration Request, a material adverse change in the business or prospects of the Company or (iii) the Initiating Holders have paid or reimbursed the Company for all of the reasonable out-of-pocket fees and expenses incurred by the Company in connection with the withdrawn registration.
(f) A Demand Registration shall not be deemed to have been effected and shall not count as such (i) unless a registration statement with respect thereto has become effective and has remained effective for a period of at least 180 days or such shorter period during which all Registrable Securities covered by such registration statement have been sold or withdrawn, or, if such registration statement relates to an underwritten offering, such longer period as, in the opinion of counsel for the underwriter(s), is required by law for delivery of a prospectus in connection with the sale of Registrable Securities by an underwriter or dealer, (ii) if, after the registration statement with respect thereto has become effective, it becomes subject to any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason, (iii) if it is withdrawn by the Company pursuant to a Valid Business Reason as contemplated by Section 2.1(c) or (iv) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such Demand Registration are not satisfied, other than solely by reason of some act or omission of the Participating Holders.
(g) In connection with any Demand Registration, the Majority Participating Holders may designate the lead managing underwriter in connection with such registration and each other managing underwriter for such registration, provided , that, in each case, each such underwriter is reasonably satisfactory to the Majority Participating Holders.
Section 2.2 Piggyback Registrations .
(a) If, at any time, the Company proposes or is required to register any of its equity securities under the Securities Act (other than pursuant to (i) a registration on Form S-4 or Form S-8 or any successor or similar form which is then in effect or (ii) a Demand Registration under Section 2.1) on a registration statement on Form S-1 or Form S-3 or an equivalent general registration form then in effect, whether or not for its own account, the Company shall give prompt written notice of its intention to do so to each Holder. Upon the written request of any such Holder, made within 15 days following the receipt of any such written notice (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof), the Company, subject to Sections 2.2(b), 2.3 and 2.7, shall use commercially reasonable efforts to cause all such Registrable Securities to be included in the registration statement with the securities that the Company at the time proposes to register to permit the sale or other disposition by such Holders in accordance with the intended method of distribution thereof of the Registrable Securities to be so registered. No registration of Registrable Securities effected under this Section 2.2(a) shall relieve the Company of its obligations to effect Demand Registrations under Section 2.1.
(b) If, at any time after giving written notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company will give written notice of such determination to each Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such abandoned registration, without prejudice, however, to the rights of Holders under Section 2.1 and (ii) in the case of a determination to delay such registration of its equity securities, shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other equity securities.
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(c) Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw. Such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration. Such withdrawal shall be irrevocable and, after making such withdrawal, a Holder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal was made.
Section 2.3 Priority in Registrations .
(a) If any requested registration made pursuant to Section 2.1 involves an underwritten offering and the lead managing underwriter of such offering (the Manager ) shall advise the Company that, in its view, the number of securities requested to be included in such registration by the Participating Holders or any other persons, including those shares of Common Stock requested by the Company to be included in such registration, exceeds the largest number (the Section 2.3(a) Sale Number ) that can be sold in an orderly manner in such offering within a price range acceptable to the Majority Participating Holders, the Company shall use commercially reasonable efforts to include in such registration:
(i) first, all Registrable Securities requested to be included in such registration by the Holders thereof; provided , however , that, if the number of such Registrable Securities exceeds the Section 2.3(a) Sale Number, the number of such Registrable Securities (not to exceed the Section 2.3(a) Sale Number) to be included in such registration shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such registration, based on the number of Registrable Securities then owned by each such Holder requesting inclusion in relation to the number of Registrable Securities owned by all Holders requesting inclusion;
(ii) second, to the extent that the number of securities to be included pursuant to clause (i) of this Section 2.3(a) is less than the Section 2.3(a) Sale Number, the remaining shares to be included in such registration shall be allocated on a pro rata basis among all holders requesting that securities be included in such registration pursuant to the exercise of Additional Piggyback Rights ( Piggyback Shares ), based on the aggregate number of Piggyback Shares then owned by each holder requesting inclusion in relation to the aggregate number of Piggyback Shares owned by all holders requesting inclusion, up to the Section 2.3(a) Sale Number; and
(iii) third, to the extent that the number of securities to be included pursuant to clauses (i) and (ii) of this Section 2.3(a) is less than the Section 2.3(a) Sale Number, any securities that the Company proposes to register, up to the Section 2.3(a) Sale Number.
If, as a result of the proration provisions of this Section 2.3(a), any Holder shall not be entitled to include all Registrable Securities in a registration that such Holder has requested be included, such Holder may elect to withdraw its request to include Registrable Securities in such registration or may reduce the number requested to be included; provided , however , that (A) such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration and (B) such withdrawal shall be irrevocable and, after making such withdrawal, such Holder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal was made.
(b) If any registration pursuant to Section 2.2 involves an underwritten offering that was proposed by the Company and the Manager shall advise the Company that, in its view, the number of securities requested to be included in such registration exceeds the number (the Section 2.3(b) Sale Number ) that can be sold in an orderly manner in such registration within a price range acceptable to the Company, the Company shall include in such registration:
(i) first, all Common Stock that the Company proposes to register for its own account; and
(ii) second, to the extent that the number of securities to be included pursuant to clause (i) of this Section 2.3(b) is less than the Section 2.3(b) Sale Number, the remaining shares to be included in such registration shall be allocated on a pro rata basis among all holders requesting that Registrable Securities or Piggyback Shares be included in such registration pursuant to the exercise of piggyback rights pursuant to Section 2.2 of this Agreement or Additional Piggyback Rights, based on the aggregate number of Registrable Securities and Piggyback Shares then owned by each holder requesting inclusion in relation to the aggregate number of Registrable Securities and Piggyback Shares owned by all holders requesting inclusion, up to the Section 2.3(b) Sale Number.
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(c) If any registration pursuant to Section 2.2 involves an underwritten offering that was proposed by holders of securities of the Company that have the right to require such registration pursuant to an agreement entered into by the Company in accordance with Section 3.4 ( Additional Demand Rights ) and the Manager shall advise the Company that, in its view, the number of securities requested to be included in such registration exceeds the number (the Section 2.3(c) Sale Number ) that can be sold in an orderly manner in such registration within a price range acceptable to the Company, the Company shall include in such registration:
(i) first, all securities requested to be included in such registration by the holders of Additional Demand Rights ( Additional Registrable Securities ); provided , however , that, if the number of such Additional Registrable Securities exceeds the Section 2.3(c) Sale Number, the number of such Additional Registrable Securities (not to exceed the Section 2.3(c) Sale Number) to be included in such registration shall be allocated on a pro rata basis among all holders of Additional Registrable Securities requesting that Additional Registrable Securities be included in such registration, based on the number of Additional Registrable Securities then owned by each such holder requesting inclusion in relation to the number of Additional Registrable Securities owned by all of such holders requesting inclusion;
(ii) second, to the extent that the number of securities to be included pursuant to clause (i) of this Section 2.3(c) is less than the Section 2.3(c) Sale Number, any Common Stock that the Company proposes to register for its own account, up to the Section 2.3(c) Sale Number; and
(iii) third, to the extent that the number of securities to be included pursuant to clauses (i) and (ii) of this Section 2.3(c) is less than the Section 2.3(c) Sale Number, the remaining shares to be included in such registration shall be allocated on a pro rata basis among all holders requesting that Registrable Securities or Piggyback Shares be included in such registration pursuant to the exercise of piggyback rights pursuant to Section 2.2 or Additional Piggyback Rights, based on the aggregate number of Registrable Securities and Piggyback Shares then owned by each holder requesting inclusion in relation to the aggregate number of Registrable Securities and Piggyback Shares owned by all holders requesting inclusion, up to the Section 2.3(c) Sale Number.
Section 2.4 Registration Procedures . Whenever the Company is required by the provisions of this Agreement to use commercially reasonable efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company, as expeditiously as possible:
(a) shall prepare and file with the SEC the requisite registration statement, which shall comply as to form in all material respects with the requirements of the applicable form and shall include all financial statements required by the SEC to be filed therewith, and use commercially reasonable efforts to cause such registration statement to become and remain effective ( provided , however , that before filing a registration statement or prospectus or any amendments or supplements thereto, or comparable statements under securities or blue sky laws of any jurisdiction, or any Issuer Free Writing Prospectus related thereto, the Company will furnish to one counsel for the Participating Holders (selected by the Majority Participating Holders) and to the lead managing underwriter, if any, copies of all such documents proposed to be filed (including all exhibits thereto), which documents will be subject to the reasonable review and reasonable comment of such counsel, and the Company shall not file any registration statement or amendment thereto, any prospectus or supplement thereto or any Issuer Free Writing Prospectus related thereto to which the Majority Participating Holders or the underwriters, if any, shall reasonably object);
(b) shall prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for such period as any Participating Holder shall request and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Participating Holder(s) thereof set forth in such registration statement;
(c) shall furnish, without charge, to each Participating Holder and each underwriter, if any, of the securities covered by such registration statement such number of copies of such registration statement, each amendment thereto, the
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prospectus included in such registration statement, each preliminary prospectus and each Issuer Free Writing Prospectus utilized in connection therewith, all in conformity with the requirements of the Securities Act, and such other documents as such Participating Holder and underwriter reasonably may request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such Participating Holder, and shall consent to the use in accordance with all applicable law of each such registration statement, each amendment thereto, each such prospectus, preliminary prospectus or Issuer Free Writing Prospectus by each such Participating Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such registration statement or prospectus;
(d) shall use commercially reasonable efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as any Participating Holder or any managing underwriter, if any, reasonably shall request, and do any and all other acts and things that may be reasonably necessary or advisable to enable such Participating Holder or underwriter, if any, to consummate the disposition of the Registrable Securities in such jurisdictions, except that in no event shall the Company be required (i) to qualify to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 2.4(d), it would not be required to be so qualified, (ii) to subject itself to taxation in any such jurisdiction or (iii) to consent to general service of process in any such jurisdiction;
(e) shall promptly notify each Participating Holder and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto, any post-effective amendment to the registration statement or any Issuer Free Writing Prospectus has been filed and, with respect to the registration statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or supplements to the registration statement or the prospectus related thereto or for additional information;
(iii) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose;
(v) of the existence of any fact of which the Company becomes aware which results in the registration statement, the prospectus related thereto, any document incorporated therein by reference, any Issuer Free Writing Prospectus or the information conveyed to any purchaser at the time of sale to such purchaser containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein not misleading; and
(vi) if at any time the representations and warranties contemplated by any underwriting agreement, securities sale agreement or other similar agreement relating to the offering shall cease to be true and correct in all material respects; and, if the notification relates to an event described in clause (v), the Company, subject to the provisions of Section 2.1(c), promptly shall prepare and file with the SEC, and furnish to each seller and each underwriter, if any, a reasonable number of copies of, a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(f) shall comply with all applicable rules and regulations of the SEC, and make generally available to its security holders, as soon as reasonably practicable after the effective date of the registration statement (and in any event within 90 days after the end of the 12-month period described hereafter), an earnings statement, which need not be audited, covering a period of at least 12 consecutive months beginning with the first day of the Companys first calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
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(g) shall use commercially reasonable efforts to cause all Registrable Securities covered by such registration statement to be authorized to be listed on a national securities exchange if shares of the particular class of Registrable Securities are at that time, or will be immediately following the offering, listed on such exchange;
(h) shall provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;
(i) shall enter into such customary agreements (including, if applicable, an underwriting agreement) and take such other actions as the Majority Participating Holders shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (it being understood that the Holders of the Registrable Securities that are to be distributed by any underwriters shall be parties to any such underwriting agreement and may, at their option, require that the Company make to, and for the benefit of, such Holders the representations, warranties and covenants of the Company which are being made to and for the benefit of such underwriters);
(j) shall use commercially reasonable efforts to obtain an opinion from the Companys counsel and a comfort letter from the Companys independent public accountants in customary form and covering such matters as are customarily covered by such opinions and comfort letters delivered to underwriters in underwritten public offerings, which opinion and letter shall be reasonably satisfactory to the underwriter, if any;
(k) shall use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement;
(l) shall provide a CUSIP number for all Registrable Securities, not later than the effective date of the registration statement;
(m) shall make reasonably available its employees and personnel for participation in road shows and other marketing efforts and otherwise provide reasonable assistance to the underwriters, taking into account the needs of the Companys businesses and the requirements of the marketing process, in the marketing of Registrable Securities in any underwritten offering;
(n) shall promptly prior to the filing of any document that is to be incorporated by reference into the registration statement or the prospectus, and prior to the filing of any Issuer Free Writing Prospectus, provide copies of such document to counsel for the Participating Holders and to each managing underwriter, if any, and make the Companys representatives reasonably available for discussion of such document and make such changes in such document concerning the Participating Holders prior to the filing thereof as counsel for such Participating Holders or underwriters may reasonably request;
(o) shall cooperate with the Participating Holders and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the underwriters or, if not an underwritten offering, in accordance with the instructions of the Participating Holders at least three Business Days prior to any sale of Registrable Securities and instruct any transfer agent and registrar of Registrable Securities to release any stop transfer orders in respect thereof;
(p) shall take all such other commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities;
(q) shall not take any direct or indirect action prohibited by Regulation M under the Exchange Act; provided , however , that to the extent that any prohibition thereunder is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable;
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(r) shall cooperate with each Participating Holder and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA; and
(s) shall take all reasonable action to ensure that any Issuer Free Writing Prospectus utilized in connection with any registration covered by Section 2.1 or 2.2 complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related prospectus, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
The Company may require as a condition precedent to the Companys obligations under this Section 2.4 that each Participating Holder as to which any registration is being effected furnish the Company such information in writing regarding such Participating Holder and the distribution of its Registrable Securities as the Company from time to time reasonably may request; provided , that such information is necessary for the Company to consummate such registration and shall be used only in connection with such registration. Each Participating Holder agrees that upon receipt of any notice from the Company under Section 2.4(e)(v), such Participating Holder will discontinue its disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Participating Holders receipt of the copies of the supplemented or amended prospectus. In the event the Company shall give any such notice, the applicable period set forth in Section 2.4(b) shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each Participating Holder shall have received the copies of the supplemented or amended prospectus. If any such registration statement or comparable statement under blue sky laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder and the Company, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Companys securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company or (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state blue sky or securities law then in force, the deletion of the reference to such Holder.
Section 2.5 Automatic Shelf Registration Statements . To the extent the Company is a well-known seasoned issuer as defined in Rule 405 under the Securities Act (a WKSI ) at the time any Demand Registration Request is submitted to the Company, and such Demand Registration Request requests that the Company file an automatic shelf registration statement as defined in Rule 405 under the Securities Act (an automatic shelf registration statement ) on Form S-3, the Company shall file an automatic shelf registration statement that covers those Registrable Securities that are requested to be registered. The Company shall use commercially reasonable efforts to remain a WKSI and not become an ineligible issuer (as defined in Rule 405 under the Securities Act) during the period during which such automatic shelf registration statement is required to remain effective. If the Company does not pay the filing fee covering the Registrable Securities at the time the automatic shelf registration statement is filed, the Company shall pay such fee at such time or times as the Registrable Securities are to be sold. If the automatic shelf registration statement has been outstanding for at least three years, at the end of the third year the Company shall refile a new automatic shelf registration statement covering the Registrable Securities. If at any time when the Company is required to re-evaluate its WKSI status, the Company determines that it is not a WKSI, the Company shall use commercially reasonable efforts to refile the shelf registration statement on Form S-3 and, if such form is not available, Form S-1, and keep such registration statement effective during the period during which such registration statement is required to be kept effective. If the Company files any shelf registration statement for the benefit of the holders of any of its securities other than the Holders, the Company shall include in such registration statement such disclosures as may be required by Rule 430B under the Securities Act, referring to the unnamed selling security holders in a generic manner, in order to ensure that the Holders may be added to such shelf registration statement at a later time through the filing of a prospectus supplement rather than a post-effective amendment.
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Section 2.6 Registration Expenses .
(a) The Company shall pay all Registration Expenses (i) with respect to any Demand Registration whether or not it becomes effective or remains effective for the period contemplated by Section 2.4(b) and (ii) with respect to any registration effected under Section 2.2.
(b) Notwithstanding the foregoing, (i) the provisions of this Section 2.6 shall be deemed amended to the extent necessary to cause these expense provisions to comply with blue sky laws of each state in which the offering is made, (ii) in connection with any registration hereunder, each Participating Holder shall pay all underwriting discounts and commissions pro rata in accordance with the number of Registrable Securities sold in the offering by such Participating Holder and transfer taxes, if any, attributable to the sale of such Participating Holders Registrable Securities and (iii) the Company shall, in the case of all registrations under this Article II, be responsible for all its internal expenses.
Section 2.7 Underwritten Offerings .
(a) If requested by the underwriters for any underwritten offering by the Holders pursuant to a Demand Registration, the Company shall enter into a customary underwriting agreement with the underwriters. Such underwriting agreement shall be satisfactory in form and substance to the Majority Participating Holders and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type. Any Participating Holder shall be a party to such underwriting agreement and, at its option, may require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also shall be made to and for the benefit of such Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holder; provided , however , that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a Participating Holder for inclusion in the registration statement. No Holder shall be required to make any representations or warranties to, or agreements with, the Company or the underwriters other than representations, warranties or agreements regarding such Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of such Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.
(b) In the case of a registration pursuant to Section 2.2, if the Company shall have determined to enter into an underwriting agreement in connection therewith, any Registrable Securities to be included in such registration shall be subject to such underwriting agreement. Any Participating Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holder. No Holder shall be required to make any representations or warranties to, or agreements with, the Company or the underwriters other than representations, warranties or agreements regarding such Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of such Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.
(c) In the case of any Demand Registration pursuant to an underwritten offering, or, in the case of a registration under Section 2.2, if the Company has determined to enter into an underwriting agreement in connection therewith, all securities to be included in such registration shall be subject to an underwriting agreement and no Person may participate in such registration unless such Person agrees to sell such Persons securities on the basis provided therein and, subject to the provisions of this Section 2.7, completes and executes all reasonable questionnaires, and other documents, including custody agreements and powers of attorney, that must be executed in connection therewith, and provides such other information to the Company or the underwriter as may be necessary to register such Persons securities.
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Section 2.8 Holdback Agreements .
(a) Each Participating Holder agrees, to the extent requested in writing by a managing underwriter, if any, of any Demand Registration, not to sell, transfer or otherwise dispose of, including any sale pursuant to Rule 144 under the Securities Act, any Common Stock, or any other equity security of the Company or any security convertible into or exchangeable or exercisable for any equity security of the Company other than as part of such underwritten public offering during the time period reasonably requested by the managing underwriter, not to exceed 90 days.
(b) The Company agrees that, if it shall previously have received a request for registration pursuant to Section 2.1 or 2.2, and if such previous registration shall not have been withdrawn or abandoned, it shall not sell, transfer or otherwise dispose of any Common Stock, or any other equity security of the Company or any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering, a registration on Form S-4 or Form S-8 or any successor or similar form which is then in effect or upon the conversion, exchange or exercise of any then outstanding Common Stock Equivalent), until a period of 180 days shall have elapsed from the effective date of such previous registration; and the Company shall so provide in any registration rights agreements hereafter entered into with respect to any of its securities.
Section 2.9 No Required Sale . Nothing in this Agreement shall be deemed to create an independent obligation on the part of any Holder to sell any Registrable Securities pursuant to any effective registration statement.
Section 2.10 Indemnification .
(a) In the event of any registration of any securities of the Company under the Securities Act pursuant to this Article II, the Company will, and hereby agrees to, indemnify and hold harmless, to the fullest extent permitted by law, each Holder, its directors, officers, fiduciaries, employees, agents, Affiliates, consultants, representatives, general and limited partners, stockholders, successors, assigns (and the directors, officers, employees and stockholders thereof), and each other Person, if any, who controls such Holder within the meaning of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether commenced or threatened) and expenses (including reasonable fees of counsel and any amounts paid in any settlement effected with the Companys consent, which consent shall not be unreasonably withheld or delayed) to which each such indemnified party may become subject under the Securities Act or otherwise in respect thereof (collectively, Losses ), insofar as such Losses arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact necessary to be stated or necessary in order to make the statements, in light of the circumstances under which they were made, not misleading, in any registration statement under which such securities were registered under the Securities Act, or amendment thereof or supplement thereto, or in any preliminary, final or summary prospectus or any amendment or supplement thereto, together with the documents incorporated by reference therein, or any Issuer Free Writing Prospectus utilized in connection therewith, and the Company will reimburse any such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Loss as such expenses are incurred; provided , however , that the Company shall not be liable to any such indemnified party in any such case to the extent such Loss arises out of or is based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in such registration statement or amendment thereof or supplement thereto or in any such prospectus or any preliminary, final or summary prospectus or Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Company by or on behalf of such indemnified party specifically for use therein. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party and shall survive the transfer of such securities by such Holder.
(b) Each Holder whose Registrable Securities are included in the securities as to which any registration under Section 2.1 or 2.2 is being effected shall, severally and not jointly, indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.10), to the fullest extent permitted by law, the Company, its officers and directors, each Person controlling the Company within the meaning of the Securities Act and all other prospective sellers and their respective directors, officers, fiduciaries, employees, agents, Affiliates, consultants, representatives, general and limited partners, stockholders, successors, assigns and respective controlling Persons with respect to any untrue statement or alleged untrue statement of any material fact in, or omission or alleged omission of any material fact from, such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or any Issuer Free Writing
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Prospectus utilized in connection therewith, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or its representatives by or on behalf of such Holder specifically for use therein and reimburse such indemnified party for any legal or other expenses reasonably incurred in connection with investigating or defending any such Loss as such expenses are incurred; provided , however , that the aggregate amount that any such Holder shall be required to pay pursuant to this Section 2.10 shall in no case be greater than the amount of the net proceeds received by such Holder upon the sale of the Registrable Securities pursuant to the registration statement giving rise to such claim. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party and shall survive the transfer of such securities by such Holder.
(c) Any Person entitled to indemnification under this Agreement promptly shall notify the indemnifying party in writing of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2.10, but the failure of any such Person to provide such notice shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 2.10, except to the extent the indemnifying party is materially prejudiced thereby, and shall not relieve the indemnifying party from any liability that it may have to any such Person otherwise than under this Article II. In case any action or proceeding is brought against an indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, unless in the reasonable opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof jointly with any other indemnifying party similarly notified, to the extent that it chooses, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party that it so chooses, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided , however , that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the action or proceeding within 20 days after receiving notice from such indemnified party, (ii) if such indemnified party who is a defendant in any action or proceeding that is also brought against the indemnifying party reasonably shall have concluded that there may be one or more legal defenses available to such indemnified party that are not available to the indemnifying party or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, then, in any such case, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties in each jurisdiction, except to the extent any indemnified party or parties reasonably shall have concluded that there may be legal defenses available to such party or parties that are not available to the other indemnified parties or to the extent representation of all indemnified parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct) and the indemnifying party shall be liable for any expenses therefor. Without the written consent of the indemnified party, which consent shall not be unreasonably withheld, no indemnifying party shall effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder, whether or not the indemnified party is an actual or potential party to such action or claim, unless such settlement, compromise or judgment (A) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (B) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(d) If for any reason the foregoing indemnity is unavailable or is insufficient to hold harmless an indemnified party under Section 2.10(a), (b) or (c), then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of any Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to such offering of securities. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. If, however, the allocation provided in the second preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.10(d) were to be determined by pro rata allocation or by any other method of
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allocation which does not take account of the equitable considerations referred to in the preceding sentences of this Section 2.10(d). The amount paid or payable in respect of any Loss shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Loss. No Person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Notwithstanding anything in this Section 2.10(d) to the contrary, no indemnifying party other than the Company shall be required pursuant to this Section 2.10(d) to contribute any amount in excess of the net proceeds received by such indemnifying party from the sale of Registrable Securities in the offering to which the losses, claims, damages or liabilities of the indemnified parties relate, less the amount of any indemnification payment made by such indemnifying party pursuant to Sections 2.10(b) and (c).
(e) The indemnity and contribution agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party and shall survive the transfer of the Registrable Securities by any such party.
(f) The indemnification and contribution required by this Section 2.10 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred.
ARTICLE III
GENERAL
Section 3.1 Adjustments Affecting Registrable Securities . The Company shall not effect or permit to occur any combination or subdivision of shares of Common Stock that would adversely affect the ability of any Holder to include such Holders Registrable Securities in any registration contemplated by this Agreement or the marketability of such Registrable Securities in any such registration. The Company will take all reasonable steps necessary to effect a subdivision of shares if in the reasonable judgment of (a) the Majority Participating Holders or (b) the managing underwriter for the offering in respect of such Demand Registration Request, such subdivision would enhance the marketability of the Registrable Securities. Each Holder shall vote all of its shares of capital stock in a manner, and take all other actions necessary, to permit the Company to carry out the intent of the preceding sentence including, without limitation, voting in favor of an amendment to the Companys certificate of incorporation in order to increase the number of authorized shares of capital stock of the Company.
Section 3.2 Rule 144 . The Company covenants that (a) upon such time as it becomes, and so long as it remains, subject to the reporting provisions of the Exchange Act, it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act or, if it is not required to file such reports, upon the request of any Holder it shall make publicly available other information so long as necessary to permit sales of such Registrable Securities in compliance with Rule 144 under the Securities Act and (b) it will take such further action as any Holder reasonably may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.
Section 3.3 Nominees for Beneficial Owners . If Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its option, be treated as the Holder of such Registrable Securities for purposes of any request or other action by any Holder or Holders pursuant to this Agreement or any determination of any number or percentage of shares constituting Registrable Securities held by any Holder or Holders contemplated by this Agreement; provided , that the Company shall have received assurances reasonably satisfactory to it of such beneficial ownership.
Section 3.4 No Inconsistent Agreements . The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound. Without the prior written consent of Holders of a majority of the then outstanding Registrable Securities, the
13
Company will not enter into any agreement with respect to its securities that is inconsistent with the rights granted in this Agreement or otherwise conflicts with the provisions hereof or provides terms and conditions that are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement are to the Holders, other than any lock-up agreement with the underwriters in connection with any registered offering effected hereunder, pursuant to which the Company shall agree not to register for sale, and the Company shall agree not to sell or otherwise dispose of, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, for a specified period following the registered offering. If the Company enters into any other registration rights agreement with respect to any of its securities that contains terms that are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement are to the Holders, the terms and conditions of this Agreement shall immediately be deemed to have been amended without further action by the Company or any of the Holders so that the Holders shall each be entitled to the benefit of any such more favorable or less restrictive terms or conditions.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Amendment and Waiver .
(a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by the Company and a majority in interest of the Holders or, in the case of a waiver, by the party or parties against whom the waiver is to be effective, in an instrument specifically designated as an amendment or waiver hereto; provided , however , that waiver by the Holders shall require the consent of a majority in interest of the Holders.
(b) No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have hereunder.
Section 4.2 Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile, upon written confirmation of receipt by facsimile, e-mail or otherwise, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
(i) if to any Holder other than the Original Holder, to its last known address appearing on the books of the Company maintained for such purpose, and if to the Original Holder, to:
LSF9 Concrete Mid-Holdings Ltd
2711 N. Haskell Avenue, Suite 1700
Dallas, Texas 75204
Attention: Legal Department
Facsimile: (214) 515-6924
(ii) if to the Company, to:
Forterra, Inc.
511 East John Carpenter Freeway, 6th Floor
Irving, TX 75062
Attention: General Counsel
Facsimile: (469) 284-8678
14
or such other address as the Company or the Original Holder shall have specified to the other party in writing in accordance with this Section 4.2.
Section 4.3 Interpretation . When a reference is made in this Agreement to a Section or Article, such reference shall be to a Section or Article of this Agreement unless otherwise indicated. The headings contained in this Agreement are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. The word including and words of similar import when used in this Agreement will mean including, without limitation, unless otherwise specified. Each of the parties hereto acknowledges that it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived.
Section 4.4 Entire Agreement . This Agreement constitutes the entire agreement, and supersedes all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings between the parties with respect to the subject matter hereof and thereof.
Section 4.5 No Third-Party Beneficiaries . Except as provided in Section 2.10, nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties and their respective successors and permitted assigns any legal or equitable right, benefit or remedy of any nature under or by reason of this Agreement.
Section 4.6 Governing Law . This Agreement and all disputes or controversies arising out of or relating to this Agreement or the transactions contemplated hereby shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of Delaware.
Section 4.7 Submission to Jurisdiction . Each of the parties irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement brought by any other party or its successors or assigns shall be brought and determined in any Delaware State or federal court, and each of the parties hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such action or proceeding arising out of or relating to this Agreement and the transactions contemplated hereby. Each of the parties agrees not to commence any action, suit or proceeding relating thereto except in the courts described above in Delaware, other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court in Delaware as described herein. Each of the parties further agrees that notice as provided herein shall constitute sufficient service of process and the parties further waive any argument that such service is insufficient. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, (a) any claim that it is not personally subject to the jurisdiction of the courts in Delaware as described herein for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
Section 4.8 Assignment; Successors . This Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. If any Person shall acquire Registrable Securities from any Holder in any manner, whether by operation of law or otherwise, such Person shall promptly notify the Company and such Registrable Securities acquired from such Holder shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. Any such successor or assign shall agree in writing to acquire and hold the Registrable Securities acquired from such Holder subject to all of the terms hereof.
15
Section 4.9 Enforcement . The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any Delaware State or federal court, this being in addition to any other remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security as a prerequisite to obtaining equitable relief.
Section 4.10 Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
Section 4.11 Waiver of Jury Trial . EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 4.12 Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.
Section 4.13 Facsimile or .pdf Signature . This Agreement may be executed by facsimile or .pdf signature and a facsimile or .pdf signature shall constitute an original for all purposes.
Section 4.14 Time of Essence . Time is of the essence with regard to all dates and time periods set forth or referred to in this Agreement.
[The remainder of this page is intentionally left blank.]
16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
FORTERRA, INC. | ||
By: | ||
Name: | ||
Title: | ||
LSF9 CONCRETE MID-HOLDINGS LTD | ||
By: | ||
Name: | ||
Title: |
S IGNATURE P AGE TO R EGISTRATION R IGHTS A GREEMENT
Exhibit 5.1
Client: 42473-00017
, 2016
Forterra, Inc.
511 East John Carpenter Freeway, 6th Floor
Irving, Texas 75062
Re: | Forterra, Inc. |
Registration Statement on Form S-1 (File No. 333-212449)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1, File No. 333-212449, as amended (the Registration Statement ), of Forterra, Inc., a Delaware corporation (the Company ), filed with the Securities and Exchange Commission (the Commission ) pursuant to the Securities Act of 1933, as amended (the Securities Act ), in connection with the offering by the Company of up to shares of the Companys common stock (the Common Stock ), par value $0.001 per share (the Company Shares ), and the sale by the selling stockholder identified in the Registration Statement of up to shares of Common Stock (the Secondary Shares ).
In arriving at the opinion expressed below, we have examined originals, or copies certified or otherwise identified to our satisfaction as being true and complete copies of the originals, of specimen Common Stock certificates and such other documents, corporate records, certificates of officers of the Company and of public officials and other instruments as we have deemed necessary or advisable to enable us to render the opinions set forth below. In our examination, we have assumed without independent investigation the genuineness of all signatures, the legal capacity and competency of all natural persons, the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as copies.
Based upon the foregoing, and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of the opinion that (1) the Company Shares, when issued against payment therefor as set forth in the Registration Statement, will be validly issued, fully paid and non-assessable, and (2) the Secondary Shares, when issued pursuant to the for one stock split described in the Registration Statement, will be validly issued, fully paid and non-assessable.
This opinion is limited to the effect of the current state of the Delaware General Corporation Law and the facts as they currently exist. We assume no obligation to revise or supplement this opinion in the event of future changes in such laws or the interpretation thereof or such facts.
We consent to the filing of this opinion as an exhibit to the Registration Statement, and we further consent to the use of our name under the caption Legal Matters in the Registration Statement and the prospectus that forms a part thereof. In giving these consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
[ DRAFT ]
Exhibit 10.9
MASTER
LAND AND BUILDING LEASE
between
Pipe Portfolio Owner Exchange (Multi) LP,
a Delaware limited partnership,
as LANDLORD
and
Forterra Pipe & Precast, LLC,
a Delaware limited liability company,
Forterra Pressure Pipe, Inc.,
an Ohio corporation,
Forterra Concrete Products, Inc.,
an Iowa corporation, and
Forterra Concrete Industries, Inc.,
a Tennessee corporation
as TENANT
April 5, 2016
INDEX TO MASTER LAND AND BUILDING LEASE
ARTICLE 1 |
DEMISE OF PREMISES |
2 | ||||
ARTICLE 2 |
TERM |
2 | ||||
ARTICLE 3 |
RENT |
3 | ||||
ARTICLE 4 |
USE |
7 | ||||
ARTICLE 5 |
ACCEPTANCE OF DEMISED PROPERTIES |
8 | ||||
ARTICLE 6 |
ALTERATIONS |
9 | ||||
ARTICLE 7 |
REPAIRS AND MAINTENANCE |
9 | ||||
ARTICLE 8 |
COMPLIANCE WITH LAW |
10 | ||||
ARTICLE 9 |
DISCLAIMER AND INDEMNITIES |
11 | ||||
ARTICLE 10 |
INSURANCE |
12 | ||||
ARTICLE 11 |
DAMAGE OR DESTRUCTION |
14 | ||||
ARTICLE 12 |
EMINENT DOMAIN |
16 | ||||
ARTICLE 13 |
FINANCIAL AND REPORTING COVENANTS |
17 | ||||
ARTICLE 14 |
EAT-WPC LEASE |
18 | ||||
ARTICLE 15 |
EVENTS OF DEFAULT |
19 | ||||
ARTICLE 16 |
FORCE MAJEURE |
22 | ||||
ARTICLE 17 |
NOTICES |
22 | ||||
ARTICLE 18 |
ACCESS |
23 | ||||
ARTICLE 19 |
SIGNS |
24 | ||||
ARTICLE 20 |
IMPROVEMENTS AND BUILDING EQUIPMENT; TENANT EQUIPMENT |
24 | ||||
ARTICLE 21 |
END OF TERM; HOLDING OVER |
25 | ||||
ARTICLE 22 |
TENANT ASSIGNMENT AND SUBLETTING |
26 | ||||
ARTICLE 23 |
FINANCINGS |
27 | ||||
ARTICLE 24 |
ESTOPPEL CERTIFICATES |
28 | ||||
ARTICLE 25 |
RECORDING |
28 | ||||
ARTICLE 26 |
APPLICABLE LAW; JURISDICTION; WAIVER OF JURY TRIAL |
28 | ||||
ARTICLE 27 |
LIABILITY OF PARTIES |
29 | ||||
ARTICLE 28 |
ATTORNEYS FEES; EXPENSES |
30 | ||||
ARTICLE 29 |
ENVIRONMENTAL |
30 | ||||
ARTICLE 30 |
LANDLORD ASSIGNMENT |
32 | ||||
ARTICLE 31 |
REPLACEMENTS |
33 | ||||
ARTICLE 32 |
GUARANTY |
35 | ||||
ARTICLE 33 |
LANDLORDS RIGHTS UNDER LEASE |
36 | ||||
ARTICLE 34 |
RIGHT OF FIRST REFUSAL |
36 | ||||
ARTICLE 35 |
EXISTING LOANS |
37 | ||||
ARTICLE 36 |
INTERPRETATION; MISCELLANEOUS |
37 | ||||
ARTICLE 37 |
QUIET ENJOYMENT |
38 |
-i- | MASTER LAND AND BUILDING LEASE |
ARTICLE 38 |
NO MERGER OF TITLE |
38 | ||||
ARTICLE 39 |
BROKERS |
38 | ||||
ARTICLE 40 |
STATE SPECIFIC PROVISIONS |
39 |
Schedule 1 |
Defined Terms |
|
Schedule 2 |
Original Building Equipment |
|
Schedule 4.04 |
Violations of Law |
|
Schedule 7.02 |
List of Required Repairs |
|
Schedule 8.03(A) |
List of Structural Encroachments |
|
Schedule 8.03(B) |
List of Non-Structural Encroachments |
|
Schedule 22.04 |
Subleases |
|
Exhibit A-1 |
Location/Address of Demised Properties; Adjustment Amounts |
|
Exhibit A-2 |
Canadian Demised Properties |
|
Exhibit B |
Method of CPI Adjustment for Option Period Base Rent |
|
Exhibit C |
Form of SNDA |
|
Exhibit D |
Form of Tenants Estoppel Certificate |
|
Exhibit E |
Form of Memorandum of Lease |
|
Exhibit G |
Form of Guaranty |
|
Exhibit H |
Form of Collateral Access Agreement |
-ii- | MASTER LAND AND BUILDING LEASE |
MASTER
LAND AND BUILDING LEASE
THIS MASTER LAND AND BUILDING LEASE (this Lease ) is made and entered into as of April 5, 2016 (the Commencement Date ), by and among Pipe Portfolio Owner Exchange (Multi) LP, a Delaware limited partnership ( Landlord ), and Forterra Pipe & Precast, LLC, a Delaware limited liability company, Forterra Pressure Pipe, Inc., an Ohio corporation, Forterra Concrete Products, Inc., an Iowa corporation and Forterra Concrete Industries, Inc., a Tennessee corporation (individually and collectively, jointly and severally, as co-tenants Tenant ).
R E C I T A L S
A. Landlord owns (i) good and indefeasible title in fee simple (subject to the provisions of Article 14 and Article 34) to the land identified on Exhibit A attached hereto (collectively, the Land ) and (ii) subject to the provisions of Article 14, all improvements and other structures located on any of the Land; any rights of way, easements, parking covenants, entitlements, privileges and other rights appurtenant to the Land, including regarding any street adjoining any portion of the Land and any air and development rights related to the Land; and any and all fixtures at or on the Land, including all of the machinery, equipment and systems at or on any of the Land and overhead cranes and other cranes which are integrated into the building structures (collectively, Building Equipment ), and the movable Building Equipment currently located on the Demised Properties as set forth on Schedule 2 attached hereto and made a part hereof (collectively, the Original Movable Building Equipment ), including electrical, plumbing, heating, ventilation and air conditioning machinery and fire sprinklers and fire suppression equipment (but specifically excluding any such items that are not fixtures pursuant to applicable law, and any equipment or fixtures associated with Tenants manufacturing business, whether or not such equipment is bolted in place for safety or operational purposes, including but not limited to, jib cranes, batch plants, cement silos, production equipment, forms, and any other pipe manufacturing equipment, which are the property of Tenant): (all of the foregoing in this clause (ii), collectively, Improvements ). The Land and all Improvements thereon are collectively referred to herein as Demised Properties and each individually as a Demised Property .
B. The personal property, fixtures, equipment and other items of personal property (whether or not attached to the Improvements) owned or leased by Tenant located at any Demised Property and used in connection with the operation of the business at the Demised Properties (other than the Building Equipment but including display cases, counters, shelves, racks and billboards, cranes, batch plants, cement silos, production equipment, forms, and any other pipe manufacturing equipment regardless of whether any of the foregoing constitute fixtures pursuant to applicable Law) are referred to herein collectively as the Tenant Equipment . The term Tenant Equipment shall include without limitation, with respect to the Demised Properties, all of the foregoing, whether now or hereafter owned or acquired by Tenant, or in which Tenant has any interest (whether unattached or attached by bolts and screws and/or by utility connections or otherwise), and all additions to, substitutions for and replacements of the foregoing in this Recital B.
C. Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, the Demised Properties so that Tenant may, in accordance with and subject to the terms, conditions and restrictions of this Lease, operate (or cause the operation of) each Demised Property.
D. Notwithstanding any other provision of this Lease, this Lease constitutes a single and indivisible lease of all the Demised Properties collectively, and is not an aggregation of leases for the separate Demised Properties. Neither Landlord nor Tenant would have entered into this Lease except as a
-1- | MASTER LAND AND BUILDING LEASE |
single and indivisible lease, and the rental herein has been established on the basis of the specific structure of the subject transaction and the economic benefits and risk profile of the transaction as a whole, and not based on the valuation or price of any individual Demised Property. Tenants rights to any one Demised Property are dependent on Tenants full performance of its obligations as to every other Demised Property, and consideration supporting any agreements under this Lease regarding any Demised Property also supports the agreements under this Lease regarding all other Demised Properties.
NOW, THEREFORE, in consideration of the lease of the Demised Properties and the rents, covenants and conditions herein set forth, and with reference to the definitions of various terms used herein as set forth on Schedule 1 hereto, Landlord and Tenant do hereby covenant, promise and agree as follows:
ARTICLE 1 | DEMISE OF PREMISES |
Subject to the terms and conditions contained herein, Landlord does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, for the term hereinafter provided in Article 2 , the Demised Properties as set forth on Exhibit A-1 (the Demised Properties ) for the use thereof by Tenant and Tenants employees, customers and invitees.
ARTICLE 2 | TERM |
Section 2.01
(a) This Lease shall commence on the Commencement Date and terminate on April 4, 2036 (the Original Lease Term ), unless sooner terminated as hereinafter set forth. The Lease Term , as such term is used herein, means the Original Lease Term as extended (or as may be extended) pursuant to Section 2.02 below, unless sooner terminated as hereinafter set forth.
(b) This Lease shall be deemed to be in full force and effect upon the Commencement Date. Tenant shall be deemed to be in possession of the Demised Properties upon the Commencement Date.
Section 2.02
(a) Tenant shall have the ability to extend the Lease Term for one (1) option period (the Option Period ) upon and subject to the terms set forth below in this Section 2.02 . The Option Period shall commence at the expiration of the Original Lease Term. The Option Period shall continue for a period of nine (9) years and eleven (11) months from and after the commencement date of the Option Period, and Tenant shall extend the Lease Term for all of the Demised Properties subject to this Lease at the time of Tenants exercise of such option, and in no event shall Tenant have the right to extend the Lease Term for only a portion of the Demised Properties subject to this Lease at the time of Tenants exercise of such option. Except as otherwise expressly provided herein, all of the terms and conditions of this Lease applicable to the Original Lease Term shall continue to apply during the Option Period. In no event shall Tenant have any options to extend the Lease Term except as expressly provided herein.
(b) Provided that (i) Tenant shall not have delivered a Non-Renewal Notice (as hereinafter defined) on or prior to the expiration of the Original Lease Term and (ii) this Lease shall not have been terminated pursuant to any provision hereof, then on the expiration of the Original Lease Term, the Lease Term shall be deemed to have been automatically extended for the Option Period. Notwithstanding the foregoing, if the conditions in (i) and (ii) hereinabove shall have been satisfied, but
-2- | MASTER LAND AND BUILDING LEASE |
an Event of Default occurs and is continuing prior to the commencement of the Option Period, Landlord shall have the option (without limiting any other remedies available to Landlord under this Lease, at law or in equity) to cancel the Option Period upon notice thereof to Tenant (provided, such notice is delivered to Tenant prior to Tenants cure, if any, of such Event of Default, and such cure is recognized by Landlord, notwithstanding that Landlord is under no obligation to recognize any such cure after an Event of Default has occurred), and upon the giving of such notice to Tenant, the Option Period shall be deemed null and void and of no further force and effect. As used herein, the term Non-Renewal Notice means a notice, in writing, delivered to Landlord no later than twelve (12) months prior to the expiration date of the Original Lease Term stating that Tenant does not wish to extend the Lease Term for the Option Period.
(c) Without limiting anything contained in Section 36.02 hereof, time is of the strictest essence in the performance of each provision of this Section 2.02 . Either party, upon request of the other, shall execute and acknowledge, in form suitable for recording, an instrument confirming the Option Period, with Tenant paying all applicable recording costs.
ARTICLE 3 | RENT |
Section 3.01 Rent . Tenant shall pay all Base Rent and Additional Rent for the Demised Properties, from and after the Commencement Date and thereafter throughout the Lease Term, without offset, deduction, or abatement, except as may be otherwise expressly provided herein. Notwithstanding the foregoing, any amounts due by Tenant to Landlord hereunder for which no due date is expressly specified herein shall be due within thirty (30) days following the delivery to Tenant by Landlord of written notice of such amounts due. Except as otherwise expressly provided herein, in the event of nonpayment by Tenant of any Rent, Landlord shall have the same rights and remedies in respect thereof regardless of whether such Rent is Base Rent or Additional Rent. All payments of Rent due to Landlord shall be paid to Landlord (at its election from time to time) in one of the following manners: (a) by electronic deposit into an account designated by Landlord (a Landlord s Account ), (b) by mail at Landlords address set forth in Article 17 , or (c) by mail to any other place in the United States designated by Landlord upon at least twenty (20) days prior written notice to Tenant.
Section 3.02 Base Rent .
(a) The following terms shall have the following meanings:
(i) CPI means the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, All Items, (1982-84=100) or the successor index that most closely approximates such index. If the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, All Items, (1982-84=100) shall be discontinued with no successor or comparable successor index, Landlord and Tenant shall attempt to agree upon a substitute index or formula, but if they are unable to so agree, then the matter shall be determined by arbitration in accordance with the rules of the American Arbitration Association then prevailing in New York City. Any decision or award resulting from such arbitration shall be final and binding upon Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction.
(ii) Fair Market Rental Value means the fair market value of the Demised Properties as determined by an appraisal of the Demised Properties, taking into consideration all relevant factors, prepared by an MAI appraiser who is mutually satisfactory to Landlord and Tenant with not less than ten (10) years experience appraising properties similar to the Demised Properties in the metropolitan areas in which the Demised Properties are located (an Appraiser ).
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(iii) Initial Base Date means: (A) if the Commencement Date is the first day of a calendar month, the Commencement Date, and (B) if the Commencement Date is other than the first day of a calendar month, the first day of the first calendar month occurring after the Commencement Date.
(iv) Initial Adjustment Dates means, collectively, each anniversary of the Initial Base Date, through and including the nineteenth (19 th ) anniversary of the Initial Base Date.
(v) Initial Base Rent Escalation means two percent (2.0%).
(vi) Option Period Base Date means, in the event the Non-Renewal Notice is not duly and timely given, as provided in Article 2 , the twentieth (20 th ) anniversary of the Initial Base Date.
(vii) Option Period Adjustment Date means, collectively, each anniversary of the Option Period Base Date, through and including the ninth (9 th ) anniversary of the Option Period Base Date.
(b) The initial Base Rent for the Demised Properties for the Lease Term shall be $ $13,404,355.00 per annum ($1,117,029.58 per month), denominated in United States Dollars, as increased as hereinafter provided ( Base Rent ). Tenant shall pay to Landlord Base Rent, in advance, without demand therefor, on or before the first day of each and every calendar month during the Lease Term, and if the Commencement Date is not the first day of a calendar month, Tenant shall pay to Landlord pro-rated Base Rent on the Commencement Date for the partial calendar month in which the Commencement Date occurs.
(c) Subject to the terms of this Section, (i) on each of the Initial Adjustment Dates, the Base Rent shall increase by the Initial Base Rent Escalation, and such increased Base Rent shall apply for the ensuing one-year period; (ii) on the Option Period Base Date, the Base Rent shall be recalculated to equal the greater of (x) ninety-five percent (95%) of the Fair Market Rental Value of the Demised Properties, and (y) the annual Base Rent that would have been in effect as of the Option Period Base Date if the Base Rent had been increased in accordance with the methodology set forth in Exhibit B attached hereto, and such recalculated Base Rent shall apply for the ensuing one-year period, (iii) on each of the Option Period Adjustment Dates, the Base Rent shall increase in accordance with the methodology set forth in Exhibit B attached hereto and made a part hereof (the Option Period Base Rent Escalation ), and such increased Base Rent shall apply for the ensuing one-year period. Notwithstanding the foregoing, in no event shall the new Base Rent adjusted by the Option Period Base Rent Escalation be less than the Base Rent for the prior Lease Year.
(d) In the event the Non-Renewal Notice is not duly and timely given, as provided in Article 2 , Landlord shall, no later than three hundred (300) days prior to the commencement of the Option Period, calculate the Base Rent for the first year of the Option Period in accordance with clause (c)(ii) above, with the determination of the Fair Market Rental Value of the Demised Properties calculated in accordance with clause (e) below.
(e) In the event the Original Lease Term is extended pursuant to Section 2.02(a) , then Landlord and Tenant shall attempt in good faith for a period of ten (10) days to agree upon a single
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Appraiser; and if Landlord and Tenant are so able to agree, the determination by such single Appraiser of a Fair Market Rental Value for the Demised Properties for the first year of the Option Period shall be final and binding on the parties. If Landlord and Tenant are unable to agree upon a single Appraiser within the above-stated ten (10) day period, then the following procedures shall apply:
(i) Within seven (7) days after the conclusion of the ten (10) day period, each party shall submit to the other party an independent third-party Appraiser who must satisfy the qualifications for an Appraiser in this Lease, and neither of whom (1) may be a present or former employee or business associate (or a relative of any such employee or business associate) of either Landlord or Tenant, or (2) shall have any other financial or economic interest in, or relationship with, Landlord or Tenant.
(ii) The two Appraisers so selected shall promptly proceed to determine the Fair Market Rental Value of the Demised Properties (considering the other terms of this Lease) for the first year of the Option Period; and if the two Appraisers so selected are unable to agree on the Fair Market Rental Value but the appraisals are not more than ten percent (10%) apart, computed from the base of the higher appraisal, the two appraisals shall be averaged and the average shall constitute the Fair Market Rental Value of the Demised Properties for the first year of the Option Period. If the appraisals differ by more than ten percent (10%), such two Appraisers shall select a third Appraiser (who must satisfy the qualifications for an Appraiser in this Lease); and if the two Appraisers are unable to agree upon a third Appraiser within fifteen (15) days, then they shall in lieu thereof each select the names of two willing persons qualified to be Appraisers hereunder and from the four persons so named, one name shall be drawn by lot by a representative of Landlord in the presence of a representative of Tenant, and the person whose name is so drawn shall be the third Appraiser. The third Appraiser shall, within fifteen (15) days after having been selected, render his or her opinion of which of the amounts proposed by the original two Appraisers most closely represents the actual Fair Market Rental Value of the Premises for the first year of the Option Period, and the amount so selected by the third Appraiser shall be the Fair Market Rental Value of the Premises for the first year of the Option Period. Landlord and Tenant shall each pay the fees of their respective Appraisers, and the fee of the third Appraiser shall be shared equally between Landlord and Tenant.
Section 3.03 Additional Rent .
(a) If by applicable Law, any general or special assessment or like charge may be paid in installments without any penalty whatsoever, then such assessment may be paid in such installments, and Tenant shall only be liable for the portion thereof that is allocable or attributable to the Lease Term or any portion thereof. If such assessment or charge may be payable in installments with interest, Tenant may pay such assessment or charge in installments, together with all interest thereon.
(b) Tenant shall pay all Real Estate Taxes for the Demised Properties directly to the collecting authority prior to the delinquency date thereof. Within thirty (30) days after Tenant has received evidence from any collecting authority that such Real Estate Taxes have been paid, Tenant shall also provide Landlord with a copy of such evidence that such Real Estate Taxes were paid. Nothing in this Lease shall obligate Tenant to pay any estate, inheritance, franchise, income or similar taxes of Landlord nor shall any of same be deemed Real Estate Taxes, unless the same shall be specifically imposed in substitution for, or in lieu of, Real Estate Taxes. If Tenant fails to pay to the collecting authority any Real Estate Taxes when due hereunder, then Tenant shall, without limiting any other remedies available to Landlord, reimburse Landlord for any and all penalties or interest, or portion thereof, paid or incurred by Landlord as a result of such nonpayment or late payment by Tenant. Without limitation of the foregoing, Tenant shall deposit with Landlord, no later than thirty (30) days prior to the
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end of the Lease Term, an amount sufficient to pay unpaid Real Estate Taxes and other accrued liabilities that will encumber the Demised Properties after the end of the Lease Term, to the extent that Real Estate Taxes and such other liabilities have accrued and will accrue through the end of the Lease Term. Landlord shall segregate all such deposits from its other funds and use such deposits solely to pay such accrued liabilities as they come due. All collecting authorities shall be instructed to send all invoices for Real Estate Taxes to Tenant. In the event any collecting authority sends the invoices to Landlord instead of Tenant, Landlord shall promptly forward such invoices to Tenant. If Landlord receives any notices of assessment from any Governmental Authority for any of the Demised Properties, Landlord shall promptly forward a copy of such notices of assessment to Tenant.
(c) Provided that there shall be no Event of Default occurring at the time in question, Tenant shall have the right to undertake an action or proceeding against the applicable collecting authority seeking an abatement of Real Estate Taxes or a reduction in the valuation of the Demised Properties and/or contest the applicability of any Real Estate Taxes (including, without limitation, a reduction in the value of any Demised Properties under the terms of Proposition 8 (as adopted by the voters of the State of California in the November 1978 election) and any similar law, rule or regulation, now or hereafter applicable to the Demised Properties); provided, however, that Tenant delivers to Landlord prior written notice of any such action or proceeding by Tenant, and that Tenant has paid timely (and continues to pay timely) all Real Estate Taxes as provided in this Lease to the extent required by applicable Law. In any instance where any such permitted action or proceeding is being undertaken by Tenant, (i) Landlord shall cooperate reasonably with Tenant, at no cost or expense to Landlord, execute any and all documents approved by Landlord and reasonably required in connection therewith, and, to the extent required by the collecting authority, agrees to file at Tenants request any action or proceeding against the collecting authority in its own name, and (ii) Tenant shall provide Landlord with all information reasonably requested by Landlord with respect to such action or proceeding within ten (10) days after receipt of Landlords written request. Tenant shall be entitled to any refund (after the deduction therefrom of all expenses incurred by Landlord in connection therewith) of any Real Estate Taxes (including penalties or interest thereon) received by Tenant or Landlord, whether or not such refund was a result of actions or proceedings instituted by Tenant, to the extent such refund relates to Real Estate Taxes that are the responsibility of Tenant pursuant to this Section 3.03 .
(d) Tenant shall be solely responsible for, and shall pay directly to the applicable service providers, the cost of all utility services provided to the Demised Properties throughout the Lease Term. Notwithstanding the foregoing, upon the occurrence of both of the following events, Tenant shall pay to Landlord the cost of any and all utility services provided to the Demised Properties in lieu of payment directly to the applicable service providers: (i) delivery to Tenant of a written request therefor from Landlord, and (ii) the existence of any Default under this Section 3.03(d) by Tenant, or any Event of Default. Funds paid by Tenant to Landlord pursuant to the immediately preceding sentence shall be used only for the payment of the cost of utility services to the Demised Properties. If Tenant fails to pay the appropriate party (Landlord or the service providers, as provided herein) all such costs when due hereunder, then Tenant shall, without limiting any other remedies available to Landlord, reimburse Landlord for any and all penalties or interest, or portion thereof, paid or incurred by Landlord as a result of such nonpayment or late payment by Tenant.
(e) Without limiting any of Tenants other obligations set forth in this Article, Tenant shall pay to Landlord, with each payment due to Landlord hereunder (and as a part of Rent due hereunder), all sales and excise tax on rental income and all other similar taxes imposed with respect to rental or other payments under this Lease relating to the Demised Properties in the nature of a sales tax, franchise taxes (subject to Section 3.03(e)(ii) ), gross receipts tax imposed in lieu of sales tax, occupancy tax, commercial rents tax or the like, whether imposed by a federal, state or local taxing authority. To the extent permitted by applicable Law, Tenant may pay any such tax directly to the taxing authority,
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provided Tenant, within ten (10) days after any such payment, delivers to Landlord written evidence reasonably satisfactory to Landlord that such payment has been made. For the avoidance of doubt, Tenant shall not be responsible for (i) any income taxes imposed on Landlord, (ii) any franchise taxes of Landlord measured by net income or net worth or relating to properties owned by Landlord and not applicable to this Lease, or (iii) any transfer taxes imposed with respect to the sale, exchange or other disposition by Landlord, in whole or in part, of the Demised Properties or Landlords interest in this Lease.
ARTICLE 4 | USE |
Section 4.01 Tenant shall use the Demised Properties for, and shall not suffer or permit any Person (including any subtenant) to use any of the Demised Properties other than for any Permitted Uses, and the Demised Properties shall be used for no other purpose without the prior written consent of Landlord, which approval may be granted or withheld in the reasonable discretion of Landlord.
Section 4.02 Notwithstanding any other provision of this Article, Tenant shall not use, or suffer or permit any Person (including any subtenant) to use, the Demised Properties or any portion thereof for any purpose in violation of any applicable Law, or in violation of any covenants or restrictions of record. From the Commencement Date and thereafter throughout the Lease Term, Tenant shall conduct its business in a commercially reasonable and reputable manner with respect to each of the Demised Properties and in compliance with the terms and provisions of this Lease. Tenant covenants not Abandon any Demised Property, except in accordance with the terms hereof. Tenant shall be permitted to Abandon any Demised Property (i) if such Demised Property is being Abandoned as a result of the merger or consolidation of any such Demised Property with another property owned, leased or utilized by Tenant or any Affiliate thereof, or (ii) for any reason other than the reason set forth in clause (i), in either case, so long as the total number of such Abandoned Demised Properties, together with all other Replaced Properties, shall not exceed the Replacement Cap (as hereinafter defined); and provided that, in either case, (a) Tenant provides Landlord with thirty (30) days prior written notice of its intent to Abandon any Demised Property and (b) Tenant shall replace any such Abandoned Demised Property with a Replacement Property, in accordance with Article 31 , no later than the earlier of (y) twelve (12) months after any such Demised Property is first Abandoned and (z) the date on which the existing use of such Demised Property (as of the date hereof) would no longer be permitted by Law (including pursuant to the terms of any special use permit) by virtue of the discontinuance of such use at such Demised Property. Notwithstanding anything to the contrary contained herein, Tenant shall be permitted to cease operations at no more than twenty five percent (25%) of the total number of Demised Properties for no more than thirty six (36) consecutive months for each such Demised Property, and such temporary cessation shall not be deemed and Abandonment of any such Demised Property; provided, (x) Tenant notifies Landlord of such temporary cessation, (y) Tenant, during such period, continues to maintain any such Demised Property and all Building Equipment located thereon in good working order and condition, as if such Building Equipment and Demised Property were regularly utilized and (z) such cessation would not result in the existing use of such Demised Property (as of the date hereof) no longer being permitted by Law (including pursuant to the terms of any special use permit). The character of the occupancy of the Demised Properties is an additional consideration and a material inducement for the granting of this Lease by Landlord to Tenant.
Section 4.03 Notwithstanding anything to the contrary contained herein, Tenant shall be permitted to move any of the Original Movable Building Equipment, or any other movable Building Equipment located on any of the Demised Properties from and after the date hereof, off of the applicable Demised Property where it currently or, in the future, resides to any other facility owned, leased or utilized by Tenant or an Affiliate thereof (each such move shall be referred to herein as an Equipment Relocation ); provided, (i) such Equipment Relocation is done in the ordinary course of Tenants
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business, and (ii) Tenant shall ensure that substantially the same number and general type of Original Movable Building Equipment is located at each Demised Property at the expiration (or sooner termination) of the Lease Term and is operational in substantially the same manner and at substantially the same capacity as was present on each Demised Property as of the date hereof, as evidenced by the list of Original Movable Building Equipment set forth on Schedule 2 (the result being that the Building Equipment located on the Demised Properties at the expiration (or sooner termination) of the Lease Term shall reflect substantially the same number and general type of Building Equipment as would otherwise be present thereon if the Original Movable Building Equipment had never been subject to an Equipment Relocation).
Section 4.04 Promptly following the Commencement Date, Tenant covenants to take such reasonable actions and efforts to cure the violations noted in Schedule 4.04 attached hereto and made a part hereof, and to diligently and in good faith proceed with and continue the curing of such violations until fully cured. Upon such cure, Tenant shall provide evidence reasonably satisfactory to Landlord that such violations have been cured.
Section 4.05 Tenant shall use commercially reasonable efforts to either (i) enter into a tenancy-in-common agreement with Hanson Aggregates, LLC, a Delaware limited liability company (the Houston TIC Entity ), as the entity that owns an undivided 1 ⁄ 2 interest in Parcels 5 and 6 of that certain Demised Property located at the address commonly known as 11201 FM 526, Houston, Texas (the Houston Property ), as evidenced by that certain owners policy of title insurance issued by Stewart (as hereinafter defined) covering the Houston Property, which tenancy-in-common agreement shall be in a form reasonably acceptable Landlord, Tenant and the Houston TIC Entity, and shall provide that (A) the Houston TIC Entity shall, notwithstanding its interest in the Houston Property, not impede Landlords or Tenants (together with their successors and/or assigns) access to the Houston Property and (B) the costs and other matters relating to the driveway shall be governed by the existing Houston Easement (as defined in Schedule 1) or (ii) cause the Houston TIC Entity to convey Houston TIC Entitys interest in the shared driveway to Landlord and amend the term of the Houston Easement to a perpetual term.
Section 4.06 Without limitation, no provision of this Article 4 shall limit any of the covenants of Tenant contained in Article 22 .
ARTICLE 5 | ACCEPTANCE OF DEMISED PROPERTIES |
Tenant hereby represents, warrants and covenants to Landlord that Tenant has the right and lawful authority to enter into this Lease and perform Tenants obligations hereunder. Tenant is already in occupancy of the Demised Properties, and Tenant hereby acknowledges that it has (a) had access to the Demised Properties prior to execution of this Lease, (b) had the opportunity to perform all tests, studies, inspections and investigations (including any investigations regarding zoning and use issues regarding all Demised Properties), and (c) evaluated the Demised Properties as to the Demised Properties suitability for Tenants intended operations thereon. Tenant hereby accepts each Demised Property in its AS IS condition existing on the date Tenant executes this Lease. Tenant waives to the fullest extent allowed by Law any rights to notice by Landlord regarding the condition of the Demised Properties, whether at law or in equity, and hereby waives any rights and remedies thereunder based in any alleged or actual failure of Landlord to provide any such notices. Tenant acknowledges that (i) neither Landlord nor any of its Affiliates has made any representation or warranty as to the suitability of any Demised Property for the conduct of the Tenants business, and (ii) Tenant is entering into this Lease solely on the basis of its own investigations and familiarity with, and continued occupancy of, the Demised Properties and not on the basis of any representation, warranty, covenant, agreement, undertaking, promise, statement, arrangement or understanding by, on behalf of, or with, Landlord or any of its Affiliates, except as expressly set forth in this Lease.
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ARTICLE 6 | ALTERATIONS |
Tenant shall have the right, without having obtained the prior written consent of Landlord, to make any Alterations; provided , that (x) if any Alterations at any single Demised Property are structural in nature, (y) if a single, non-structural Alteration, at any Demised Property, which Alteration involves the installation, removal, repair or replacement of any Building Equipment (each such Alteration, a Building Equipment Alteration ), costs in excess of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) or (z) if a single, non-structural Alteration, at any Demised Property, which Alteration is not a Building Equipment Alteration, costs in excess of Three Hundred Thousand and 00/100 Dollars ($300,000.00) (clause (x), (y) and (z), each, a Major Alteration ), then such Major Alteration shall require the prior consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.
(a) Any and all Alterations shall be conducted and completed in a commercially reasonable time period, in a good and workmanlike manner, and in compliance with all applicable Law, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties and in compliance with the requirements of all insurance policies required to be maintained by Tenant hereunder. No Alteration shall be permitted if such Alteration lessens the market value or usefulness of the Demised Properties. Landlord shall have the right to require Tenant to remove, no later than the expiration date of this Lease (or any early termination thereof) any Alterations (subject to Tenants right to give a Post-Occupancy Removal Notice to Landlord in accordance with the provisions of Section 21.03 ) except for those Alterations required by Law or for which Landlord has agreed in writing that removal will not be required; provided , Landlord notifies Tenant, at least six (6) months prior to the expiration of this Lease or thirty (30) days prior to the early termination thereof, as applicable, of such removal requirement. Upon completion of any Major Alteration, Tenant shall furnish to Landlord, for informational purposes only, (i) a complete set (in electronic form, with the right of Landlord to request up to three sets of the plans in hard copy) of any as-built plans for such Major Alteration and (ii) certificates of final approval of such Major Alteration required by any Governmental Authority.
(b) The interest of Landlord in the Demised Properties shall not be subject in any way to any liens for improvements to or other work performed to the Demised Properties by or on behalf of Tenant. Tenant shall have no power or authority to create any lien or permit any lien to attach to the present estate, reversion, or other interest of Landlord in the Demised Properties. All mechanics, materialmen, contractors, laborers, artisans, suppliers, and other parties contracting with Tenant, its representatives or contractors with respect to the Demised Properties are hereby given notice that they must look solely to Tenant to secure payment for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding any of the Demised Properties through or under Tenant during the Lease Term. Tenant, at its expense, shall discharge any lien or charge filed against the Demised Properties or the Land in connection with any Alterations within twenty (20) days after Tenants receipt of notice thereof by (i) payment, (ii) filing the bond required by law or (iii) otherwise in accordance with all applicable Laws (and Landlord may perform same at Tenants sole cost and expense if Tenant fails to do so within such twenty (20) day period). Tenant shall provide evidence reasonably satisfactory to Landlord that such lien has been removed or bonded within such twenty (20) day period .
ARTICLE 7 | REPAIRS AND MAINTENANCE |
Section 7.01 Except as otherwise provided in this Article, Tenant, at its sole cost and expense, shall maintain each of the Demised Properties and each part thereof, structural and non-structural, in good order, condition and repair, including all areas outside of any buildings (including all sidewalks, driveways, landscaping, trash enclosures, and trash compacting and loading areas on the Demised Properties), and including any roof on any buildings, in a neat and clean condition, and shall
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take such reasonable actions necessary for the preservation and safety thereof. Landlord shall have no duty whatsoever to maintain, replace, upgrade, or repair any portion of the Demised Properties, including any structural items, roof or roofing materials.
Section 7.02 Promptly following the Commencement Date, Tenant covenants to take such reasonable actions and efforts to complete, at Tenants sole cost and expense, during the first (1 st ) year of the Lease Term, the recommended repairs listed on Schedule 7.02 attached hereto and made a part hereof.
ARTICLE 8 | COMPLIANCE WITH LAW |
Section 8.01 Tenant shall, throughout the Lease Term, at its sole cost and expense, comply with, and cause any subtenants or other occupants at the Demised Properties to comply with, (a) applicable Law, (b) insurance requirements required by this Lease and (c) all of the covenants, conditions and agreements contained in any Easement Agreement. Tenant will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement without, in each case, the prior written consent of Landlord. Landlord will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement the effect of which will be to interfere with Tenants use of, or access to, any of the Demised Properties, in any way materially affect Tenants ability to operate its business, in any way materially increase Tenants obligations hereunder, or in any way materially reduce Tenants rights hereunder, without first obtaining Tenants prior written consent thereto.
Section 8.02 Landlord and Tenant acknowledge and agree that (i) certain Demised Properties contain encroachments, such that a portion of the improvements belonging to such Demised Property encroaches onto a property contiguous with such Demised Property (each an Encroached Property ), which encroachments are listed on Schedule 8.03 attached hereto and made a part hereof (collectively, the Encroachments and each, an Encroachment )). Certain of these Encroachments have been insured over by Landlord through the receipt of an owners policy of title insurance issued by Stewart Title Guaranty Company ( Stewart ), which contains an endorsement insuring Landlord in the event of a loss that results from a third party (each a Third Party ) exercising its rights in and to the applicable Encroached Property (each a Title Policy ). Tenant covenants that should a Third Party, at any time during the Lease Term, seek to enforce its rights in and to an Encroached Property upon which any of the Encroachments listed on Schedule 8.03(A) (collectively, the Structural Encroachments and each, a Structural Encroachment ) are located, then Tenant shall use commercially reasonable efforts to resolve the situation with such Third Party by coming to an agreement with such Third Party, which agreement permits the applicable Structural Encroachment to remain on the applicable Encroached Property, such that the applicable Structural Encroachment is no longer deemed to be encroaching onto the Encroached Property; provided, however, that if the applicable Structural Encroachment is insured over under a Title Policy, then Tenant shall be responsible for the costs to resolve the applicable Encroachment, pursuant to the terms hereof, only to the extent such costs exceed any proceeds Landlord obtains from Stewart as a result of such Third Party seeking to enforce its rights. It being the intention of both Landlord and Tenant, and Landlord and Tenant hereby acknowledge and agree, that prior to Tenant being liable for any costs in accordance with the provisions of this Section 8.03 , Landlord must first file a claim against its Title Policy, if and to the extent such Encroachment is insured over pursuant to such Title Policy. Tenant covenants that should a Third Party, at any time during the Lease Term, seek to enforce its rights in and to an Encroached Property upon which any of the Encroachments listed on Schedule 8.03(B) (collectively, the Non-Structural Encroachments , and each, a Non-Structural Encroachment ) are located, then Tenant shall, and hereby agrees to, resolve the situation with such Third Party by either (i) moving the applicable Non-Structural Encroachment off of the Encroached Property and onto the applicable Demised Property or (ii) coming to an agreement with such Third Party, which agreement permits the applicable Non-Structural Encroachment to remain on the applicable Encroached Property, such that the applicable Non-Structural Encroachment is no longer deemed to be encroaching on such Encroached Property.
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ARTICLE 9 | DISCLAIMER AND INDEMNIT IES |
Section 9.01 To the extent not prohibited by applicable Law, none of the Landlord Parties shall be liable for, under any circumstances, and Tenant hereby releases all Landlord Parties from, any loss, injury, death or damage to person or property (including any business or any loss of income or profit therefrom) of Tenant, Tenants members, officers, directors, shareholders, agents, employees, contractors, customers, invitees, or any other Person in or about the Demised Properties, whether the same are caused by (a) fire, explosion, falling plaster, steam, dampness, electricity, gas, water, rain; (b) breakage, leakage or other defects of Tenant Equipment, Building Equipment, sprinklers, wires, appliances, plumbing fixtures, water or gas pipes, roof, air conditioning, lighting fixtures, street improvements, or subsurface improvements; (c) theft, acts of God, acts of the public enemy, riot, strike, insurrection, civil unrest, war, court order, requisition or order of governmental body or authority; (d) any act or omission of any other occupant of the Demised Properties; (e) operations in construction of any private, public or quasi-public work; (f) Landlords reentering and taking possession of the Demised Properties in accordance with the provisions of this Lease or removing and storing the property of Tenant as herein provided; or (g) any other cause, including damage or injury that arises from the condition of the Demised Properties, from occupants of adjacent property, from the public, or from any other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same are inaccessible to Tenant, or that may arise through repair, alteration or maintenance of any part of the Demised Properties or failure to make any such repair, from any condition or defect in, on or about the Demised Properties including any Environmental Conditions or the presence of any mold or any other Hazardous Materials, or from any other condition or cause whatsoever; provided, however, that the foregoing release set forth in this Section 9.01 shall not be applicable to any claim against a Landlord Party to the extent, and only to the extent, that such claim is directly attributable to the gross negligence or willful misconduct of such Landlord Party. Without limiting the foregoing, Tenant hereby waives, to the extent permitted by applicable Law, any right to any consequential, special, indirect or punitive damages against any Landlord Parties arising out of any claim in connection with or related to this Lease or the Demised Properties.
Section 9.02 In addition to any and all other obligations of Tenant under this Lease (including under any indemnity or similar provision set forth herein), to the extent permitted by applicable Law, Tenant hereby agrees to fully and forever indemnify, protect, defend and hold all Landlord Parties free and harmless of, from and against any and Losses: (a) arising out of or in any way related to or resulting directly or indirectly from: (i) the use, occupancy, or activities of Tenant, its subtenants, agents, employees, contractors, or invitees in or about any of the Demised Properties; (ii) any failure on the part of Tenant to comply with any applicable Law, including any Environmental Laws; (iii) the existence of any Default or Event of Default under this Lease (iv) any undertaking by Tenant under Section 3.03(c) ; and (v) any other breach of Tenants obligations under this Lease and (b) whether heretofore now existing or hereafter arising out of or in any way related to or resulting directly or indirectly from the presence or Release at, on, under, to or from the Demised Properties of Hazardous Materials not attributable to any Landlord Party.
Section 9.03 The provisions of this Article 9 shall survive the expiration or sooner termination of this Lease. Tenant hereby waives, to the extent permitted by Law, the provisions of any applicable Law restricting the release of claims, or extent of release of claims, that Tenant does not know or suspect to exist at the time of release, that, if known, would have materially affected Tenants decision to agree to the release contained in this Article 9 . In this regard, Tenant hereby agrees, represents, and warrants to Landlord that Tenant realizes and acknowledges that factual matters now unknown to Tenant
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may hereafter give rise to Losses that are presently unknown, unanticipated and unsuspected, and Tenant further agrees, represents and warrants that the release provided hereunder has been negotiated and agreed upon in light of that realization, and Tenant nevertheless hereby intends to release, discharge and acquit the parties set forth herein above from any such unknown Losses that are in any manner set forth in or related to this Lease, the Demised Properties and all dealings in connection therewith.
ARTICLE 10 | INSURANCE |
Section 10.01 As of the Commencement Date and throughout the Lease Term, Tenant shall, at its sole expense, obtain, pay for and maintain (or cause to be obtained, paid for and maintained), with financially sound and reputable insurers (as further described in Section 10.03 ), (a) comprehensive all risk insurance covering loss or damage to each Demised Property (including Improvements now existing or hereafter erected thereon) caused by fire, lightning, hail, windstorm, hurricane, explosion, vandalism, malicious mischief, leakage of sprinkler systems, and such other losses, hazards, casualties, liabilities and contingencies as are normally and usually covered by all risk or special property policies in effect where such Demised Property is located, endorsed to include building ordinance or law coverage sufficient to provide coverage for costs to comply with building and zoning codes and ordinances including demolition costs and increased cost of construction, (b) business income and interruption insurance to include loss of business at limits sufficient to cover 100% of the annual revenues at the Demised Properties minus any non-fixed expenses payable by Tenant to Landlord with a period of indemnity not less than twelve (12) months from time of loss (such amount being adjusted annually) and an extended period of indemnity of one hundred eighty (180) days, and (c) flood insurance for all Demised Properties in amounts acceptable to Landlord and Landlords Mortgagee (and Tenant further agrees that any locations in a special flood hazard area (as identified by FEMA) must maintain insurance at least comparable to what is available through the National Flood Insurance Program for all buildings in the special floor hazard area, in addition to Tenants blanket property policy at any time sublimits under Tenants blanket policy for Demised Properties in special flood hazard areas are less than the total of the maximum amount available under the National Flood Insurance Program for all locations (including separate limits for each building). The policy(ies) referred to in clauses (a) and (c) above shall be in an amount equal to one hundred percent (100%) of the full replacement cost of the Improvements and the Building Equipment at each Demised Property (without any deduction for depreciation), and the policy(ies) referred to in clauses (a) and (c) above shall contain a replacement cost endorsement and an agreed amount or waiver of co-insurance provisions endorsement. The deductible under the policies referred to in clauses (a) and (c) above shall not exceed $500,000, provided, however, that if, in the future, Tenant can demonstrate that the marketplace for such insurance typically provides for a deductible of $1,000,000 for companies of Tenants size, then, provided the same is permitted by Landlords Mortgagee, the deductible may be increased to $1,000,000 following written notice to Landlord. If any Demised Property is located in area prone to geological phenomena, including sinkholes, mine subsidence or earthquakes with a PML greater than 15%, the insurance policies referred to in clause (a) and (c) above shall cover such risks and in such amounts, form and substance as are commercially reasonable and available.
Section 10.02 As of the Commencement Date and throughout the Lease Term, Tenant shall maintain, with financially sound and reputable insurers (as further described in Section 10.03 ), public liability and other types of insurance with respect to its business and each Demised Property (including all Improvements now existing or hereafter erected thereon) against all losses, hazards, casualties, liabilities and contingencies as customarily carried or maintained by persons of established reputation engaged in similar businesses. Without limiting the foregoing, Tenant shall maintain or cause to be maintained
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policies of insurance with respect to each Demised Property in the following amounts and covering the following risks:
(a) Broad form boiler and machinery or breakdown insurance in an amount equal to the full replacement cost of the Improvements at each Demised Property (without any deduction for depreciation) in which the boiler or similar vessel is located, and including coverage against loss or damage from (i) leakage of sprinkler systems and (ii) damage, breakdown or explosion of steam boilers, electrical machinery and equipment, air conditioning, refrigeration, pressure vessels or similar apparatus and mechanical objects now or hereafter installed at the applicable Demised Property, and (iii) business interruption.
(b) During any period of construction, reconstruction, renovation or alteration at any Demised Property, a complete value, All Risks Builders Risk form or Course of Construction insurance policy in non-reporting form and in an amount reasonably satisfactory to Landlord.
(c) Commercial General Liability insurance covering claims for personal injury, bodily injury, death or property damage occurring upon, in or about each Demised Property on an occurrence form and in an amount not less than $1,000,000 per occurrence and $2,000,000 in the aggregate, which shall provide coverage for premises and operations, products and completed operations and contractual liability, with a deductible in an amount not to exceed $1,000,000, and an umbrella liability policy in the amount of $25,000,000. Liquor Liability insurance, in amounts and subject to terms reasonably approved by Landlord, shall also be maintained by Tenant, if alcohol is sold or served at any Demised Property.
(d) Workers compensation with statutory limits and employers liability insurance in an amount of $1,000,000 per accident, per employee and in the aggregate.
(e) Such other insurance (including increased amounts of insurance) and endorsements, if any, with respect to the Demised Properties and the operation thereof as Landlord or Landlords Mortgagee may reasonably require from time to time and as customarily carried or maintained by persons of established reputation engaged in similar businesses.
Section 10.03 Each carrier providing any insurance, or portion thereof, required by this Article shall have the legal right to conduct its business in the jurisdiction in which the applicable Demised Property is located, and shall have a claims paying ability rating by S&P of not less than A- and an A.M. Best Company, Inc. rating of not less than A and financial size category of not less than IX. Tenant shall cause all insurance that it is required to maintain hereunder to contain a mortgagee clause and loss payee clause in favor of Landlords Mortgagee in accordance with this Section to be payable to Landlords Mortgagee as a mortgagee and not as a co-insured, as its interest may appear.
Section 10.04 All insurance policies required to be maintained by Tenant hereunder and renewals thereof (a) shall provide for a term of not less than one year, and (b) if the same are insurance policies covering any property (i) shall include a standard non-contributory mortgagee endorsement or its equivalent in favor of, and in form acceptable to, Landlords Mortgagee, (ii) shall contain an agreed value clause updated annually (if the amount of coverage under such policy is based upon the replacement cost of the applicable Demised Property) and (iii) shall designate Landlord as loss payee and if there is a Landlords Mortgage, Landlords Mortgagee as mortgagee and loss payee. In addition, all property insurance policies (except for flood and earthquake limits) must automatically reinstate after each loss, and the commercial general liability and excess/umbrella liability policies shall include Landlord and Landlords Mortgagee as additional insureds, to the extent of occurrences that arise from Tenants operation at the Demised Properties, as their interests may appear.
Section 10.05 Any insurance provided for in this Article may be effected by a blanket policy or policies of insurance; provided, that the amount of the total insurance available with respect to the
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Demised Properties shall provide coverage and indemnity at least equivalent to separate policies in the amounts herein required, and provided further that in other respects, any such policy or policies shall comply with the provisions of this Article. Any increased coverage provided by individual or blanket policies shall be satisfactory; provided, the aggregate liability limits covering the Demised Properties under such policies shall otherwise comply with the provisions of this Article.
Section 10.06 Every insurance policy carried by either Landlord or Tenant with respect to the Demised Properties shall include provisions waiving the insurers subrogation rights against the other party, prior to the occurrence of damage or loss. Subject to the above, each party hereby waives, to the fullest extent permitted by Law, any rights of recovery against the other party for any direct damage or consequential loss covered by said policies (or by policies required to be carried hereunder by such party) whether or not such damage or loss shall have been caused by any acts or omissions of the other party.
Section 10.07 The policies of insurance required to be maintained by Tenant under this Article 10 shall (a) name Tenant as the insured and Landlord and Landlords Mortgagees as additional insureds, as their interests may appear, and (b) include primary coverage in favor of all additional insureds (and with provisions that any other insurance carried by any additional insured or Landlord shall be non-contributing and that naming Landlord and the additional parties listed above in this Section as additional insureds shall not negate any right Landlord or such parties would have had as claimants under the policy if not so designated). The business interruption insurance required pursuant to Section 10.01 shall name Landlord and Landlords Mortgagees as loss payees. All insurance policies required under this Article 10 shall also provide that the beneficial interest of Landlord in such policies shall be fully transferable. In the event Tenant fails to procure or maintain any policy of insurance required under Article 10 , or if the insurance company or coverages provided fail to meet the requirements contained in this Article 10 , Landlord may, at its option, purchase such insurance and charge Tenant all costs and expenses incurred in procuring and maintaining such insurance.
Section 10.08 Tenant shall provide to Landlord, beginning on the Commencement Date and continuing annually thereafter, certificates from all applicable insurance carriers evidencing coverage and at Landlords request, the payment of premiums or accompanied by other evidence of such payment (e.g. receipts, canceled checks). Each insurance policy required to be carried by Tenant hereunder shall include a provision requiring the insurer to provide Landlord with not less than thirty (30) days prior written notice of cancellation. Upon the occurrence of both of the following events, Tenant shall pay insurance premiums to Landlord no later than thirty (30) days prior to the date such premiums are due in lieu of payment directly to the applicable the insurance carriers: (i) delivery to Tenant of a written request therefor from Landlord, and (ii) the occurrence and continuance of any Default under this Section 10.08 by Tenant, or any occurrence and the continuance of any Event of Default under any provision in this Lease. Any insurance premiums timely paid by Tenant to Landlord pursuant to this Section shall be applied towards payment of the insurance premium next coming due when such premiums are due and payable.
ARTICLE 11 | DAMAGE OR DESTRUCTION |
Section 11.01 If at any time during the Lease Term, any of the Demised Properties or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature, Tenant shall promptly apply for all permits required by applicable Law, but in any event not later than sixty (60) days after the first date of such damage or destruction, and, upon issuance of such permits, thereafter diligently proceed to repair, replace or rebuild such Demised Property as nearly as possible to its condition and character immediately prior to such damage, with such variations and Alterations requested by Landlord as may be permitted under (and subject to the provisions of) Article 6 (the Restoration Work ).
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Section 11.02 All property and casualty insurance proceeds payable to Landlord or Tenant (except (a) insurance proceeds payable to Tenant on account of the Tenant Equipment or Tenants inventory; and (b) insurance proceeds payable from property or comprehensive general public liability insurance) at any time as a result of casualty to the Demised Properties shall be paid jointly to Landlord and Tenant for purposes of payment for the cost of the Restoration Work, except as may be otherwise expressly set forth herein; provided, however that any such proceeds received by Landlord or Landlord and Tenant jointly, resulting from business interruption insurance maintained by Tenant in accordance with clause (a) of Section 10.02 , shall be promptly delivered to Tenant upon Landlords or Landlords and Tenants joint receipt thereof. Landlord and Tenant shall cooperate in order to obtain the largest possible insurance award lawfully obtainable and shall execute any and all consents and other instruments and take all other actions necessary or desirable in order to effectuate same and to cause such proceeds to be paid as hereinbefore provided. The proceeds of any such insurance in the case of loss shall, to the extent necessary, be used first for the Restoration Work (including if completed by Landlord or a third party after any substitution of the applicable Demised Property pursuant to Article 31 ), to be disbursed in accordance with Section 11.04 to the extent the Net Award is in excess of the Threshold Amount. If insurance proceeds as a result of a casualty to the relevant Demised Property are insufficient to complete the Restoration Work necessary by reason of such casualty, then Tenant shall be responsible for the payment of such amounts necessary to complete such Restoration Work.
Section 11.03 Subject to the terms hereof, this Lease shall not be affected in any manner by reason of the total or partial destruction to any Demised Property or any part thereof, and Tenant, notwithstanding any applicable Law, present or future, waives, to the fullest extent permitted by Law, all rights to quit or surrender any Demised Property or any portion thereof because of the total or partial destruction of any Demised Property (prior to the expiration of this Lease). Without limiting the foregoing, no Rent shall abate as a result of any casualty.
Section 11.04 If any Net Award is in excess of the Threshold Amount, Landlord (or Landlords Mortgagee if required by any Landlords Mortgage) shall hold the Net Award in a fund (the Restoration Fund ) and disburse amounts from the Restoration Fund in accordance with the following conditions:
(a) prior to commencement of restoration, (i) the architects, contracts, contractors, plans and specifications and a budget for the restoration shall have been reasonably approved by Landlord, (ii) Landlord and Landlords Mortgagee shall be provided with mechanics lien insurance (if available) and acceptable performance and payment bonds which insure satisfactory completion of and payment for the restoration, are in an amount and form and have a surety acceptable to Landlord, and name Landlord and Landlords Mortgagee as additional dual obligees, and (iii) appropriate waivers of mechanics and materialmens liens shall have been filed;
(b) at the time of any disbursement, no mechanics or materialmens liens shall have been filed against any of the Demised Properties and remain undischarged;
(c) disbursements shall be made from time to time in an amount not exceeding the cost of the Restoration Work completed since the last disbursement, upon receipt of (i) satisfactory evidence, including architects certificates, of (x) the stage of completion, (y) the estimated total cost of completion and (z) performance of the Restoration Work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (ii) waivers of liens for any work for which disbursements were previously made, and waiver of liens for payments made in connection with the requested disbursement, subject only to receipt of payment therefor, (iii) contractors and subcontractors sworn statements as to completed Work and the cost thereof for which payment is requested and (iv) other evidence of cost and payment so that Landlord and Landlords Mortgagee can verify that the amounts disbursed from time to time are represented by Work that is completed, in place and free and clear of mechanics and materialmens lien claims;
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(d) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the Restoration Work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such Restoration Work and, upon completion of the Restoration Work, stating that the Restoration Work has been fully completed and complies with the applicable requirements of this Lease;
(e) Landlord may retain ten percent (10%) of the Restoration Fund until the Restoration Work is fully completed;
(f) If the Restoration Fund is held by Landlord, the Restoration Fund shall not be commingled with Landlords other funds; and
(g) such other reasonable conditions as Landlord or Landlords Mortgagee may impose for purposes of confirming completion of the Restoration Work and the cost thereof.
Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the Restoration Work free and clear of all liens, as reasonably determined by Landlord, exceeds the amount of the Net Award available for such restoration (the difference between the estimated cost and the Net Award, the Shortfall Amount ), then Tenant shall be required to directly pay for all Restoration Work costs up to the Shortfall Amount, prior to utilizing (or Landlord disbursing) any portion of the Net Award to pay for such Restoration Work. Should any balance of the Net Award remain after the completion of the Restoration Work, such balance shall be paid to Landlord.
ARTICLE 12 | EMINENT DOMAIN |
Section 12.01 Landlord and Tenant hereby agree that in no event shall any taking of any Demised Property for any public or quasi-public use under any statute or by right of eminent domain, or by purchase in lieu thereof, or the taking, condemnation, reconfiguration or vacation of any adjacent property or street that requires the use, reconstruction or remodeling of any material part of any Demised Property, in any way relieve Tenant of any obligations under this Lease (as to the applicable Demised Property or otherwise), except as explicitly provided in this Article.
Section 12.02 If any portion of any Demised Property, or existing access to or from any Demised Property, is taken for any public or quasi-public use under any statute or by right of eminent domain, or by purchase in lieu thereof, or by agreement between Landlord and those authorized to exercised such rights, or if any adjacent property or street is so taken or condemned or reconfigured or vacated by any competent authority in such manner as to require the use, reconstruction or remodeling of any material part of any Demised Property, and as a result thereof, (a) the value of such Demised Property is reduced by twenty percent (20%) or more or (b) Tenant is prevented, or would be prevented after reasonable repair and reconstruction by Tenant, use of such Demised Property for the Permitted Uses in a manner similar to the use prior to such taking or use of the required parking and access; then , Tenant shall have the right, upon notice to be given to Landlord no later than forty-five (45) days after the date Tenant received notice of such taking, to terminate this Lease as to such Demised Property (but not any other Demised Property) as of the date that title to the applicable Demised Property, or portion thereof, actually transfers to the applicable authority.
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Section 12.03 Tenant agrees that Landlord has the right in its sole discretion, and at Tenants sole cost and expense, to oppose any proposed taking regarding any Demised Property. The parties hereto agree to cooperate in applying for and in prosecuting any claim for any taking regarding any Demised Property and further agree that the aggregate net award shall be distributed as follows:
(a) Landlord shall be entitled to the entire award for the condemned Demised Property; and
(b) Tenant shall be entitled to any award that may be made for the taking of Tenants inventory and personal property, or costs related to the removal and relocation of Tenants inventory and personal property; provided, that none of the foregoing reduces Landlords award.
Section 12.04 Except in the case of a termination of this Lease with respect to a Demised Property as described in Section 12.02 , in the case of a taking of any portion of any Demised Property, Tenant at its own expense shall proceed with diligence (subject to reasonable time periods for purposes of adjustment of any award and unavoidable delays) to repair or reconstruct (or cause to be repaired and reconstructed) the affected Improvements to a complete architectural unit and in a condition as nearly as possible to the value and condition immediately prior to such taking, and all such Restoration Work shall be performed in accordance with the standards and requirements for Alterations set forth in Article 6 and, to the extent the cost to repair or reconstruct the affected Improvements exceeds the Threshold Amount, the amount in excess of the Threshold Amount shall be held in the Restoration Fund in accordance with the provisions of Section 11.04
Section 12.05 In case of a taking of all or any portion of any Demised Property, and to the extent Tenant terminates this Lease with respect to the applicable Demised Property, pursuant to Section 12.02 , the Base Rent payable hereunder shall be reduced by the Adjustment Amount as set forth on Exhibit A-1 for such Demised Property.
Section 12.06 Notwithstanding any other provision of this Article 12 , any compensation for a temporary taking shall be payable to Tenant without participation by Landlord, and there shall be no abatement of Rent as a result of any temporary taking affecting any of the Demised Properties.
Section 12.07 If Landlord or Tenant shall receive any notice of any proposed or pending condemnation or taking proceeding affecting any of the Demised Properties, the party receiving such notice shall promptly furnish a copy thereof to the other party.
ARTICLE 13 | FINANCIAL AND REPORTING COVENANTS |
Section 13.01 Books and Records . Tenant shall keep accurate books and records of account of all of the Demised Properties sufficient to permit the preparation of financial statements in accordance with GAAP. Landlord and its duly authorized representatives shall have the right to examine, copy and audit Tenants records and books of account at all reasonable times during regular business hours. Tenant shall provide, or cause to be provided, to Landlord, in addition to any other financial statements required under this Lease, the following financial statements and information, all of which must be prepared in a form reasonably acceptable to Landlord:
(a) Promptly, and in any event within the greater of (i) one hundred thirty (130) days, after the end of each calendar year, or (ii) to the extent the same are required to be filed with the SEC, five (5) business days after annual audited financial statements are filed with the SEC (as hereinafter defined), (y) audited statements of the financial position of Tenant, or, if Tenant does not prepare audited statements, of Guarantor, as of the end of each such calendar year, including a balance
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sheet and statement of profits and losses, expenses and retained earnings, changes in financial position and cash flows for such calendar year (but only to the extent such financial statements or reports are not contained in any required filings with the SEC), which statements shall be duly certified by an officer of Tenant or Guarantor, as applicable, to fairly represent the financial condition of Tenant or Guarantor, as applicable, as of the date thereof, prepared by Tenant or Guarantor, as applicable, in accordance with GAAP, and accompanied by a statement of a nationally recognized accounting firm acceptable to Landlord in its sole discretion that such financial statements present fairly, in all material respects, the financial condition of Tenant or Guarantor, as applicable, as of the end of the calendar year being reported on and that the results of the operations and cash flows for such year were prepared, and are being reported on, in conformity with GAAP, and (z) unaudited EBITDA for such calendar year along with an unaudited report of the revenues derived from the operations of each individual Demised Property for such calendar year; and
(b) Tenant shall also furnish to Landlord (i) within forty-five (45) days after the end of each of the three remaining quarters, unaudited financial statements, certified by an officer of Tenant or Guarantor, as applicable, to fairly represent the financial condition of Tenant or Guarantor, as applicable, as of the date thereof, prepared in accordance with GAAP, but only to the extent any such financial statement or reports are not contained in any required filings with the Securities and Exchange Commission ( SEC ), and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the SEC pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law and (ii) within ten (10) days following receipt of Landlords reasonable request any other property level information regarding one or more of the Demised Properties that Tenant or Guarantor is required to prepare and provide in connection with any credit facility for Tenant, Guarantor or any of their Affiliates, or to any public shareholder or to the SEC, but only to the extent such information is not contained in any public filing filed therewith.
Section 13.02 Litigation . Tenant shall deliver prompt written notice to Landlord of any litigation or governmental proceedings pending or threatened against Tenant that might materially adversely affect the condition of Tenant or Guarantor or the business or operations at any Demised Property.
ARTICLE 14 | EAT-WPC LEASE |
Notwithstanding anything to the contrary contained in this Lease, for the sole purpose of a accommodating a reverse like-kind exchange (within the meaning of Internal Revenue Code § 1031(a)), during the Exchange Period (a) the Demised Properties will be owned in fee by Pipe Portfolio Owner (Multi) LP ( Owner ), as an Exchange Accommodation Titleholder, (b) Owner will lease the Demised Premises to Landlord pursuant to a certain Commercial Lease of even date herewith (the EAT-WPC Lease ), and (iii) Landlord will sublease the Demised Properties to Tenant pursuant to this Lease. Upon the expiration or earlier termination of the EAT-WPC Lease but in no event later than the expiration of the Exchange Period, Landlords interest in this Lease will automatically be assigned to and assumed by Owner pursuant to the terms of the EAT-WPC Lease and, thereafter, Tenant shall recognize Owner as landlord hereunder. As used herein, the term Exchange Period shall mean the period commencing on the Commencement Date and ending on the date upon which Owners reverse like-kind exchange has been completed, provided that such period shall in no event exceed six (6) months from the Commencement Date. Upon the request of Landlord, Owner or Tenant, as the case may be, Landlord, Owner and/or Tenant shall memorialize in writing the provisions of this Article 14.
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ARTICLE 15 | EVENTS OF DEFAULT |
Section 15.01 Events Of Default . Subject to the terms of this Article, the occurrence of any of the following shall constitute an event of default by Tenant under this Lease ( Event of Default ):
(a) Nonpayment of Base Rent . Failure to pay any installment of Base Rent on or before the date when due. Notwithstanding the foregoing, Tenant shall have a five (5) Business Day grace period for payment of one installment of Base Rent twice in any twelve (12) month period during the Lease Term.
(b) Nonpayment of Additional Rent . Failure to pay any amount of Additional Rent on or before the date when due and such failure continuing for five (5) Business Days after Tenant receives notice of such failure.
(c) Bankruptcy and Insolvency . If at any time during the Lease Term, (i) Tenant or Guarantor files a Petition, (ii) any creditor or other Person that is an Affiliate of Tenant or Guarantor files against Tenant or Guarantor any Petition, or any creditor or other Person (whether or not an Affiliate of Tenant or Guarantor) files against Tenant or Guarantor any Petition, where Tenant or Guarantor, or an Affiliate of Tenant or Guarantor, cooperates or colludes with such creditor or other Person in connection with such Petition or the filing thereof, (iii) any creditor or other Person that is not an Affiliate of Tenant or Guarantor files a Petition against Tenant, where none of Tenant or Guarantor or an Affiliate of Tenant or Guarantor cooperates or colludes with such creditor or other Person in connection with such Petition or the filing thereof, and such Petition is not vacated or withdrawn within sixty (60) days after the filing thereof, (iv) a trustee or receiver is appointed to take possession of any of the Demised Properties, or of all or substantially all of the business or assets of Tenant or Guarantor, and such appointment is not vacated or withdrawn and possession restored to Tenant within sixty (60) days thereafter, (v) a general assignment or arrangement is made by Tenant for the benefit of creditors, (vi) any sheriff, marshal, constable or other duly-constituted public official takes possession of any Demised Property, or of all or substantially all of the business or assets of Tenant or Guarantor by authority of any attachment, execution, or other judicial seizure proceedings, and such attachment or other seizure remains undismissed or undischarged for a period of sixty (60) days after the levy thereof, (vii) Tenant admits in writing its inability to pay its debts as they become due; or (viii) Tenant or Guarantor files an answer admitting or failing timely to contest a material allegation of any Petition filed against Tenant or Guarantor.
(d) Delivery of Notices and Other Documents . The failure by Tenant to deliver any of the notices or other documents required to be delivered to Landlord under this Lease, in each case within the time periods required herein (other than any such notices or other documents specifically addressed in another clause of this Section 15.01 , for which Tenant will have the grace periods (if any) and notice rights (if any) set forth in such other clause); provided, however, that if no time period is stated in this Lease for the delivery by Tenant of any notice or other document to Landlord, then Tenant shall have a grace period of ten (10) Business Days after the date of the event or occurrence first giving rise to the obligation to deliver such notice or other document to Landlord.
(e) Liens . Any claim of lien is recorded against any Demised Property and such claim of lien continues for one hundred twenty (120) days after Tenant receives notice thereof without discharge (by bonding or other means available pursuant to applicable Law), or satisfaction being made by or on behalf of Tenant.
(f) Other Obligations . The failure by Tenant to timely perform any obligation, agreement or covenant under this Lease, other than those matters specified in Sections 15.01(a)-(e) above,
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and such failure continuing for a period of thirty (30) days after written notice of such failure is delivered to Tenant, or such longer period as is reasonably necessary to remedy such default (but such cure period, including any extension under Article 16 , shall not exceed one hundred twenty (120) days in the aggregate); provided that Tenant shall commence to cure the failure within such thirty (30) day period and shall diligently and in good faith proceed with and continue the curing of the default until fully cured.
(g) Canadian Lease . If there exists any Event of Default (as such term is defined in the Canadian Lease) under the terms of the Canadian Lease; provided , that the provisions of this Section 15.01(g) shall not be applicable if the Canadian Lease has been assigned or otherwise transferred to an unrelated third party by the landlord thereunder in accordance with the provisions of the Canadian Lease.
(h) Guaranty . If there exists any default or breach, beyond any applicable notice or cure period under the Guaranty.
(i) SNDA . The failure by Tenant to deliver the SNDA described in Section 23.01 within the time period specified thereon, with such failure continuing for a period of ten (10) Business Days after notice of such failure is delivered to Tenant.
(j) Estoppel Certificate . The failure by Tenant to deliver the Estoppel Certificate described in Article 24 within the time period specified therein, with such failure continuing for a period of ten (10) Business Days after notice of such failure is delivered to Tenant.
(k) Sale Proceeds . The failure of Tenant or its Affiliates to: (i) apply substantially all of the proceeds of the sale of the Demised Properties from Landlord to either (A) (I) the purchase of USP Holdings and (II) upon the completion of such purchase, to own USP Holdings or (B) the repayment, in whole or in part, of one or more of those certain loans made pursuant to that certain (I) Senior Lien Term Loan Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Lenders Party, and Credit Suisse AG, Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc., (II) Junior Lien Term Loan Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Lenders Party, and Credit Suisse AG, Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc. or (III) ABL Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Additional Revolving Borrowers Party Thereto, The Lenders Party Thereto, and Credit Suisse AG, Bank of America, N.A., Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc. (clause (I), (II) and (III) of this Section 15.01(k) , the Existing Loans ) and (ii) provide to Landlord with reasonably satisfactory evidence thereof within ninety (90) days after the date of this Lease.
As used in this Lease, Default means any breach or default under this Lease or the Canadian Lease or the Guaranty, whether or not the same is an Event of Default thereunder, and also any breach or default under this Lease or the Canadian Lease or the Guaranty, that after notice or lapse of time or both, would constitute an Event of Default under the applicable lease or the Guaranty, if that breach or default were not cured within any applicable grace or cure period.
Section 15.02 Remedies Upon Event of Default . During the existence of an Event of Default by Tenant, in addition to any other remedies available to Landlord at Law or in equity or elsewhere hereunder, Landlord shall have the following remedies:
(a) Termination . Landlord shall have the right, with or without notice or demand, immediately upon expiration of any applicable notice or grace period specified herein, to terminate this
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Lease (or Tenants possession of any of the Demised Properties), and at any time thereafter recover possession of all or any portion of the Demised Properties or any part thereof and expel and remove therefrom Tenant and any other Person occupying the same by any lawful means, and repossess and enjoy all or any portion of the Demised Properties without prejudice to any of the remedies that Landlord may have under this Lease. If Landlord elects to terminate this Lease (or to terminate Tenants right of possession), Landlord shall also have the right to reenter the Demised Properties and take possession of and remove all personal property of Tenant, if any, in such Demised Properties, subject to the rights thereto of any of Tenants lenders under any credit facility and the terms of any Landlord collateral access agreement (or similar document) that may be entered into between Landlord and any of Tenants lenders. If Landlord elects to terminate this Lease and/or Tenants right to possession, or if Tenants right to possession is otherwise terminated by operation of Law, Landlord may recover, as damages from Tenant, the following: (i) all Rent then due under this Lease through the date of termination; (ii) the Rent due for the remainder of the Lease Term in excess of the fair market rental value of the Demised Properties for the remainder of the Lease Term, including any and all Additional Rent (each discounted by the discount rate of the Federal Reserve Bank of San Francisco plus one percent (1%)); (iii) the cost of reletting the Demised Properties, including the anticipated period of vacancy until such Demised Properties can be re-let at their fair market rental values; and (iv) any other costs and expenses that Landlord may reasonably incur in connection with the Event of Default. Unless required by applicable Law, Landlord shall have no obligation to mitigate its damages caused by the Event of Default (or Tenants Default under this Lease), but if Landlord does attempt to so mitigate its damages, such efforts by Landlord shall not waive Landlords right to recover damages under the foregoing provisions.
(b) Continuation after Event of Default . If Landlord does not elect to terminate this Lease, then this Lease shall continue in effect, and Landlord may enforce all of its rights and remedies under this Lease, including the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord at law or in equity, subject to Article 26 . Landlord shall not be deemed to have terminated this Lease except by an express statement in writing. Acts of maintenance or preservation, efforts to relet the Demised Properties, or the appointment of a receiver upon application of Landlord to protect Landlords interest under this Lease shall not constitute an election to terminate Tenants right to possession unless such election is expressly stated in writing by Landlord. Notwithstanding any such reletting without such termination, Landlord may at any time thereafter elect to terminate Tenants right to possession and this Lease. If Landlord elects to relet the Demised Properties for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any and all costs of such reletting (including attorneys fees, brokers fees, and the cost of alterations and repairs to any of the Demised Properties, and tenant improvement costs); second, to the payment of any and all indebtedness other than Rent due hereunder from Tenant to Landlord; third, to the payment of any and all Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If the rent received from the reletting is less than the sum of the costs of reletting, other indebtedness due by Tenant, and the Rent due by Tenant, then Tenant shall pay the deficiency to Landlord within ten (10) days after written demand by Landlord. Such deficiency shall be calculated and paid monthly.
(c) Efforts to Relet . No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlords interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenants right to possession, or to accept a surrender of the Demised Properties, nor shall same operate to release Tenant in whole or in part from any of Tenants obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives, to the fullest extent permitted by Law, any right otherwise available under any law to redeem or reinstate this Lease.
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(d) Appointment of a Receiver : If, and to the extent permitted by applicable Law, an Event of Default shall have occurred and be continuing, Landlord, upon application to a court of competent jurisdiction, shall be entitled to the appointment of a receiver to take possession of and to operate the Demised Properties and to collect the rents, profits, issues, and revenues therefrom. Tenant will pay to Landlord upon demand all expenses, including receivers fees, attorneys fees, cost and agents compensation, incurred pursuant to the provisions contained in this paragraph.
(e) StateSpecific Remedy . Landlord may pursue any other remedy now or hereafter available to Landlord under the Laws of the states in which the Demised Properties are located, in addition to and not as an alternative remedy to those provided hereunder.
Section 15.03 Late Fee . If any payment of Base Rent or Additional Rent is not received by Landlord from Tenant when such payment is due to Landlord hereunder, such payment shall be deemed delinquent, and Tenant shall pay to Landlord a late fee of five percent (5%) of each such delinquent payment (the Late Fee ), due and payable to Landlord simultaneously with the delinquent Base Rent or delinquent Additional Rent, as the case may be.
Section 15.04 Default Rate . If any payment of Base Rent or Additional Rent is not received by Landlord from Tenant when such payment is due to Landlord hereunder, such payment shall bear interest at the rate of the lesser of (x) four percent (4%) over the Prime Rate per annum or (y) the highest rate allowed by applicable law.
ARTICLE 16 | FORCE MAJEURE |
If either party is prevented or delayed from timely performance of any obligation or satisfying any condition under this Lease by any event or circumstance beyond the control of such party, exclusive of financial inability of a party, but including any of the following if beyond the control of (and not caused by) such party: strike, lockout, labor dispute, civil unrest, inability to obtain labor, materials or reasonable substitutes thereof, acts of God, present or future governmental restrictions, regulations or control, insurrection, and sabotage, then the time to perform such obligation or satisfy such condition shall be extended by the delay caused by such event or circumstance. The provisions of this Article shall in no event operate to delay the Commencement Date or to excuse Tenant from the payment of all Rent as and when due under this Lease.
ARTICLE 17 | NOTICES |
(a) Any notice, demand or other communication to be given under the provisions of this Lease by either party hereto to the other party hereto shall be effective only if in writing and (i) personally served, (ii) mailed by United States registered or certified mail, return receipt requested, postage prepaid, (iii) sent by a nationally recognized courier service (such as Federal Express) for next-day delivery, to be confirmed in writing by such courier, or (iv) sent by facsimile (with answer back acknowledged), addressed as follows:
To Tenant: | Forterra Pipe & Precast, LLC |
Forterra Concrete Products, Inc.
Forterra Pressure Pipe, Inc.
Forterra Concrete Industries, Inc.
511 E. John Carpenter Freeway, Suite 600
Irving, Texas 75062
Attention: Lori Browne
Facsimile: (469) 284-8678
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To Landlord: | Pipe Portfolio Owner Exchange (Multi) LP |
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Asset Management
With a copy to: | Pipe Portfolio Owner Exchange (Multi) LP |
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Legal Transactions Department
With another copy to: | Pipe Portfolio Owner (Multi) LP |
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Legal Transactions Department
(b) Subject to the terms of this subsection (b), all notices, demands and other communications sent in the foregoing manner shall be deemed delivered when actually received or refused by the party to whom sent, unless (i) mailed, in which event the same shall be deemed delivered on the day of actual delivery as shown by the addressees registered or certified mail receipt or at the expiration of the third (3 rd ) Business Day after the date of mailing, whichever first occurs, or (ii) sent by facsimile, in which event the same shall be deemed delivered only if a duplicate notice sent pursuant to a method described in subsection (a)(i), (a)(ii) or (a)(iii) of this Article 17 is delivered within one Business Day after such facsimile is received by the recipient. Notwithstanding the foregoing, if any notice, demand or other communication is not received during business hours on a Business Day, such notice, demand or other communication shall be deemed to have been delivered at the opening of business on the next Business Day.
(c) Either Landlord or Tenant may from time to time change its address for receiving notices under this Lease by providing written notice to the other party in accordance with this Article 17 .
ARTICLE 18 | ACCESS |
(a) Landlord and its designees shall have the right, upon not less than twenty-four (24) hours prior written notice to Tenant (except in the event of an emergency, where no prior notice shall be required), to enter upon any of the Demised Properties at reasonable hours to inspect such Demised Properties or, during the period commencing one year prior to the end of the Lease Term (or at any time if an Event of Default occurs), for the purpose of exhibiting same to prospective tenants and posting or erecting for lease or similar signage at the Demised Properties, all in Landlords discretion. Landlords Mortgagee shall have the right, upon not less than seventy-two (72) hours prior written notice to Tenant, to enter upon any of the Demised Properties at reasonable hours to inspect such Demised Properties, and Tenant shall reasonably cooperate with Landlords Mortgagee to effectuate same. Any such entry and/or inspection by Landlord or Landlords Mortgagee shall not unreasonably interfere with Tenants ability to conduct its business operations at the Demised Properties.
(b) Upon prior written notice from Landlord, Tenant shall permit such qualified persons as Landlord may designate ( Site Reviewers ) to visit the Leased Premises during normal
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business hours and in a manner which does not unreasonably interfere with Tenants operations and perform, as agents of Landlord, environmental site investigations and assessments (Environmental Site Assessments) on the Leased Premises in any of the following circumstances: (i) in connection with any sale, financing or refinancing of the Leased Premises, (ii) within the six month period prior to the expiration of the Term, (iii) if an Event of Default exists, or (iv) at any other time that, in the reasonable opinion of Landlord, new information gives rise to a reasonable basis to believe that an Environmental Condition exists in violation of any applicable Environmental Law or involving a Release of Hazardous Materials which exceeds an applicable industrial remediation standard under any applicable Environmental Law. Where specifically required by a third party in the context of clause (i), above, or where undertaken pursuant to clauses (ii), (iii) and (iv), such Site Assessments may include both above and below the ground testing of Environmental Media for Environmental Conditions or Hazardous Materials and such other tests as may be necessary, in the reasonable opinion of the Site Reviewers, to conduct such testing. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Leased Premises as may be reasonably requested by the Site Reviewers and as may be in Tenants possession or reasonably available to Tenant to facilitate the Environmental Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting Environmental Site Assessments under clause (i) if such sale is to Tenant or any affiliate or designee of Tenant, under clause (iii), and under clause (iv) if any Environmental Condition or Release of Hazardous Materials which requires remediation to meet applicable industrial remediation standards or are in violation of any applicable Environmental Law is actually discovered, shall be paid by Tenant, otherwise such costs shall be paid by Landlord.
ARTICLE 19 | SIGNS |
Tenant may, at Tenants sole cost and expense, install or erect, at or on any Demised Property, signs of any height or dimensions and bearing such inscriptions as Tenant shall reasonably determine; provided, however, that no sign shall be installed or erected by Tenant at or on any Demised Property until all governmental approvals and permits required therefor by any applicable Laws and/or any Governmental Authority have been obtained, and all fees pertaining thereto have been paid by Tenant.
ARTICLE 20 | IMPROVEMENTS AND BUILDING EQUIPMENT ; TENANT EQUIPMENT |
Section 20.01 Excepting any Tenant Equipment, any Building Equipment and other Improvements at the Demised Properties on the Commencement Date shall be the property of Landlord. In the event that Tenant installs or erects any fixtures or other Improvements, with the exception of Tenant Equipment, to the Demised Properties after the Commencement Date, such fixtures or other Improvements shall be the property of Landlord and remain upon and be surrendered with the Demised Properties. Notwithstanding the foregoing provisions, Tenant shall be liable for all property taxes, assessments, and similar charges assessed against or allocable to any property at the Demised Properties (irrespective of whether such property is Building Equipment owned by Landlord or Tenant Equipment or other personal property owned by Tenant) and that are attributable to any period of time during the Lease Term.
Section 20.02 During the Lease Term, Tenant shall be entitled to use the Building Equipment in Tenants operations at the Demised Properties. Tenant shall keep the Building Equipment in good working order, condition and repair, shall not remove the Building Equipment from the Demised Properties (subject to the terms of this Section) and shall not permit any lien or other encumbrance to attach to the Building Equipment, except as may be caused by Landlord, and except any such liens that are being contested by Tenant in good faith by appropriate proceedings and that have been bonded over by Tenant to the reasonable satisfaction of Landlord or for which Tenant provides alternative security to
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the reasonable satisfaction of Landlord. Tenant shall keep (or cause to be kept) the Building Equipment insured and shall be responsible for any casualty or other loss to Building Equipment or occasioned by Building Equipment. Subject to the provisions of Article 6 , Tenant may, from time to time, retire or replace Building Equipment with new items of equipment of equal or greater value purchased by Tenant, in which event such replaced equipment shall constitute Building Equipment.
Section 20.03 For the avoidance of doubt, in the event Tenant installs or erects any fixtures that are included within the definition of Tenant Equipment after the Commencement Date, such fixtures shall be the property of Tenant and be removed by Tenant before the expiration or earlier termination of this Lease, including without limitation, any underground storage tanks (and associated vent and fill ports and piping) that are in use at the Commencement Date, which shall be removed or, if approved by Landlord in writing, closed in place in accordance with applicable Law, unless Landlord expressly consents in writing to the continued presence of any such underground storage tanks. Landlord shall advise Tenant in writing whether Landlord elects to retain or to have Tenant remove or close any underground storage tanks (and associated vent and fill ports and piping) at least six (6) months prior to expiration of this Lease or thirty (30) days prior to the early termination thereof, as applicable.
ARTICLE 21 | END OF TERM ; HOLDING OVER |
Section 21.01 Upon the expiration or earlier termination of this Lease, Tenant shall peaceably and quietly quit and surrender the Demised Properties and all Alterations that are then part of the Demised Properties (subject to any removal obligations under Section 6(a) ), vacant, broom clean and in good order, repair and condition and otherwise in the condition required by this Lease. Any Tenant Equipment or trade fixtures and personal property of Tenant remaining on the Demised Properties at the expiration of the Lease Term shall become the property of Landlord without payment therefor, but subject to (a) the rights thereto of any Tenants lenders under any credit facility and the terms of any Landlord collateral access agreement (or similar document) that may be entered into between the Landlord and any of Tenants lenders, unless Landlord shall have required removal of same by Tenant by notice to Tenant and (b) the provisions of Section 21.03 , if applicable.
Section 21.02 If Tenant holds over in possession of any of the Demised Properties after the expiration of the Lease Term, then such holding over shall not be deemed to extend the Lease Term or renew this Lease, but rather the tenancy thereafter shall continue as a tenancy at sufferance pursuant to the terms and conditions contained in this Lease, at one hundred ten percent (110%) of the Base Rent otherwise then applicable for all of the Demised Properties that are the subject of the holding over (in addition to all Additional Rent due and payable for all of the Demised Properties that are the subject of the holding over).
Section 21.03 Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to give to Landlord a Post-Occupancy Removal Notice no later than twelve (12) months prior to the expiration date of the Lease Term. If Tenant duly and timely gives to Landlord the Post-Occupancy Removal Notice, the Lease Term shall not be deemed extended, but Landlord shall not institute any holdover proceedings against Tenant during the Post-Occupancy Period; provided that (i) such occupancy of the Demised Properties shall be for the sole purpose of removing all Tenant Equipment, (ii) Tenant shall remain responsible for the payment of Base Rent and Rent otherwise then applicable for all of the Demised Properties for the entire Post-Occupancy Period on a per diem basis and (iii) all of the other terms and conditions of this Lease shall remain in full force and effect during such Post-Occupancy Period.
Section 21.04 This Article 21 shall survive the expiration or termination of this Lease.
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ARTICLE 22 | TENANT ASSIGNMENT AND SUBLETTING |
Section 22.01
(a) Except as otherwise explicitly provided in this Article 22 and Article 23 , neither Tenant, nor Tenants successors or assigns, shall assign or transfer, in whole or in part, by operation of Law or otherwise, this Lease, or sublet the Demised Properties, in whole or in part, without the prior written consent of Landlord in each instance, which may be granted or withheld by Landlord, in its reasonable discretion, in accordance with the provisions of this Section 22.01 , and subject, in each case, to the provisions of Section 22.01(c) . Any purported sublease or assignment in violation of this Section 22 shall be null and void. Notwithstanding anything to the contrary contained in this Lease, provided that there shall be no Event of Default, Tenant shall have the right, without the prior written consent of Landlord, to (1) assign this Lease to an Affiliate of Tenant or to any entity with which Tenant may merge or consolidate or to which Tenant may sell all or substantially all of its assets or capital stock so long as (A) Landlord shall have received a notice of such assignment from Tenant, (B) the assignee assumes by written instrument reasonably satisfactory to Landlord all of Tenants obligations under this Lease and (C) such assignment is for a valid business purpose and not to avoid any obligations under this Lease and (2) sublease up to thirty percent (30%) of the gross leasable area of the Demised Properties so long as (A) the permitted use under the sublease is limited to the operation of a Permitted Use, (B) the term of the sublease, including any extension options, does not (and cannot) extend beyond the scheduled Lease Term (or any early termination of this Lease) and (C) Tenant remains primarily liable for the obligations under this Lease (each, a Preapproved Sublet ). In the event Tenant sells, conveys, transfers or leases all or substantially all of its assets to any Person, Tenant shall assign this Lease to such Person, and such Person shall assume all of Tenants obligations hereunder.
(b) If this Lease is assigned or transferred, or if all or any part of the Demised Properties is sublet or occupied by any party other than Tenant, Landlord may collect rent from the assignee, transferee, subtenant or occupant and apply the net amount collected to the Rent reserved in this Lease, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any covenant or condition of this Lease or Landlords acceptance of the assignee, transferee, subtenant or occupant as tenant, or a release by Landlord of Tenant from the performance or further performance by Tenant of its obligations under this Lease. Without limiting the generality of the forgoing, Tenant expressly acknowledges and agrees that, in the event of any assignment of this Lease, Tenant shall remain jointly and severally liable with the assignee for all of the obligations under this Lease, and in all other cases of any transfer of Tenants interest under this Lease, Tenant shall remain primarily liable for such obligations. Subject to the foregoing, the consent by Landlord to an assignment, transfer or subletting shall not in any way be construed to relieve Tenant from obtaining the express written consent of Landlord in each instance to any subsequent similar action that Tenant may desire to take.
(c) Except as expressly permitted by clause (a)(1) and (a)(2) of Section 22.01 above, if Tenant desires to assign this Lease, whether by operation of law or otherwise (each a Non-Preapproved Assignment ), to a Person ( Non-Preapproved Assignee ) then Tenant shall, not less than thirty (30) days prior to the date on which it desires to make a Non-Preapproved Assignment, submit to Landlord information regarding the following with respect to the Non-Preapproved Assignee and the Non-Preapproved Assignment (collectively, the Review Criteria ): (a) the proposed effective date of the Non-Preapproved Assignment, (b) all of the terms of the proposed Non-Preapproved Assignment and the consideration therefor, (c) the name, address and business of the proposed Non-Preapproved Assignee, (d) information concerning the character of the Non-Preapproved Assignee (including current financial statements thereof certified by an officer, partner or owner thereof, business credit and personal references and a description of the history of the Non-Preapproved Assignee), and (e) proposed use of the Demised Properties by the Non-Preapproved Assignee. Landlord shall review such information and shall
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approve or disapprove the Non-Preapproved Assignee and the Non-Preapproved Assignment no later than twenty (20) days following receipt of all such information, and Landlord shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on Landlords review of the Review Criteria applying prudent business judgment. If a response is not received by Tenant by the expiration of such twenty (20) day period, such Non-Preapproved Assignee and Non-Preapproved Assignment shall be deemed disapproved.
(d) Other than pursuant to Preapproved Sublets, at no time during the Lease Term shall subleases exist for more than thirty percent (30%) of the gross leasable area of the Demised Properties without the prior written consent of Landlord, which consent shall be granted or withheld based on a review of the Review Criteria as they relate to the proposed sublessee and the terms of the proposed sublease. Landlord shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on Landlords review of the Review Criteria applying prudent business judgment.
Section 22.02 Upon any sublease or assignment permitted as provided in this Article 22 , Tenant shall deliver to Landlord copies of such sublease or assignment agreement promptly (but no later than ten (10) days) following execution and delivery thereof. In no event shall Tenant be entitled to amend, extend or otherwise modify any sublease or assignment agreement that required the prior written consent of Landlord pursuant to the terms hereof without the prior written consent of Landlord, which consent Landlord may withhold in its reasonable discretion, taking into consideration the factors set forth in Section 22.01(c) .
Section 22.03 Subject to the terms of this Lease, this Lease shall be binding upon, enforceable by, and inure to the benefit of the parties hereto and their respective heirs, successors, representatives and assigns.
Section 22.04 Landlord and Tenant acknowledge and agree that (i) the leases set forth on Schedule 22.04 attached hereto and incorporated herein (the Existing Subleases ) shall be deemed Preapproved Sublets, and (ii) all rights and obligations of the landlord under the Existing Subleases, as between Landlord and Tenant, are rights and obligations solely of Tenant. Tenant shall fulfill, perform and observe in all respects, at no cost or expense to Landlord, each and every obligation, condition and covenant of the landlord in each Sublease and shall indemnify, defend and hold harmless each of the Landlord Parties for, from and against any and all Losses directly relating to the Existing Subleases.
ARTICLE 23 | FINANCINGS |
Section 23.01 Subject to and in accordance with the terms and provisions of the SNDA referenced below, this Lease shall be subject and subordinate to all present and future ground or underlying leases of any of the Demised Properties and to the lien of any mortgages or trust deeds, now or hereafter in force, against any of the Demised Properties, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages or trust deeds, or the lessors under such ground or underlying leases, require in writing that this Lease be superior thereto; and Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any mortgage or deed of trust to which this Lease is subordinate, or in the event of any termination of any ground or underlying lease to which this Lease is subordinate, to attorn, without any deductions, claims or set-offs whatsoever, to the purchaser upon any such foreclosure sale, if so requested to do so by such purchaser, and to the ground or underlying lease lessor, if so requested to do so by such ground or underlying lease lessor, and to recognize such purchaser or ground or underlying lease lessor, as the case may be, as the lessor under this Lease; provided, however, that the foregoing subordination to future ground or
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underlying leases of the Demised Properties and to the lien of any future mortgages or trust deeds in force against the Demised Properties shall be conditioned upon Landlord providing Tenant with a subordination, non-disturbance and attornment agreement in favor of Tenant in the form attached hereto as Exhibit C , or other commercially reasonable form requested by Landlord that provides, without limitation, that this Lease and the rights of Tenant hereunder shall survive any foreclosure proceeding brought under such mortgage or deed of trust or termination of such ground or underlying lease (as applicable), provided an Event of Default has not occurred and is not continuing under this Lease (either, an SNDA ). Tenant shall, and shall use commercially reasonable efforts to cause any subtenant, from time to time, within ten (10) Business Days after any request by Landlord, to execute and deliver such other instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease (at Landlords election) to any such mortgages, trust deeds, ground or underlying leases (including, at Landlords election, one or more additional SNDAs requested by Landlords Mortgagee).
Section 23.02 Landlord agrees that, upon the request of any Person that shall be Tenants or its Affiliates senior secured lender, subordinate senior lender, purchase money equipment lender or an equipment lessor of Tenant, Landlord shall execute and deliver a commercially reasonable waiver of Landlords statutory lien rights, if any, and a consent and agreement with respect to the respective rights of Landlord and such Person regarding the security interests in, and the timing and removal of, any inventory, equipment or other collateral in which such Person has a secured interest (the Collateral ), in substantially the form attached hereto as Exhibit H or in such other reasonable form as the parties may agree.
ARTICLE 24 | ESTOPPEL CERTIFICATE S |
Tenant shall, without charge, at any time and from time to time, within ten (10) Business Days after any request by Landlord, deliver to Landlord or any other Person specified by Landlord, a completed Estoppel Certificate, duly executed and acknowledged, in substantially the form as set forth on Exhibit D attached hereto, or other commercially reasonable estoppel certificate confirming such information regarding this Lease and Tenant as Landlord may request (either, an Estoppel Certificate ). Tenants failure to deliver to Landlord any Estoppel Certificate requested by Landlord as and when provided in this Article shall be deemed conclusive against Tenant as to the truthfulness of the items stated in such Estoppel Certificate requested by Landlord.
ARTICLE 25 | RECORDING |
Neither Landlord nor Tenant shall record this Lease; provided, however, concurrently with the execution hereof, each party shall join in the execution and recordation of a memorandum of lease (or similar instrument) in a form substantially similar to the form attached hereto as Exhibit E , covering each of the Demised Properties. Tenant shall pay all costs charged by the applicable local recorder in connection with the recordation of any such memorandum of lease (or similar instrument).
ARTICLE 26 | APPLICABLE LAW; JURISDICTION; WAIVER OF JURY TRIAL |
Section 26.01 This Lease shall be construed in accordance with, and this Lease and all matters arising out of or relating to this Lease (whether in contract, tort or otherwise) shall be governed by, the law of the State of New York without regard to conflicts of law principles; provided, however, that any forcible entry and detainer action (to the extent permitted by applicable law), eviction proceedings or similar proceeding shall be governed by the laws of the state in which the applicable Demised Property is located. If any provision of this Lease or the application thereof shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by applicable Law.
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Section 26.02
(a) TENANT AND LANDLORD EACH HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND EACH IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS LEASE SHALL BE LITIGATED IN SUCH COURTS (EXCEPT FOR FORCIBLE ENTRY AND DETAINER ACTIONS, OR SIMILAR PROCEEDINGS, WHICH SHALL BE LITIGATED IN COURTS LOCATED WITHIN THE COUNTY AND STATE IN WHICH THE APPLICABLE DEMISED PROPERTY IS LOCATED). TENANT AND LANDLORD EACH ACCEPTS, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS (EXCEPT AS PROVIDED ABOVE IN THIS PARAGRAPH), WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS LEASE.
(b) EACH OF TENANT AND LANDLORD, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL, WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING (WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE) BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THIS LEASE.
(c) TENANT AND LANDLORD EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS ARTICLE ARE A MATERIAL INDUCEMENT TO THE OTHER PARTYS ENTERING INTO THIS LEASE.
ARTICLE 27 | LIABILITY OF PARTIES |
Section 27.01 The obligations of Landlord under this Lease are not personal obligations of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord. Tenant shall look solely to the Demised Properties for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord or Landlords Affiliates. Whenever Landlord transfers its interest in any Demised Property, Landlord shall be automatically released from further performance under this Lease with respect to such Demised Property and from all further liabilities and expenses hereunder related to such Demised Property, whether arising before or after such transfer, to the extent the transferee of Landlords interest under this Lease assumes Landlords performance, liabilities and expenses under this Lease related to such Demised Property.
Section 27.02 The obligations of Tenant under this Lease are not personal obligations of the individual members, partners, directors, officers, shareholders, agents or employees of Tenant, and Landlord shall not seek recourse against the assets of the individual members, partners, directors, officers, shareholders, agents or employees of Tenant. Landlord, on behalf of itself and its successors and assigns, hereby waives any and all personal liability against Tenant, and the individual members, partners, directors, officers, shareholders agents or employees thereof, directly or indirectly, under or in connection with this Lease or any agreement made or entered into under or pursuant to the provisions of this Lease or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter. If more than one Person is named as Tenant and/or Landlord hereunder, the obligations under this Lease of all such Persons named as Tenant and/or Landlord, respectively, shall be joint and several.
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ARTICLE 28 | ATTORNEYS FEES ; EXPENSES |
Without limiting any other obligation of Tenant to timely indemnify or reimburse Landlord hereunder (including under Article 9 and Article 29 ), if any party to this Lease shall bring any action or proceeding for any relief against the other, declaratory or otherwise, arising out of this Lease, the losing party shall pay to the prevailing party a reasonable sum for actual out-of-pocket attorneys fees and costs incurred in bringing or defending such action or proceeding and/or enforcing any judgment granted therein, all of which shall be deemed to have accrued upon the commencement of such action or proceeding and shall be paid whether or not such action or proceeding is prosecuted to final judgment. Any judgment or order entered in such action or proceeding shall contain a specific provision providing for the recovery of attorneys fees and costs, separate from the judgment, incurred in enforcing such judgment. The prevailing party shall be determined by the trier of fact based upon an assessment of which partys major arguments or positions taken in the proceedings could fairly be said to have prevailed over the other partys major arguments or positions on major disputed issues; provided, however, that the parties agree that in no event shall Tenant be deemed a prevailing party if an Event of Default then exists under this Lease. For the purposes of this provision, attorneys fees shall include fees incurred in the following: (i) post-judgment motions; (ii) contempt proceedings; (iii) garnishment, levy, and debtor and third party examinations; (iv) discovery; and (v) bankruptcy litigation. This provision is intended to be expressly severable from the other provisions of this Lease, is intended to survive any judgment and is not to be deemed merged into the judgment.
ARTICLE 29 | ENVIRONMENTAL |
Section 29.01 Tenant acknowledges that Landlord makes no warranties or representations of any kind, or in any manner or in any form whatsoever, as to the status of Environmental Conditions or Hazardous Materials at the Demised Properties. Tenant shall conduct at its own expense any and all investigations regarding Environmental Conditions of the Demised Properties and will satisfy itself as to the absence or existence of Hazardous Materials contamination of the Demised Properties and the suitability of the Demised Properties for Tenants operations. Tenants entry into this Lease shall be made at its sole risk.
Section 29.02 Tenant shall comply with all Environmental Laws and cause and ensure the Demised Properties and all operations thereon (whether by Tenant or any subtenant) comply with all applicable Environmental Laws. Tenant shall not suffer or permit any Loss, on, at, under or affecting the Demised Properties of any source if the same pose a health or safety risk to invitees or employees. From and after the Commencement Date, Tenant shall be entitled to use, receive, store, handle, generate, treat, recycle or transport Hazardous Materials at the Demised Properties, in amounts customarily used in Tenants business and which shall be used, received, stored, handled, generated, treated, recycled or transported in full compliance with all applicable Environmental Laws. Tenant covenants to, and shall, undertake all Remedial Activities necessary to comply with applicable Environmental Laws arising out of any Use or Release of Hazardous Materials, by Tenant or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors ( Other Parties ), or otherwise adversely affecting any Demised Property, at Tenants sole cost and expense, and shall give prompt written notice of same to Landlord. If any Remedial Activities relating to Hazardous Materials released on or at any Demised Property are required to be performed at any location other than the Demised Properties, Tenant shall use commercially reasonable efforts to obtain any required access agreements from third parties.
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Section 29.03 In addition to any other obligation herein, Tenant shall indemnify, defend, protect and hold Landlord Parties free and harmless from and against any and all Losses and other obligations of any kind whatsoever that may be made against or incurred by Landlord Parties in connection with any of the following: (a) the violation of any Environmental Law or (b) a Release of Hazardous Materials or Environmental Conditions at, on, under, about or from the Demised Properties, in each case during the Lease Term (and in the event of any holding over by Tenant or any Post-Occupancy Period, during any period that Tenant occupies the relevant Demised Property) and any Environmental Claims, whether or not the same constitute a violation of any Environmental Law, including any and all reasonable costs and fees of attorneys or experts incurred by Landlord in defending against same. This and any other right of Landlord under this Lease shall inure to the benefit of Landlords successors and assigns, as well as Landlords Mortgagees, and their respective successors and assigns as third party beneficiaries. This Section shall survive termination of this Lease.
Section 29.04 Tenant shall promptly inform Landlord in writing of (a) any and all enforcement actions, demands for the initiation of Remedial Activities where no Remedial Activities are currently being conducted, or other governmental or regulatory actions, notices or orders (excluding routine actions such as permit renewals) instituted, completed or threatened pursuant to any Environmental Laws affecting the Demised Properties; (b) all claims made or threatened by any third Person against Tenant or the Demised Properties relating in any way whatsoever to Hazardous Materials or Environmental Conditions (the matters set forth in clauses (a) and (b) are hereinafter referred to as Environmental Claims ); (c) Tenants receiving notice or otherwise becoming aware of any material Release of Hazardous Materials at, on, in, under to or from the Demised Properties or on, in or under any adjoining property. Tenant shall also supply to Landlord within seven (7) Business Days after Tenant first receives or sends the same, copies of all claims, complaints, notices, warnings, asserted violations or other material communications relating in any way to the matters described in this Section.
Section 29.05 In addition to any other obligations herein, Tenant shall be solely responsible for and shall indemnify, protect, defend, and hold harmless all Landlord Parties from and against any and all Losses directly or indirectly arising out of or associated in any manner whatsoever with Tenants Use or the presence or Release of Hazardous Materials at, on, under, about or from the Demised Properties prior to or during the Lease Term (and in the event of any holding over by Tenant or any Post-Occupancy Period, during any period that Tenant occupies the relevant Demised Property). Tenants indemnity and release includes: (a) the costs associated with Remedial Activities, including all necessary plans and reports, incurred by the U.S. Environmental Protection Agency, or any other federal, state or local governmental agency or entity or by any other Person, incurred pursuant to the CERCLA, RCRA, or any other applicable Environmental Laws; (b) any oversight charges, fines, damages or penalties arising from the presence or Release of Hazardous Materials, and any related Remedial Activities, incurred pursuant to the provisions of CERCLA, RCRA, or any other applicable Environmental Laws; (c) any liability to third parties arising out of the presence or Release of Hazardous Materials for personal injury, bodily injury, or property damage arising under any statutory or common law theory, including damages assessed for the maintenance of a public or private nuisance, the costs of Remedial Activities, or for the carrying on of an abnormally dangerous activity; (d) all direct or indirect compensatory or consequential damages, or third party claims for punitive damages, arising out of any claim based on the presence or Release of Hazardous Materials or damage or threatened damage to Environmental Conditions; (e) any and all reasonable costs, fees and expenses of attorneys, consultants and experts incurred or sustained in making any investigation on account of any claim, in prosecuting or defending any action brought in connection therewith, in obtaining or seeking to obtain a release therefrom, or in enforcing any of the agreements herein contained; (f) Rent during any period of Remedial Activities equal to the Base Rent then in effect, or if this Lease has terminated, the Base Rent that was in effect on the termination date; and (g) Losses pursuant to Environmental Laws resulting from any action or omission or use of the Demised Properties by any subtenant. The foregoing indemnity shall apply to Losses attributable to Tenants Use of
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Hazardous Materials irrespective of whether any of Tenants activities were or will be undertaken in accordance with Environmental Laws or other applicable Laws. This indemnity is intended to be operable under 42 U.S.C. 9607(e)(1). Tenant specifically agrees that it shall not sue or seek contribution from any Landlord Party in any matter relating to any Hazardous Material liability. All costs and expenses paid or incurred by Landlord for which Tenant is obligated to indemnify Landlord under this Section shall be paid promptly by Tenant to Landlord. This Section shall survive termination of this Lease.
Section 29.06 Without limiting the foregoing or anything contained in Article 8 , Tenant acknowledges that Governmental Authorities from time to time may impose obligations affecting some or all of the Demised Properties, or operations thereon, in response to climate change issues, including energy efficiency mandates, water conservation mandates, restrictions on sales or use of certain fuels, mandates for alternative fuels, permitting obligations, restrictions on or a duty to inventory and report green house gas emissions, requirements to purchase carbon credits, construction, operational or other measures to mitigate risks of drought, fire, flood, rising sea levels, storm surge risks, so-called extreme weather risks and other legal obligations, whether adopted pursuant to Environmental Laws or other Laws. Tenant at its sole cost and expense shall ensure the Demised Properties, and operations thereon, comply with any such applicable Laws, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties. Moreover, Tenant agrees that the cost or disruption to operations imposed by any such applicable Laws, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties shall not excuse full performance of this Lease by Tenant.
ARTICLE 30 | LANDLORD ASSIGNMENT |
Section 30.01 This Lease shall be fully assignable by Landlord or its successors and assigns, subject to the terms of Article 27 and this Article 30 . In the event that from time to time Landlord desires to assign its interest in this Lease with respect to the Demised Properties (including to one or more Affiliates of Landlord), then Landlord, at its cost and expense, shall prepare a landlord assignment and assumption of lease agreement, pursuant to which Landlord shall assign all its right, title and interest in and to this Lease to a transferee, and such transferee shall agree to be bound by all of the terms and conditions hereof and to assume and perform all of Landlords duties, obligations and liabilities hereunder, from and after the date of such transfer (the Landlord Assignment and Assumption Agreemen t ). In such event, Landlord shall provide Tenant with a fully executed copy of any such Landlord Assignment and Assumption Agreement within five (5) Business Days after the mutual execution thereof. In addition, Tenant shall execute and deliver (or cause to be executed and delivered, as applicable) to Landlord any other instruments and documents requested by Landlord in connection with the assignment, including any commercially reasonable subordination, non-disturbance and attornment agreement that may be requested by Landlords assignees lenders. Without limiting the foregoing, Tenant agrees to cooperate reasonably with Landlord in connection with any such assignment. From and after the effective date of any such Landlord Assignment and Assumption Agreement, Landlord shall be automatically released (without need for any further agreement or other document) from any liability thereafter arising with respect to this Lease to the extent the transferee of Landlords interest under this Lease assumes Landlords performance, liabilities and expenses under this Lease. In no event shall Landlord have any liability under any Landlord Assignment and Assumption Agreement for any acts occurring from and after the date thereof. Without limiting the foregoing, Tenant agrees that Landlord may agree in its sole discretion with any purchaser or assignee of any of the Demised Properties covered by a Landlord Assignment and Assumption Agreement to provide (or have a Landlords Affiliate provide) asset management and/or act as servicer regarding the Demised Properties.
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Section 30.02 Landlord and Tenant agree that this Lease constitutes a true lease and not a financing or other form of transaction (including for state law purposes and federal income tax purposes). In furtherance of the foregoing, Landlord and Tenant each irrevocably waives, to the fullest extent permitted by Law, any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waives any claim or defense that asserts that this Lease is anything other than a true lease. Landlord and Tenant covenant and agree that they will not assert that this Lease is anything but a true lease. Landlord and Tenant each stipulate and agree not to challenge the validity, enforceability or characterization of this Lease of the Demised Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Landlord and Tenant each shall support the intent of the parties that the lease of the Demised Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. Tenant has discussed the characterization of this Lease with its independent auditors and Tenant believes that this Lease will be treated as an operating lease rather than a capital lease. Landlord shall have the sole right to claim all depreciation with respect to the Demised Properties. For the avoidance of doubt, Tenant shall be entitled to claim all depreciation with respect to any Tenant Equipment. Nothing in this Lease shall be deemed to constitute a guaranty, warranty or representation by either Landlord or Tenant as to the actual treatment of this transaction for state law purposes and for federal law purposes
Section 30.03 Landlord and Tenant agree that this Lease constitutes a single and indivisible lease as to all of the Demised Properties collectively and shall not be subject to severance or division. In furtherance of the foregoing, and Landlord and Tenant each (a) waives, to the fullest extent permitted by Law, any claim or defense based upon the characterization of this Lease as anything other than a master lease of all the Demised Properties and irrevocably waives, to the fullest extent permitted by Law, any claim or defense that asserts that this Lease is anything other than a master lease, (b) covenants and agrees that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, (c) stipulates and agrees not to challenge the validity, enforceability or characterization of this Lease of the Demised Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, and (iv) shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, if, and to the extent that, any challenge occurs. To the extent that legal, tax or title insurance requirements in consummating the purchase of the Demised Properties by Landlord or leasing the Demised Properties to Tenant, may require, or may have required, individual purchase price allocations (including allocations of values for individual state transfer tax purposes and title insurance coverage amounts) or individual rent allocations (including allocations of rents in certain states for tax purposes), Landlord and Tenant agree that such individual allocations are solely to comply with legal, tax or title insurance requirements, and shall not be used or construed, directly or indirectly, to vary the intent of Landlord and Tenant that this Lease constitutes a single and indivisible lease of all the Demised Properties collectively and is not an aggregation of separate leases. The foregoing agreements and waivers by Tenant in this Section 30.03 are made as a material inducement to Landlord to enter into the transaction contemplated by this Lease and that, but for the foregoing agreements and waivers by Tenant, Landlord would not consummate this Lease.
ARTICLE 31 | REPLACEMENTS |
Section 31.01 Property Replacements . The Tenant named herein (together with Tenants Affiliates), at its election, may substitute not more than thirty five percent (35%) (i.e., as of the date of this Lease, up to fifteen (14) individual Demised Properties; but not more than an aggregate 1,178,048.20 rentable square feet of the Demised Properties, such amount being referred to herein as the Replacement Cap )
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of the Demised Properties (each a Replaced Property ) with one or more tracts of real property on which Tenant operates a Permitted Use (each a Replacement Property ), it being understood that a Replaced Property may be replaced with more than one Replacement Property. Tenant may not substitute any additional Demised Properties, over and above the Replacement Cap, without first obtaining the prior written consent of Landlord and any Landlords Mortgagee, which may be withheld in Landlords sole discretion. As a condition to Landlord approval, Tenant shall submit for Landlords review evidence of the fair market value of the proposed Replacement Property, as determined by an appraisal thereof, taking into consideration all relevant factors, prepared by an MAI appraiser who is mutually satisfactory to Landlord and Tenant with not less than ten (10) years experience appraising properties similar to the proposed Replacement Property, in the metropolitan area in which the proposed Replacement Property is located, which shall be reasonably satisfactory to Landlord and any Landlords Mortgagee and compliant with Landlords Mortgagees regulatory requirements, as well as current survey, current environmental report, records of any administrative proceedings or environmental claims involving the proposed Replacement Property, current title report (with copies of underlying title documents) and profit/loss statements for the previous two years of the Replacement Property and similar data with respect thereto, as well as evidence of the fair market value of the proposed Replaced Property satisfactory to Landlord and any Landlords Mortgagee and compliant with Landlords Mortgagees regulatory requirements, and other information with respect to the Replaced Property as Landlord and Landlords Mortgagee may reasonably request. Provided that (a) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, determine that the Replacement Property has equivalent or greater fair market value and equivalent or stronger financial operating history than the Replaced Property (with the parties acknowledging that any Replaced Property that has been subject to a casualty and not fully reconstructed shall be valued as of the date immediately preceding such casualty, or assuming a full reconstruction thereof, whichever results in a higher fair market value); (b) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, determine that the Replacement Property has no material title defects or material environmental defects that require remediation pursuant to a Phase I Environmental Site Assessment Report completed by a nationally recognized environmental consulting firm reasonably acceptable to Landlord and Tenant, and has no other material liability substantially greater than the Replaced Property on the date of the applicable substitution; (c) Tenant has satisfied such other conditions as Landlord or Landlords Mortgagees may impose in their reasonable good faith discretion; (d) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, approve the substitution (such approval rights encompassing, without limitation, the consideration of the location, age, profitability and Tenants strategic use of the Replacement Property, as well as such other factors that institutional real estate investors typically apply in the underwriting of to-be-acquired real property, and Landlords determination as to whether the substitution will qualify as a like-kind exchange in which no gain is recognized pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended from time to time, the Code ) and (e) there shall be no Event of Default occurring at the time in question, then Landlord, within thirty (30) days after the submission of all reports and other information required hereunder (such thirty (30) day period is referred to in this Article as the Consideration Period ) shall approve the substitution of the Replacement Property for the Replaced Property. Subject to the foregoing, in the event that Landlord fails to approve the proposed substitution, Landlord shall deliver to Tenant a written notice within ten (10) days following the expiration of the Consideration Period disapproving the proposed substitution and describing which of Landlords and/or Landlords Mortgagees conditions have not been satisfied. In the event of any such disapproval, Tenant shall have an additional fifteen (15) day period from and after the date Landlords disapproval notice is delivered to Tenant to submit any additional information or documentation to Landlord regarding satisfaction of the foregoing conditions. In the event all the foregoing conditions are still not satisfied, then Landlord shall deliver to Tenant a second written notice within ten (10) days following the expiration of such fifteen (15) day period disapproving the proposed substitution and describing which of said conditions have not been satisfied.
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In the event Landlord approves the substitution of the Replacement Property for the Replaced Property, Tenant shall execute and deliver to Landlord such instruments and documents as Landlord shall reasonably require in connection therewith, including a special warranty or similar deed, an amendment to this Lease, and an amended or new memorandum of lease (or similar instrument) covering the Replacement Property, and Landlord shall convey the Replaced Property to Tenant (or Tenants designee) as is, with all faults, without any express or implied warranties. Any substitution of a Replacement Property for a Replaced Property shall not alter any of the other obligations of Tenant under this Lease, including the Base Rent due from Tenant hereunder. Without limitation, Tenant shall be responsible for all Additional Rent (including real property taxes) regarding the Replaced Property up to the date of transfer. Tenant shall pay all reasonable out-of-pocket expenses paid or incurred by Landlord pursuant to this Section, including, (i) Landlords, Affiliates of Landlords and Landlords Mortgagees legal fees and expenses, any fees charged by Landlords Mortgagees for the release of the Replaced Property, the costs of any title policies (owners and/or lenders) on the Replacement Property, recording costs, and, without limiting any of Tenants obligations set forth in Article 3 of this Lease, any sales, transfer, and other taxes and recording fees, and any taxes required to be withheld, which may be payable in connection with the conveyance of Replacement Property by Tenant or Replaced Property to Tenant (including any interest or penalties imposed with respect to the late payment of any such taxes), and (ii) such amount, which, when added to such payment, shall yield to Landlord (after deduction of all expenses payable by Landlord with respect to all such payments) a net amount which Landlord would have realized from such payment had no such expenses been incurred.
ARTICLE 32 | GUARANTY |
Section 32.01 Guarantor shall guaranty Tenants obligations under this Lease pursuant to the Guaranty Agreement substantially in the form of Exhibit G, executed and delivered to Landlord as of the Commencement Date (the Guaranty ). In the event Guarantor shall cease to own, directly or indirectly, substantially all of the assets of Tenant, Guarantor shall deliver a Replacement Guaranty pursuant to Section 32.02 below.
Section 32.02 Notwithstanding anything to the contrary contained herein, including, but not limited to, the fact that LSF9 Concrete Holdings Ltd is being set forth as the Guarantor on the Commencement Date of this Lease (LSF9 Concrete Holdings Ltd., in such capacity, the Original Guarantor ), if at any time during the Lease Term, any change in the organizational structure of Original Guarantor or any Affiliate thereof shall occur or be contemplated, including, but not limited to, resulting from either (i) the transfer, merger, or other change of Control of Original Guarantor or any Affiliate thereof or (ii) any contemplated initial public offering of common stock in either the United States or the United Kingdom involving Original Guarantor or any Affiliate thereof, then Tenant shall have the right to provide one or more replacement guarantors to replace the Original Guarantor with respect to all of the obligations of Original Guarantor in respect of any guaranty relating to this Lease (each such action, a Replacement Guaranty ), subject to the terms and full satisfaction of all of the following conditions precedent:
(a) Tenant has provided Landlord with not less than thirty (30) days prior written notice, which notice shall include the name and jurisdiction of each proposed replacement guarantor;
(b) no Event of Default has occurred and is continuing;
(c) each proposed replacement guarantor is an Approved Replacement Guarantor;
(d) each Approved Replacement Guarantor shall deliver to Landlord a guaranty (in the form attached as Exhibit G attached hereto), pursuant to which such Approved Replacement
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Guarantor agrees to be liable under such guaranty from and after the Commencement Date (and the Original Guarantor or any subsequent Approved Replacement Guarantor then being replaced shall be released from any further liability under the applicable guaranty) for all periods from and after the Commencement Date, and pursuant to which such Approved Replacement Guarantor shall be the Guarantor for all purposes set forth in this Lease);
(e) Tenant shall submit to Landlord true, correct and complete copies of all documents reasonably requested by Landlord concerning the organization and existence of such Approved Replacement Guarantor;
(f) Tenant shall pay all of Landlords reasonable out-of-pocket costs and expenses in connection with the Replacement Guaranty; and
(g) the change in organizational structure giving rise to such Replacement Guaranty is for a valid business purpose and not principally to avoid any obligations of Guarantor under the Guaranty.
Notification of any proposed Replacement Guaranty may be revoked by Tenant at any time prior to such Replacement Guaranty having been consummated.
ARTICLE 33 | LANDLORD S RIGHTS UNDER LEASE |
Any and all rights of Landlord under this Lease shall inure to the benefit of Landlords successors and assigns, as well as Landlords Mortgagees and their successors and assigns as third party beneficiaries.
ARTICLE 34 | RIGHT OF FIRST REFUSAL |
Section 34.01 Landlord hereby grants Tenant a right of first refusal to purchase a Demised Property, subject to the terms and conditions set forth in this Article 34 . If at any time during the Lease Term, Landlord shall receive a bona fide offer from a Competitor for the purchase of any of the Demised Properties (whether or not solicited by Landlord) and Landlord either has accepted such offer or shall desire to accept such offer, Landlord shall notify Tenant of any such offer (the Offering Notice ) by notice to Tenant specifying the following terms and information: (a) the name and address of the third-party offeror, (b) the purchase price for such Demised Property, and (c) any other terms and conditions set forth in such offer or, if applicable, the purchase agreement between Landlord and such third-party offeror (the Third-Party Purchase Agreement ) that are material to the sale of such Demised Property, as determined by Landlord in Landlords commercially reasonable discretion.
Section 34.02 Tenant shall have fifteen (15) Business Days after the date of delivery of the Offering Notice to exercise the right of first refusal granted in this Article 34 (the Review Period ). Such right of first refusal shall be exercisable by Tenant notifying Landlord (within such Review Period) of Tenants irrevocable election to purchase the applicable Demised Properties, subject only to the terms and conditions set forth in the Offering Notice (the Exercise Notice ). Time shall be of the essence with respect to Tenants election and the giving of the Exercise Notice, and any failure to give Landlord the Exercise Notice within such Review Period shall be deemed to be an election by Tenant to waive the rights with respect to the Offering Notice granted to Tenant under this Article 34 .
Section 34.03 Upon Tenant giving Landlord the Exercise Notice, Landlord and Tenant shall open an escrow account with a recognized title insurance or trust company selected by Tenant and reasonably acceptable to Landlord. Such escrow shall be subject to the standard escrow instructions of
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the escrow agent, to the extent they are not inconsistent with the terms of this Article 34 or the terms of the Offering Notice. At or before the close of escrow, Landlord shall deliver to the escrow agent its special warranty deed (or such other type of deed as is specified in the Offering Notice) conveying to Tenant all of Landlords right, title and interest in such Demised Property, in the condition and state of title specified in the Offering Notice. Both Landlord and Tenant agree to execute a purchase agreement, escrow instructions, an amendment to this Lease, an amended memorandum of lease (or similar instrument) and such other instruments as may be necessary or appropriate to consummate the sale of such Demised Property in the manner provided in this Article 34 .
Section 34.04 In the event Tenant waives or is deemed to have waived its right of first refusal to purchase the applicable Demised Property, Landlord shall have the right to sell and convey the Demised Properties to such third-party offeror on the terms set forth in the Offering Notice, and upon the consummation of such a sale, Tenants right of first refusal shall cease to exist with respect to such Demised Property. Landlord shall not (a) consummate such a sale to the third party offeror for a net effective purchase price less than ninety five percent (95%) of the net purchase price set forth in the Offering Notice or (b) sell such Demised Property to a different Competitor than the Competitor disclosed in the applicable Offering Notice, without once again being required to offer such Demised Property to Tenant in accordance with this Article 34 ; it being agreed Tenants right of first refusal shall remain in full force and effect for the remainder of the Lease Term with respect to such Demised Property, subject to the terms of this Article 34 .
Section 34.05 Notwithstanding anything contained herein to the contrary, it shall be a condition to Tenants right of first refusal under this Article 34 that on the date that the Exercise Notice is delivered, (a) this Lease has not been terminated, (b) Tenant (together with Tenants Affiliates) is the named tenant herein and (c) there is no Event of Default then occurring or continuing.
ARTICLE 35 | EXISTING LOANS |
Tenant represents and warrants to Landlord that as of the date of this Lease, to Tenants actual knowledge, the Existing Loans are in full force and effect.
ARTICLE 36 | INTERPRETATION ; MISCELLANEOUS |
Section 36.01 For purposes of this Lease, (a) the words include, includes and including shall be deemed to be followed by the words without limitation (unless already expressly followed by such phrase), and (b) the words herein, hereof, hereby, hereto and hereunder refer to this Lease as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Exhibits, and Schedules mean the Articles and Sections of, and the Exhibits and Schedules attached to, this Lease; (y) to a lease, instrument or other document means such lease, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Lease; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Lease to the same extent as if they were set forth verbatim herein. Titles to Articles and headings of Sections are inserted for convenience of reference only and shall not be deemed a part of or to affect the meaning or interpretation of this Lease. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. All references in this Lease to sums denominated in dollars or with the symbol $ refer to the lawful currency of the United States of America, unless such reference specifically identifies another currency. Where a provision of this Lease requires that that consent of a party shall not be unreasonably withheld, or that such consent is in such partys reasonable discretion, such provision shall be deemed to require that such consent not be unreasonably withheld, conditioned, or delayed.
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Section 36.02 This Lease may be executed in counterparts and shall be binding on all the parties hereto as if one document had been signed. The delivery of an executed copy of this Lease by facsimile transmission shall have the same force and effect as the delivery of the original, signed copy of this Lease. Time is of the essence of every provision of this Lease. Any provision of this Lease explicitly providing for the performance by Tenant of obligations upon or after the expiration or termination of this Lease shall survive any such expiration or termination. This Lease and the Exhibits attached hereto, all of which form a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Demised Properties, and there are no covenants, promises, agreements, conditions or understandings heretofore made, either oral or written, between them other than as herein set forth. No modification, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each party. The captions, section numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles nor in any way affect this Lease. Nothing contained in this Lease shall be construed to create the relationship of principal and agent, partnership, joint venture or any other relationship between the parties hereto other than the relationship of landlord and tenant. Except as explicitly set forth in this Lease, there shall be no third party beneficiaries of this Lease or any of the agreements contained herein. The failure of Landlord or Tenant to insist upon strict performance of any of the terms and conditions hereof shall not be deemed a waiver of any rights or remedies that party or any other such party may have, and shall not be deemed a waiver of any subsequent breach or default in any of such terms, covenants or conditions.
ARTICLE 37 | QUIET ENJOYMENT |
From and after the Commencement Date until the expiration or termination of the Lease Term, and provided no Event of Default exists, Tenant shall have quiet enjoyment of the Demised Properties; subject to the terms and conditions of this Lease.
ARTICLE 38 | NO MERGER OF TITLE |
There shall be no merger of this Lease with any of the leasehold estates created hereunder or with any fee estate or other leasehold interest in any of the Demised Properties, whether by reason of the fact that the same Person may acquire, hold or own, directly or indirectly more than one or all of such legal interests in any Demised Property, unless and until: (a) under applicable Law such estates may be merged, and (b) all Persons having any leasehold interest or fee estate in any of the Demised Properties, or any part thereof sought to be merged, shall enter into a written agreement effecting such a merger under applicable Law and shall duly record same; provided, however, no such merger shall occur unless in each instance Landlord and any Landlords Mortgagee shall be a party to such agreement.
ARTICLE 39 | BROKERS |
Landlord (a) represents that it has dealt with no broker or brokers in connection with the negotiation, execution and delivery of this Lease (other than Tenants broker) and (b) agrees to indemnify, defend, protect (with counsel selected by the Tenant, subject to the approval of Landlord) and hold Tenant free and harmless of, from and against any and all Losses arising from (including all brokerage commissions and/or finders fees due or alleged to be due as a result of) any agreement or purported agreement made by Landlord.
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Tenant (a) represents that it has dealt with no broker or brokers other than CBRE, Inc. in connection with the negotiation, execution and delivery of this Lease and (b) agrees to indemnify, defend, protect (with counsel selected by Landlord, subject to the approval of Tenant) and hold Landlord free and harmless of, from and against any and all Losses arising from (including all brokerage commissions and/or finders fees due or alleged to be due as a result of) any agreement or purported agreement made by Tenant.
ARTICLE 40 | STATE SPECIFIC PROVISIONS |
Section 40.01 Alabama . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Alabama govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction: Alabama Terminology: The term special warranty deed, as used in the third (3rd) paragraph of Article 34, shall mean statutory warranty deed.
Section 40.02 Arizona . Without limiting the choice of law provisions set forth in Article 26 , the following provisions shall apply to the extent the laws of the State of Arizona govern the interpretation or enforcement of the Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Waiver of Right to Terminate . The provisions of this Lease, including those set forth in Section 11.03 , constitute an express agreement between Landlord and Tenant that apply in the event the Demised Property or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature. Tenant hereby waives the benefit of A.R.S. § 33-343 (including any further statutes amending, supplementing or supplanting the same) which would otherwise afford Tenant the right to terminate this Lease for any damage or destruction to or condemnation of the Demised Property.
(b) Taxed Personal Property . The provisions of this Lease, including those set forth in Section 20.01 , constitute an express agreement between Landlord and Tenant that Tenant will be responsible for and pay all property taxes, assessments and similar charges assessed or allocable to any property at any Demised Property. In this regard, Tenant will pay, prior to delinquency, all taxes assessed against or levied upon fixtures, leasehold improvements (as such term is defined in Maricopa County version of DPST Form 520, Personal Property Statement) and all personal property located upon any Demised Property (the Taxed Personal Property ). Tenant will cause the Taxed Personal Property to be assessed and billed separately from the real property upon which the Demised Properties are located. Tenant will deliver copies of the DPST Form 520 filed with the State of Arizona and Maricopa County within ten (10) Business Days after mailing or delivering the form to the State and County, respectively.
(c) Waivers . The provisions of this Lease, including those in Article 22 , constitute an express agreement between Landlord and Tenant that notwithstanding the consent of Landlord to any assignment of this Lease, Tenant shall remain jointly and severally liable with the assignee for all obligations under this Lease. Tenant hereby waives the provisions of A.R.S. §12-1641 et. seq ., (including any further statutes amending, supplementing or supplanting the same).
(d) Remedies . In addition to the remedies expressly set forth in Section 15.02 of this Lease, it is intended that Landlord shall have all rights, remedies and options as set forth in A.R.S. § 33-361 et. seq ., (including any further statutes amending, supplementing or supplanting the same); provided, however, Landlord hereby waives its lien for Rent imposed on Tenants property at the Demised Properties in Arizona by A.R.S. § 33-361(D).
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(e) Definition of Environmental Laws . For any Demised Property located in the State of Arizona, the definition of Environmental Laws set forth in Schedule 1 of the Lease shall include Ariz. Rev. Stat. Ann., Title 49 (the Environment) and any statutes amending, supplementing or supplanting same.
Section 40.03 Arkansas . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Arkansas govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such State, as determined by a court of competent jurisdiction:
(a) the release set out in Section 9.03 is specifically intended by the parties to operate to the greatest extent allowable under the law of whatever jurisdiction governs the loss or claimed release;
(b) Section 12.03(a) governs the entitlement to just compensation, except to the extent that under the laws of the State of Arkansas, under the circumstances of this case, Tenant is awarded separate just compensation for its leasable interest that does not reduce the amount of just compensation payable to Landlord;
(c) It is the specific intention of the parties that, in the event of an Event of Default by Tenant, Landlord may, without terminating this Lease, elect to terminate possession by Tenant and re-let any or all of the Demised Properties under any terms in its sole discretion, with payments received for such letting to be applied in the manner set out in Section 15.02(b) ;
(d) forcible entry and detainer actions for purposes of Section 26.02(a) includes, without limitations, the statutory forcible entry and detainer, and unlawful detainer procedures set out in Ark. Code. Ann. § 18-60-301 et. seq. ; and
(e) the exclusive jurisdiction and venue provision set out in Section 26.02(a) shall not apply to deprive either Landlord or Tenant when both are defendants in an action brought in the State of Arkansas by a third party to assert cross claims, or similar claims against the other.
Section 40.04 California . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of California govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Effect of Waivers . With respect to the release set forth in Section 9.03 , Tenant hereby waives, to the fullest extent permitted by Law, the benefits of California Civil Code Section 1542, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.
(b) Eminent Domain . The provisions of this Lease, including those in Article 12 , constitute an express agreement between Landlord and Tenant that applies in the event there is any taking of any part of the Demised Property for any public or quasi-public use under any statute or by right of eminent domain or by purchase in lieu thereof (collectively, Condemnation ). Tenant and Landlord each hereby waives, to the fullest extent permitted by Law, all rights it may have under California Code of Civil Procedure Section 1265.130, or otherwise, to terminate this Lease based on a total or partial Condemnation.
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(c) Damage and Destruction . The provisions of this Lease, including those in Article 11 , constitute an express agreement between Landlord and Tenant that applies in the event that any Demised Property or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature. Landlord and Tenant, each therefore, fully waives, to the fullest extent permitted by Law, the provisions of any statute or regulation, including California Civil Code, Sections 1932(2) and 1933(4), relating to any rights or obligations concerning any such fire or other casualty.
(d) Notices . When this Lease requires service of a notice, that notice shall replace rather than supplement any equivalent or similar statutory notice, including any notices required by California Code of Civil Procedure Section 1161 or any similar or successor statute. When a statute requires service of a notice in a particular manner, service of that notice (or a similar notice required by this Lease) in the manner required by Article 17 shall replace and satisfy the statutory service-of-notice procedures, including those required by California Code of Civil Procedure, Section 1162 or any similar or successor statute.
(e) Certified Access Specialist Inspection . Tenant acknowledges that the Demised Properties have not undergone an inspection by a Certified Access Specialist (CASp), and Landlord has no knowledge whether or not the Demised Properties meet all applicable construction-related accessibility standards pursuant to California Civil Code, Section 55.51 et seq.
(f) Remedies . It is intended that Landlord shall have the remedy described in California Civil Code, Section 1951.4, which provides that, when a tenant has the right to sublet or assign, the landlord may continue the lease in effect after the tenants breach and abandonment and recover rent as it becomes due. Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may enforce all of Landlords rights and remedies under this Lease, including the right to recover all Rent as it becomes due.
(g) Additional Remedies . If Landlord elects to terminate this Lease upon the occurrence of an Event of Default, Landlord may collect from Tenant damages computed in accordance with the following provisions in addition to Landlords other remedies under this Lease:
(i) the worth at the time of award of any unpaid Rent which has been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which any unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus
(iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus
(iv) any other reasonable cost necessary to compensate Landlord for all the detriment proximately caused by Tenants failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom including, without limitation, brokerage commissions, the cost of repairing and reletting the Properties and reasonable attorneys fees; plus
(v) at Landlords election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable state law. Damages shall be due and payable from the date of termination.
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For purposes of subclauses (i) and (ii) above, the worth at the time of award shall be computed by adding interest at the Default Rate to the past due Rent. For the purposes of clause (iii) above, the worth at the time of award shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%).
Section 40.05 Florida . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Florida govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Radon Gas Notice . The following radon gas notice is given pursuant to Section 404.056, Florida Statutes. Radon is a naturally occurring radioactive gas that, when it is accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from any county public health unit in Florida.
(b) Waiver of Landlords Lien. Landlord hereby waives its lien for rent imposed on Tenants property at the Demised Properties in Florida by Section 83.08, Florida Statutes .
(c) Attorneys Fees. The provisions for payment of reasonable attorneys fees set out in Article 28 as applicable to the Demised Properties located in Florida shall include all costs and fees incurred in court-ordered mediation, at trial, in all appellate proceedings and in any proceedings to determine the reasonableness of such fees and costs.
Section 40.06 Georgia . Without limiting the choice of law provision set forth in Article 26 of this Lease, the following provisions shall apply to the extent that the laws of the State of Georgia govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction: With respect to the remedy set forth in Subsection 15.02(a)(ii) , the payment of the such amounts by Tenant shall not constitute payment of Base Rent and Additional Rent in advance for the remainder of the Lease Term. Instead, such sums shall be paid as agreed liquidated damages and not as a penalty, the parties hereby agreeing that it is difficult or impossible to calculate the damages that Landlord will suffer as a result of Tenants default and that this provision is intended to provide a reasonable pre-estimate of such damages all in accordance with O.C.G.A. § 13-6-7. If Landlord exercises the election set out in this subsection, Tenant hereby waives any right to assert that Landlords actual damages are less than the amount calculated hereunder.
Section 40.07 Kansas . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Kansas govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) in the event of any conflict between the terms of this Lease and the provisions of Kan. Stat. Ann. Secs. 60-3332 through 60-3351 (Supp.), inclusive, the statutory provisions shall govern any privileges and immunities arising from the release of environmental audit reports and this Lease shall not be interpreted in derogation of such laws.
Section 40.08 Kentucky . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Kentucky govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction: Landlord hereby waives its lien for rent imposed on Tenants property at the Demised Properties in Kentucky by KRS 383.070.
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Section 40.09 Louisiana . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Louisiana govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Louisiana Terminology . The terms realty, real property and real estate shall mean immovable property; the terms fee estate and/or fee simple shall mean full ownership; the term personal property shall mean movable property; the term tangible property shall mean corporeal property; the term intangible property shall mean incorporeal property; the term easement shall mean servitude; the term buildings shall include other constructions; the term fixtures shall mean component parts; the phrase covenant running with the land and other words of similar import shall mean a real right or a recorded lease of immovable property; the term county shall mean parish; the term joint and several shall mean in solido ; the terms deed in lieu of foreclosure, conveyance in lieu of foreclosure and words of similar import shall mean a dation en paiement ; the term tenancy at sufferance shall mean a month to month tenancy and/or a reconducted lease; the term unlawful detainer action shall mean an eviction proceeding; the term merger shall mean confusion; the term common law shall mean civil law; and the term eminent domain shall include expropriation.
(b) Environmental laws . Environmental Laws shall include, but not be limited to, the Louisiana Environmental Quality Act, La. R.S. § 30:2001 et seq. and its chapters, including the Louisiana Air Control Law (La. R.S. §§ 30:2051-2064), the Louisiana Water Control Law (La. R.S. §§ 30:2071-2088), the Louisiana Solid Waste Management and Resource Recovery Law (La. R.S. §§ 30:2151-2161), the Louisiana Hazardous Waste Control Law (La. R.S. §§ 30:2171-2206), the Louisiana Inactive and Abandoned Hazardous Waste Site Law (La. R.S. §§ 30:2221-2226), the Liability for Hazardous Substance Remedial Action Act (La. R.S. §§ 30:2271-2281), the Louisiana Hazardous Material Information Development, Preparedness, and Response Act (La, R.S. §§ 30:2361-2379) and the Louisiana Oil Spill Prevention and Response Act (La. R.S. §§ 30:2451-2496), and any amendments to the foregoing statutes.
(c) Waiver of Implied Warranties . WITH RESPECT TO DEMISED PROPERTY LOCATED IN LOUISIANA AND WITHOUT LIMITING ANY OF THE OTHER WAIVERS OR RELEASES SET OUT IN THIS LEASE, TENANT HEREBY (i) ACCEPTS THE DEMISED PROPERTY AND ALL OF ITS PARTS (INCLUDING, WITHOUT LIMITATION, ALL FIXTURES, GLASS, WALLS, HEATING, VENTILATION AND AIR CONDITIONING EQUIPMENT, AND ALL OTHER MECHANICAL SYSTEMS) IN ITS CONDITION ON THE COMMENCEMENT DATE AND AGREES THAT THIS CONDITION IS SUITABLE FOR TENANTS INTENDED USE; (ii) ASSUMES ALL RESPONSIBILITY FOR THE CONDITION OF THE DEMISED PROPERTY THROUGHOUT THE TERM AND AGREES TO PERFORM ALL MAINTENANCE, REPAIRS AND REPLACEMENTS THAT BECOME NECESSARY DURING THE TERM TO KEEP THE DEMISED PROPERTY AND ALL OF ITS PARTS IN A CONDITION SAFE AND SUITABLE FOR TENANTS INTENDED USE; (iii) WAIVES ANY OBLIGATION ON LANDLORDS PART TO KEEP THE DEMISED PROPERTY SAFE AND IN A CONDITION SUITABLE FOR TENANTS INTENDED USE; AND (iv) WAIVES ALL REPRESENTATIONS AND WARRANTIES ON THE PART OF LANDLORD, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ALL WARRANTIES AS TO ENVIRONMENTAL CONDITIONS OR HAZARDOUS MATERIALS AND ALL WARRANTIES THAT THE DEMISED PROPERTY IS FREE FROM DEFECTS OR DEFICIENCIES, WHETHER LATENT OR PATENT, ALL WARRANTIES THAT THE DEMISED PROPERTY IS SUITABLE FOR TENANTS USE, AND ALL WARRANTIES UNDER LA. CIV. CODE ARTS. 2682(2), 2684, 2691, AND 2696-2699 OR ANY OTHER PROVISION OF LOUISIANA LAW, TO THE FULLEST EXTENT PERMITTED BY LOUISIANA LAW.
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(d) Fixtures or other Improvements . All fixtures or other Improvements made by Tenant to the Demised Property shall be the property of Landlord and remain upon and be surrendered with the Demised Property as provided in Article 20 , and Tenant hereby waives any obligation on the part of Landlord to reimburse Tenant or any other person or entity for these fixtures or other Improvements. All Alterations that remain on the Property at the end of the term and that Landlord does not require Tenant to remove in accordance with Article 6 will become Landlords property automatically with no obligation on the part of Landlord to reimburse Tenant or any other person or entity for them.
(e) Property Replacements . If Landlord reconveys Replaced Property to Tenant (or Tenants designee), the conveyance will be as is, with all faults, without any express or implied warranties, and the conveyance document will be a form containing a waiver of all of Louisianas express and implied warranties (other than warranty of title as to Landlords own acts and the acts of those acting by, through, or under Landlord) that is similar to the waiver of warranties contained in the act of sale pursuant to which Landlord acquired the Demised Property and that is acceptable to Landlord and Tenant in all respects.
(f) Waiver of Notice to Vacate . Tenant hereby waives the notice to vacate under article 4701 of the Louisiana Code of Civil Procedure.
Section 40.10 Minnesota . Without limiting the choice of law provision set forth in Article 26, the following provisions shall apply to the extent that the laws of the State of Minnesota govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Minnesota Terminology : The term special warranty deed as used in the third (3 rd ) paragraph of Article 34 shall mean limited warranty deed.
(b) Re-Entry . Without limitation to Section 15.02, Landlord shall have the right, upon an Event of Default under this Lease, to re-enter the Demised Property located in the State of Minnesota with or without terminating this Lease or releasing Tenant for any of its obligations under the Lease, including without limitation, Tenants obligation to pay Rent. Landlord shall exercise its rights provided for in Section 15.02 hereof only in the manner set forth in Minnesota Statutes Section 504B.291, subd. 2.
Section 40.11 Mississippi . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Mississippi govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction: The parties acknowledge that holders of the rights to oil, gas and other minerals in and under, and that may be produced from the Demised Properties have the right to use so much of the surface of the Demised Properties as may be reasonably necessary for such purposes. In the event a portion of the Demised Properties is so used, the parties agree that such use, whether temporary or permanent, shall be treated in the same manner as a taking for a public or quasi-public use under Article 12 .
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Section 40.12 Montana . Without limiting the choice of law provision set forth in Article 26 of this Lease, the following provisions shall apply to the extent that the laws of the State of Montana govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Mold Disclosure . To the extent any Demised Property in the State of Montana is inhabitable real property as defined in Section 70-16-702, Montana Code Annotated, Tenant acknowledges by its signature below that Landlord has provided the following disclosure:
MOLD DISCLOSURE: There are many types of mold. Inhabitable properties are not, and cannot be, constructed to exclude mold. Moisture is one of the most significant factors contributing to mold growth. Information about controlling mold growth may be available from your county extension agent or health department. Certain strains of mold may cause damage to property and may adversely affect the health of susceptible persons, including allergic reactions that may include skin, eye, nose, and throat irritation. Certain strains of mold may cause infections, particularly in individuals with suppressed immune systems. Some experts contend that certain strains of mold may cause serious and even life-threatening diseases. However, experts do not agree about the nature and extent of the health problems caused by mold or about the level of mold exposure that may cause health problems. The Centers for Disease Control and Prevention is studying the link between mold and serious health conditions. The seller, landlord, sellers agent, buyers agent, or property manager cannot and does not represent or warrant the absence of mold. It is the buyers or tenants obligation to determine whether a mold problem is present. To do so, the buyer or tenant should hire a qualified inspector and make any contract to purchase, rent, or lease contingent upon the results of that inspection. A seller, landlord, sellers agent, buyers agent, or property manager who provides this mold disclosure statement, provides for the disclosure of any prior testing and any subsequent mitigation or treatment for mold, and discloses any knowledge of mold is not liable in any action based on the presence of or propensity for mold in a building that is subject to any contract to purchase, rent, or lease.
Landlord has no knowledge (i) that mold is present in the Demised Property, or (ii) that the Demised Property has been tested for mold. Note: The foregoing disclaimer assumes lack of knowledge. If Landlord has knowledge or if the Demised Property has been tested, disclosures must be made.
TENANT:
FORTERRA PIPE & PRECAST, LLC, a Delaware limited liability company |
FORTERRA PRESSURE PIPE, INC., an Ohio corporation |
|||||||
By: |
/s/ Lori M. Browne |
By: |
/s/ Lori M. Browne |
|||||
Name: | Lori M. Browne | Name: | Lori M. Browne | |||||
Its: | Vice President | Its: | Vice President | |||||
FORTERRA CONCRETE PRODUCTS, INC. an Iowa corporation |
FORTERRA CONCRETE INDUSTRIES, INC., a Tennessee corporation |
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By: |
/s/ Lori M. Browne |
By: |
/s/ Lori M. Browne |
|||||
Name: | Lori M. Browne | Name: | Lori M. Browne | |||||
Its: | Vice President | Its: | Vice President |
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(b) Right of Reentry . For Demised Property located in the State of Montana, Landlord shall exercise its right of reentry and its remedy for forcible entry or unlawful detainer provided for in Section 15.02 hereof only in the manner set forth in Section 70-16-401, Montana Code Annotated and Title 70, Chapter 27, Montana Code Annotated.
(c) Definition of Environmental Laws . For any Demised Property located in the State of Montana, the definition of Environmental Laws set forth in Schedule 1 of the Lease shall include the Montana Comprehensive Environmental Cleanup and Responsibility Act (Montana Code Annotated Section 75-10-701, et seq .), as amended or modified from time to time, and regulations promulgated thereunder.
Section 40.13 North Dakota . Without limiting the choice of law provision set forth in Article 26, the following provisions shall apply to the extent that the laws of the State of North Dakota govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) The term special warranty deed as used in the third (3 rd ) paragraph of Article 34 shall mean limited warranty deed.
(b) Landlord and Tenant acknowledge and agree that the provisions of this Lease related to the condition of the Demised Property constitute (i) the statement required by North Dakota Century Code §47-16-07.2, and (ii) prima facie proof of the condition of the any Demised Property located in North Dakota as of the Commencement Date.
(c) Tenant acknowledges and agrees that Tenants rights and obligations in the event of damage or destruction of any Demised Property located in North Dakota shall be governed by Article 11 above, and Tenant shall have no right and hereby waives all rights which it may have to terminate this Lease pursuant to North Dakota Century Code §§47-16-14(4) and 47-16-17(2).
Section 40.14 Ohio. Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the State of Ohio govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Ohio Terminology : The term special warranty deed, as used in the third (3 rd ) paragraph of Article 34 , shall mean limited warranty deed.
Section 40.15 Oklahoma . The parties acknowledge that holders of the right to explore for and produce oil and gas in, under, and that may be produced from the Demised Properties have the statutory and common law right to use so much of the surface of the Demised Properties as may be reasonably necessary for such purposes. In the event a portion of any Demised Property is so used, the parties agree that such use, whether temporary or permanent, shall be treated in the same manner as a taking for a public or quasi-public use under Article 12 .
Section 40.16 Texas . Without limiting the choice of law provision set forth in Article 26 of this Lease, the following provisions shall apply to the extent that the laws of the State of Texas govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) TENANT HEREBY WAIVES ITS STATUTORY LIEN UNDER SECTION 91.004 OF THE TEXAS PROPERTY CODE.
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(b) In no event shall the charges permitted under Section 15.03 or elsewhere in this Lease, to the extent they are considered to be interest under applicable Law, ever exceed the maximum lawful rate of interest.
(c) The provisions of Article 26 shall apply, to the fullest extent permitted by the laws of the State of Texas.
(d) Environmental Laws. The term Environmental Laws shall include, but not be limited to, the Texas Solid Waste Disposal Act (Texas Health and Safety Code § 361.001 et seq. (Vernon 2001)), as amended.
(e) Determination of Charges . Landlord and Tenant agree that each provision of this Lease for determining charges and amounts payable by Tenant (including provisions regarding Additional Rent) is commercially reasonable and, as to each such charge or amount, constitutes a statement of the amount of the charge or a method by which the charge is to be computed for purposes of Section 93.012 of the Texas Property Code.
(f) NOTICE OF INDEMNIFICATION . LANDLORD AND TENANT ACKNOWLEDGE AND AGREE THAT THIS LEASE CONTAINS CERTAIN INDEMNIFICATION PROVISIONS, INCLUDING, WITHOUT LIMITATION, AS SET FORTH IN SECTIONS 9.02 , 22.04 , 29.03 AND 29.05 AND ARTICLE 39 HEREOF.
(g) NOTICE OF FINAL AGREEMENT . THIS LEASE AND THE EXHIBITS AND SCHEDULES ATTACHED HERETO, ALL OF WHICH FORM A PART HEREOF, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES .
Section 40.17 Wyoming . Without limiting the choice of law provision set forth in Article 26 of this Lease, the following provisions shall apply to the extent that the laws of the State of Wyoming govern the interpretation or enforcement of this Lease with respect to any Demised Property located in such state, as determined by a court of competent jurisdiction:
(a) Wyoming Terminology . forcible entry and detainer actions for purposes of Section 26.02(a) includes, without limitations, the statutory procedure set out in Wyo. Stat. Ann. §§ 1-21-1001 et. seq.;
(b) Mineral Estate . The parties agree and acknowledge that a third party may own a portion, or all, of the mineral estate and therefore has the right to explore for and produce oil and gas in, under, and that may be produced from the Demised Properties. Under Wyoming law, the mineral estate is considered to be the dominate estate and the owner of the mineral estate has the legal right to reasonable use of the surface of the land to develop the minerals. In the event a portion of the Demised Properties is proposed to be used for such purpose, Tenant agrees that Landlord has the right, in its sole discretion, to negotiate with the third party pursuant to the Wyoming Split Estate Act contained in Wyo. Stat. Ann. §§ 30-5-401 et. seq.; although parties agree to cooperate in the exercise of all rights granted to the surface owner pursuant to the act. Landlord shall be entitled to any and all compensation provided to the surface owner pursuant to the Wyoming Split Estate Act. Further, in the event a portion of the Demises Properties is so used, the parties agree that such use, whether temporary or permanent, shall be treated in the same manner as a taking for public or quasi-public use under Article 12 .
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[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties have executed this Lease to be effective as of the date first above written.
THIS CONTRACT CONTAINS AN ARBITRATION PROVISION, WHICH MAY BE ENFORCED BY THE PARTIES
LANDLORD: | ||||||
PIPE PORTFOLIO OWNER EXCHANGE (MULTI) LP , | ||||||
a Delaware limited partnership | ||||||
By: | PIPE PORTFOLIO EXCHANGE GP LLC, | |||||
a Delaware limited liability company, its general partner | ||||||
By: | WPC HOLDCO LLC, | |||||
a Maryland limited liability company, its sole member | ||||||
By: | W. P. CAREY INC., | |||||
a Maryland corporation, its sole member | ||||||
By: |
/s/ Gino M. Sabatini |
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Name: | Gino M. Sabatini | |||||
Title: | Managing Director |
STATE OF NEW YORK | ) | |||
) | ss. | |||
COUNTY OF NEW YORK | ) |
On the 31 st day of March in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Gino M. Sabatini , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
/s/ Robert K. Pollak |
||||
Signature of Notary Public | ||||
(Seal) | Commission expires: 08/05/17 | |||
Commission no. 01PO6287036 | ||||
WITNESS SIGNATURE: |
By: |
/s/ Abigail Lamb |
ROBERT K POLLAK Notary Public, State of New York No. 01PO6287036 Qualified in New York Country Certificate filed in New York Country Commission Expires August 05, 2017 |
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Name: | Abigail Lamb | |||||||
By: |
/s/ Leah Speckland |
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Name: | Leah Speckland |
Signature Page | MASTER LAND AND BUILDING LEASE |
THIS CONTRACT CONTAINS AN ARBITRATION PROVISION, WHICH MAY BE ENFORCED BY THE PARTIES
TENANT: | ||
FORTERRA PIPE & PRECAST, LLC, | ||
a Delaware limited liability company | ||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Kelly S. Simpson |
|
Name: | Kelly S. Simpson | |
By: |
/s/ Jennifer Lefler |
|
Name: | Jennifer Lefler |
STATE OF TEXAS | ) | |||||
) | ss. | |||||
COUNTY OF DALLAS | ) |
On the 5th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | MASTER LAND AND BUILDING LEASE (US) |
FORTERRA PRESSURE PIPE, INC., | ||
an Ohio corporation | ||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Kelly S. Simpson |
|
Name: | Kelly S. Simpson | |
By: |
/s/ Jennifer Lefler |
|
Name: | Jennifer Lefler |
STATE OF TEXAS | ) | |||||
) | ss. | |||||
COUNTY OF DALLAS | ) |
On the 5th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | MASTER LAND AND BUILDING LEASE (US) |
FORTERRA CONCRETE PRODUCTS, INC. , | ||
an Iowa corporation | ||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Kelly S. Simpson |
|
Name: | Kelly S. Simpson | |
By: |
/s/ Jennifer Lefler |
|
Name: | Jennifer Lefler |
STATE OF TEXAS | ) | |||||
) | ss. | |||||
COUNTY OF DALLAS | ) |
On the 5th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
|||||
[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | MASTER LAND AND BUILDING LEASE (US) |
FORTERRA CONCRETE INDUSTRIES, INC. , | ||
a Tennessee corporation | ||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Kelly S. Simpson |
|
Name: | Kelly S. Simpson | |
By: |
/s/ Jennifer Lefler |
|
Name: | Jennifer Lefler |
STATE OF TEXAS | ) | |||||
) | ss. | |||||
COUNTY OF DALLAS | ) |
On the 5th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
|||||
Signature Page | MASTER LAND AND BUILDING LEASE (US) |
SCHEDULE 1
DEFINED TERMS
The following capitalized terms used in this Lease have the following meanings.
AAA means the American Arbitration Association or any successor thereto.
Abandon or Abandoned means to completely fail (or to have completely failed) to look after a Demised Property or to completely and finally withdraw (or to have completely and finally withdrawn) from a Demised Property.
Additional Rent means any and all fees, expenses, taxes and charges of every kind and nature arising in connection with or relating to the Demised Properties (other than Base Rent), including (i) any and all taxes (including Real Estate Taxes), fees, utility service charges, insurance premiums, and other costs, and any amounts owed by Tenant under any indemnity to Landlord hereunder, including as set forth in Article 9 and Article 29 ; and (ii) all fees and penalties that may accrue on any amounts due from Tenant hereunder if Tenant fails to pay such amounts in a timely manner.
Affiliate means in relation to any Person, any Person which shall (i) control, (ii) be under the control of, or (iii) be under common control with such Person (the term control as used herein shall be deemed to mean ownership of more than 25% of the outstanding voting stock of a corporation or other majority equity and control interest if such Person is not a corporation) and the power to direct or cause the direction of the management or policies of such Person.
Allocated Base Rent Amount is defined in Section 30.01 .
Alterations means all changes, additions, improvements or repairs to, all alterations, reconstructions, restorations, renewals, replacements or removals of, and all substitutions or replacements for, any of the Improvements or Building Equipment, both interior and exterior, structural and non-structural, and ordinary and extraordinary and shall include any Major Alterations.
Annual Renewal Term Base Rent Notice is defined in Exhibit B .
Approved Replacement Guarantor means a Person (1) for whom, prior to any Replacement, Landlord shall have received evidence that such Person has never been the subject of a voluntary or involuntary (to the extent the same has not been discharged) bankruptcy proceeding and there are no material outstanding judgments against such Person and (2) (x) who is under common Control with Tenant and owns a direct or indirect interest in Tenant and (y) for whom consolidated financial statements are prepared, which financial statements include the results of Tenant.
Arbitrator is defined in Section 31.01 .
Arbitrator Appointment Notices is defined in Section 31.01 .
Base Rent is defined in Section 3.02(b) .
Beginning CPI is defined in Exhibit B .
Building Equipment is defined in the Recitals to this Lease.
SCHEDULE 1-1 | MASTER LAND AND BUILDING LEASE |
Building Equipment Alteration is defined in the first paragraph of Article 6 .
Business Day means any day excluding (i) Saturday, (ii) Sunday, (iii) any day that is a legal holiday under the Laws of the State of New York, and (iv) any day on which banking institutions located in the State of New York are generally not open for the conduct of regular business.
Canadian Demised Properties means those certain properties listed on Exhibit A-2 .
Canadian Lease means that certain Master Land and Building Lease, dated on or about the date hereof, between FORT-NOM HOLDINGS (ONQC) INC., as Landlord, and Forterra Pipe & Precast, Ltd., an Ontario corporation, Forterra Pressure Pipe Inc., a Quebec corporation and Forterra Pipe & Precast Québec Ltd., a Quebec company, collectively, as Tenant, covering the Canadian Demised Properties.
Canadian Non-Renewal Notice means Non-Renewal Notice as such term is used in the Canadian Lease.
Canadian Original Lease Term means Original Lease Term, as such term is defined in the Canadian Lease.
Canadian Tenant means Tenant as such term is used in the Canadian Lease.
Code is defined in Section 31.01 .
Commencement Date is defined in the first paragraph of this Lease.
Competitor means any entity that is primarily engaged in the business of concrete or steel pressure or non-pressure pipes, ductile iron pipe, corrugated metal pipe, HDPE / PVC / GRP pipe, concrete boxes and box culverts, manholes, specialty precast products including, without limitation, utility vaults, retaining walls, mechanically stabilized earth walls, median barriers, erosion mats, pile caps, utility trench, and other precast or pre-stressed concrete products. In addition, the definition of Competitor may be reasonably amended from time to time by Tenant, to the extent that Tenant actually enters new lines of business, by serving Notice on Landlord under the terms of this Agreement; provided, such amended definition complies with the Permitted Uses set forth herein.
Condemnation is defined in Section 40.02(b) .
Consideration Period is defined in Section 31.01 .
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.
CPI is defined in Section 3.02 .
Default is defined in Section 15.01 .
Delinquent Party has the meaning set forth in Section 31.01 for use in that Section.
Demised Properties is defined in the Recitals to this Lease.
Easement Agreement means any conditions, covenants, restrictions, easements, declarations, licenses and other agreements as may now or hereafter be recorded in the applicable land records for any of the Demised Properties, to the extent such agreements (or a copy thereof) have been, or are, promptly after the execution thereof, provided to Tenant.
SCHEDULE 1-2 | MASTER LAND AND BUILDING LEASE |
EAT-WPC Lease is defined in Article 14 .
Eligibility Requirements is defined in Section 23.02 .
Encroached Property is defined in Section 8.03 .
Encroachment and Encroachments are defined in Section 8.03.
Environmental Claims is defined in Section 29.04 .
Environmental Conditions means the conditions of Environmental Media and the conditions of any part of the Demised Properties, including building or structural materials, that affect or may affect Environmental Media.
Environmental Laws means any federal, state or local law, statute, ordinance, permit condition, regulation or binding written policy pertaining to public or worker health or safety in respect of exposure to Hazardous Materials, natural resources, climate change, or the regulation or protection of the indoor or outdoor environment, the regulation or reporting of Hazardous Materials, including the following: (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 9601 et seq. as amended ( CERCLA ), the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq. as amended ( RCRA ), the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of 1977, as amended, 33 U.S.C. 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. 2601 et seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq.; the Clean Air Act of 1966, as amended by the Clean Air Act Amendments of 1990, 42 USC 7401 et seq.; the National Environmental Policy Act of 1970, as amended, 42 USC 4321 et seq.; the Rivers and Harbors Act of 1899, as amended, 33 USC 401 et seq.; the Mine Safety and Health Act of 1977, as amended, 30 U.S.C. Section 801 et seq. the Endangered Species Act of 1973, as amended, 16 U.S.C. 1531, et seq.; the Occupational Safety and Health Act of 1970, as amended 29 U.S.C. 651, et seq.; the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. 300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801 et seq. as amended, and all regulations, binding governmental policies, and applicable administrative or judicial orders promulgated under or implementing or enforcing said laws; (ii) all state or local laws and regulations which implement the foregoing federal laws or which otherwise regulate environmental matters, all as amended from time to time, and all regulations, binding governmental policies, and applicable administrative or judicial orders promulgated under the foregoing laws; (iii) all federal and state common law, including the common law of public or private nuisance, trespass, negligence or strict liability, where such common law pertains to public health and safety, occupational health and safety, natural resources, environmental protection, the public trust doctrine, or the use and enjoyment of property, and all binding judicial orders promulgated under said laws and (iv) all similar provincial laws, regulations, permit conditions, or binding governmental policies or which otherwise regulate environmental matters and are applicable to any of the Demised Properties.
Environmental Media means soil, fill material, or other geologic materials at all depths, groundwater at all depths, surface water including storm water and sewerage, indoor and outdoor air, and all living organisms, including all animals and plants, whether such Environmental Media are located on or off the Demised Properties.
Equipment Relocation is defined in Section 4.03 .
SCHEDULE 1-3 | MASTER LAND AND BUILDING LEASE |
Estoppel Certificate is defined in Article 24 .
Event of Default is defined in Section 15.01 .
Exchange Period is defined in Article 14 .
Exercise Notice is defined in Article 34 .
Existing Loans is defined in Section 15.01(k) .
Existing Subleases is defined in Section 22.04 .
Extension Notice is defined in Section 2.02(a) .
Failing Party has the meaning set forth in Section 31.01 for use in that Section.
Fair Market Rental Value has the meaning set forth in Section 3.02 for use in that Section.
First Option Period is defined in Section 2.02(a) .
GAAP means generally accepted accounting principles as in effect in the United States of America from time to time.
Governmental Authority means (i) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (ii) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, or (iii) any court, administrative tribunal or public utility.
Guarantor means LSF9 Concrete Holdings Ltd., a company incorporated under the laws of the Bailiwick of Jersey, or any replacement guarantor pursuant to a Replacement Guaranty delivered in accordance with the terms hereof.
Guaranty shall mean the Guaranty of Master Land and Building Lease dated as of the date hereof from Guarantor to Landlord guaranteeing the payment and performance by Tenant of all of Tenants obligations under this Lease, or any Replacement Guaranty delivered in accordance with the terms hereof.
Hazardous Materials means any ignitable, reactive, explosive, corrosive, carcinogenic, mutagenic, toxic or radioactive material, whether virgin material, secondary material, by-product, waste or recycled material, defined, regulated or designated as a contaminant, pollutant, hazardous or toxic substance, material, waste, contaminant or pollutant under any Environmental Laws or otherwise regulated as hazardous under any other United States, state, provincial or local law, statute, regulation or ordinance presently in effect or as amended or promulgated in the future during the Term hereof, and shall specifically include: (i) those materials included within the definitions of hazardous substances, extremely hazardous substances, hazardous materials, toxic substances toxic pollutants, hazardous air pollutants toxic air contaminants, solid waste, hazardous waste, pollutants, contaminants, greenhouse gasses or similar categories under any Environmental Laws; (ii) those materials that create liability under common law theories of public or private nuisance, negligence, trespass or strict liability; and (iii) specifically including any material, waste or substance that contains: (A) petroleum or petroleum derivatives byproducts, including crude oil and any fraction thereof and waste oil; (B) asbestos; (C) polychlorinated biphenyls; (D) formaldehyde; and (E) radon. If not already defined as a Hazardous Material under any of the foregoing terms, mold and fungi of any type or concentration
SCHEDULE 1-4 | MASTER LAND AND BUILDING LEASE |
shall be deemed a Hazardous Material hereunder if present in any Improvements under such conditions or circumstance as to represent blight or any unsanitary condition or that impairs the use of any Improvements or portion thereof for its intended uses. Hazardous Materials may be man-made or naturally occurring.
Houston Easement means that certain Easement and Right of Use agreement dated as of July 29, 2015, by and among HBP Pipe & Precast LLC, a Delaware limited liability company (successor-in-interest to Hanson Pipe & Precast LLC, a Delaware limited liability company) and the Houston TIC Entity, recorded as Instrument No. 20150349174 on August 4, 2015, in the Official Public Records of Harris County, Texas.
Houston Property is defined in Section 4.05 .
Houston TIC Entity is defined in Section 4.05 .
Improvements is defined in the Recitals to this Lease.
Initial Adjustment Dates is defined in Section 3.02(a) .
Initial Base Date is defined in Section 3.02(a) .
Initial Base Rent Escalation is defined in Section 3.02(a) .
Land is defined in the Recitals to this Lease.
Landlord is defined in the first paragraph of this Lease.
Landlord Assignment and Assumption Agreement is defined in Section 30.01 .
Landlord Award Amount means the amount of the award actually received by Landlord for any taking of any portion of any Demised Property, less any and all costs and expenses incurred by Landlord in connection with such taking (including any and all costs and expenses incurred by Landlord in connection with obtaining such award).
Landlord Parties means, collectively, (i) Landlord and any Landlords Mortgagee, and (ii) any successors or assigns of any of Landlord, or any Landlords Mortgagee.
Landlords Account is defined in Section 3.01 .
Landlords Mortgagee means any Persons holding a mortgage, deed of trust, deed to secure debt or similar instrument encumbering Landlords interest in the Demised Properties or portion thereof.
Late Fee is defined in Section 15.03 .
Law means all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes, directives, orders, or binding policies issued pursuant thereto, and binding administrative or judicial precedents.
Lease is defined in the first paragraph of this agreement.
Lease Term is defined in Section 2.01(a) .
SCHEDULE 1-5 | MASTER LAND AND BUILDING LEASE |
Leasehold Mortgage means any leasehold deed of trust, mortgage, deed to secure debt, assignment of leases and rents, assignment, security agreement, or other security document securing financing from a lender of Tenant and encumbering Tenants leasehold interest in any Demised Property.
Liens means liens, security interests, charges and encumbrances.
Losing Party has the meaning set forth in Section 31.01 for use in that Section.
Losses means all losses, claims, demands, actions, causes of action, settlements, obligations, duties, indebtedness, debts, controversies, remedies, choses in action, liabilities, costs, penalties, fines, damages, injuries, judgments, forfeitures, or expenses (including reasonable attorneys, consultant, testing and investigation and expert fees and court costs), whether known or unknown, liquidated or unliquidated, or direct or indirect.
Net Award shall mean the entire proceeds of any insurance required under Section 10.01 and Section 10.01 (to the extent payable to Landlord or Landlords Mortgagee), less any expenses incurred by Landlord and Landlords Mortgagee in collecting such award or proceeds.
Notice Date has the meaning set forth in Section 31.01 for use in that Section.
Non-Preapproved Assignee is defined in Section 22.01(c) .
Non-Preapproved Assignment is defined in Section 22.01(c) .
Non-Structural Encroachment(s) is defined in Section 8.03 .
Offering Notice is defined in Article 34 .
Option Period is defined in Section 2.02(a) .
Option Period Adjustment Date is defined in Section 2.02(a) .
Option Period Base Date is defined in Section 2.02(a) .
Option Period Base Rent Escalation is defined in Section 2.02(c).
Option Renewal Adjustment Date is defined in Section 2.02(a) .
Original Lease Term is defined in Section 2.01(a) .
Original Movable Building Equipment is defined in Recital A .
Other Parties is defined in Section 29.02 .
Owner is defined in Article 14 .
Permitted Uses means any heavy manufacturing or other industrial use and any ancillary uses (including ancillary office uses) related thereto, as Tenant may determine in Tenants reasonable business judgment, provided that such use: (a) does not violate any applicable law, ordinance or regulation (including, but not limited to, those relating to environmental, zoning and land use matters); or (b) does not violate matters of record or restrictions affecting the Demised Property (which, if created by Landlord during the Lease Term, were consented to by Tenant).
SCHEDULE 1-6 | MASTER LAND AND BUILDING LEASE |
Person means an individual, corporation, partnership, joint venture, association, joint-stock company, trust, estate, limited liability company, non-incorporated organization or association, or any other entity, any Government Authority or any agency or political subdivision thereof.
Petition means a petition in bankruptcy (including any such petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief) under the Bankruptcy Code of the United States of America, or under any other present or future federal or state statute, law or regulation of similar intent or application.
Post-Occupancy Period means the number of days that Tenant shall require (not to exceed sixty (60) consecutive days) for the sole purpose of removing all Tenant Equipment from the Demised Properties, which period shall commence on the date immediately succeeding the expiration date of the Lease Term.
Post-Occupancy Removal Notice means a statement by Tenant of the Post-Occupancy Period delivered to Landlord no later than twelve (12) months prior to the expiration date of the Lease Term.
Preapproved Sublet is defined in Section 22.01(a) .
Prior Months is defined in Exhibit B .
Real Estate Taxes means (i) all taxes and general and special assessments and other impositions in lieu thereof, or as a supplement thereto and any other tax measured by the value of real property and assessed on a uniform basis against the owners of real property, including any substitution in whole or in part therefor due to a future change in the method of taxation, and, except as otherwise provided in this Lease, including any increase in any of the foregoing resulting from any sale, exchange, mortgage, encumbrance, or other disposition by Landlord, in each case assessed against, or allocable or attributable to, any of the Demised Properties and accruing during or prior to the Lease Term, and (ii) all transfer taxes imposed in connection with this Lease.
Release means any active or passive spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into any Environmental Media. For the purposes of this Lease, Release also includes any threatened Release.
Remedial Activities means any investigation, work plan, preparation, removal, repair, cleanup, abatement, remediation, monitored natural attenuation, natural resource damage assessment and restoration, closure, post-closure, detoxification or remedial activity of any kind whatsoever necessary to address Environmental Conditions to the extent required by Environmental Laws.
Rent means Base Rent plus Additional Rent.
Repairs means all replacements, renewals, alterations, additions and betterments necessary for Tenant to properly maintain each Demised Property in good order, repair and condition, safe and fit for its permitted use under this Lease.
Replaced Property is defined in Section 31.01 .
Replacement Property is defined in Section 31.01 .
Restoration Fund is defined in Section 11.04 .
Restoration Work is defined in Section 11.01 .
SCHEDULE 1-7 | MASTER LAND AND BUILDING LEASE |
Review Criteria is defined in Section 22.01(c) .
Review Period is defined in Article 34 .
Second Option Period is defined in Section 2.02(a) .
Second Option Period Adjustment Date is defined in Section 3.02(a) .
Second Option Period Base Date is defined in Section 3.02(a) .
Shortfall Amount is defined in Section 11.04 .
Site Reviewers is defined in Section 18.02 .
Stewart is defined in Section 8.03 .
Structural Encroachment(s) is defined in Section 8.03 .
SNDA is defined in Section 23.01 .
Tenant is defined in the first paragraph of this Lease.
Tenant Equipment is defined in the Recitals to this Lease.
Tenants Lender means any lender of Tenant that holds a Leasehold Mortgage.
Third Party is defined in Section 8.03 .
Threshold Amount means One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) for a period of twelve (12) consecutive months, or such lesser amount as may be required to be placed within an escrow account by any Landlords Mortgagee.
Title Policy is defined in Section 8.03 .
Use means the receipt, handling, generation, storage, treatment, recycling, disposal, transfer, transportation, introduction, or incorporation into, on, about, under or from the Demised Properties of Hazardous Materials.
USP Holdings means USP Holdings, Inc.
Winning Party has the meaning set forth in Section 31.01 .
SCHEDULE 1-8 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 2
LIST OF ORIGINAL MOVABLE BUILDING EQUIPMENT
SCHEDULE 2 | MASTER LAND AND BUILDING LEASE |
Forterra Sale Leaseback
Site Detailed Data
($ in 000s) | Percentage complete | 100% | ||||||||||||||||
Location (Address) |
||||||||||||||||||
Name of Plant |
Street |
City |
State |
Post Code |
Country |
Segment |
Overhead
cranes |
Crane Capacities |
||||||||||
1 | Billings, MT | 1521 South 32nd Street West | Billings | MT | 59102 | USA | Cretex Concrete Products, Inc. | 1 | 10T | |||||||||
2 | Bonner Spring, KS | 23600 West 40th Street | Bonner Spring | KS | 66226 | USA | Cretex Concrete Products, Inc. | 2 | 30T;10T | |||||||||
4 | Hawley, MN | 401 Michael Street S and 1025 Cretex Street | Hawley | MN | 56549 | USA | Cretex Concrete Products, Inc. | 1 | 1-20T | |||||||||
5 | Iowa Falls, IA | 540 Country Club Road | Iowa Falls | IA | 50126 | USA | Cretex Concrete Products, Inc. | 5 | 1 (50 T), 2 (40 T), 2 (30 T) | |||||||||
6 | Marshalltown, IA | 2002 East Olive Street | Marshalltown | IA | 50158 | USA | Cretex Concrete Products, Inc. | 4 | (1) 10T;(1) 20T;(2) 30T | |||||||||
7 | Menoken, ND | 1101 158 Street Northeast | Menoken | ND | 58558 | USA | Cretex Concrete Products, Inc. | 2 | 4T;20T | |||||||||
8 | Rapid City, SD | 1601 Culvert Street | Rapid City | SD | 57701 | USA | Cretex Concrete Products, Inc. | 3 | 35T; 5T, 1T | |||||||||
11 | Cedar Hill Pipe Plant | 2138 Highway 67 South | Cedar Hill | TX | 75104 | USA | Gravity Pipe & Precast | 3 | 50T; 35T; 5T | |||||||||
12 | Columbus Gravity Pipe Plant | 1500 Haul Rd. | Columbus | OH | 43207 | USA | Gravity Pipe & Precast | 7 | (2) 5T; (2) 20T; (2) 25T; 35T | |||||||||
13 | Deland Precast Plant | 840 West Ave | Deland | FL | 32720 | USA | Gravity Pipe & Precast | 10 | 5T; (6) 10T; 20T; (2)35T | |||||||||
14 | EI Mirage | 12600 W. Northern Ave | El Mirage | AZ | 85335 | USA | Gravity Pipe & Precast | 5 | (2) 10T; (2) 20T; 40T | |||||||||
15 | Florin Road | 7020 Tokay Avenue | Sacramento | CA | 95828 | USA | Gravity Pipe & Precast | 6 | (2) 10T; 15T; (2) 20T; 40T | |||||||||
16 | Grand Prairie Gravity Plant | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 1 | 70T | |||||||||
17 | Grand Prairie Precast Plant | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 8 | (6) 10T; 25T; 35T | |||||||||
31 | Grand Prairie | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Pressure Pipe | 125 | Separate tab | |||||||||
67 | Form Equipment Support | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 4 | (4) 10 T | |||||||||
Grand Prairie Total | 138 | |||||||||||||||||
18 | Houston Box Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 1 | 60T | |||||||||
19 | Houston Jersey Village Gravity Pipe Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 5 | 5T; (2) 10T; 20T; 60T | |||||||||
20 | Houston Precast Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 7 | (4) 10T; 15T; 20T 35T | |||||||||
Houston Total | 13 | |||||||||||||||||
21 | Jackson Pipe Plant | 2840 West Northside Drive | Jackson | MI | 39213 | USA | Gravity Pipe & Precast | 2 | 10T; 15T | |||||||||
22 | Macedonia Plant | 7925 Empire Parkway | Macedonia | OH | 44056 | USA | Gravity Pipe & Precast | 1 | 25T | |||||||||
23 | Oklahoma City Pipe Plant | 6504 S. Interpace | Oklahoma City | OK | 73135 | USA | Gravity Pipe & Precast | 1 | 30T |
27 | Shafter | 30781 San Diego St | Shafter | CA | 93263 | USA | Gravity Pipe & Precast | 3 | 10T; 20T; 50T | |||||||||
28 | Waco Precast Plant | 11710 Chapel Road | Hewitt | TX | 76643 | USA | Gravity Pipe & Precast | 10 | (3) 5T; (2) 7.5T; (2) 10T; 15T; 20T; 30T | |||||||||
29 | Winter Haven Pipe Plant | 1285 Luceme Loop Road | Winter Haven | FL | 33881 | USA | Gravity Pipe & Precast | 4 | (3) 20T; 30T | |||||||||
30 | Bakewell | 550 Industrial Blvd | Sale Creek | TN | 373273 | USA | Pressure Pipe | 6 | 3T; 5T; (3) 10T; 20T | |||||||||
32 | South Beloit | 4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | Pressure Pipe | 23 | (5) 2T; (5) 3T; (3) 4T; (6) 10T; (4) 15T | |||||||||
35 | Bar Nunn, WY | 2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | Cretex Concrete Products, Inc. | 0 | ||||||||||
36 | Cedar Rapids, IA | 3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | Cretex Concrete Products, Inc. | 1 | 2T | |||||||||
37 | Franklin | 313 Downs Boulevard | Franklin | TN | 37064 | USA | Sherman -Dixie | 4 | (2) 3T; 50T;15T | |||||||||
38 | Lexington |
759 Phillips Lane and 760 Phillips Lane |
Lexington | KY | 40504 | USA | Sherman -Dixie | 1 | 7.5T | |||||||||
39 | Oskaloosa, KS | 5150 US Highway 59 | Lawrence | KS | 66066 | USA | Cretex Concrete Products, Inc. | 3 | (2) 10T; 30T | |||||||||
40 | Shakopee, MN | 7070 Cretex Avenue | Shakopee | MN | 55379 | USA | Cretex Concrete Products, Inc. | 3 | (1) 15T; (2)5T | |||||||||
41 | Dayton Precast Plant | 1504 N. Gettysburg Ave. | Dayton | OH | 45417 | USA | Gravity Pipe & Precast | 2 | 5T; 15T | |||||||||
42 | Gretna Pipe Plant | 55 Dritches Hayes N/ Aclary Ave | Gretna | FL | 32332 | USA | Gravity Pipe & Precast | 0 | ||||||||||
45 | Marianna Precast Plant | 4043 Family Dollar Parkway | Marianna | FL | 32448 | USA | Gravity Pipe & Precast | 3 | 5T; 15T; 30T | |||||||||
46 | Robstown Gravity Pipe Plant | 1610 Hwy, 77 South | Robstown | TX | 78380 | USA | Gravity Pipe & Precast | 1 | 35T | |||||||||
48 | Athens Precast Plant | 625 B Hancock Industrial Way | Athens | GA | 30605 | USA | Gravity Pipe & Precast | 6 | (2) 5T; (2) 10T; 20T; 25T | |||||||||
50 | Little Rock Pipe Plant | 1300 Bond Street | Little Rock | AR | 72202 | USA | Gravity Pipe & Precast | 2 | 5T; 15T | |||||||||
51 | Montgomery Gravity Pipe Plant | 1616 Parallel Street | Montgomery | AL | 36104 | USA | Gravity Pipe & Precast | 2 | (2) 5T | |||||||||
52 | New Orleans Gravity Pipe Plant | 13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | Gravity Pipe & Precast | 3 | 7.5T; (2) 35T | |||||||||
56 | Rome Pipe Plant | 223 John Davenport Drive | Rome | GA | 30165 | USA | Gravity Pipe & Precast | 1 | 10T | |||||||||
57 | St. Martinville Pipe Plant | 520 W. Port Street | St. Martinwille | LA | 70582 | USA | Gravity Pipe & Precast | 1 | 15T | |||||||||
58 | West Memphis Pipe Plant | 501 East Jefferson | West Memphis | AR | 72301 | USA | Gravity Pipe & Precast | 5 | (2) 5T; 10T; 15T; 35T | |||||||||
59 | Plattsmouth, NE | 369 Wiles Road | Plattsmouth | NE | 68048 | USA | Cretex Concrete Products, Inc. | 1 | ||||||||||
65 | Lubbock | 1624 Marshall St | Lubbock | TX | 79415 | USA | Pressure Pipe | 4 | (4) 5T |
SCHEDULE 4.04
LIST OF VIOLATIONS OF LAW
1. | Columbus, OH (1500 Haul Road, Columbus, Ohio) - The parking lot must be legal and conforming, and the parking lot will need to be hard surface and stripped in order to count towards the legally required number of required parking spaces. |
Schedule 4.04 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 7.02
LIST OF REQUIRED REPAIRS
SCHEDULE 7.02 | MASTER LAND AND BUILDING LEASE |
PCA Summary of Immediate and Short-term Recommendations
Partner
|
Forterra Site # |
Street Address |
City |
State |
Post Code |
Country |
Immediate & Short-term
Repairs Total Cost |
Immediate & Short-term Recommendations (For additional information, refer to the PCA Section noted below) |
||||||||||
1 | 11 | 1616 Parallel Street | Montgomery | AL | 36104 | USA | $ | 2,500 | Immediate Repair - Section 4.2: Repair damaged concrete masonry unit wall section along the south face of the west process building. This appears to have occurred through vehicle or equipment impact. | |||||||||
5 | 8 | 1300 Bond Street | Little Rock | AR | 72202 | USA | $ | 7,500 | Short-term Repair - Section 4.3.1: Repair damaged metal siding at the Production Plant and Office Buildings. | |||||||||
6 | 9 | 501 East Jefferson | West Memphis | AR | 72301 | USA | $ | 41,600 |
Immediate Repair - Section 3.3.1: Install storm water drain to control ponding near fuel ASTs. Short-term Repair - Section 4.3.1: Repair damaged metal siding. Immediate Repair - Section 4.4.1: Replace built-up roofing. |
|||||||||
7 | 25 | 12600 W. Northern Ave | El Mirage | AZ | 85335 | USA | $ | 56,450 |
Immediate Repair - Section 3.3.1: Soil erosion evaluation by civil engineer. Immediate Repair - Section 3.3.1: Earth Fissure trenching study by geotechnical engineer. Immediate Repair - Section 3.3.2: Pavement thickness design study by geotechnical engineer. Short-term Repair - Section 3.3.2: Asphalt seal coat & parking stall striping. Short-term Repair - Section 4.3.1: Exterior cleaning, sealing, painting (office). Short-term Repair - Section 4.4.1: Roof replacement, spray foam. Immediate Repair - Section 7.1: Add two ADA accessible parking spaces, one of which must be a van-accessible parking space. |
|||||||||
8 | 28 | 7020 Tokay Avenue | Sacramento | CA | 95828 | USA | $ | 27,450 |
Short-term Repair - Section 3.3.2: Pavement appears to be in fair structural condition. Extensive map or alligator cracking were not at the drive aisle on the northern side of Building 2. Repair of the drive aisle is recommended. Short-term Repair - Section 3.3.9: The ancillary structures to be in fair overall condition. Damaged roofing was noted at the storage structure. Repair of the roofing is recommended. |
|||||||||
9 | 26 | 30781 San Diego St | Shafter | CA | 93263 | USA | $ | 7,250 |
Immediate Repair - Section 2.3.1: Replace, recertify and update tags on fire extinguishers per Kern County Fire Dept. Short-term Repair - Section 4.3.1: Commission structural engineer or third party steel cladding manufacture of metal building siding-cladding to replace and repair missing exterior wall, canopy and shed sidings for future potential structure and building anticipated uses. Immediate Repair - Section 4.3.2: Analyze what damaged windows that may be useful and intended for use in future building functions. Immediate Repair - Section 4.4.2: Repair leak i roof of Building 1. Immediate Repair - Section 7.1: Add accessible ADA compliant path of travel routes from the ADA designated parking stalls to the accessible ramps to buildings 5 and 6. |
|||||||||
10 | 6 | 840 West Ave | Deland | FL | 32720 | USA | $ | 54,000 |
Immediate Repair - Section 3.3.1: Areas of soil erosion due to rain washout were observed adjacent to the concrete stairway to the east of Plant Building-2 and along the main drive aisle located at the north side of the property. Partner recommends the backfill and repair of the eroded areas. Immediate Repair - Section 3.3.2: Extensive linear cracking, map or alligator cracking, and pothole formation were noted at the drive aisles within the fenced in working areas along the main drive aisle located at the north side of the subject property due to soil erosion. Repair of the noted area is recommended. Immediate Repair - Section 4.3.1: Metal panel exterior walls of the Storage building and the Wood Shop building were observed to have damaged exterior metal panels. Partner recommends the dented and damaged metal panels. Immediate Repair - Section 4.4.1: Metal roofing of the Storage building and Wood Shop buildings appear to have several areas of roof leaks leading to interior insulation deterioration and failure. Partner recommends roof and insulation replacement for the Storage and Wood Shop building roofs. |
|||||||||
11 | 4 | 55 Ditches Hayes N/ Aclary Ave | Gretna | FL | 32332 | USA | $ | 0 | NA | |||||||||
12 | 5 | 4043 Family Dollar Parkway | Marianna | FL | 32448 | USA | $ | 30,500 |
Immediate Repair - Section 3.3.2: Asphalt pavement reconstruction. Immediate Repair - Section 3.3.8: Repair exterior lighting. Immediate Repair - Section 3.3.2: Asphalt pavement seal coat. |
|||||||||
13 | 7 | 1285 Luceme Loop Road | Winter Haven | FL | 33881 | USA | $ | 0 | NA | |||||||||
14 | 3 | 625 B Hancock Industrial Way | Athens | GA | 30605 | USA | $ | 0 | NA | |||||||||
15 | 2 | 223 John Davenport Drive | Rome | GA | 30165 | USA | $ | 2,700 |
Immediate Repair - Section 3.3.1: Partner recommends property management engage the services of a local contractor to inspect the storm water drainage areas of the subject property and recommend corrective action for the storm water drainage issues in the southeast section of the property grounds. Immediate Repair - Section 3.3.2: Pavement markings and striping are recommended to be installed at the office building concrete parking area. |
|||||||||
16 | 20 | 3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | $ | 0 | NA | |||||||||
18 | 17 | 540 Country Club Road | Iowa Falls | IA | 50126 | USA | $ | 2,500 |
Immediate Repair - Section 4.3.2: Replace rotted window trim at office. Short-term Repair - Section 4.3.3: Replace rusted door frames at office. |
|||||||||
19 | 18 | 2002 East Olive Street | Marshalltown | IA | 50158 | USA | $ | 0 | NA | |||||||||
20 | 2 | 4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | $ | 30,000 |
Short-term Repair - Section 3.3.2: Grading and bedding sand replacement. Short-term Repair - Section 4.3.1: Metal panel repair and replacement. Short-term Repair - Section 4.3.3: Replace three loading doors. Short-term Repair - Section 4.3.1: Repair and seal step cracks in concrete masonry unit facades. |
|||||||||
21 | 4 | 23600 West 40th Street | Bonner Spring | KS | 66226 | USA | $ | 0 | NA | |||||||||
22 | 3 | 5150 US Highway 59 | Lawrence | KS | 66066 | USA | $ | 0 | NA | |||||||||
23 | 6 | 13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | $ | 29,850 |
Immediate Repair - Section 3.3.1: Allowance to assess, and, if necessary, repair stormwater management to prevent ponding observed at two locations: south of the Box Culvert Production building and north of the Pipe Production building. Immediate Repair - Section 4.4.1: Concrete pavement repair. Repair three roof leaks at pipe production building; mitigate associated discoloration and suspect mold on concrete columns at roof leak locations. Immediate Repair - Section 4.4.1: Mold remediation in the Pipe Production building. Immediate Repair - Section 5.3: Infrared testing. Immediate Repair - Section 7.1: Convert standard ADA parking space to a van-accessible parking space. Immediate Repair - Section 7.1: Allowance to provide an accessible path to the Office building. |
1
PCA Summary of Immediate and Short-term Recommendations
Partner Site # |
Forterra
Site # |
Street Address |
City |
State |
Post Code |
Country |
Immediate & Short-term
Repairs Total Cost |
Immediate & Short-term Recommendations (For additional information, refer to the PCA Section noted below) |
||||||||||
24 | 7 | 520 W. Port Street | St. Martinwille | LA | 70582 | USA | $ | 11,850 |
Immediate Repair - Section 3.3.6: Replace property signage. Immediate Repair - Section 3.3.2: Concrete pavement repair. Immediate Repair - Section 7.1: Add a van-accessible parking space. |
|||||||||
27 | 12 | 2840 West Northside Drive | Jackson | MS | 39213 | USA | $ | 13,000 |
Immediate Repair - Section 3.3.2: Overlay asphalt parking lot. Short-term Repair - Section 4.4.1: Allowance for metal roof fastener replacement. |
|||||||||
29 | 23 | 401 Michael Street S and 1025 Cretex Street | Hawley | MN | 56549 | USA | $ | 0 | NA | |||||||||
30 | 22 | 7070 Cretex Avenue | Shakopee | MN | 55379 | USA | $ | 0 | NA | |||||||||
31 | 1 | 1521 South 32nd Street West | Billings | MT | 59102 | USA | $ | 25,700 |
Short-term Repair - Section 3.3.2: Asphalt pavement is raveling and striping is faded. An overlay is recommended at the office parking lot and access driveway. Immediate Repair - Section 3.3.6: The site precast sign at the main entrance is damaged and missing a portion, which shows exposed reinforcement. Replacement should be conducted. Immediate Repair - Section 4.2: Two roll-up door opening were damaged due to a forklift or oversized vehicle or finishes product passage. The damage was observed on the southwest door opening at the top and also at the top of the east door opening. Determine if door replacement is necessary. Immediate Repair - Section 4.3.4: Overlap seams in the perimeter wall cap flashing do not have sealant applied to prevent water infiltration. Stained ceiling tiles were observed in the office restroom along the inside of the exterior wall on the south side. Sealant should be applied which should address the problem. Short-term Repair - Section 4.2: Damaged insulation was observed at some areas inside the manufacturing building. Replacement or repairs are needed. Short-term Repair - Section 4.3.1: Some dents in the manufacturing building were observed, and damaged panels should be replaced. The roofing is the same material as the walls and a significant amount of concrete build-up on the northeast corner of the roof and gutter should be removed. Short-term Repair - Section 4.4.2: Gutter replacement allowance. Gutters on manufacturing building are clogged with concrete and downspouts also need partial replacement. |
|||||||||
32 | 26 | 1101 158 Street Northeast | Menoken | ND | 58558 | USA | $ | 0 | NA | |||||||||
33 | 5 | 369 Wiles Road | Plattsmouth | NE | 68048 | USA | $ | 500 | Immediate Repair - Section 7.1: Provide an ADA van-accessible parking space. | |||||||||
34 | 15 | 1500 Haul Rd. | Columbus | OH | 43207 | USA | $ | 500 | Immediate Repair - Sections 3.3.2/7.1: Provide an ADA van-accessible parking space. | |||||||||
35 | 36 | 1504 N. Gettysburg Ave. | Dayton | OH | 45417 | USA | $ | 2,750 |
Short-term Repair - Sectional 4.3.1: Minor replacements metal panels. Immediate Repair - Sectional 7.1: ADA entrance hardware. |
|||||||||
36 | 16 | 7925 Empire Parkway | Macedonia | OH | 44056 | USA | $ | 23,500 |
Immediate Repair - Section 3.3.1: Repair storm drains inside plant bldg. Immediate Repair - Section 3.3.2:Repair, reseal, restripe asphalt. Immediate Repair - Section 3.3.3: Repair cracked and damaged concrete noted at walk adjacent to the Plant building offices. Immediate Repair - Section 3.3.3: Partner observed areas of wall damage to the metal siding along the north and south plant elevations. In addition, a puncture was noted at the Plant building. Repair of the hole and damaged walls is recommended. Immediate Repair - Section 4.3.1: Replace inoperable overhead door and service door. Immediate Repair - Section 4.3.3: Replace/repair insulation/vinyl/concrete floors at plant bldg. Immediate Repair - Section 7.1: Relocate two existing spaces at the office building, and convert one to van-accessible. |
|||||||||
37 | 10 | 6504 S. Interpace | Oklahoma City | OK | 73135 | USA | $ | 8,000 |
Immediate Repair - Section 4.4: Repair active roof leaks. Immediate Repair - Sectional 4.3: Repair windows. |
|||||||||
39 | 25 | 1601 Culvert Street | Rapid City | SD | 57701 | USA | $ | 12,000 | Short-term Repair - Section 4.4.1: Install membrane roofing at boiler bldg. | |||||||||
40 | 29 | 550 Industrial Blvd | Sale Creek | TN | 373273 | USA | $ | 45,000 |
Immediate Repair - Section 4.1: Pit sealant. Immediate Repair - Section 4.2: CMU block joint repair. Immediate Repair - Section 4.4.1: Roof leak repair. Immediate Repair - Section 7.1: Construct ADA accessible entrance path of travel to the building entrance. Immediate Repair - Section 7.1: Install one standard and one van-accessible parking space. |
|||||||||
42 | 14 | 2138 Highway 67 South | Cedar Hill | TX | 75104 | USA | $ | 7,500 | Immediate Repair - Section 4.3.1: Replace damaged/deteriorated metal panels at the Concrete Batch Plant building. | |||||||||
43 | 11, 12 & 13 | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | $ | 0 | NA | |||||||||
46 | 15 | 11710 Chapel Road | Hewitt | TX | 76643 | USA | $ | 35,100 |
Immediate Repair - Section 3.3.2: Portions of the asphalt pavement at the Building 1 office parking areas are deteriorated and require replacement. Partner recommends that an overlay be performed. Immediate Repair - Section 4.3.1: Partner noted that the northeast and southeast walls of the Management Office building are damaged and in need of repair. Some sections of the wall have separated for the substrate structure and various areas of damaged exterior insulation finishing system (EIFS) were noted, especially adjacent to grade. Repairs are recommended. Additionally, vine growth was noted at the cladding and should be removed. Immediate Repair - Section 4.4.1: According to management, the Management Office and Sales Office sections of Building 1 roofs have active roof leaks. Although repairs have been attempted in the past, the roofs continue to leak into the office and support areas. Partner recommends retaining a licensed roofing company to assess and repair the roofs. |
|||||||||
47 | 16, 17 & 18 | 11201 FM 529 | Houston | TX | 77240 | USA | $ | 0 | NA | |||||||||
50 | 23 | 1624 Marshall St | Lubbock | TX | 79415 | USA | $ | 11,000 |
Short-term Repair - Section 3.3.2: Pavement appears to be in poor structural condition. Extensive linear cracking and pothole formations were noted throughout the subject property. Repair of the noted area is recommended. Short-term Repair - Section 3.3.2: Partner recommends grading and replenishing gravel at the property. |
|||||||||
51 | 21 | 1610 Hwy, 77 South | Robstown | TX | 78380 | USA | $ | 5,000 | Short-term Repair - Section 4.3.1: Partner observed cracks, corrosion and minor impact damage at various exterior cladding locations. Partner recommends that repairs be performed and that the concrete be repainted. | |||||||||
56 | 24 | 2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | $ | 0 | NA | |||||||||
63 | NP | 759 Phillips Lane and 760 Phillips Lane | Lexington | KY | 40504 | USA | $ | 0 | NA | |||||||||
64 | NP | 313 Downs Boulevard | Franklin | TN | 37064 | USA | $ | 4,200 |
Short-term Repair - Section 4.3.2: Repair of damaged office windows. Short-term Repair - Section 4.2.1: Repair step-cracks at CMU walls. |
|||||||||
|
|
|||||||||||||||||
Total: |
$ | 497,900 | ||||||||||||||||
|
|
2
SCHEDULE 8.03(A)
LIST OF STRUCTURAL ENCROACHMENTS
SITE |
ENCROACHMENT |
|
SACRAMENTO CA | SMALL 20 X 25 1 STY FRAME BLDG 3.2 AND 0.9 OVER PROPERTY LINE; | |
IOWA FALLS IA | BUILDINGS 4 & 5 ENCROACH 100 WIDE ELECTRIC TRANSMISSION LINE EASEMENT UP TO 68 X 90 | |
COLUMBUS OH | SHED OVER PROPERTY LINE 10.6 | |
HOUSTON TX | BUILDINGS 3, 3A, 3B & 4 ENCROACH OVER SANITARY CONTROL EASEMENT AND BUILDINGS 3B & 5 ENCROACH OVER ELECTRIC EASEMENT |
SCHEDULE 8.03 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 8.03(B)
LIST OF NON-STRUCTURAL ENCROACHMENTS
SITE |
ENCROACHMENT |
|
MONTGOMERY AL | FENCE | |
CEDAR RAPIDS IA | GRAVEL DRIVEWAY OVER PROPERTY LINE | |
OSKALOOSA KS | BOULDERS ENCROACH INTO ROW 19 | |
MACEDONIA OH | CONCRETE AND GRAVEL ENCROACH ONTO ADJOINER PROPERTY | |
GRAND PRAIRIE TX | FENCE/STRIPED PARKING CROSS PROPERTY LINE UP TO 50.27 | |
LUBBOCK TX | ASPHALT PARKING OVER PROPERTY LINE 13.6 |
SCHEDULE 8.03 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 22.04
EXISTING SUBLEASES
1. | South Beloit, IL |
Lease dated December 31, 2012 between Forterra Pressure Pipe, Inc. f/k/a Hanson Pressure Pipe, Inc., as landlord, and Logan Trucking, as tenant, for a portion of the Real Property located at 4416 Prairie Hill Road, South Beloit, IL.
2. | Athens, GA |
Lease dated February 28, 2006 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe & Products, Inc., as Landlord, and HD Supply Waterworks, Ltd., as successor in interest to Hughes Water & Sewer, Ltd., as Tenant, as amended by that certain First Amendment to Lease dated January 5, 2011 between Landlord and Tenant, as further amended by that certain Second Amendment to Lease dated September 6, 2013 between Landlord and Tenant for a portion of the Real Property located at 625 Hancock Industrial way, Athens, GA.
3. | Montgomery, AL |
Tower Site Lease Agreement dated February 16, 1996 between Forterra Pipe & Precast, LLC, as successor in interest to Sherman International Corp., as landlord, and Alltell Mobile Communications of Alabama, Inc., as tenant for a portion of the Real Property located at 1616 Parallel Street, Montgomery, AL.
4. | New Orleans, LA |
Ground Lease Agreement dated June 21, 1996 between Forterra Pipe & Precast, LLC as successor in interest to New Orleans Cement Products Co. Inc., as landlord, and Verizon Wireless, f/k/a PrimeCo Personal Communications, L.P., as tenant, for a portion of the Real Property located at 13201 Old Gentilly Road, New Orleans, LA.
5. | Grand Prairie, TX |
Sign Location Lease (#000124) dated February 13, 2008 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe and Products, as Landlord, and Outfront Media, f/k/a CBS Outdoor Inc., as Tenant, as amended by that certain Addendum Lease Extension and Modification Agreement dated May 17, 2010 between Landlord and Tenant for a portion of the Real Property located at 1000 North MacArthur Blvd., Grand Prairie, TX.
Sign Location Lease (#02-6143) dated May 1, 2000 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe & Products, Inc., as Landlord and Outfront Media, LLC f/k/a CBS Outdoor Inc., as successor in interest to Infinity Outdoor, Inc., as Tenant, as amended by that certain Addendum Lease Extension and Modification Agreement dated May 17, 2010 between Landlord and Tenant for a portion of the Real Property located at 1000 North MacArthur Blvd., Grand Prairie, TX.
Lease Agreement (#02-6141) dated May 1, 2000 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe & Products, Inc., as Landlord and Outfront Media, LLC f/k/a CBS Outdoor Inc., as successor in interest to Infinity Outdoor, Inc., as Tenant, as amended by that certain Addendum Lease Extension and Modification Agreement dated May 17, 2010 between Landlord and Tenant for a portion of the Real Property located at 1000 North MacArthur Blvd., Grand Prairie, TX.
SCHEDULE 22.04 | MASTER LAND AND BUILDING LEASE |
Billboard Lease between, Forterra Pipe & Precast, LLC, as successor in interest to Cornerstone C&M, Inc. (Landlord) and Prescott Interests, Ltd. (Original Tenant), dated December 16, 1996, as assigned to Clear Channel Outdoor, Inc. (Clear Channel), by that Lease Consent to Assignment between Original Tenant, Clear Channel, and Landlord, dated April 10, 2003.
6. | Houston, TX. |
Lease Agreement dated October 1, 2013 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe and Precast, LLC (Landlord) and Univar USA, Inc. (Tenant) as amended by that Renewal of Lease dated October 1, 2015 between Landlord and Tenant for a portion of the Real Property located at 11201 FM 529, Houston, TX.
Lease and Agreement dated January 1, 2009 between Forterra Pipe & Precast, LLC f/k/a Hanson Pipe & Products, Inc. (Landlord) and Lhoist North America of Texas, Inc. f/k/a Chemical Lime, Ltd. (Tenant) as amended by that First Amendment to Lease dated December 31, 2013 between Landlord and Tenant, as further amended by that Renewal of Lease dated January 1, 2016 between Landlord and Tenant for a portion of the Real Property located at 11201 FM 529, Houston, TX.
SCHEDULE 22.04 | MASTER LAND AND BUILDING LEASE |
EXHIBIT A-1
LOCATION/ADDRESS OF DEMISED PROPERTIES/ADJUSTMENT AMOUNTS
ADDRESS |
CITY |
STATE |
POSTAL CODE |
COUNTRY |
ADJUSTMENT
AMOUNTS |
|||||||
1616 Parallel Street | Montgomery | AL | 36104 | USA | 1.149 | % | ||||||
1300 Bond Street | Little Rock | AR | 72202 | USA | 1.263 | % | ||||||
501 E. Jefferson South | West Memphis | AR | 72301 | USA | 2.122 | % | ||||||
12600 W. Northern Avenue | El Mirage | AZ | 85335 | USA | 3.678 | % | ||||||
7020 Tokay Avenue | Sacramento | CA | 95828 | USA | 4.669 | % | ||||||
30781 San Diego Street | Shafter | CA | 93263 | USA | 0.633 | % | ||||||
840 West Avenue | Deland | FL | 32720 | USA | 3.549 | % | ||||||
55 Dritches Hayes Clary Ave | Gretna | FL | 32332 | USA | 0.905 | % | ||||||
4043 Family Dollar Parkway | Mariana | FL | 32448 | USA | 1.683 | % | ||||||
1285 Lucerne Loop Road | Winter Haven | FL | 33881 | USA | 4.965 | % | ||||||
625 Hancock Industrial Way | Athens | GA | 30605 | USA | 1.151 | % | ||||||
223 John Davenport Drive | Rome | GA | 30165 | USA | 0.951 | % | ||||||
3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | 0.435 | % | ||||||
540 Country Club Road | Iowa Falls | IA | 50126 | USA | 1.692 | % | ||||||
2002 East Olive Street | Marshalltown | IA | 50158 | USA | 1.002 | % | ||||||
4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | 5.443 | % | ||||||
23600 West 40th Street | Bonner Springs | KS | 66226 | USA | 1.586 | % | ||||||
5150 US Highway 59 | Oskaloosa (Lawrence) | KS | 66066 | USA | 1.037 | % | ||||||
759 Phillips Lane and 760 Phillips Lane | Lexington | KY | 40504 | USA | 1.137 | % | ||||||
13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | 2.116 | % | ||||||
520 W. Port Street | St. Martinville | LA | 70582 | USA | 1.441 | % | ||||||
401 Michael Street S; and 1025 Cretex Street | Hawley | MN | 56549 | USA | 0.935 | % | ||||||
7070 Cretex Avenue | Shakopee | MN | 55379 | USA | 1.287 | % | ||||||
2840 W. Northside Drive | Jackson | MS | 39213 | USA | 1.515 | % | ||||||
1521 South 32nd Street West | Billings | MT | 59102 | USA | 0.601 | % | ||||||
1101 158 Street Northeast | Menoken | ND | 58558 | USA | 0.649 | % | ||||||
369 Wiles Road | Plattsmouth | NE | 68048 | USA | 0.554 | % | ||||||
1500 Haul Road | Columbus | OH | 43207 | USA | 3.743 | % | ||||||
1504 N. Gettysburg Avenue | Dayton | OH | 45417 | USA | 2.243 | % | ||||||
7925 Empire Parkway | Macedonia | OH | 44056 | USA | 1.833 | % | ||||||
6504 South Interpace | Oklahoma City | OK | 73135 | USA | 1.406 | % | ||||||
1601 Culvert St | Rapid City | SD | 57701 | USA | 2.473 | % | ||||||
550 Industrial Boulevard | Sale Creek | TN | 37304 | USA | 2.139 | % | ||||||
313 Downs Boulevard | Franklin | TN | 37064 | USA | 1.399 | % | ||||||
2138 Highway 67 South | Cedar Hill | TX | 75104 | USA | 1.909 | % | ||||||
1000 N. MacArthur Blvd | Grand Prairie | TX | 75050 | USA | 19.839 | % | ||||||
11710 Chapel Road | Hewitt | TX | 76643 | USA | 2.816 | % | ||||||
11201 FM 529 | Houston | TX | 77240 | USA | 8.158 | % | ||||||
1624 Marshall Street | Lubbock | TX | 79415 | USA | 2.662 | % | ||||||
1610 Highway 77 South | Robstown | TX | 78380 | USA | 1.076 | % | ||||||
2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | 0.156 | % | ||||||
|
|
|||||||||||
100.00 | % | |||||||||||
|
|
EXHIBIT A-1 | MASTER LAND AND BUILDING LEASE |
EXHIBIT A-2
LIST OF CANADIAN DEMISED PROPERTIES
# |
Name of Plant |
Street |
City |
State |
Post Code |
Country |
||||||
1 |
Cambridge | 2099 Roseville Road | Cambridge | Ontario | N1R5S3 | CAD | ||||||
2 |
Ottawa | 3374 Rideau Road | Gloucester | Ontario | K1G3N4 | CAD | ||||||
3 |
St-Eustache | 699-701 Industrial Blvd. | St. Eustache | Quebec | J7R6C3 | CAD | ||||||
4 |
Uxbridge | 102 Prouse Road | Uxbridge | Ontario | L4A7X4 | CAD | ||||||
5 |
Mascouche | 1331 Avenue De La Gare | Mascouche | Quebec | J7K3G6 | CAD | ||||||
6 |
Stouffville | 5387 Bethesda Rd | Stouffville | Ontario | L4A7X3 | CAD |
EXHIBIT A-2 | MASTER LAND AND BUILDING LEASE |
EXHIBIT B
METHOD OF CPI ADJUSTMENT FOR OPTION PERIOD BASE RENT
(a) As of each Option Period Adjustment Date when the average CPI determined in clause (i) below exceeds the Beginning CPI (as defined in this Paragraph), the annual Base Rent in effect immediately prior to the applicable Option Period Adjustment Date shall be multiplied by a fraction, the numerator of which shall be the difference between (i) the average CPI for the three (3) most recent calendar months (the Prior Months ) ending prior to such Option Period Adjustment Date for which the CPI has been published on or before the forty-fifth (45 th ) day preceding such Option Period Adjustment Date and (ii) the Beginning CPI, and the denominator of which shall be the Beginning CPI. The product of such multiplication shall be added to the Base Rent in effect immediately prior to such Option Period Adjustment Date. Notwithstanding the foregoing, at each Option Period Adjustment Date, the CPI Adjustment shall be no greater than four percent (4%) of the annual Base Rent in effect immediately prior to the applicable Option Period Adjustment Date. As used herein, Beginning CPI shall mean the average CPI for the three (3) calendar months corresponding to the Prior Months, but occurring one (1) year earlier. If the average CPI determined in clause (i) is the same or less than the Beginning CPI, the Base Rent will remain the same for the ensuing one (1) year period.
(b) Effective as of a given Option Period Adjustment Date, Base Rent payable under this Lease until the next succeeding Option Period Adjustment Date shall be the Base Rent in effect after the adjustment provided for as of such Option Period Adjustment Date.
(c) Notice of the new annual Base Rent (each an Annual Renewal Term Base Rent Notice ) shall be delivered to Tenant on or before the tenth (10 th ) day preceding each Option Period Adjustment Date. If Landlord does not deliver an Annual Renewal Term Base Rent Notice on or before the tenth (10 th ) day preceding the applicable Option Period Adjustment Date, Tenant shall provide written notice of such failure to Landlord, and, if Landlord fails to deliver the applicable Annual Renewal Term Base Rent Notice within ten (10) Business Days after receipt of such notice from Tenant, then such failure shall be deemed a waiver of Landlords rights to collect such sums until the next succeeding Option Period Adjustment Date.
EXHIBIT B | MASTER LAND AND BUILDING LEASE |
EXHIBIT C
FORM OF SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ( Agreement ) is entered into as of [ ], 20[ ] (the Effective Date ) by and among [ ] (together with any other holder of the Loan (defined below) and their respective successors and assigns, Mortgagee ), [ ] , a [ ] (hereinafter, the Tenant ) and [ ] , a [ ] ( Landlord ).
RECITALS
A. Landlord owns fee simple title in the real property described in Exhibit A attached hereto (the Property ).
B. Mortgagee has made or intends to make a loan to Landlord (the Loan ).
C. To secure the Loan, Landlord has or will encumber the Property by entering into a mortgage or deed of trust in favor of Mortgagee (as amended, increased, renewed, extended, spread, consolidated, severed, restated, or otherwise changed from time to time, the Mortgage ) to be recorded in the land records.
D. Pursuant to the Lease dated [ ], (the Lease ) between Landlord and Tenant, Landlord leased the Property to Tenant, as more particularly described in the Lease (the Leased Premises ).
E. [A Memorandum of Lease and Right of First Refusal dated by and between Tenant and Landlord regarding the Lease is [to be] recorded [herewith] with the County Registry of Deeds in Book , Page .]
F. Tenant and Mortgagee desire to agree upon the relative priorities of their interests in the Property and their rights and obligations if certain events occur.
NOW, THEREFORE, for good and sufficient consideration, Tenant and Mortgagee agree:
1. Definitions . The following terms shall have the following meanings for purposes of this agreement.
a. Foreclosure Event . A Foreclosure Event means: (i) foreclosure under the Mortgage; (ii) any other exercise by Mortgagee of rights and remedies (whether under the Mortgage or under applicable law, including bankruptcy law) as holder of the Loan and/or the Mortgage, as a result of which Mortgagee becomes owner of the Property; or (iii) delivery by Landlord to Mortgagee (or its designee or nominee) of a deed or other conveyance of Landlords interest in the Property in lieu of any of the foregoing.
b. Former Landlord . A Former Landlord means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
c. Offset Right . An Offset Right means any right or alleged right of Tenant to any defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim, reduction, deduction, or abatement against Tenants payment of Rent or performance of Tenants other obligations under the Lease, arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
d. Rent . The Rent means any fixed rent, base rent or additional rent under the Lease.
e. Successor Landlord . A Successor Landlord means any party that becomes owner of the Property as the result of a Foreclosure Event.
f. Termination Right . A Termination Right means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
g. Other Capitalized Terms . If any capitalized term is used in this Agreement and no separate definition is contained in this Agreement, then such term shall have the same respective definition as set forth in the Lease.
2. Subordination . Subject to the provisions hereof, the Lease, as the same may hereafter be modified, amended or extended, shall be, and shall at all times remain, subject and subordinate to the lien of the Mortgage (but not to the terms thereof), and all advances made under the Mortgage. Notwithstanding the foregoing, Mortgagee may elect, in its sole and absolute discretion, to subordinate the lien of the Mortgage to the Lease.
3. Nondisturbance, Recognition and Attornment .
a. No Exercise of Mortgage Remedies Against Tenant . So long as Tenant is not in default under the Lease beyond any applicable grace or cure periods with respect to a default that would allow Landlord, pursuant to the Lease, to terminate same (an Event of Default ), Mortgagee (i) shall not terminate or disturb Tenants possession of the Leased Premises or rights under the Lease, except in accordance with the terms of the Lease and (ii) shall not name or join Tenant as a defendant in any exercise of Mortgagees rights and remedies arising upon a default under the Mortgage, unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies. In the latter case, Mortgagee may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenants rights under the Lease or this Agreement in such action.
b. Recognition and Attornment . Upon Successor Landlord taking title to the Property (i) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (ii) Tenant shall recognize and attorn to Successor Landlord as Tenants direct landlord under the Lease as affected by this Agreement; and (iii) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant. Tenant hereby acknowledges that, pursuant to the Mortgage and assignment of rents, leases and profits, Landlord has granted to Mortgagee an absolute, present assignment of the Lease and Rents which provides that Tenant continue making payments of Rents and other amounts owed by Tenant under the Lease to Landlord and to recognize the rights of Landlord under the Lease until notified otherwise in writing by Mortgagee. After receipt of such notice from Mortgagee, Tenant shall thereafter make all such payments directly to Mortgagee or as Mortgagee may otherwise direct, without any further inquiry on the part of Tenant. Landlord specifically agrees that Tenant may
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
conclusively rely upon any written notice Tenant receives from Mortgagee notwithstanding any claim by Landlord contesting the validity of any term or condition of such notice, including, but not limited to, any default claimed by Mortgagee, and that Landlord shall not make any claim of any kind whatsoever against Tenant or Tenants leasehold interest with respect to any amounts paid to Mortgagee by Tenant or any acts performed by Tenant, pursuant to such written notice, and such amounts paid to Mortgagee shall be credited to amounts due under the Lease as if such amounts were paid directly to Landlord.
c. Further Documentation . The provisions of this Article 3 shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents. Tenant and Successor Landlord shall, however, confirm the provisions of this Article 3 in writing upon request by either of them within thirty (30) days of such request.
4. Protection of Successor Landlord . Notwithstanding anything to the contrary in the Lease or the Mortgage, Successor Landlord shall not be liable for or bound by any of the following matters:
a. Claims Against Former Landlord . Any Offset Right that Tenant may have against any Former Landlord, unless (i) such Offset Right arises after the date Mortgagee encumbers the Property with the Mortgage and (ii) Tenant shall have given written notice to Mortgagee of such Offset Right promptly upon Tenants actual knowledge of the occurrence of the event(s) giving rise to such Offset Right. The foregoing shall not limit either (x) Tenants right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of a Foreclosure Event or because of events occurring on or before the date of a Foreclosure Event, notice of which shall have been given to Mortgagee, or (y) Successor Landlords obligation to correct any conditions that existed as of the date of a Foreclosure Event that violate Successor Landlords obligations as landlord under the Lease.
b. Prepayments . Any payment of Rent that Tenant may have made to Former Landlord more than thirty (30) days before the date such Rent was first due and payable under the Lease with respect to any period after the date of a Foreclosure Event and Tenants receipt of notice of such Foreclosure Event other than, and only to the extent that, the Lease expressly required such a prepayment or such payment was delivered to Mortgagee or Successor Landlord.
c. Security Deposit; Representations and Warranties . Any obligation (i) with respect to any security deposited with Former Landlord, unless such security was actually delivered to Mortgagee or Successor Landlord; or (ii) arising from a breach by Former Landlord of representations and warranties contained in the Lease; or (iii) without in any way superseding subsection (a) above, to pay Tenant any sum(s) accrued prior to Successor Landlord becoming owner of the Property and owed to Tenant by Former Landlord, unless actually paid over to Successor Landlord.
d. Modification, Amendment or Waiver . Any modification or amendment of the Lease, or any waiver of the terms of the Lease, made without Mortgagees written consent (which consent shall not be unreasonably withheld, conditioned or delayed), excepting, however, commercially reasonable non-material amendments or modifications of the Lease (for the avoidance of doubt, such non-material modifications do not include any changes in the rights of any Landlord Mortgagee as such term is defined in the Lease, reductions in rent, reductions in length of term, imposition of material obligations on Landlord or material reductions of the obligations of Tenant under the Lease) which are the result of good faith, arms length negotiations between Landlord and Tenant and of which Mortgagee receives prompt notice together with a copy of such amendment.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
e. Surrender, Etc. Any consensual or negotiated surrender, cancellation, or termination of the Lease, in whole or in part, agreed upon between Landlord and Tenant, unless effected unilaterally by Tenant pursuant to the express terms of the Lease.
5. Exculpation of Successor Landlord . Notwithstanding anything to the contrary in this Agreement or the Lease, Successor Landlords obligations and liability under the Lease shall never extend beyond Successor Landlords (or its successors or assigns) interest, if any, in the Property from time to time, including without limitation insurance and condemnation proceeds, security deposits, escrows, Successor Landlords interest in the Lease, and the proceeds from any sale, lease or other disposition of the Property (or any portion thereof) by Successor Landlord (collectively, the Successor Landlords Interest ). Tenant shall look exclusively to Successor Landlords Interest (or that of its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement. If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlords Interest (or that of its successors and assigns) to collect such judgment. Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord. Nothing set forth in this paragraph shall be construed to limit Tenants equitable remedies, including specific performance and injunctive relief.
6. Casualty and Condemnation . Mortgagee agrees that, notwithstanding any provision of the Mortgage or any instrument secured by the Mortgage, any insurance proceeds and any condemnation awards which may be received by any party hereto and which relate to the Property shall be used or disbursed in accordance with the terms of the Lease.
7. Mortgagees Right to Cure . Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Offset Right or Termination Right:
a. Notice to Mortgagee . Tenant shall provide Mortgagee with notice of the breach or default by Landlord giving rise to same (the Default Notice ) and, thereafter, the opportunity to cure such breach or default as provided for below.
b. Mortgagees Cure Period . After Mortgagee receives a Default Notice, Mortgagee shall have a period of thirty (30) days under the Lease in which to cure the breach or default by Landlord. Mortgagee shall have no obligation to cure (and, without limiting anything contained in Section 4(a) above, shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Mortgagee agrees or undertakes otherwise in writing. In addition, as to any breach or default by Landlord the cure of which requires possession and control of the Property, if Mortgagee undertakes such cure or causes such cure to be commenced by a receiver within the period permitted by this paragraph, and so long as Mortgagee continues to or causes a receiver to diligently and in good faith cure such breach or default, Mortgagees cure period shall continue for such additional time (but in any event not to exceed ninety (90) days in the aggregate) as Mortgagee may reasonably require to either (i) obtain possession and control of the Property with due diligence and thereafter cure the breach or default with reasonable diligence and continuity; or (ii) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default. Nothing set forth in this paragraph shall limit Tenants rights to cure a breach or default and receive any reimbursement to which it is entitled under the Lease.
8. Miscellaneous .
a. Notices . Any notice or request given, or demand made, under this Agreement by one party to the other shall be in writing, and may be given or be served by hand delivered personal service, or
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
by depositing the same with a reliable overnight courier service or by deposit in the United States mail, postpaid, registered or certified mail, and addressed to the party to be notified, with return receipt requested or by telefax transmission, with the original machine- generated transmit confirmation report as evidence of transmission. Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) days after it is so deposited; however, delivery by overnight courier service shall be deemed effective on the next succeeding business day after it is so deposited, and notice by personal service or telefax transmission shall be deemed effective when delivered to its addressee or within two (2) hours after its transmission, unless given after 3:00 p.m. on a business day, in which case it shall be deemed effective at 9:00 a.m. on the next business day. For purposes of notice, the addresses and telefax number of the parties shall, until changed as herein provided, be as follows:
If to Mortgagee, at:
and
If to Tenant, at:
and:
b. Successors and Assigns . This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns. If Mortgagee assigns the Mortgage, then upon delivery to Tenant of written notice thereof accompanied by the assignees written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.
c. Entire Agreement . This Agreement constitutes the entire agreement between Mortgagee and Tenant regarding the subordination of the Lease to the Mortgage and the rights and obligations of Tenant and Mortgagee as to the subject matter of this Agreement.
d. Interaction with Lease and with Mortgage . If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement. This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Mortgage.
e. Mortgagees Rights and Obligations . Except as expressly provided for in this Agreement, Mortgagee shall have no obligations to Tenant with respect to the Lease. If a Foreclosure Event occurs, then all rights and unaccrued obligations of Mortgagee under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement or under the Lease.
f. Interpretation; Governing Law . The interpretation, validity and enforcement of this Agreement shall be governed by and construed under the internal laws of the State of New York, excluding such States principles of conflict of laws.
g. Amendments . This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.
h. Due Authorization . Tenant represents to Mortgagee that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions. Mortgagee represents to Tenant that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
i. Execution . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
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EXHIBIT C | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF, Mortgagee, Tenant and Landlord have caused this Agreement to be executed as of the date first above written.
MORTGAGEE :
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TENANT :
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LANDLORD :
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MORTGAGEES ACKNOWLEDGMENT
STATE OF |
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On the day of in the year before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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TENANTS ACKNOWLEDGMENT
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On the day of in the year before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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LANDLORDS ACKNOWLEDGMENT
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On the day of in the year before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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EXHIBIT C | MASTER LAND AND BUILDING LEASE |
LIST OF EXHIBITS
If any exhibit is not attached hereto at the time of execution of this Agreement, it may thereafter be attached by written agreement of the parties, evidenced by initialing said exhibit.
Exhibit A Legal Description of the Land
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
EXHIBIT D
FORM OF TENANTS ESTOPPEL CERTIFICATE
The undersigned, , whose address is represents and certifies as follows:
1. The undersigned is the tenant ( Tenant ) under that certain Master Land and Building Lease dated with as Landlord (the Lease ), covering the properties described therein (collectively the Demised Properties ), a true and correct copy of which (together with all amendments thereof) is attached hereto as Exhibit A . [Tenant understands that ( Secured Party ) intends to enter into financing arrangements with Landlord, as borrower, to be secured, among other things, by certain mortgages, deeds of trust and assignments of leases and rents, as amended, covering the Demised Properties.]
2. The Lease constitutes the only agreement, promise, understanding or commitment (either written or oral) Tenant has with respect to the Demised Properties and any right of occupancy or use thereof.
3. The Lease is in full force and effect and has not been assigned, subleased, supplemented, modified or amended, in whole or in part, except as follows:
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4. Tenant has not given Landlord any notice of termination under the Lease.
5. Tenant took possession of the Demised Properties on or about , , and commenced paying rent on or about , . Tenant presently occupies the Demised Properties, is open for business and operating at all of the Demised Properties, and is paying rent on a current basis. No rent has been paid by Tenant in advance except for the monthly rental that becomes due on , and no deposits, including security deposits and prepayments of rent, have been made in connection with the Lease. Tenant agrees not to pay rent more than one (1) month in advance unless otherwise specified in the Lease.
6. The monthly base rental is the sum of Dollars ($ ). Landlord has not agreed to reimburse Tenant for or to pay Tenants rent obligation under any other lease
7. The Lease term commenced on , expires on , and there are no options to renew except: .
8. Tenant is not in default of any of its obligations under the Lease, nor have there occurred any events that with the passage of time or giving of notice or both, will result in any such default. To the best knowledge of Tenant, there are no defaults under the Lease by Landlord, nor have any events occurred that with the passage of time or giving of notice or both, will result in any such default. To the best of Tenants knowledge and belief, Tenant does not presently have (nor with the passage of time or giving of notice or both will have) any offset, charge, lien, claim, termination right or defense under the Lease.
EXHIBIT D | MASTER LAND AND BUILDING LEASE |
9. Tenant has no right of first offer, right of first refusal, or option to purchase, with respect to all or any portion of any Demised Properties[.][, except as set forth in Article 34 of the Lease].
10. Tenant is aware that third parties[, including Secured Party,] intend to rely upon this Certificate and the statements set forth herein and that the statements and facts set forth above shall be binding on Tenant.
11. Tenant is not entitled to any concession or rebate of rent or other charges from time to time due and payable under the Lease, and there are no unpaid or unreimbursed construction allowances or other offsets due Tenant under the Lease.
12. To the best of Tenants knowledge and belief, there are no rental, lease or similar commissions payable with respect to the Lease.
13. Any notices to be provided hereunder shall be provided pursuant to the notice provisions of the Lease.
14. Tenant and the persons executing this Certificate on behalf of Tenant have the power and authority to execute and deliver this Certificate, thereby binding Tenant.
IN WITNESS WHEREOF, Tenant has executed this Certificate this day of , 20 .
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EXHIBIT D | MASTER LAND AND BUILDING LEASE |
EXHIBIT E
FORM OF MEMORANDUM OF LEASE
(Above space reserved for recorder and recording information)
MEMORANDUM OF LEASE AND RIGHT OF FIRST REFUSAL
Recorders Cover Sheet
Preparer Information:
This instrument prepared by and
after recording return to:
Sidley Austin LLP
555 West Fifth Street, Suite 4000
Los Angeles, CA 90013-1010
Attention: Aimee Contreras-Camua, Esq.
213.896.6000
Tenant:
Landlord:
Legal Description:
The property is located in County,
See Exhibit A attached to Memorandum of
Lease
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
MEMORANDUM OF LEASE AND RIGHT OF FIRST REFUSAL
This Memorandum of Lease and Right of First Refusal is made and entered into as of , , by and between , a , whose address is ( Landlord ), and , a , whose address is ( Tenant ), who agree as follows:
1. Terms and Premises. Pursuant to a certain Master Land and Building Lease (the Lease ) dated as of , 2016 entered into between Landlord and Tenant, Landlord has leased, and does hereby lease, to Tenant and Tenant has leased, and does hereby lease, from Landlord that certain real property, together with all the improvements thereon and appurtenances thereunto belonging (the Premises ), more particularly described on Exhibit A attached hereto and incorporated herein, for a term of [ ] ([ ]) YEARS from , , expiring on , . The Lease will automatically extend for one (1) ten (10) year period, unless Tenant gives a timely Non-Renewal Notice, all as more particularly set forth in the Lease. Tenant has a right of first refusal to purchase the Premises, subject to the terms and conditions set forth in the Lease.
2. Subordination Provisions . Tenants rights under the Lease shall at all times be subject and subordinate to any fee mortgages and/or trust deeds now or hereafter filed against the Premises and to the rights of any Landlords Mortgagee thereunder and as otherwise set forth in Article 23 of the Lease.
3. Purpose of Memorandum of Lease. This Memorandum of Lease is executed and recorded to give public notice of the Lease between the parties and all terms and conditions of the Lease are incorporated by reference into this Memorandum and this Memorandum of Lease does not modify the provisions of the Lease. If there are any conflicts between the Lease and this Memorandum of Lease, the provisions of the Lease shall prevail. The rights and obligations set forth herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Any term not defined herein shall have the meaning as set forth in the Lease.
4. Exchange Period. Upon the expiration of the Exchange Period (as such term is defined in the Lease), Pipe Portfolio Owner (Multi) LP shall automatically be deemed the Landlord under the Lease.
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LANDLORD
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On the day of in the year before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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LANDLORD
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[INSERT NOTICE INFORMATION, INCLUDING PHONE NUMBER]
STATE OF | ) | |||
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COUNTY OF | ) |
On the day of in the year before me, the undersigned, a Notary Public in and for said state, personally appeared , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
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EXHIBIT A
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EXHIBIT F
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EXHIBIT F | MASTER LAND AND BUILDING LEASE |
EXHIBIT G
FORM OF GUARANTY
GUARANTY OF MASTER LAND AND BUILDING LEASE
This Guaranty of Master Land and Building Lease (the Guaranty ) is executed as of the day of April, 2016, by LSF9 CONCRETE HOLDINGS LTD, a company incorporated under the laws of the Bailiwick of Jersey with registered number 117752 (together with its successors and permitted assigns, Guarantor ), in favor of PIPE PORTFOLIO OWNER EXCHANGE (MULTI) LP, a Delaware limited partnership ( Landlord ) with reference to the following facts:
A. Forterra Pipe & Precast, LLC, a Delaware limited liability company, Forterra Pressure Pipe, Inc., an Ohio corporation, Forterra Concrete Products, Inc., an Iowa corporation and Forterra Concrete Industries, Inc., a Tennessee corporation (individually and collectively, jointly and severally, as co-tenants Tenant ) have entered into that certain Master Land and Building Lease, dated as of April , 2016 (as amended or otherwise modified from time to time, the Lease ), by and among Landlord and Tenant, pursuant to which Landlord has agreed to lease the Demised Properties described in the Lease (such properties, the Premises ) to Tenant.
B. Guarantor, directly or indirectly, owns 100% of the issued and outstanding equity interests of Tenant.
C. As a condition precedent to the execution and delivery of the Lease by Landlord, Landlord requires that Guarantor unconditionally guaranty the performance by Tenant of its obligations set forth under the Lease.
D. Guarantor has a material financial interest in Tenant and expects to derive material financial benefit from the Lease, and Guarantor desires that Landlord enter into the Lease with Tenant.
In consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby covenants and agrees with Landlord as follows:
1. Guarantor absolutely, irrevocably and unconditionally guarantees to and for the benefit of Landlord and its successors and assigns the punctual and full payment as they accrue and become due of all rents of every kind under the Lease and the full, faithful and timely performance of each and all of the covenants, agreements, obligations, representations, indemnities, warranties and liabilities of Tenant (and/or of Tenants assigns and successors to all or any portion of Tenants interest in the Lease) under the Lease (each, an Obligation , and collectively, the Obligations ), until all such Obligations have been fully paid, performed and discharged. The liability of Guarantor hereunder shall be for all Obligations owed to Landlord including, without limitation, costs and fees (including, without limitation, actual attorneys and experts fees and disbursements and court costs that would have accrued under the Lease) and all other Obligations that would have been paid, performed and discharged by Tenant (or Tenants assigns and successors to all or any portion of Tenants interest in the Lease or the Premises) but for the commencement of a case under Title 11 of the United States Code or under any successor statute thereto (the Bankruptcy Code ), or any other law governing solvency, bankruptcy, reorganization or like proceedings, and other expenses incurred by Landlord in the enforcement of this Guaranty. The Obligations are to be construed in the most comprehensive sense and shall include all covenants, agreements, obligations, indemnities, representations, warranties and liabilities of Tenant, express or implied, under the Lease and shall continue, unaffected by any actual, purported or attempted assignment, transfer or sublease of all or any portion of Tenants interest in the Lease or the Premises. Notwithstanding the foregoing, only upon any failure to fully pay, perform and discharge any of the
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
Obligations, which failure constitutes a default under the Lease, which default remains uncured beyond any applicable cure period, if any, provided in the Lease(herein called a Breach ), Guarantor, upon written demand from Landlord, shall fully pay, perform and discharge the Obligation or Obligations in question, and shall pay all damages, losses, costs, expenses (including, without limitation, actual attorneys and experts fees and court costs) and liabilities that may arise in consequence of the Breach.
2. The obligations of Guarantor hereunder shall remain in full force and effect without regard to, and shall not be affected or impaired by, the following, any or all of which may be taken without the consent of, or notice to, Guarantor nor shall any of the following give Guarantor any recourse or right of action against Landlord, each and all of which are hereby expressly authorized by Guarantor to be undertaken at any time and from time to time by Landlord in its sole and absolute discretion:
(a) | Any amendment, modification, addition or supplement of or to the Lease; |
(b) | Any renewal, extension or continuation of the Lease or the term thereof, whether pursuant to a written agreement or otherwise, and including without limitation, any holding over by Tenant after the expiration of the term of the Lease, including any renewal or extension term, whether or not consented to by Landlord; |
(c) | Any exercise or non-exercise or delay in the exercise or assertion by Landlord of any right or privilege under this Guaranty or the Lease; |
(d) | Any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other similar proceeding relating to Guarantor or Tenant, or any action taken in respect of Tenant, this Guaranty, the Lease and/or the Premises by any trustee, receiver, debtor-in-possession or the like, by Landlord or by any court, in any such proceeding, including, without limitation, any assumption or rejection of the Lease under Section 365 of the Bankruptcy Code, whether or not Guarantor shall have had notice or knowledge of any of the foregoing; |
(e) | Any extension of time or other indulgence granted to Tenant or any waiver with respect to the payment of rents, additional rents and other charges and expenses to be paid by Tenant or with respect to the performance and observance of any other obligations of Tenant under the Lease; |
(f) | Any assignment of the Lease or any subletting of all or any portion of the Premises; |
(g) | The acceptance by Landlord of any security (including any real or personal property collateral) for the punctual and full payment of said rents or the punctual and full performance and observance of said Tenant obligations, or the release, surrender, substitution or omission to act, by Landlord with respect to any such security; |
(h) | Any disaffirmance or abandonment by Tenant, any debtor-in-possession or any trustee of Tenant; |
(i) | Any other act or omission to act by Landlord; and |
(j) | Any other matter whatsoever whereby Guarantor would or might be released. |
3. Guarantor hereby knowingly, irrevocably, unconditionally and voluntarily waives:
(a) | All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty; |
(b) | Any right to require Landlord to proceed against Tenant or any other person at any time or to proceed against or exhaust any security held by Landlord at any time or to pursue any other remedy whatsoever at any time; |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
(c) | Any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantor against the Tenant, whether resulting from any action or election of remedies by Landlord or otherwise; |
(d) | Any defense arising by reason of any invalidity or unenforceability of the Lease or any disability of Tenant, or by any cessation from any cause whatsoever of the liability of Tenant, including, without limitation, (i) any rejection or termination of the Lease under Section 365 of the Bankruptcy Code or (ii) any reduction, diminution or limitation upon or discharge of the liability of Tenant under the Bankruptcy Code; |
(e) | Any defense based upon an election of remedies by Landlord; |
(f) | Any duty of Landlord to advise Guarantor of any information known to Landlord regarding the financial condition of Tenant and all other circumstances affecting the ability of Tenant to perform its obligations under the Lease, as more particularly described in Paragraph 10 below; |
(g) | Any duty of Landlord to give Guarantor notice of any demand by Landlord or any notice of any type or nature under the Lease, including, without limitation, any notice relating to any default by the Tenant under the Lease; |
(h) | Any defense based upon any express or implied amendment, modification, addition or supplement of or to the Lease or of or to Tenants obligations under the Lease made without the consent of Guarantor, which consent shall not be required; |
(i) | Any defense based upon the lack of perfection or continuing perfection or failure of priority of collateral security, if any, which may now or hereafter be given for performance of the Obligations; |
(j) | Any defense based upon the failure by Landlord to marshal assets; |
(k) | Any defense based upon any act or omission of Landlord that results in or aids in the discharge or release of Tenant; |
(l) | Any defense based upon any law that provides that the obligations of a guarantor must not be larger in amount nor in other respects more burdensome than that of the principal or that reduces a guarantors obligation in proportion to the principal obligation; |
(m) | Any defense based upon any failure of Landlord to file or enforce or compromise a claim in any bankruptcy proceeding; |
(n) | Any defense based upon the avoidance of any lien in favor of Landlord for any reason; |
(o) | Any defense based upon the right to enforce any remedy against any other person; |
(p) | Any defense based upon the right, if any, to the benefit of, or to direct the application of any security held by Landlord, and, until all of the Obligations have been paid and performed in full, all rights of subrogation, any right to enforce any remedy that Landlord now has or hereafter may have against Tenant, and any right to participate in any security now or hereafter held by Landlord; |
(q) | Any defense based upon the benefits or defenses, if Guarantor is entitled to any benefits or defenses, of any or all anti-deficiency statutes or single-action legislation; and |
(r) | Any setoff, defense or counter-claim that Tenant or Guarantor may have or claim to have against Landlord. |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
4. Until all amounts payable to Landlord under the Lease have been paid in full, Guarantor shall have no right of subrogation and Guarantor waives, to the fullest extent permitted by law, any right to enforce any remedy that Landlord now has or may hereafter have against Tenant.
5. Without prejudice to the generality of any waiver granted in this Guaranty, the Guarantor irrevocably and unconditionally abandons and waives any right which it may have at any time under the laws of Jersey whether by virtue of the droit de discussion or otherwise to require (i) that recourse be had to assets of any other person before any claim is enforced against it in respect of the obligations or liabilities assumed by it under this and (ii) whether by virtue of the droit de division or otherwise to require that any liability under this Guaranty be divided or apportioned with any other person or reduced in any manner whatsoever.
6. This Guaranty shall extend to each and every payment to be made and other obligation or condition to be performed or observed under the Lease by Tenant and its successors and assigns. Successive demands may be made upon, and successive actions for the enforcement of such demands may be brought against, Guarantor upon successive defaults in the making of particular payments and the performance and observance of particular obligations or conditions under the Lease, and the enforcement of this Guaranty against Guarantor with respect to any particular payment or obligations or conditions under the Lease shall not operate to exhaust this Guaranty or as a waiver of the right to proceed under this Guaranty with respect to any future default or defaults.
7. Notwithstanding anything to the contrary herein contained in this Guaranty, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time, payment, or any part thereof, of any or all of the obligations guaranteed hereby is rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be restored or returned by Landlord upon the insolvency, bankruptcy or reorganization of Tenant or if Landlord elects to return such payment or any part thereof in its sole discretion, all as though such payment or application of proceeds had not been made. Without limiting the generality of the foregoing, if prior to any such rescission, invalidation, declaration, restoration or return, this Guaranty shall have been canceled or surrendered, this Guaranty shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of Guarantor in respect of the amount of the affected payment or application of proceeds.
8. Notwithstanding anything to the contrary contained herein, Guarantor may be replaced by an Approved Replacement Guarantor, as defined in the Lease and subject to the conditions set forth in Section 32.02 of the Lease. Concurrently with any such replacement, Landlord shall execute and deliver documentation reasonably requested by Guarantor to evidence the release of Guarantor from this Guaranty from and after the date of such replacement.
9. Subject to Paragraph 7 above, this Guaranty is an irrevocable, continuing guaranty and Guarantor agrees that this Guaranty shall remain in full force and effect until all of the Obligations are fully paid, performed and discharged, regardless of the expiration or earlier termination of the Lease, and regardless of the bankruptcy, reorganization, dissolution or insolvency of Tenant, its successors and assigns, and regardless of any actual, attempted or purported assignment, sublease or other transfer of all or any portion of Tenants interest in the Lease. Guarantor further agrees that this Guaranty may not be revoked by Guarantor. If any provision of this Guaranty is held to be invalid or unenforceable, the validity and enforceability of the other provisions of this Guaranty shall not be affected. This Guaranty shall remain in full force and effect notwithstanding future changes of conditions, including any changes in law or invalidity or irregularity in the creation of any of the Obligations.
10. In giving this Guaranty, Guarantor is not concerned with Tenants financial condition and hereby knowingly and irrevocably waives any right Guarantor may possess to require Landlord to disclose to Guarantor any information Landlord may now or hereafter possess concerning Tenants present or future character, credit, collateral or financial condition. Guarantor assumes the responsibility for being and keeping informed of the financial condition of Tenant and of all circumstances bearing upon the risk of non-payment and nonperformance of the Obligations that diligent inquiry would reveal.
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
11. No delay or failure by Landlord to execute any remedy against Tenant or Guarantor will be construed as a waiver of that right or remedy. All remedies of Landlord are cumulative.
12. This Guaranty shall be one of payment and performance and not merely of collection.
13. In any action or proceeding brought to enforce the terms of this Guaranty, the prevailing party shall be entitled to recover any and all costs and expenses, including, without limitation, actual attorneys fees and court costs, incurred in any such action or proceeding.
14. All notices, requests, concerns, approvals, payments in connection with the Lease, or communications that either party desires or is required or permitted to give or make to the other party under the Lease shall only be deemed to have been given, made and delivered, when made or given in writing and personally served, or deposited in the United States mail, certified or registered mail, postage prepaid, and addressed to the parties as follows:
I F TO G UARANTOR , TO : | c/o Forterra Building Products | |
511 E. John Carpenter Freeway, Suite 600 Irving, TX 75062 | ||
Attention: Chief Financial Officer | ||
with copies to: | ||
Lone Star Americas Acquisitions LLC | ||
2711 N. Haskell Avenue, Suite 1700 | ||
Dallas, TX 75204 | ||
Attention: General Counsel | ||
I F TO L ANDLORD . TO : | Pipe Portfolio Owner Exchange (Multi) LP | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Asset Management | ||
With a copy to: | Pipe Portfolio Owner Exchange (Multi) LP | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Legal Transactions Department | ||
With another copy to: | Pipe Portfolio Owner (Multi) LP | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Legal Transactions Department |
or to such other address or addresses as either Landlord or Guarantor may from time to time designate to the other by written notice in accordance herewith. Such notices shall be effective on the date of delivery or attempted delivery. Service of process in connection with any legal action or proceeding relating to this Guaranty shall also be deemed properly delivered if delivered and served in any manner permitted by the applicable law of the State of New York or the United States, as the case may be. Landlord or
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
Guarantor may change its address for the purpose of this Guaranty by giving written notice of such change to the other party in the manner herein provided. Unless and until any such notice is given, any notice or other communication sent to the last noticed address as provided herein shall be deemed properly delivered.
14. Guarantor agrees that this Guaranty shall be construed as an absolute, unconditional, irrevocable, continuing and unlimited obligation of Guarantor without regard to the regularity, validity or enforceability of any liability or obligation hereby guaranteed.
15. The right of Landlord to demand and Guarantors obligation to pay and to perform fully the Obligations shall not be suspended, abridged or affected in any way whatsoever by the fact that the Obligations or any part thereof are at any time secured by real or personal property or otherwise. With or without notice to Guarantor and without affecting Guarantors liability hereunder or with respect to the Obligations hereby guaranteed, Landlord, from time to time, either before, at or after any Breach and whether or not Landlord is under any contractual or equitable obligation to do so, may (a) accept security for the Obligations hereby guaranteed, (b) release or accept other security in exchange or in substitution for collateral, if any, that may be held or any part thereof, (c) accept substitutes for or release Guarantor or any substitutes for Guarantor as party hereto, or (d) subordinate any security interest in any collateral or any portion thereof to the rights of other creditor or creditors.
16. This Guaranty shall continue for the term of the Lease and any extensions or renewals thereof and until all obligations and liabilities of Tenant and its successors and assigns to Landlord under or relating to the Lease have been fully paid or satisfied (subject to reinstatement of the Guaranty as provided in Paragraph 6 above).
17. This Guaranty shall be governed by and construed in accordance with the internal laws of the State of New York. In connection with any suit, action or proceeding brought with respect to this Guaranty, Guarantor hereby irrevocably submits to the exclusive jurisdiction of any Federal or State court in the County of New York, State of New York, and Guarantor waives any objections that it may now or hereafter have based upon venue and/or forum non conveniens of any such suit, action or proceeding.
18. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
19. This Guaranty or the provisions hereof shall not be modified, amended or waived in any manner unless the same be in writing and signed by Landlord and Guarantor.
20. If there be more than one undersigned Guarantor, each undersigned Guarantor is executing this instrument, and shall be unconditionally liable hereon, jointly and severally. Landlord may make demand upon or pursue any remedies against any one or more Guarantor, whether or not any demand is made upon or any remedies are pursued against any other Guarantor. Each Guarantor expressly agrees that recourse may be had against any and all property of Guarantor, regardless of whether such property constitutes community property, quasi-community property or separate property.
22. Landlord shall have the right, without any consent from Guarantor, to assign this Guaranty, in whole and not in part, in connection with any assignment of Landlords rights (including, without limitation, Landlords rights under Article 14 of the Lease) and obligations under the Lease. Upon the Owner becoming the Landlord pursuant to Article 14 of the Lease, upon the request of Landlord or Owner, as the case may be, Guarantor shall execute and deliver an acknowledgment that this Guaranty runs in favor of Landlord. Except as set forth in Paragraph 7 above, Guarantor may not assign, delegate or otherwise transfer all or any part of its respective rights and/or obligations under this Guaranty without the prior written consent of Landlord. Subject to the restrictions on transfer set forth in the immediately
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
preceding sentence, this Guaranty shall be binding upon, and inure to the benefit of, Landlord and Guarantor and their respective successors and assigns. Any attempted assignment, delegation or transfer in violation of this Paragraph 22 shall be, and is hereby declared, null and void ab initio .
23. Guarantor agrees to deliver all financial reports required to be delivered by Guarantor pursuant to Section 13.01 of the Lease within the time frames set forth therein.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF , the undersigned has executed and delivered this Guaranty as of the date first above written.
GUARANTOR | ||
LSF9 CONCRETE HOLDINGS LTD, | ||
a corporation incorporated under the laws of the Bailiwick of Jersey | ||
By: |
|
|
Name: | ||
Title: |
[SIGNATURE PAGES CONTINUE ON NEXT PAGE]
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
Accepted and Agreed:
LANDLORD:
PIPE PORTFOLIO OWNER EXCHANGE (MULTI) LP ,
a Delaware limited partnership
By: | PIPE PORTFOLIO EXCHANGE GP LLC, | |||||||
a Delaware limited liability company, its general partner | ||||||||
By: | WPC HOLDCO LLC, | |||||||
a Maryland limited liability company, its sole member | ||||||||
By: | W. P. CAREY INC., | |||||||
a Maryland corporation, its sole member | ||||||||
By: | /s/ Gino M. Sabatini | |||||||
Name: | Gino M. Sabatini | |||||||
Title: | Managing Director |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
EXHIBIT H
FORM OF COLLATERAL ACCESS AGREEMENT
This COLLATERAL ACCESS AGREEMENT (this Agreement ) is entered into by [NAME OF LANDLORD] ( Landlord ), to and for the benefit of [MODIFY AS APPROPRIATE: Bank of America, N.A. as Collateral Agent for the Secured Creditors (as defined below)] (in such capacity and together with any successor thereto, the Collateral Agent ). Unless otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement referred to below shall be used herein as therein defined.
RECITALS:
WHEREAS , Landlord is the record title holder and owner of certain premises as set forth in Schedule 1 attached hereto and made a part hereof (collectively, the Premises );
WHEREAS , [NAMES OF TENANT] , a [JURISDICTIONS OF INCORPORATION/ FORMATION AND FORM OF EACH ENTITY] (collectively, as co-tenants, Tenant ), have possession of the Premises in accordance with that certain Master Land and Building Lease dated as of [ ], 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Lease );
WHEREAS , reference is made to that certain [MODIFY AS APPROPRIATE: ABL Credit Agreement, dated as of March 13, 2015 (as it may be amended, amended and restated, supplemented, extended, refinanced or otherwise modified from time to time, the Credit Agreement ), among LSF9 Concrete Ltd, a company incorporated under the laws of the Bailiwick of Jersey ( Jersey ) with registered number 117753 (including its permitted successors, Holdings ), LSF9 Concrete Holdings Ltd, a company incorporated under the laws of Jersey with registered number 117752 (including its permitted successors, Mid-Holdings ), Stardust Finance Holdings, Inc., a Delaware corporation (including its permitted successors, the Initial Borrower ), the other borrowers party thereto, the several banks and other financial institutions or entities from time to time parties thereto as lenders and as issuing banks (the Lenders ), the Collateral Agent and Credit Suisse AG as administrative agent (together with its successors in such capacity, the Administrative Agent and, together with the Collateral Agent and the Lenders, the Lender Creditors ), pursuant to which Tenant (an affiliate of the Initial Borrower) has executed a guarantee and collateral agreement and other collateral documents in relation to the Credit Agreement];
WHEREAS , Tenants repayment (or guaranty ) of the extensions of credit made by the Lenders under the Credit Agreement will be secured by substantially all of the assets of Tenant, including, without limitation, all of the following now or hereafter located on the Premises [ MODIFY AS APPROPRIATE SO THAT THE COLLATERAL IS SPECIFICALLY IDENTIFIED: (i) all inventory of Tenant, (ii) all equipment used in Tenants business, (iii) all leasehold improvements of Tenant, and (iv) all furniture and all other personal property ] (collectively, the Collateral ); and
WHEREAS , the Collateral Agent has requested that Landlord execute this Agreement as a requirement under the Credit Agreement.
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
NOW , THEREFORE , in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Collateral Agent hereby covenant and agree as follows:
1. Landlord Lien . For so long as the Credit Agreement remains in effect, (a) Landlord (i) waives and releases unto the Collateral Agent and its successors and assigns any and all security interests created by statute, contract (including the Lease) or by common law and any and all other rights, claims, liens and demands of every kind which it now has or may hereafter have against the Collateral and (ii) agrees that any rights, claims or demands it may have in or to the Collateral (to the extent not effectively waived pursuant to clause (a)(i) of this paragraph 1), shall, subject to the terms of this Agreement, be subordinate to the rights of the Collateral Agent in respect thereof.
(b) Landlord further agrees not to assert any claim to the Collateral while the Credit Agreement remains in effect, subject to the terms of this Agreement. Landlord acknowledges that the Collateral Agent shall have a first priority security interest in the Collateral, and Landlord authorizes the Collateral Agent to file and record [Uniform Commercial Code/Personal Property Security Act/Civil Code] financing statements (or local law equivalent) against the Collateral.
(c) Tenant hereby unconditionally releases Landlord from any claim or action regarding Collateral Agents removal of the Collateral as permitted by this Agreement.
2. Nature of Collateral . The Collateral may be installed in or located on the Premises and is not and shall not be deemed to be a fixture or part of the underlying real estate but shall at all times be considered personal property. Landlord acknowledges that the Collateral is and will remain personal property and not fixtures or part of the underlying real estate even though it may be affixed to or placed on the Premises. For the avoidance of doubt, the Collateral shall expressly exclude all Building Equipment (as such term is defined in the Lease).
3. Collateral Agents Access . (a) Landlord agrees that so long as the Lease is in full force and effect, Landlord will not prevent the Collateral Agent or its designees from entering upon the Premises at all reasonable times to inspect, appraise or remove the Collateral; provided , that (i) Collateral Agent shall give to Landlord not less than five (5) days notice of Collateral Agents election to enter the Premises, (ii) such notice shall indicate whether such entry is due to an event of default under the Credit Agreement and (iii) if Landlord shall have given Collateral Agent a Disposition Notice (as defined in paragraph 3(b) below), such entry shall not be governed by this paragraph 3(a), but shall instead be governed by paragraph 3(b).
(b) In the event that Landlord intends to take possession of the Premises during the term of the Lease or to terminate the Lease prior to the expiration of the Lease term, Landlord shall give to Collateral Agent a copy of such notice at the same time as such notice is given to Tenant (each such notice, a Disposition Notice ). If Collateral Agent intends to exercise Collateral Agents rights under this paragraph 3(b), within fifteen (15) days after Collateral Agent actually receives a Disposition Notice, Collateral Agent shall send a notice to Landlord stating that Collateral Agent elects to exercise its rights under this paragraph 3(b) in accordance with the terms of this Agreement (each such notice, a Disposition Election ). If Collateral Agent duly and timely gives a Disposition Election to Landlord, Landlord agrees that within the 90-day period after the Collateral Agent delivers to Landlord a Disposition Election (the Disposition Period ), the Collateral Agent shall have the right, but not the obligation, to enter upon and into the Premises on a non-exclusive basis for the sole purpose of inspecting or removing the Collateral or conducting a public or private sale of the Collateral. Landlord further agrees that during the Disposition Period, Landlord will not interfere with the Collateral Agents actions in removing the Collateral from the Premises or such other of the Collateral Agents actions in otherwise enforcing its security interest in the Collateral in accordance with the terms of this Agreement. Notwithstanding anything to the contrary in this paragraph, Landlord acknowledges that the Collateral Agent shall at no time have any obligation to remove the Collateral from the Premises. The Collateral Agent shall not be liable solely as a result (A) of any diminution in value of the Premises caused by the absence of the Collateral actually removed or (B) the need to replace the Collateral after such removal.
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
(c) In entering upon or into the Premises under either clause (a) or (b) set forth above of this paragraph 3, the Collateral Agent hereby agrees that it shall (i) indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, liabilities, costs and expenses incurred by Landlord (excluding as a result of the Landlords own gross negligence or breach) and caused by the Collateral Agent and/or the Collateral Agents designee entering upon or into the Premises and taking any of the foregoing actions with respect to the Collateral (and such costs shall include any damage to the Premises made by the Collateral Agent in severing and/or removing the Collateral therefrom and taking any of the foregoing actions with respect to the Collateral), (ii) promptly repair, at the end of the Disposition Period, at its sole cost and expense any damage to the Premises that is caused by Collateral Agent and/or its designees taking any of the foregoing actions to its condition prior to such damage, and (iii) to the extent not already paid by Tenant, pay all Base Rent (as defined in the Lease), for such time as the Collateral Agent actually occupies all or any portion of the Premises, pro rated on a per diem basis based on a thirty (30) day month, with such payment to be made in arrears every thirty (30) days during the Disposition Period. By way of example only, if the Disposition Period were to commence on Monday May 1, 2017 and continue through Wednesday, June 9, 2017, Collateral Agent would be responsible for the payment of Base Rent applicable to a 40-day period, and (A) the first payment of Base Rent would be due and payable to Landlord on May 31, 2017 (i.e., the date immediately succeeding the first 30-day period) and (B) the second payment of Base Rent would be due and payable to Landlord on June 10, 2017. Further, if Collateral Agent did not access the Premises during the weekends of such 40-day period, Collateral Agent would nevertheless be responsible for Base Rents during such 40-day period. Collateral Agent shall give Landlord such advance notice as is reasonably practicable under the circumstances (but no less than 24 hours prior notice) of the date that Collateral Agent shall cease actual occupancy of the Premises, and the Disposition Period shall cease upon the date set forth in such notice (subject to such 24 hours notice requirement).
(d) Notwithstanding anything to the contrary contained herein, (i) if Collateral Agent fails to duly and timely give a Disposition Election to Landlord in accordance with clause (b) of this paragraph 3, then , the Collateral remaining in or on the Premises shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in any manner Landlord sees fit, and Collateral Agent shall no longer be permitted access to the Premises; (ii) if Collateral Agent fails to remove any Collateral left on a certain location that is part of the Premises (such location, a Specified Location ) at the end of the Disposition Period, then , the Collateral remaining in or on such Specified Location shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in or on such Specified Location in any manner Landlord sees fit; and (iii) if, within five (5) days following notice from Landlord to Collateral Agent, Collateral Agent fails to (A) take steps to repair damage to any Specified Location in accordance with clause (c)(ii) of this paragraph 3 or (B) cease or rectify any action(s) by Collateral Agent which are beyond the scope permitted under this Agreement (e.g., removing any of the Building Equipment) on the Premises or any portion thereof or (C) timely pay the Base Rent then due in accordance with paragraph 3(b), then , the Collateral remaining in or on such Specified Location shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in or on such Specified Location in any manner Landlord sees fit.
(e) In the event that Landlord gives to Tenant a notice of a default under the Lease, Landlord shall simultaneously give to Collateral Agent a copy of such notice (a Default Notice ). Collateral Agent shall have the right, but not the obligation, to cure any such default(s) within the last day of the cure period available to Tenant under the terms of the Lease.
4. Delivery of Notices . All notices to the Collateral Agent under this Agreement shall be in writing and sent by (a) United States certified mail, return receipt requested, postage pre-paid or (b) a
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
nationally recognized courier service (such as Federal Express) for next-day delivery, to be confirmed in writing by such courier overnight delivery service, addressed as follows:
To Collateral Agent :
Bank of America, N.A., as Collateral Agent
901 Main Street, 11 th Floor
TX1-492-11-23
Dallas, Texas 75202
Attn: Laura Parrish
Telephone: 214-209-4755
To Landlord :
Pipe Portfolio Owner (Multi) LP
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Asset Management Department
With another copy to:
Pipe Portfolio Owner (Multi) LP
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Legal Transactions Department
Any party hereto may change its address, telecopy or telephone number for notices and other communications hereunder by notice to all of the other parties hereto.
7. Expiration of Agreement . The provisions of this Agreement shall continue in effect until Landlord has received the Collateral Agents written confirmation that Tenant has paid and performed all of its obligations under the Credit Agreement (or upon such date that the Credit Agreement is no longer in effect, whichever shall first occur).
8. Governing Law . This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the law of the State of New York without regard to conflicts of law principles.
9. Successors and Assigns . The terms and provisions of this Agreement shall inure to the benefit of and be binding upon the successor and assigns of Landlord (including any successor owner of the Premises) and the Collateral Agent. Landlord acknowledges that it shall not effect a partial assignment of the Lease. [MODIFY AS APPROPRIATE: The Collateral Agent may, without the consent of the Landlord (or any of the Landlords successor or assigns), freely assign, at any time, all or a portion of its
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
right and obligations under this Agreement to the Senior Lien Term Loan Administrative Agent or the Junior Lien Term Loan Administrative Agent, as applicable]; provided , that only one party at any given time shall act as Collateral Agent under this Agreement, and Landlord shall not be required to give a Default Notice or Disposition Notice to more than one party with respect to notices to Collateral Agent. Landlord will disclose the terms and conditions of this Agreement to any purchaser or successor to Landlords interest in all or any portion of the Premises and shall require that any such purchase or successor assume Landlords obligations under this Agreement.
10. Amendments . This Agreement may not be changed or terminated orally and is binding upon, and inures to the benefit of, the parties hereto, the Secured Parties and each of their respective successors and assigns.
11. Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed an original, but together the counterparts shall constitute one and the same document.
12. Credit Agreement . The parties thereto may, without in any way affecting or limiting this Agreement, and without notice to Landlord, modify, supplement, restate (in whole or in part), replace or refinance the Credit Agreement or any of the other Loan Documents thereunder.
13. Waiver of Trial by Jury . LANDLORD, TENANT AND COLLATERAL AGENT EACH HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE BETWEEN LANDLORD, TENANT AND/OR COLLATERAL AGENT IN ANY WAY RELATED TO THIS AGREEMENT.
[ Signatures page follows ]
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF , the undersigned have caused this Agreement to be duly executed and delivered as of the day and year first set forth above.
[NAME OF LANDLORD] | ||
By: |
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Name: | ||
Title: | ||
[BANK OF AMERICA, N.A., as Collateral Agent] | ||
By: |
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Name: | ||
Title: |
TENANT ACKNOWLEDGMENTS:
By: |
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Name: | ||
Title: | ||
By: |
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Name: | ||
Title: |
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
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EXHIBIT H | MASTER LAND AND BUILDING LEASE |
Schedule 1
Insert Schedule of Addresses for Premises
EXHIBIT H | MASTER LAND AND BUILDING LEASE |
Exhibit 10.10
FIRST AMENDMENT TO MASTER LAND AND BUILDING LEASE
THIS FIRST AMENDMENT TO MASTER LAND AND BUILDING LEASE (this Amendment ) is made and entered into as of the 14 day of April, 2016 by and between PIPE PORTFOLIO OWNER EXCHANGE (MULTI) LP , a Delaware limited partnership ( Landlord ), and FORTERRA PIPE & PRECAST, LLC , a Delaware limited liability company, FORTERRA PRESSURE PIPE, INC. , an Ohio corporation, FORTERRA CONCRETE PRODUCTS, INC. , an Iowa corporation, and FORTERRA CONCRETE INDUSTRIES, INC. , a Tennessee corporation (individually and collectively, jointly and severally, as co-tenants Tenant ).
W I T N E S S E T H :
WHEREAS , Landlord and Tenant are parties to that certain Master Land and Building Lease, dated as of April 5, 2016 (the Original Lease , as amended hereby, and as further amended from time to time, the Lease ), which Original Lease demises real estate, improvements and related fixtures more particularly described therein, under the terms and conditions more particular described therein; and
WHEREAS , Landlord and Tenant desire to add the Additional Demised Properties (as hereinafter defined) to the Original Lease, all as hereinafter set forth.
NOW, THEREFORE , in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:
1. Definitions . All capitalized terms used but not otherwise defined herein shall have the same meanings as set forth in the Original Lease.
2. Recitals . The foregoing recitals are hereby incorporated into this Amendment by reference. As used in this Amendment, Additional Demised Properties means those certain properties listed on Exhibit A attached hereto and made a part hereof together with the Land and Improvements, but excluding any Tenant Equipment, thereon.
3. Lease Amendments . Effective as of the date of this Amendment, the Original Lease is hereby amended as follows:
(a) the definition of Demised Properties shall be amended to include the Additional Demised Properties;
(b) the initial Base Rent for the Demised Properties (including, without limitation, the Additional Demised Properties) as set forth in Section 3.02(b) of the Original Lease, shall be an amount equal to $14,339,761.00 per annum ($1,194,980.08 per month);
(c) the Replacement Cap example set forth in Section 31.01 of the Original Lease is revised to up to fifteen (15) individual Demised Properties; but not more than an aggregate 1,225,901.60 rentable square feet of the Demised Properties;
(d) the following shall be added to the Original Lease as a new Section 8.03(a) :
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Section 8.03 Elk River .
(a) Landlord and Tenant acknowledge and agree that (i) a portion of what is commonly referred to as Building 7 (including a conveyor belt, shelter, intake and silo) on that certain Demised Property located at 1340 6 th Street, in Elk River, Minnesota (the Elk River Property ), encroaches onto a property contiguous with the Elk River Property (the Elk River Encroachment , and such contiguous property, the Neighboring Property ), which Elk River Encroachment is depicted on that certain survey of the Elk River Property, dated as of February 2, 2016, prepared by Ulteig Engineers, Inc., (ii) Landlord has an owners policy of title insurance issued by Stewart, which provides Landlord with insurance coverage for certain losses Landlord may incur as a result of Building 7 encroaching onto the Neighboring Property (the Elk River Title Policy ), and (iii) if, at any time during the Lease Term, a third-party asserts its rights in and to the Neighboring Property, then either (a) if, as a result thereof, Building 7 must be relocated onto the Elk River Property, then Landlord shall file a claim against Stewart under its Elk River Title Policy upon receipt of any reasonable documentation that Landlord may need to receive from Tenant in order to file such claim (the Elk River Supporting Documentation ), and Tenant shall move Building 7 onto the Elk River Property at Tenants sole cost and expense, subject to Tenant receiving any title insurance proceeds (or reimbursement from Landlord) due to Tenant as set forth herein; provided , that Landlord shall not be required to reimburse such costs in excess of the title insurance coverage amount that Landlord actually obtained under the Elk River Title Insurance Policy or (b) if such third-party agrees to permit Building 7 to perpetually remain on the Neighboring Property, subject to payment of a reasonable sum delivered to such third party as consideration for permitting Building 7 to perpetually remain on the Neighboring Property, such that, upon payment of such sum Building 7 will no longer be deemed to be an encroachment upon the Neighboring Property, then Tenant shall pay such sum to such third party and Landlord, Tenant and such third-party shall enter into an agreement, reasonably acceptable to each party thereto, permitting Building 7 to perpetually remain on the Neighboring Property. It being the intention of Landlord and Tenant that (y) if Building 7 must be moved onto the Elk River Property, then all proceeds received by Landlord resulting from a successful claim against Stewart under the Elk River Title Policy in connection with the Elk River Encroachment shall be promptly delivered to Tenant to cover any and all costs incurred by Tenant in connection with Tenants relocation of Building 7 pursuant to the terms of this Section 8.03 , and any excess Elk River Title
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Policy insurance proceeds shall be retained by Landlord and (z) if Building 7 is permitted to remain on the Neighboring Property subject only to such third-party receiving a reasonable sum in exchange for permitting Building 7 to remain on the Neighboring Property, then Tenant shall be responsible for payment of such sum, without deduction or offset against Rent or any reimbursement thereof from Landlord. Notwithstanding the foregoing, if Landlord fails to file a claim under clause (a) above within thirty (30) days after receipt of the Elk River Supporting Documentation and Tenants completion of the relocation of Building 7, then Tenant shall provide notice of such failure to Landlord (the Elk River Notice ). If Landlord does not cure such failure by instituting a claim under its Elk River Title Insurance Policy, as required by clause (a) above, within fifteen (15) days after receipt of the Elk River Notice, then Tenant shall provide Landlord with a reasonably detailed invoice for all reasonable, actual out-of-pocket costs incurred by Tenant in connection with Tenants relocation of Building 7 (the Elk River Invoice ), pursuant to the terms hereof, and Landlord shall reimburse Tenant for such costs within thirty (30) days after receipt of the Elk River Invoice; provided, that Landlord shall not be required to reimburse such costs in excess of the title insurance coverage amount that Landlord obtained under the Elk River Title Insurance Policy.
(e) the following shall be added to the Original Lease as a new Section 8.03(b) :
(b) Landlord and Tenant acknowledge and agree that as of the date hereof, certain portions of the Elk River Property (including, but not limited to, that portion subject to the Elk River Encroachment), are not owned in fee by either Landlord or Tenant, which portions are more specifically set forth on Exhibit I attached hereto and made a part hereof (collectively, the Remaining Elk River Property ), but are instead owned in fee, either directly or by operation of law, by the City of Elk River (the City ) or a third party, and, due to an oversight by the City, were not deeded from the City to the fee owner of the remaining portions, of the Elk River Property prior to the date hereof. The City is currently working to rectify this situation, and Tenant hereby covenants that if all or any portion of the Remaining Elk River Property is either deeded by the City to Tenant (as the prior fee owner of the Elk River Property) or Tenant is deemed to be the fee owner of all or any portion of the Remaining Elk River Property through a successful quite title action, then Tenant shall promptly transfer all or such portion of the Remaining Elk River Property to Landlord by executing a deed substantially similar to the deed received by Tenant conveying such Remaining Elk River Property (or applicable portion thereof) to Landlord which deed shall be in a form
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sufficient for such deed to be recorded in the applicable real property records where the Elk River Property is located, all to be done at Tenants sole cost and expense. Tenant shall use commercially reasonable best efforts to work with the City or any third-party holder of ownership interests in the Remaining Elk River Property, including commencing any litigation or other legal proceedings and diligently pursuing same and making any reasonable payment required by either the City or any such third-party (such reasonable payment, being up to the fair market value of the Remaining Elk River Property), in cooperation with Landlord, to permit Landlord to acquire fee simple title to the Remaining Elk River Property no later than the one (1) year anniversary of the Commencement Date; provided, however, that Landlord and Tenant acknowledge and agree that while Tenant may take the forgoing actions, Landlord, as the owner of the Elk River Property, will be the named litigant and the signatory on any such legal proceedings and/or documents and must reasonably cooperate with Tenants efforts in order for the Remaining Elk River Property to be transferred in fee to Landlord during such one (1) year period. At such time as Landlord owns fee simple title to the Remaining Elk River Property, (i) the Remaining Elk River Property shall automatically be deemed part of the Elk River Property, and upon the request of Landlord or Tenant, as the case may be, the parties shall enter into an amendment to this Lease to memorialize the same and account for any encumbrances on the same and (ii) Landlord shall be permitted to obtain a date down endorsement to the Elk River Title Policy, and Tenant shall reasonably cooperate with Landlords efforts to obtain same, which date down endorsement shall reflect the addition of the Remaining Elk River Property as a portion of the legal description insured by the Elk River Title Policy, such reasonable costs and expenses thereof to be paid for by Tenant.
(f) Schedule 2 (List of Original Movable Building Equipment) attached to the Original Lease is deleted in its entirety and replaced with Schedule 2 attached hereto and made a part hereof;
(g) Schedule 7.02 (List of Required Repairs) attached to the Original Lease is deleted in its entirety and replace with Schedule 7.02 attached hereto and made a part hereof;
(h) Each of Schedule 8.03(A) List of Structural Encroachments and Schedule 8.03(B) (List of Non-Structural Encroachments , attached to the Original Lease, is deleted in its entirety and replaced with Schedule 8.02(A) and Schedule 8.02(B) , respectively, attached hereto and made a part hereof, and all references in the Original Lease to Schedule 8.03(A) or Schedule 8.03(B) or Section 8.03 are hereby amended to reference Schedule 8.02(A) , Schedule 8.02(B) and Section 8.02 , respectively.; and
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(i) Exhibit A-1 (Location/Address of Demised Properties/Adjustment Amounts) attached to the Original Lease is deleted in its entirety and replaced with Exhibit A-1 attached hereto and made a part hereof.
4. Entire Agreement . The entire agreement of the parties with respect to the subject matter hereof is set forth in the Original Lease as amended by this Amendment.
5. Counterparts . This Amendment may be executed in counterparts, each of which shall be deemed an original, and all of which, when taken together, shall be deemed and shall constitute a single, integrated original document.
6. Headings . The section headings of this Amendment are for convenience only and are not intended, and shall not be construed to alter, limit, or enlarge in any way the scope or meaning of the language contained in this Amendment. No inference in favor of or against any party should be drawn from the fact that such party drafted or participated in the drafting of this Amendment or that such provisions have been drafted on behalf of such party.
7. Unitary Lease . For the avoidance of doubt, Landlord and Tenant agree that: the Original Lease, as amended by this Amendment, constitutes a single and indivisible lease as to all of the Demised Properties (as modified by this Amendment) collectively, and shall not be subject to severance or division. In furtherance of the foregoing, Landlord and Tenant each (a) waives, to the fullest extent permitted by Law, any claim or defense based upon the characterization of the Lease (as amended by this Amendment), as anything other than a master lease of all the Demised Properties (as amended by this Amendment), and irrevocably waives, to the fullest extent permitted by Law, any claim or defense that asserts that the Lease (as amended by this Amendment) is anything other than a master lease, (b) covenants and agrees that it will not assert that the Lease (as amended by this Amendment) is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties (as amended by this Amendment), (c) stipulates and agrees not to challenge the validity, enforceability or characterization of the Lease of the Demised Properties (as amended by this Amendment), as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties (as amended by this Amendment), and (iv) shall support the intent of the parties that the Lease (as amended by this Amendment)is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties (as amended by this Amendment), if, and to the extent that, any challenge occurs. To the extent that legal, tax or title insurance requirements in consummating the purchase of the Demised Properties by Landlord or leasing the Demised Properties (in each case, as amended by this Amendment), to Tenant, may require, or may have required, individual purchase price allocations (including allocations of values for individual state transfer tax purposes and title insurance coverage amounts) or individual rent allocations (including allocations of rents in certain states for tax purposes), Landlord and Tenant agree that such individual allocations are solely to comply with legal, tax or title insurance requirements, and shall not be used or construed, directly or indirectly, to vary the intent of Landlord and Tenant that the Lease (as amended by this Amendment) constitutes a single and indivisible lease of all the Demised Properties (as amended by this Amendment) collectively and is not an aggregation of separate leases. The foregoing agreements and waivers by Tenant in this Paragraph 7 are made as a material inducement to Landlord to enter into the transaction contemplated by the Lease as modified by this Amendment and that, but for the foregoing agreements and waivers by Tenant, Landlord would not consummate the Original Lease or this Amendment.
8. Lease in Full Force and Effect . Except as expressly set forth in this Amendment, , all of the terms and provisions of the Original Lease are hereby ratified and confirmed, and the Original
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Lease (as amended hereby) remains in full force and effect. All references in the Original Lease to this Lease (or similar phrase) shall be deemed to refer to the Original Lease as modified by this Amendment, and all references in the Original Lease to Demised Properties shall be deemed to refer to the Demised Properties as such term is defined in this Amendment.
[Signature Pages to Follow]
6
IN WITNESS WHEREOF , this Amendment is executed by the parties as of the day and year first set forth above.
LANDLORD: | ||||||
PIPE PORTFOLIO OWNER EXCHANGE (MULTI) LP , | ||||||
a Delaware limited partnership | ||||||
By: | PIPE PORTFOLIO EXCHANGE GP LLC, | |||||
a Delaware limited liability company, its general partner | ||||||
By: | WPC HOLDCO LLC, | |||||
a Maryland limited liability company, its sole member | ||||||
By: | W. P. CAREY INC., | |||||
a Maryland corporation, its sole member | ||||||
By: |
/s/ Gino M. Sabatini |
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Name: | Gino M. Sabatini | |||||
Title: | Managing Director |
STATE OF New York |
) |
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) | ss. | |||||
COUNTY OF New York |
) |
On the 13 th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Gino M. Sabatini , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
/s/ Robert K Pollak |
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Signature of Notary Public | ||||
(Seal) | Commission expires: 08/05/17 | |||
Commission no. 01PO6287036 | ||||
WITNESS SIGNATURES: |
By: |
/s/ Leah Speckland |
ROBERT K POLLAK Notary Public, State of new York No. 01PO6287036 Qualified in New York Country Certificate filed in New York Country Commission Expires August 05, 2017 |
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Name: |
Leah Speckland
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By: |
/s/ Abigail Lamb |
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Name: | Abigail Lamb |
Signature Page | First Amendment to Master Lease (US) |
TENANT: | ||
FORTERRA PIPE & PRECAST, LLC, | ||
a Delaware limited liability company | ||
By: |
/s/ Lori M. Browne |
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Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Jennifer Lefler |
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Name: | Jennifer Lefler | |
By: |
/s/ Kelly S. Simpson |
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Name: | Kelly S. Simpson |
STATE OF TEXAS | ) | |||||
) | ss. | |||||
COUNTY OF DALLAS | ) |
On the 14th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | First Amendment to Master Lease (US) |
FORTERRA PRESSURE PIPE, INC., | ||
an Ohio corporation | ||
By: |
/s/ Lori M. Browne |
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Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Jennifer Lefler |
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Name: | Jennifer Lefler | |
By: |
/s/ Kelly S. Simpson |
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Name: | Kelly S. Simpson |
STATE OF TEXAS |
) |
|||||
) | ss. | |||||
COUNTY OF DALLAS |
) |
On the 14th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | First Amendment to Master Lease (US) |
FORTERRA CONCRETE PRODUCTS, INC. | ||
an Iowa corporation | ||
By: |
/s/ Lori M. Browne |
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Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Jennifer Lefler |
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Name: | Jennifer Lefler | |
By: |
/s/ Kelly S. Simpson |
|
Name: | Kelly S. Simpson |
STATE OF TEXAS |
) |
|||||
) | ss. | |||||
COUNTY OF DALLAS |
) |
On the 14th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | First Amendment to Master Lease (US) |
FORTERRA CONCRETE INDUSTRIES, INC., | ||
a Tennessee corporation | ||
By: |
/s/ Lori M. Browne |
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Name: | Lori M. Browne | |
Its: | Vice President | |
WITNESS SIGNATURES: | ||
By: |
/s/ Jennifer Lefler |
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Name: | Jennifer Lefler | |
By: |
/s/ Kelly S. Simpson |
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Name: | Kelly S. Simpson |
STATE OF TEXAS |
) |
|||||
) | ss. | |||||
COUNTY OF DALLAS |
) |
On the 14th day of April in the year 2016 before me, the undersigned, a Notary Public in and for said state, personally appeared Lori M. Browne , proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.
(Seal) |
/s/ Margaret Hobbs Signature of Notary Public Commission expires: 05-22-2019 Commission no. 222638-0 |
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Signature Page | First Amendment to Master Lease (US) |
CONSENT AND RATIFICATION OF GUARANTOR
The undersigned, as Guarantor under that certain Guaranty of Master Land and Building Lease, dated as of April 5, 2016 (the Guaranty ), hereby unconditionally and irrevocably: (a) consents to the execution and delivery of, and performance under, the First Amendment to Master Land and Building Lease to which this Consent and Ratification is attached (the Amendment ); (b) ratifies and confirms the terms and provisions of the Guaranty with respect to the Original Lease as amended by this Amendment and the obligations thereunder, and confirms that the Guaranty continues to constitute a valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms; and (c) agrees that the execution and delivery of the Amendment shall not operate to release, discharge, serve as a defense to, or in any way alter or amend the obligations of the undersigned under the Guaranty.
Executed as of April 14 , 2016
GUARANTOR | ||
LSF9 CONCRETE HOLDINGS LTD, | ||
a company incorporated under the laws of the Bailiwick of Jersey | ||
By: |
/s/ Jonathan Rosen |
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Name: | Jonathan Rosen | |
Title: | Director |
[Guarantor Ratification - First Amendment to Master Lease (US)]
SCHEDULE 2
LIST OF ORIGINAL MOVABLE BUILDING EQUIPMENT
[See Attached]
Schedule 2
Forterra Sale Leaseback
Site Detailed Data
($ in 000s) | Percentage complete | 100% | ||||||||||||||||
Location (Address) |
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Name of Plant |
Street |
City |
State |
Post Code |
Country |
Segment |
Overhead
cranes |
Crane Capacities |
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1 | Billings, MT | 1521 South 32nd Street West | Billings | MT | 59102 | USA | Cretex Concrete Products, Inc. | 1 | 10T | |||||||||
2 | Bonner Spring, KS | 23600 West 40th Street | Bonner Spring | KS | 66226 | USA | Cretex Concrete Products, Inc. | 2 | 30T; 10T | |||||||||
3 | Elk River, MN | 1340 6th Steet | Elk River | MN | 55330 | USA | Cretex Concrete Products, Inc. | 3 | 2-20R 1-7.5t | |||||||||
4 | Hawley, MN | 401 Michael Street S and 1025 Cretex Street | Hawley | MN | 56549 | USA | Cretex Concrete Products, Inc. | 1 | 1-20T | |||||||||
5 | Iowa Falls, IA | 540 Country Club Road | Iowa Falls | IA | 50126 | USA | Cretex Concrete Products, Inc. | 5 | 1 (50 T), 2 (40 T), 2 (30 T) | |||||||||
6 | Marshalltown, IA | 2002 East Olive Street | Marshalltown | IA | 50158 | USA | Cretex Concrete Products, Inc. | 4 | (1) 10T; (1) 20T; (2) 30T | |||||||||
7 | Menoken, ND | 1101 158 Street Northeast | Menoken | ND | 58558 | USA | Cretex Concrete Products, Inc. | 2 | 4T; 20T | |||||||||
8 | Rapid City, SD | 1601 Culvert Street | Rapid City | SD | 57701 | USA | Cretex Concrete Products, Inc. | 3 | 35T; 5T, 1T | |||||||||
9 | Austin Gravity Plant | 801 Airport Blvd. | Austin | TX | 78702 | USA | Gravity Pipe & Precast | 1 | 40t | |||||||||
11 | Cedar Hill Pipe Plant | 2138 Highway 67 South | Cedar Hill | TX | 75104 | USA | Gravity Pipe & Precast | 3 | 50T; 35T; 5T | |||||||||
12 | Columbus Gravity Pipe Plant | 1500 Haul Rd. | Columbus | OH | 43207 | USA | Gravity Pipe & Precast | 7 | (2) 5T; (2) 20T; (2) 25T; 35T | |||||||||
13 | Deland Precast Plant | 480 West Ave | Deland | FL | 32720 | USA | Gravity Pipe & Precast | 10 | 5T; (6) 10T; 20T; (2) 35T | |||||||||
14 | EI Mirage | 12600 W. Northern Ave | El Mirage | AZ | 85335 | USA | Gravity Pipe & Precast | 5 | (2) 10T; (2) 20T; 40T | |||||||||
15 | Florin Road | 7020 Tokay Avenue | Sacramento | CA | 95828 | USA | Gravity Pipe & Precast | 6 | (2) 10T; 15T; (2) 20T; 40T | |||||||||
16 | Grand Prairie Gravity Plant | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 1 | 70T | |||||||||
17 | Grand Prairie Precast Plant | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 8 | (6) 10T; 25T; 35T | |||||||||
31 | Grand Prairie | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Pressure Pipe | 125 | Separate tab | |||||||||
67 | Form Equipment Support | 1000 N. MacArhur Blvd. | Grand Prairie | TX | 75050 | USA | Gravity Pipe & Precast | 4 | (4) 10T | |||||||||
Grand Prairie Total | 138 | |||||||||||||||||
18 | Houston Box Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 1 | 60T | |||||||||
19 | Houston Jersey Village Gravity Pipe Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 5 | 5T; (2) 10T; 20T; 60T | |||||||||
20 | Houston Precast Plant | 11201 FM 529 | Houston | TX | 77240 | USA | Gravity Pipe & Precast | 7 | (4) 10T; 15T; 20T 35T | |||||||||
Houston Total | 13 | |||||||||||||||||
21 | Jackson Pipe Plant | 2840 West Northside Drive | Jackson | MI | 39213 | USA | Gravity Pipe & Precast | 2 | 10T; 15T |
22 |
Macedonia Plant | 7925 Empire Parkway | Macedonia | OH | 44056 | USA | Gravity Pipe & Precast | 1 | 25T | |||||||||||
23 |
Oklahoma City Pipe Plant | 6504 S. Interpace | Oklahoma City | OK | 73135 | USA | Gravity Pipe & Precast | 1 | 30T | |||||||||||
27 |
Shafter | 30781 San Diego St | Shafter | CA | 93263 | USA | Gravity Pipe & Precast | 3 | 10T; 20T; 50T | |||||||||||
28 |
Waco Precast Plant | 11710 Chapel Road | Hewitt | TX | 76643 | USA | Gravity Pipe & Precast | 10 | (3) 5T; (2) 7.5T; (2) 10T; 15T; 20T; 30T | |||||||||||
29 |
Winter Haven Pipe Plant | 1285 Luceme Loop Road | Winter Haven | FL | 33881 | USA | Gravity Pipe & Precast | 4 | (3) 20T; 30T | |||||||||||
30 |
Bakewell | 550 Industrial Blvd | Sale Creek | TN | 373273 | USA | Pressure Pipe | 6 | 3T; 5T; (3) 10T; 20T | |||||||||||
32 |
South Beloit | 4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | Pressure Pipe | 23 | (5) 2T; (5) 3T; (3) 4T; (6) 10T; (4) 15T | |||||||||||
35 |
Bar Nunn, WY | 2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | Cretex Concrete Products, Inc. | 0 | ||||||||||||
36 |
Cedar Rapids, IA | 3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | Cretex Concrete Products, Inc. | 1 | 2T | |||||||||||
37 |
Franklin | 313 Downs Boulevard | Franklin | TN | 37064 | USA | Sherman - Dixie | 4 | (2) 3T; 50T; 15T | |||||||||||
38 |
Lexington | 759 Phillips Lane and 760 Philllips Lane | Lexington | KY | 40504 | USA | Sherman - Dixie | 1 | 7.5T | |||||||||||
39 |
Oskaloosa, KS | 5150 US Highway 59 | Lawrence | KS | 66066 | USA | Cretex Concrete Products, Inc. | 3 | (2) 10T; 30T | |||||||||||
40 |
Shakopee, MN | 7070 Cretex Avenue | Shakopee | MN | 55379 | USA | Cretex Concrete Products, Inc. | 3 | (1) 15T; (2) 5T | |||||||||||
41 |
Dayton Precast Plant | 1504 N. Gettysburg Ave. | Dayton | OH | 45417 | USA | Gravity Pipe & Precast | 2 | 5T; 15T | |||||||||||
42 |
Gretna Pipe Plant | 55 Dritches Hayes N/ Aclary Ave | Gretna | FL | 32332 | USA | Gravity Pipe & Precast | 0 | ||||||||||||
45 |
Marianna Precast Plant | 4043 Family Dollar Parkway | Marianna | FL | 32448 | USA | Gravity Pipe & Precast | 3 | 5T; 15T; 30T | |||||||||||
46 |
Robstown Gravity Pipe Plant | 1610 Hwy, 77 South | Robstown | TX | 78380 | USA | Gravity Pipe & Precast | 1 | 35T | |||||||||||
48 |
Athens Precast Plant | 625 B Hancock Industrial Way | Athens | GA | 30605 | USA | Gravity Pipe & Precast | 6 | (2) 5T; (2) 10T; 20T; 25T | |||||||||||
50 |
Little Rock Pipe Plant | 1300 Bond Street | Little Rock | AR | 72202 | USA | Gravity Pipe & Precast | 2 | 5T; 15T | |||||||||||
51 |
Montgomery Gravity Pipe Plant | 1616 Parallel Street | Montgomery | AL | 36104 | USA | Gravity Pipe & Precast | 2 | (2) 5T | |||||||||||
52 |
New Orleans Gravity Pipe Plant | 13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | Gravity Pipe & Precast | 3 | 7.5T; (2) 35T | |||||||||||
56 |
Rome Pipe Plant | 223 John Davenport Drive | Rome | GA | 30165 | USA | Gravity Pipe & Precast | 1 | 10T | |||||||||||
57 |
St. Martinville Pipe Plant | 520 W. Port Street | St. Martinwille | LA | 70582 | USA | Gravity Pipe & Precast | 1 | 15T | |||||||||||
58 |
West Memphis Pipe Plant | 501 East Jefferson | West Memphis | AR | 72301 | USA | Gravity Pipe & Precast | 5 | (2) 5T; 10T; 15T; 35T | |||||||||||
59 |
Plattsmouth, NE |
369 Wiles Road |
Plattsmouth |
NE | 68048 | USA | Cretex Concrete Products, Inc. | 1 | ||||||||||||
65 |
Lubbock |
1624 Marshall St |
Lubbock |
TX | 79415 | USA | Pressure Pipe | 4 | (4) 5T |
GRAND PRAIRIE PRESSURE PIPE TAB
Crane Capacity |
Pressure
Pipe |
Steel
Pipe |
Total | |||||||||
1/4 ton |
1 | 1 | ||||||||||
1/2 ton |
12 | 5 | 17 | |||||||||
1 ton |
46 | 7 | 53 | |||||||||
2 ton |
13 | 3 | 16 | |||||||||
3 ton |
6 | 6 | ||||||||||
5 ton |
11 | 11 | ||||||||||
6 ton |
2 | 2 | ||||||||||
7 ton |
1 | 1 | ||||||||||
7.5 ton |
3 | 3 | ||||||||||
10 ton |
3 | 3 | ||||||||||
15 ton |
2 | 2 | ||||||||||
20 ton |
4 | 4 | ||||||||||
26 ton |
1 | 1 | ||||||||||
30 ton |
1 | 1 | ||||||||||
35 ton |
3 | 3 | ||||||||||
40 ton |
1 | 1 | ||||||||||
|
|
|
|
|
|
|||||||
Totals |
106 | 19 | 125 |
SCHEDULE 7.02
LIST OF REQUIRED REPAIRS
[See Attached]
Schedule 7.02
PCA Summary of Immediate and Short-term Recommendations
Partner
|
Forterra
Site # |
Street Address |
City |
State |
Post Code |
Country |
Immediate & Short-term
Repairs Total Cost |
Immediate & Short-term Recommendations (For additional information, refer to the PCA Section noted below) |
||||||||||
1 | 11 | 1616 Parallel Street | Montgomery | AL | 36104 | USA | $ | 2,500 | Immediate Repair - Section 4.2: Repair damaged concrete masonry unit wall section along the south face of the west process building. This appears to have occurred through vehicle or equipment impact. | |||||||||
5 | 8 | 1300 Bond Street | Little Rock | AR | 72202 | USA | $ | 7,500 | Short-term Repair - Section 4.3.1: Repair damaged metal siding at the Production Plant and Office Buildings. | |||||||||
6 | 9 | 501 East Jefferson | West Memphis | AR | 72301 | USA | $ | 41,600 |
Immediate Repair - Section 3.3.1: Install storm water drain to control ponding near fuel ASTs. Short-term Repair - Section 4.3.1: Repair damaged metal siding. Immediate Repair - Section 4.4.1: Replace built-up roofing. |
|||||||||
7 | 25 | 12600 W. Northern Ave | El Mirage | AZ | 85335 | USA | $ | 56,450 |
Immediate Repair - Section 3.3.1: Soil erosion evaluation by civil engineer. Immediate Repair - Section 3.3.1: Earth Fissure trenching study by geotechnical engineer. Immediate Repair - Section 3.3.2: Pavement thickness design study by geotechnical engineer. Short-term Repair - Section 3.3.2: Asphalt seal coat & parking stall striping. Short-term Repair - Section 4.3.1: Exterior cleaning, sealing, painting (office). Short-term Repair - Section 4.4.1: Roof replacement, spray foam. Immediate Repair - Section 7.1: Add two ADA accessible parking spaces, one of which must be a van-accessible parking space. |
|||||||||
8 | 28 | 7020 Tokay Avenue | Sacramento | CA | 95828 | USA | $ | 27,450 |
Short-term Repair - Section 3.3.2: Pavement appears to be in fair structural condition. Extensive map or alligator cracking were not at the drive aisle on the northern side of Building 2. Repair of the drive aisle is recommended. Short-term Repair - Section 3.3.9: The ancillary structures to be in fair overall condition. Damaged roofing was noted at the storage structure. Repair of the roofing is recommended. |
|||||||||
9 | 26 | 30781 San Diego St | Shafter | CA | 93263 | USA | $ | 7,250 |
Immediate Repair - Section 2.3.1: Replace, recertify and update tags on fire extinguishers per Kern County Fire Dept. Short-term Repair - Section 4.3.1: Commission structural engineer or third party steel cladding manufacture of metal building siding-cladding to replace and repair missing exterior wall, canopy and shed sidings for future potential structure and building anticipated uses. Immediate Repair - Section 4.3.2: Analyze what damaged windows that may be useful and intended for use in future building functions. Immediate Repair - Section 4.4.2: Repair leak i roof of Building 1. Immediate Repair - Section 7.1: Add accessible ADA compliant path of travel routes from the ADA designated parking stalls to the accessible ramps to buildings 5 and 6. |
|||||||||
10 | 6 | 840 West Ave | Deland | FL | 32720 | USA | $ | 54,000 |
Immediate Repair - Section 3.3.1: Areas of soil erosion due to rain washout were observed adjacent to the concrete stairway to the east of Plant Building-2 and along the main drive aisle located at the north side of the property. Partner recommends the backfill and repair of the eroded areas. Immediate Repair - Section 3.3.2: Extensive linear cracking, map or alligator cracking, and pothole formation were noted at the drive aisles within the fenced in working areas along the main drive aisle located at the north side of the subject property due to soil erosion. Repair of the noted area is recommended. Immediate Repair - Section 4.3.1: Metal panel exterior walls of the Storage building and the Wood Shop building were observed to have damaged exterior metal panels. Partner recommends the dented and damaged metal panels. Immediate Repair - Section 4.4.1: Metal roofing of the Storage building and Wood Shop buildings appear to have several areas of roof leaks leading to interior insulation deterioration and failure. Partner recommends roof and insulation replacement for the Storage and Wood Shop building roofs. |
|||||||||
11 | 4 | 55 Ditches Hayes N/ Aclary Ave | Gretna | FL | 32332 | USA | $ | 0 | NA | |||||||||
12 | 5 | 4043 Family Dollar Parkway | Marianna | FL | 32448 | USA | $ | 30,500 |
Immediate Repair - Section 3.3.2: Asphalt pavement reconstruction. Immediate Repair - Section 3.3.8: Repair exterior lighting. Immediate Repair - Section 3.3.2: Asphalt pavement seal coat. |
|||||||||
13 | 7 | 1285 Luceme Loop Road | Winter Haven | FL | 33881 | USA | $ | 0 | NA | |||||||||
14 | 3 | 625 B Hancock Industrial Way | Athens | GA | 30605 | USA | $ | 0 | NA | |||||||||
15 | 2 | 223 John Davenport Drive | Rome | GA | 30165 | USA | $ | 2,700 |
Immediate Repair - Section 3.3.1: Partner recommends property management engage the services of a local contractor to inspect the storm water drainage areas of the subject property and recommend corrective action for the storm water drainage issues in the southeast section of the property grounds. Immediate Repair - Section 3.3.2: Pavement markings and striping are recommended to be installed at the office building concrete parking area. |
|||||||||
16 | 20 | 3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | $ | 0 | NA | |||||||||
18 | 17 | 540 Country Club Road | Iowa Falls | IA | 50126 | USA | $ | 2,500 |
Immediate Repair - Section 4.3.2: Replace rotted window trim at office. Short-term Repair - Section 4.3.3: Replace rusted door frames at office. |
|||||||||
19 | 18 | 2002 East Olive Street | Marshalltown | IA | 50158 | USA | $ | 0 | NA | |||||||||
20 | 2 | 4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | $ | 30,000 |
Short-term Repair - Section 3.3.2: Grading and bedding sand replacement. Short-term Repair - Section 4.3.1: Metal panel repair and replacement. Short-term Repair - Section 4.3.3: Replace three loading doors. Short-term Repair - Section 4.3.1: Repair and seal step cracks in concrete masonry unit facades. |
|||||||||
21 | 4 | 23600 West 40th Street | Bonner Spring | KS | 66226 | USA | $ | 0 | NA | |||||||||
22 | 3 | 5150 US Highway 59 | Lawrence | KS | 66066 | USA | $ | 0 | NA | |||||||||
23 | 6 | 13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | $ | 29,850 |
Immediate Repair - Section 3.3.1: Allowance to assess, and, if necessary, repair stormwater management to prevent ponding observed at two locations: south of the Box Culvert Production building and north of the Pipe Production building. Immediate Repair - Section 4.4.1: Concrete pavement repair. Repair three roof leaks at pipe production building; mitigate associated discoloration and suspect mold on concrete columns at roof leak locations. Immediate Repair - Section 4.4.1: Mold remediation in the Pipe Production building. Immediate Repair - Section 5.3: Infrared testing. Immediate Repair - Section 7.1: Convert standard ADA parking space to a van-accessible parking space. Immediate Repair - Section 7.1: Allowance to provide an accessible path to the Office building. |
1
PCA Summary of Immediate and Short-term Recommendations
2
PCA Summary of Immediate and Short-term Recommendations
Partner
|
Forterra
Site # |
Street Address |
City |
State |
Post Code |
Country |
Immediate & Short-term
Repairs Total Cost |
Immediate & Short-term Recommendations (For additional information, refer to the PCA Section noted below) |
||||||||||||||
56 | 24 | 2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | $ | 0 | NA | |||||||||||||
63 | NP | 759 Phillips Lane | Lexington | KY | 40504 | USA | $ | 0 | NA | |||||||||||||
64 | NP | 313 Downs Boulevard | Franklin | TN | 37064 | USA | $ | 4,200 |
Short-term Repair - Section 4.3.2: Repair of damaged office windows. Short-term Repair - Section 4.2.1: Repair step-cracks at CMU walls. |
|||||||||||||
|
|
|||||||||||||||||||||
Total: | $ | 507,900 | ||||||||||||||||||||
|
|
3
SCHEDULE 8.02(A)
LIST OF STRUCTURAL ENCROACHMENTS
SITE |
ENCROACHMENT |
|
SACRAMENTO CA | SMALL 20 X 25 1 STY FRAME BLDG 3.2 AND 0.9 OVER PROPERTY LINE; | |
IOWA FALLS IA | BUILDINGS 4 & 5 ENCROACH 100 WIDE ELECTRIC TRANSMISSION LINE EASEMENT UP TO 68 X 90 | |
ELK RIVER MN |
BUILDING 9 (SHED) EXTENDS 10 INTO ROAD WAY (TO BE VACATED)
12.8 x 8.2 SHED EXTENDS 1 FOOT OVER PROPERTY LINE |
|
COLUMBUS OH | SHED OVER PROPERTY LINE 10.6 | |
HOUSTON TX | BUILDINGS 3, 3A, 3B & 4 ENCROACH OVER SANITARY CONTROL EASEMENT AND BUILDINGS 3B & 5 ENCROACH OVER ELECTRIC EASEMENT |
Schedule 8.02
SCHEDULE 8.02(B)
LIST OF NON-STRUCTURAL ENCROACHMENTS
SITE |
ENCROACHMENT |
|
MONTGOMERY AL | FENCE | |
CEDAR RAPIDS IA | GRAVEL DRIVEWAY OVER PROPERTY LINE | |
OSKALOOSA KS | BOULDERS ENCROACH INTO ROW 19 | |
ELK RIVER MN |
FENCE AND GRAVEL LOT ENCROACH INTO MEADOWVALE ROAD RIGHT OF WAY (TO BE VACATED)
FENCES OVER PROPERTY LINES FROM 0.7 TO 4.2
FENCE AND GRAVEL LOT ENCROACHES ONTO ROAD WAY (TO BE VACATED) |
|
MACEDONIA OH | CONCRETE AND GRAVEL ENCROACH ONTO ADJOINER PROPERTY | |
AUSTIN TX |
WOOD FENCE AND CHAIN LINK FENCES ENCROACH OVER PROPERTY LINES FROM 1.5 TO 5.1 |
|
GRAND PRAIRIE TX |
FENCE/STRIPED PARKING CROSS PROPERTY LINE UP TO 50.27 |
|
LUBBOCK TX |
ASPHALT PARKING OVER PROPERTY LINE 13.6 |
Schedule 8.02
EXHIBIT A
LIST OF ADDITIONAL DEMISED PROPERTIES
Name of Plant |
Street |
City |
State |
Post Code |
Country |
|||||||
3 |
Elk River, MN |
1340 6 th Street |
Elk River |
MN | 55330 | USA | ||||||
9 |
Austin Gravity Plant |
801 Airport Blvd. |
Austin |
TX | 78702 | USA |
Exhibit A
EXHIBIT A-1
LOCATION/ADDRESS OF DEMISED PROPERTIES/ADJUSTMENT AMOUNTS
ADDRESS |
CITY |
STATE |
POSTAL
CODE |
COUNTRY |
ADJUSTMENT
AMOUNTS |
|||||||
1616 Parallel Street |
Montgomery | AL | 36104 | USA | 1.10 | % | ||||||
1300 Bond Street |
Little Rock | AR | 72202 | USA | 1.21 | % | ||||||
501 E. Jefferson South |
West Memphis | AR | 72301 | USA | 2.04 | % | ||||||
12600 W. Northern Avenue |
El Mirage | AZ | 85335 | USA | 3.53 | % | ||||||
7020 Tokay Avenue |
Sacramento | CA | 95828 | USA | 4.49 | % | ||||||
30781 San Diego Street |
Shafter | CA | 93263 | USA | 0.61 | % | ||||||
840 West Avenue |
Deland | FL | 32720 | USA | 3.41 | % | ||||||
55 Dritches Hayes Clary Ave |
Gretna | FL | 32332 | USA | 0.87 | % | ||||||
4043 Family Dollar Parkway |
Mariana | FL | 32448 | USA | 1.62 | % | ||||||
1285 Lucerne Loop Road |
Winter Haven | FL | 33881 | USA | 4.77 | % | ||||||
625 Hancock Industrial Way |
Athens | GA | 30605 | USA | 1.11 | % | ||||||
223 John Davenport Drive |
Rome | GA | 30165 | USA | 0.91 | % | ||||||
3921 J Street Southwest |
Cedar Rapids | IA | 52404 | USA | 0.42 | % | ||||||
540 Country Club Road |
Iowa Falls | IA | 50126 | USA | 1.63 | % | ||||||
2002 East Olive Street |
Marshalltown | IA | 50158 | USA | 0.96 | % | ||||||
4416 Prairie Hill Road |
South Beloit | IL | 61080 | USA | 5.23 | % | ||||||
23600 West 40 th Street |
Bonner Springs | KS | 66226 | USA | 1.52 | % | ||||||
5150 US Highway 59 |
Oskaloosa (Lawrence) | KS | 66066 | USA | 1.00 | % | ||||||
759 Phillips Lane and 760 Phillips Lane |
Lexington | KY | 40504 | USA | 1.09 | % | ||||||
13201 Old Gentilly Road |
New Orleans | LA | 70150 | USA | 2.03 | % | ||||||
520 W. Port Street |
St. Martinville | LA | 70582 | USA | 1.39 | % | ||||||
1340 6 th Street |
Elk River | MN | 55330 | USA | 2.18 | % | ||||||
401 Michael Street S; and 1025 Cretex Street |
Hawley | MN | 56549 | USA | 0.90 | % | ||||||
7070 Cretex Avenue |
Shakopee | MN | 55379 | USA | 1.24 | % | ||||||
2840 W. Northside Drive |
Jackson | MS | 39213 | USA | 1.46 | % | ||||||
1521 South 32 nd Street West |
Billings | MT | 59102 | USA | 0.58 | % | ||||||
1101 158 Street Northeast |
Menoken | ND | 58558 | USA | 0.62 | % | ||||||
369 Wiles Road |
Plattsmouth | NE | 68048 | USA | 0.53 | % | ||||||
1500 Haul Road |
Columbus | OH | 43207 | USA | 3.60 | % | ||||||
1504 N. Gettysburg Avenue |
Dayton | OH | 45417 | USA | 2.16 | % | ||||||
7925 Empire Parkway |
Macedonia | OH | 44056 | USA | 1.76 | % | ||||||
6504 South Interpace |
Oklahoma City | OK | 73135 | USA | 1.35 | % | ||||||
1601 Culvert St |
Rapid City | SD | 57701 | USA | 2.38 | % | ||||||
550 Industrial Boulevard |
Sale Creek | TN | 37304 | USA | 2.06 | % | ||||||
313 Downs Boulevard |
Franklin | TN | 37064 | USA | 1.34 | % | ||||||
801 Airport Blvd |
Austin | TX | 78702 | USA | 1.72 | % | ||||||
2138 Highway 67 South |
Cedar Hill | TX | 75104 | USA | 1.83 | % | ||||||
1000 N. MacArthur Blvd |
Grand Prairie | TX | 75050 | USA | 19.06 | % | ||||||
11710 Chapel Road |
Hewitt | TX | 76643 | USA | 2.71 | % | ||||||
11201 FM 529 |
Houston | TX | 77240 | USA | 7.84 | % | ||||||
1624 Marshall Street |
Lubbock | TX | 79415 | USA | 2.56 | % | ||||||
1610 Highway 77 South |
Robstown | TX | 78380 | USA | 1.03 | % | ||||||
2175 Westwinds Road |
Bar Nunn | WY | 82601 | USA | 0.15 | % | ||||||
|
|
|||||||||||
100.00 | % | |||||||||||
|
|
Exhibit A-1
EXHIBIT I
LEGAL DESCRIPTION OF REMAINING ELK RIVER PROPERTY
Parcel 1: That part of Meadowvale Road, also known as Military Road, as shown on the plat of AUDITORS SUBDIVISION NO. 3, which adjoins Lots 11, 12, 13, 14, and 15 of said AUDITORS SUBDIVISION NO. 3 and which lies East of the extension North of the East line of Upland Ave. NW, also known as County Highway No. 44, and identified as an Exception area on the Survey by Ultieg Engineers Inc. dated 4-12-2016 as Project No. 15-12-008:008.
Parcel 2: That part of Industrial Road which lies West of the extension North of the West line of Quinn Avenue, located over, under and across part of Lot 8, AUDITORS SUBDIVISION NO. 3, and identified as an Exception area on the Survey by Ultieg Engineers Inc. dated 4-12-2016 as Project No. 15-12-008:008.
Parcel 3: The easement for street and roadway purposes within Lot 8, AUDITORS SUBDIVISION NO. 3 described in Document No. 98442 on file in the office of the County Recorder in said Sherburne County, and identified as an Exception area on the Survey by Ultieg Engineers Inc. dated 4-12-2016 as Project No. 15-12-008:008.
Exhibit I
Exhibit 10.11
MASTER
LAND AND BUILDING LEASE
between
FORT-NOM HOLDINGS (ONQC) INC.,
a British Columbia corporation,
as LANDLORD
and
Forterra Pipe & Precast, Ltd.,
an Ontario corporation,
Forterra Pressure Pipe, Inc.,
a Quebec corporation, and
Forterra Pipe & Precast Québec, Ltd.,
a Québec corporation
as TENANT
April 5, 2016
INDEX TO MASTER LAND AND BUILDING LEASE
ARTICLE 1 |
DEMISE OF PREMISES |
2 | ||||
ARTICLE 2 |
TERM |
2 | ||||
ARTICLE 3 |
RENT |
3 | ||||
ARTICLE 4 |
USE |
7 | ||||
ARTICLE 5 |
ACCEPTANCE OF DEMISED PROPERTIES |
8 | ||||
ARTICLE 6 |
ALTERATIONS |
9 | ||||
ARTICLE 7 |
REPAIRS AND MAINTENANCE |
10 | ||||
ARTICLE 8 |
COMPLIANCE WITH LAW |
10 | ||||
ARTICLE 9 |
DISCLAIMER AND INDEMNITIES |
10 | ||||
ARTICLE 10 |
INSURANCE |
11 | ||||
ARTICLE 11 |
DAMAGE OR DESTRUCTION |
14 | ||||
ARTICLE 12 |
EXPROPRIATION |
16 | ||||
ARTICLE 13 |
FINANCIAL AND REPORTING COVENANTS |
17 | ||||
ARTICLE 14 |
INTENTIONALLY OMITTED |
18 | ||||
ARTICLE 15 |
EVENTS OF DEFAULT |
18 | ||||
ARTICLE 16 |
FORCE MAJEURE |
21 | ||||
ARTICLE 17 |
NOTICES |
22 | ||||
ARTICLE 18 |
ACCESS |
22 | ||||
ARTICLE 19 |
SIGNS |
23 | ||||
ARTICLE 20 |
IMPROVEMENTS AND BUILDING EQUIPMENT; TENANT EQUIPMENT |
23 | ||||
ARTICLE 21 |
END OF TERM; HOLDING OVER |
24 | ||||
ARTICLE 22 |
TENANT ASSIGNMENT AND SUBLETTING |
25 | ||||
ARTICLE 23 |
FINANCINGS |
26 | ||||
ARTICLE 24 |
ESTOPPEL CERTIFICATES |
27 | ||||
ARTICLE 25 |
REGISTRATION |
27 | ||||
ARTICLE 26 |
APPLICABLE LAW; JURISDICTION |
28 | ||||
ARTICLE 27 |
LIABILITY OF PARTIES |
29 | ||||
ARTICLE 28 |
ATTORNEYS FEES; EXPENSES |
29 | ||||
ARTICLE 29 |
ENVIRONMENTAL |
29 | ||||
ARTICLE 30 |
LANDLORD ASSIGNMENT |
31 | ||||
ARTICLE 31 |
REPLACEMENTS |
33 | ||||
ARTICLE 32 |
GUARANTY |
34 | ||||
ARTICLE 33 |
LANDLORDS RIGHTS UNDER LEASE |
35 | ||||
ARTICLE 34 |
RIGHT OF FIRST REFUSAL |
35 | ||||
ARTICLE 35 |
EXISTING LOANS |
36 | ||||
ARTICLE 36 |
INTERPRETATION; MISCELLANEOUS |
37 | ||||
ARTICLE 37 |
QUIET ENJOYMENT |
37 |
-i- | MASTER LAND AND BUILDING LEASE |
ARTICLE 38 |
NO MERGER OF TITLE |
38 | ||||
ARTICLE 39 |
BROKERS |
38 | ||||
ARTICLE 40 |
LANGUAGE |
38 | ||||
ARTICLE 41 |
PROVINCE SPECIFIC PROVISIONS |
38 |
Schedule 1 |
Defined Terms |
|
Schedule 2 |
Original Building Equipment |
|
Schedule 4.04 |
Violations of Law |
|
Schedule 4.05 |
List of Open Building Permits, ESA Notices and Municipal Agreements |
|
Schedule 7.02 |
List of Required Repairs |
|
Exhibit A-1 |
Location/Address of Demised Properties; Adjustment Amounts |
|
Exhibit A-2 |
US Demised Properties |
|
Exhibit B |
Method of CPI Adjustment for Option Period Base Rent |
|
Exhibit C |
Form of SNDA |
|
Exhibit D |
Form of Tenants Estoppel Certificate |
|
Exhibit E-1 |
Form of Notice of Lease (Ontario) |
|
Exhibit E-2 |
Form of Notice of Lease (Québec) |
|
Exhibit G |
Form of Guaranty |
|
Exhibit H |
Form of Collateral Access Agreement |
-ii- | MASTER LAND AND BUILDING LEASE |
MASTER
LAND AND BUILDING LEASE
THIS MASTER LAND AND BUILDING LEASE (this Lease ) is made and entered into as of April 5, 2016 (the Commencement Date ), by and among FORT-NOM HOLDINGS (ONQC) Inc., a British Columbia corporation ( Landlord ) and Forterra Pipe & Precast, Ltd. (previously known as HBP Pipe & Precast, Ltd.), an Ontario corporation, Forterra Pressure Pipe, Inc. (previously known as HBP Pressure Pipe, Inc.), a Quebec corporation, and Forterra Pipe & Precast Québec, Ltd. (previously known as HBP Pipe & Precast Québec Ltd.), a Québec corporation (individually and collectively, jointly and severally, Tenant ).
R E C I T A L S
A. Landlord owns (i) title to the land identified on Exhibit A-1 attached hereto (collectively, the Land ) and (ii) all improvements and other structures located on any of the Land; any rights of way, easements, parking covenants, entitlements, privileges and other rights appurtenant to the Land, including regarding any street adjoining any portion of the Land and any air and development rights related to the Land; and any and all fixtures at or on the Land, including all of the machinery, equipment and systems at or on any of the Land and overhead cranes and other cranes which are integrated into the building structures (collectively, Building Equipment ), and the movable Building Equipment currently located on the Demised Properties as set forth on Schedule 2 attached hereto and made a part hereof (collectively, the Original Movable Building Equipment ), including electrical, plumbing, heating, ventilation and air conditioning machinery and fire sprinklers and fire suppression equipment (but specifically excluding any such items that are not fixtures pursuant to applicable law, and any equipment or fixtures associated with Tenants manufacturing business, whether or not such equipment is bolted in place for safety or operational purposes, including but not limited to, jib cranes, batch plants, cement silos, production equipment, forms, and any other pipe manufacturing equipment, which are the property of Tenant): (all of the foregoing in this clause (ii), collectively, Improvements ). The Land and all Improvements thereon are collectively referred to herein as Demised Properties and each individually as a Demised Property .
B. The personal property, fixtures, equipment and other items of personal property (whether or not attached to the Improvements) owned or leased by Tenant located at any Demised Property and used in connection with the operation of the business at the Demised Properties (other than the Building Equipment but including display cases, counters, shelves, racks and billboards, cranes, batch plants, cement silos, production equipment, forms, and any other pipe manufacturing equipment regardless of whether any of the foregoing constitute fixtures pursuant to applicable Law) are referred to herein collectively as the Tenant Equipment . The term Tenant Equipment shall include without limitation, with respect to the Demised Properties, all of the foregoing, whether now or hereafter owned or acquired by Tenant, or in which Tenant has any interest (whether unattached or attached by bolts and screws and/or by utility connections or otherwise), and all additions to, substitutions for and replacements of the foregoing in this Recital B.
C. Tenant desires to lease from Landlord, and Landlord desires to lease to Tenant, the Demised Properties so that Tenant may, in accordance with and subject to the terms, conditions and restrictions of this Lease, operate (or cause the operation of) each Demised Property.
D. Notwithstanding any other provision of this Lease, this Lease constitutes a single and indivisible lease of all the Demised Properties collectively, and is not an aggregation of leases for the separate Demised Properties. Neither Landlord nor Tenant would have entered into this Lease except as a
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single and indivisible lease, and the rental herein has been established on the basis of the specific structure of the subject transaction and the economic benefits and risk profile of the transaction as a whole, and not based on the valuation or price of any individual Demised Property. Tenants rights to any one Demised Property are dependent on Tenants full performance of its obligations as to every other Demised Property, and consideration supporting any agreements under this Lease regarding any Demised Property also supports the agreements under this Lease regarding all other Demised Properties.
NOW, THEREFORE, in consideration of the lease of the Demised Properties and the rents, covenants and conditions herein set forth, and with reference to the definitions of various terms used herein as set forth on Schedule 1 hereto, Landlord and Tenant do hereby covenant, promise and agree as follows:
ARTICLE 1 | DEMISE OF PREMISES |
Subject to the terms and conditions contained herein, Landlord does hereby lease unto Tenant, and Tenant does hereby lease from Landlord, for the term hereinafter provided in Article 2 , the Demised Properties set forth on Exhibit A-1 (the Demised Properties ) for the use thereof by Tenant and Tenants employees, customers and invitees.
ARTICLE 2 | TERM |
Section 2.01
(a) This Lease shall commence on the Commencement Date and terminate on April 4, 2036 (the Original Lease Term ), unless sooner terminated as hereinafter set forth. The Lease Term , as such term is used herein, means the Original Lease Term as extended (or as may be extended) pursuant to Section 2.02 below, unless sooner terminated as hereinafter set forth.
(b) This Lease shall be deemed to be in full force and effect upon the Commencement Date. Tenant shall be deemed to be in possession of the Demised Properties upon the Commencement Date.
Section 2.02
(a) Tenant shall have the ability to extend the Lease Term for one (1) option period (the Option Period ) upon and subject to the terms set forth below in this Section 2.02 . The Option Period shall commence at the expiration of the Original Lease Term. The Option Period shall continue for a period of nine (9) years and eleven (11) months from and after the commencement date of the Option Period, and Tenant shall extend the Lease Term for all of the Demised Properties subject to this Lease at the time of Tenants exercise of such option, and in no event shall Tenant have the right to extend the Lease Term for only a portion of the Demised Properties subject to this Lease at the time of Tenants exercise of such option. Except as otherwise expressly provided herein, all of the terms and conditions of this Lease applicable to the Original Lease Term shall continue to apply during the Option Period. In no event shall Tenant have any options to extend the Lease Term except as expressly provided herein.
(b) Provided that (i) Tenant shall not have delivered a Non-Renewal Notice (as hereinafter defined) on or prior to the expiration of the Original Lease Term and (ii) this Lease shall not have been terminated pursuant to any provision hereof, then on the expiration of the Original Lease Term, the Lease Term shall be deemed to have been automatically extended for the Option Period. Notwithstanding the foregoing, if the conditions in (i) and (ii) hereinabove shall have been satisfied, but
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an Event of Default occurs and is continuing prior to the commencement of the Option Period, Landlord shall have the option (without limiting any other remedies available to Landlord under this Lease, at law or in equity) to cancel the Option Period upon notice thereof to Tenant (provided, such notice is delivered to Tenant prior to Tenants cure, if any, of such Event of Default, and such cure is recognized by Landlord, notwithstanding that Landlord is under no obligation to recognize any such cure after an Event of Default has occurred), and upon the giving of such notice to Tenant, the Option Period shall be deemed null and void and of no further force and effect. As used herein, the term Non-Renewal Notice means a notice, in writing, delivered to Landlord no later than twelve (12) months prior to the expiration date of the Original Lease Term stating that Tenant does not wish to extend the Lease Term for the Option Period.
(c) Without limiting anything contained in Section 36.02 hereof, time is of the strictest essence in the performance of each provision of this Section 2.02 . Either party, upon request of the other, shall execute and acknowledge, in form suitable for registration, an instrument confirming the Option Period, with Tenant paying all applicable recording costs.
ARTICLE 3 | RENT |
Section 3.01 Rent . Tenant shall pay all Base Rent and Additional Rent for the Demised Properties, from and after the Commencement Date and thereafter throughout the Lease Term, without offset, deduction, or abatement, except as may be otherwise expressly provided herein. Notwithstanding the foregoing, any amounts due by Tenant to Landlord hereunder for which no due date is expressly specified herein shall be due within thirty (30) days following the delivery to Tenant by Landlord of written notice of such amounts due. Except as otherwise expressly provided herein, in the event of nonpayment by Tenant of any Rent, Landlord shall have the same rights and remedies in respect thereof regardless of whether such Rent is Base Rent or Additional Rent. All payments of Rent due to Landlord shall be paid to Landlord (at its election from time to time) in one of the following manners: (a) by electronic deposit into an account designated by Landlord (a Landlords Account ), (b) by mail at Landlords address set forth in Article 17 , or (c) by mail to any other place in the United States or Canada designated by Landlord upon at least twenty (20) days prior written notice to Tenant.
Section 3.02 Base Rent .
(a) The following terms shall have the following meanings:
(i) CPI means the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, All Items, (1982-84=100) or the successor index that most closely approximates such index. If the United States Department of Labor, Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, United States City Average, All Items, (1982-84=100) shall be discontinued with no successor or comparable successor index, Landlord and Tenant shall attempt to agree upon a substitute index or formula, but if they are unable to so agree, then the matter shall be determined by arbitration in accordance with the rules of the American Arbitration Association then prevailing in New York City. Any decision or award resulting from such arbitration shall be final and binding upon Landlord and Tenant and judgment thereon may be entered in any court of competent jurisdiction.
(ii) Fair Market Rental Value means the fair market value of the Demised Properties as determined by an appraisal of the Demised Properties, taking into consideration all relevant factors, prepared by an independent appraiser member of the Appraisal Institute of Canada who is mutually satisfactory to Landlord and Tenant with not less than ten (10) years experience appraising properties similar to the Demised Properties in the metropolitan areas in which the Demised Properties are located (an Appraiser ).
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(iii) Initial Base Date means: (A) if the Commencement Date is the first day of a calendar month, the Commencement Date, and (B) if the Commencement Date is other than the first day of a calendar month, the first day of the first calendar month occurring after the Commencement Date.
(iv) Initial Adjustment Dates means, collectively, each anniversary of the Initial Base Date, through and including the nineteenth (19 th ) anniversary of the Initial Base Date.
(v) Initial Base Rent Escalation means two percent (2.0%).
(vi) Option Period Base Date means, in the event the Non-Renewal Notice is not duly and timely given, as provided in Article 2 , the twentieth (20 th ) anniversary of the Initial Base Date.
(vii) Option Period Adjustment Date means, collectively, each anniversary of the Option Period Base Date, through and including the ninth (9 th ) anniversary of the Option Period Base Date.
(b) The initial Base Rent for the Demised Properties for the Lease Term shall be $ 3,546,384.00 per annum ($295,531.98 per month), denominated in Canadian Dollars, as increased as hereinafter provided ( Base Rent ). Tenant shall pay to Landlord Base Rent, in advance, without demand therefor, on or before the first day of each and every calendar month during the Lease Term, and if the Commencement Date is not the first day of a calendar month, Tenant shall pay to Landlord pro-rated Base Rent on the Commencement Date for the partial calendar month in which the Commencement Date occurs.
(c) Subject to the terms of this Section, (i) on each of the Initial Adjustment Dates, the Base Rent shall increase by the Initial Base Rent Escalation, and such increased Base Rent shall apply for the ensuing one-year period; (ii) on the Option Period Base Date, the Base Rent shall be recalculated to equal the greater of (x) ninety-five percent (95%) of the Fair Market Rental Value of the Demised Properties, and (y) the annual Base Rent that would have been in effect as of the Option Period Base Date if the Base Rent had been increased in accordance with the methodology set forth in Exhibit B attached hereto, and such recalculated Base Rent shall apply for the ensuing one-year period, (iii) on each of the Option Period Adjustment Dates, the Base Rent shall increase in accordance with the methodology set forth in Exhibit B attached hereto and made a part hereof (the Option Period Base Rent Escalation ), and such increased Base Rent shall apply for the ensuing one-year period. Notwithstanding the foregoing, in no event shall the new Base Rent adjusted by the Option Period Base Rent Escalation be less than the Base Rent for the prior Lease Year.
(d) In the event the Non-Renewal Notice is not duly and timely given, as provided in Article 2 , Landlord shall, no later than three hundred (300) days prior to the commencement of the Option Period, calculate the Base Rent for the first year of the Option Period in accordance with clause (c)(ii) above, with the determination of the Fair Market Rental Value of the Demised Properties calculated in accordance with clause (e) below.
(e) In the event the Original Lease Term is extended pursuant to Section 2.02(a) , then Landlord and Tenant shall attempt in good faith for a period of ten (10) days to agree upon a single
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Appraiser; and if Landlord and Tenant are so able to agree, the determination by such single Appraiser of a Fair Market Rental Value for the Demised Properties for the first year of the Option Period shall be final and binding on the parties. If Landlord and Tenant are unable to agree upon a single Appraiser within the above-stated ten (10) day period, then the following procedures shall apply:
(i) Within seven (7) days after the conclusion of the ten (10) day period, each party shall submit to the other party an independent third-party Appraiser who must satisfy the qualifications for an Appraiser in this Lease, and neither of whom (1) may be a present or former employee or business associate (or a relative of any such employee or business associate) of either Landlord or Tenant, or (2) shall have any other financial or economic interest in, or relationship with, Landlord or Tenant.
(ii) The two Appraisers so selected shall promptly proceed to determine the Fair Market Rental Value of the Demised Properties (considering the other terms of this Lease) for the first year of the Option Period; and if the two Appraisers so selected are unable to agree on the Fair Market Rental Value but the appraisals are not more than ten percent (10%) apart, computed from the base of the higher appraisal, the two appraisals shall be averaged and the average shall constitute the Fair Market Rental Value of the Demised Properties for the first year of the Option Period. If the appraisals differ by more than ten percent (10%), such two Appraisers shall select a third Appraiser (who must satisfy the qualifications for an Appraiser in this Lease); and if the two Appraisers are unable to agree upon a third Appraiser within fifteen (15) days, then they shall in lieu thereof each select the names of two willing persons qualified to be Appraisers hereunder and from the four persons so named, one name shall be drawn by lot by a representative of Landlord in the presence of a representative of Tenant, and the person whose name is so drawn shall be the third Appraiser. The third Appraiser shall, within fifteen (15) days after having been selected, render his or her opinion of which of the amounts proposed by the original two Appraisers most closely represents the actual Fair Market Rental Value of the Premises for the first year of the Option Period, and the amount so selected by the third Appraiser shall be the Fair Market Rental Value of the Premises for the first year of the Option Period. Landlord and Tenant shall each pay the fees of their respective Appraisers, and the fee of the third Appraiser shall be shared equally between Landlord and Tenant.
Section 3.03 Additional Rent .
(a) If by applicable Law, any general or special assessment or like charge may be paid in installments without any penalty whatsoever, then such assessment may be paid in such installments, and Tenant shall only be liable for the portion thereof that is allocable or attributable to the Lease Term or any portion thereof. If such assessment or charge may be payable in installments with interest, Tenant may pay such assessment or charge in installments, together with all interest thereon.
(b) Tenant shall pay all Real Estate Taxes for the Demised Properties directly to the collecting authority prior to the delinquency date thereof. Within thirty (30) days after Tenant has received evidence from any collecting authority that such Real Estate Taxes have been paid, Tenant shall also provide Landlord with a copy of such evidence that such Real Estate Taxes were paid. Nothing in this Lease shall obligate Tenant to pay any estate, inheritance, franchise, income or similar taxes of Landlord nor shall any of same be deemed Real Estate Taxes, unless the same shall be specifically imposed in substitution for, or in lieu of, Real Estate Taxes. If Tenant fails to pay to the collecting authority any Real Estate Taxes when due hereunder, then Tenant shall, without limiting any other remedies available to Landlord, reimburse Landlord for any and all penalties or interest, or portion thereof, paid or incurred by Landlord as a result of such nonpayment or late payment by Tenant. Without limitation of the foregoing, Tenant shall deposit with Landlord, no later than thirty (30) days prior to the
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end of the Lease Term, an amount sufficient to pay unpaid Real Estate Taxes and other accrued liabilities that will encumber the Demised Properties after the end of the Lease Term, to the extent that Real Estate Taxes and such other liabilities have accrued and will accrue through the end of the Lease Term. Landlord shall segregate all such deposits from its other funds and use such deposits solely to pay such accrued liabilities as they come due. All collecting authorities shall be instructed to send all invoices for Real Estate Taxes to Tenant. In the event any collecting authority sends the invoices to Landlord instead of Tenant, Landlord shall promptly forward such invoices to Tenant. If Landlord receives any notices of assessment from any Governmental Authority for any of the Demised Properties, Landlord shall promptly forward a copy of such notices of assessment to Tenant.
(c) Provided that there shall be no Event of Default occurring at the time in question, Tenant shall have the right to undertake an action or proceeding against the applicable collecting authority seeking an abatement of Real Estate Taxes or a reduction in the valuation of the Demised Properties and/or contest the applicability of any Real Estate Taxes (including, without limitation, a reduction in the value of any Demised Properties); provided, however, that Tenant delivers to Landlord prior written notice of any such action or proceeding by Tenant, and that Tenant has paid timely (and continues to pay timely) all Real Estate Taxes as provided in this Lease to the extent required by applicable Law. In any instance where any such permitted action or proceeding is being undertaken by Tenant, (i) Landlord shall cooperate reasonably with Tenant, at no cost or expense to Landlord, execute any and all documents approved by Landlord and reasonably required in connection therewith, and, to the extent required by the collecting authority, agrees to file at Tenants request any action or proceeding against the collecting authority in its own name, and (ii) Tenant shall provide Landlord with all information reasonably requested by Landlord with respect to such action or proceeding within ten (10) days after receipt of Landlords written request. Tenant shall be entitled to any refund (after the deduction therefrom of all expenses incurred by Landlord in connection therewith) of any Real Estate Taxes (including penalties or interest thereon) received by Tenant or Landlord, whether or not such refund was a result of actions or proceedings instituted by Tenant, to the extent such refund relates to Real Estate Taxes that are the responsibility of Tenant pursuant to this Section 3.03 .
(d) Tenant shall be solely responsible for, and shall pay directly to the applicable service providers, the cost of all utility services provided to the Demised Properties throughout the Lease Term. Notwithstanding the foregoing, upon the occurrence of both of the following events, Tenant shall pay to Landlord the cost of any and all utility services provided to the Demised Properties in lieu of payment directly to the applicable service providers: (i) delivery to Tenant of a written request therefor from Landlord, and (ii) the existence of any Default under this Section 3.03(d) by Tenant, or any Event of Default. Funds paid by Tenant to Landlord pursuant to the immediately preceding sentence shall be used only for the payment of the cost of utility services to the Demised Properties. If Tenant fails to pay the appropriate party (Landlord or the service providers, as provided herein) all such costs when due hereunder, then Tenant shall, without limiting any other remedies available to Landlord, reimburse Landlord for any and all penalties or interest, or portion thereof, paid or incurred by Landlord as a result of such nonpayment or late payment by Tenant.
(e) Without limiting any of Tenants other obligations set forth in this Article, Tenant shall pay to Landlord, with each payment due to Landlord hereunder (and as a part of Rent due hereunder), all sales and excise tax on rental income and all other similar taxes imposed with respect to rental or other payments under this Lease relating to the Demised Properties in the nature of a sales tax, franchise taxes (subject to Section 3.03(e)(ii) ), gross receipts tax imposed in lieu of sales tax, occupancy tax, commercial rents tax or the like, whether imposed by a federal, provincial or local taxing authority (including, without limitation, goods and services tax and harmonized sales tax payable pursuant to the Excise Tax Act (Canada) and Québec sales taxes payable pursuant to An Act respecting the Québec sales tax ). To the extent permitted by applicable Law, Tenant may pay any such tax directly to the taxing
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authority, provided Tenant, within ten (10) days after any such payment, delivers to Landlord written evidence reasonably satisfactory to Landlord that such payment has been made. For the avoidance of doubt, Tenant shall not be responsible for (i) any income taxes imposed on Landlord, (ii) any franchise taxes of Landlord measured by net income or net worth or relating to properties owned by Landlord and not applicable to this Lease, or (iii) any transfer taxes imposed with respect to the sale, exchange or other disposition by Landlord, in whole or in part, of the Demised Properties or Landlords interest in this Lease.
ARTICLE 4 | USE |
Section 4.01 Tenant shall use the Demised Properties for, and shall not suffer or permit any Person (including any subtenant) to use any of the Demised Properties other than for any Permitted Uses, and the Demised Properties shall be used for no other purpose without the prior written consent of Landlord, which approval may be granted or withheld in the reasonable discretion of Landlord.
Section 4.02 Notwithstanding any other provision of this Article, Tenant shall not use, or suffer or permit any Person (including any subtenant) to use, the Demised Properties or any portion thereof for any purpose in violation of any applicable Law, or in violation of any registered covenants or restrictions. From the Commencement Date and thereafter throughout the Lease Term, Tenant shall conduct its business in a commercially reasonable and reputable manner with respect to each of the Demised Properties and in compliance with the terms and provisions of this Lease. Tenant covenants not Abandon any Demised Property, except in accordance with the terms hereof. Tenant shall be permitted to Abandon any Demised Property (i) if such Demised Property is being Abandoned as a result of the merger or consolidation of any such Demised Property with another property owned, leased or utilized by Tenant or any Affiliate thereof, or (ii) for any reason other than the reason set forth in clause (i), in either case, so long as the total number of such Abandoned Demised Properties, together with all other Replaced Properties, shall not exceed the Replacement Cap (as hereinafter defined); and provided that, in either case, (a) Tenant provides Landlord with thirty (30) days prior written notice of its intent to Abandon any Demised Property and (b) Tenant shall replace any such Abandoned Demised Property with a Replacement Property, in accordance with Article 31 , no later than the earlier of (y) twelve (12) months after any such Demised Property is first Abandoned and (z) the date on which the existing use of such Demised Property (as of the date hereof) would no longer be permitted by Law (including pursuant to the terms of any special use permit) by virtue of the discontinuance of such use at such Demised Property. Notwithstanding anything to the contrary contained herein, Tenant shall be permitted to cease operations at no more than twenty five percent (25%) of the total number of Demised Properties for no more than thirty six (36) consecutive months for each such Demised Property and such temporary cessation shall not be deemed and Abandonment of any such Demised Property; provided, (x) Tenant notifies Landlord of such temporary cessation, (y) Tenant, during such period, continues to maintain any such Demised Property and all Building Equipment located thereon in good working order and condition, as if such Building Equipment and Demised Property were regularly utilized and (z) such cessation would not result in the existing use of such Demised Property (as of the date hereof) no longer being permitted by Law (including pursuant to the terms of any special use permit). The character of the occupancy of the Demised Properties is an additional consideration and a material inducement for the granting of this Lease by Landlord to Tenant.
Section 4.03 Notwithstanding anything to the contrary contained herein, Tenant shall be permitted to move any of the Original Movable Building Equipment, or any other movable Building Equipment located on any of the Demised Properties from and after the date hereof, off of the applicable Demised Property where it currently or, in the future, resides to any other facility owned, leased or utilized by Tenant or an Affiliate thereof (each such move shall be referred to herein as an Equipment Relocation ); provided, (i) such Equipment Relocation is done in the ordinary course of Tenants
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business, and (ii) Tenant shall ensure that substantially the same number and general type of Original Movable Building Equipment is located at each Demised Property at the expiration (or sooner termination) of the Lease Term and is operational in substantially the same manner and at substantially the same capacity as was present on each Demised Property as of the date hereof, as evidenced by the list of Original Movable Building Equipment set forth on Schedule 2 (the result being that the Building Equipment located on the Demised Properties at the expiration (or sooner termination) of the Lease Term shall reflect substantially the same number and general type of Building Equipment as would otherwise be present thereon if the Original Movable Building Equipment had never been subject to an Equipment Relocation.
Section 4.04 Promptly following the Commencement Date, Tenant covenants to take such reasonable actions and efforts to cure the violations noted in Schedule 4.04 attached hereto and made a part hereof, and to diligently and in good faith proceed with and continue the curing of such violations until fully cured. Upon such cure, Tenant shall provide evidence reasonably satisfactory to Landlord that such violations have been cured.
Section 4.05 Promptly following the Commencement Date, Tenant covenants to proceed in good faith and diligently take such reasonable actions and efforts to: (i) enable the applicable Governmental Authority to close the building permits and the Electrical Safety Authority notices set out in Part A of Schedule 4.05 attached hereto; (ii) comply with the requirements of the City of Ottawas Emergency and Protective Service Department (Parking Enforcement Unit) (the EPS Department ) relating to the registration of a fire lane in accordance with the agreement described in Part B of Schedule 4.05 attached hereto; and (iii) comply with the requirements of the Ministère du Développement Durable, de lEnvironnement et de la Lutte contre les Changements Climatiques du Québec (the MDDEL ) relating to the construction of a 10-metre shoreline protection strip around a watercourse in accordance with the non-conformity notice ( avis de non-conformité ) described in Part C of Schedule 4.05 attached hereto. Upon the closure of each permit or notice described in Part A of Schedule 4.05 attached hereto, the satisfaction of the EPS Departments fire lane requirements in accordance with the agreement described in Part B of Schedule 4.05 attached hereto or the satisfaction of the MDDELs 10-metre shoreline protection strip requirements in accordance with the non-conformity notice ( avis de non-conformité ) described in Part C of Schedule 4.05 attached hereto, Tenant shall provide evidence reasonably satisfactory to Landlord that such permit or notice has been closed or that compliance with the EPS Departments fire lane requirements or MDDELs 10-metre shoreline protection strip requirements has been achieved, as applicable.
Section 4.06 Without limitation, no provision of this Article 4 shall limit any of the covenants of Tenant contained in Article 22 .
ARTICLE 5 | ACCEPTANCE OF DEMISED PROPERTIES |
Tenant hereby represents, warrants and covenants to Landlord that Tenant has the right and lawful authority to enter into this Lease and perform Tenants obligations hereunder. Tenant is already in occupancy of the Demised Properties, and Tenant hereby acknowledges that it has (a) had access to the Demised Properties prior to execution of this Lease, (b) had the opportunity to perform all tests, studies, inspections and investigations (including any investigations regarding zoning and use issues regarding all Demised Properties), and (c) evaluated the Demised Properties as to the Demised Properties suitability for Tenants intended operations thereon. Tenant hereby accepts each Demised Property in its AS IS condition existing on the date Tenant executes this Lease. Tenant waives to the fullest extent allowed by Law any rights to notice by Landlord regarding the condition of the Demised Properties, whether at law or in equity, and hereby waives any rights and remedies thereunder based in any alleged or actual failure of Landlord to provide any such notices. Tenant acknowledges that (i) neither Landlord nor any of its
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Affiliates has made any representation or warranty as to the suitability of any Demised Property for the conduct of the Tenants business, and (ii) Tenant is entering into this Lease solely on the basis of its own investigations and familiarity with, and continued occupancy of, the Demised Properties and not on the basis of any representation, warranty, covenant, agreement, undertaking, promise, statement, arrangement or understanding by, on behalf of, or with, Landlord or any of its Affiliates, except as expressly set forth in this Lease.
ARTICLE 6 | ALTERATIONS |
(a) Tenant shall have the right, without having obtained the prior written consent of Landlord, to make any Alterations; provided , that (x) if any Alterations at any single Demised Property are structural in nature, (y) if a single, non-structural Alteration, at any Demised Property, which Alteration involves the installation, removal, repair or replacement of any Building Equipment (each such Alteration, a Building Equipment Alteration ), costs in excess of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) or (z) if a single, non-structural Alteration, at any Demised Property, which Alteration is not a Building Equipment Alteration, costs in excess of Three Hundred Thousand and 00/100 Dollars ($300,000.00) (clause (x), (y) and (z), each, a Major Alteration ), then such Major Alteration shall require the prior consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed.
(b) Any and all Alterations shall be conducted and completed in a commercially reasonable time period, in a good and workmanlike manner, and in compliance with all applicable Law, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties and in compliance with the requirements of all insurance policies required to be maintained by Tenant hereunder. No Alteration shall be permitted if such Alteration lessens the market value or usefulness of the Demised Properties. Landlord shall have the right to require Tenant to remove, no later than the expiration date of this Lease (or any early termination thereof) any Alterations (subject to Tenants right to give a Post-Occupancy Removal Notice to Landlord in accordance with the provisions of Section 21.03 ) except for those Alterations required by Law or for which Landlord has agreed in writing that removal will not be required; provided , Landlord notifies Tenant, at least six (6) months prior to the expiration of this Lease or thirty (30) days prior to the early termination thereof, as applicable, of such removal requirement. Upon completion of any Major Alteration, Tenant shall furnish to Landlord, for informational purposes only, (i) a complete set (in electronic form, with the right of Landlord to request up to three sets of the plans in hard copy) of any as-built plans for such Major Alteration and (ii) certificates of final approval (or as applicable, evidence of permit closures or inspection reports) of such Major Alteration required by any Governmental Authority.
(c) The interest of Landlord in the Demised Properties shall not be subject in any way to any Liens for improvements to or other work performed to the Demised Properties by or on behalf of Tenant. Tenant shall have no power or authority to create any Lien or permit any Lien to attach to the present estate, reversion, or other interest of Landlord in the Demised Properties. All mechanics, materialmen, contractors, laborers, artisans, suppliers, and other parties contracting with Tenant, its representatives or contractors with respect to the Demised Properties are hereby given notice that they must look solely to Tenant to secure payment for any labor, services or materials furnished or to be furnished to Tenant, or to anyone holding any of the Demised Properties through or under Tenant during the Lease Term. Such parties, and Landlord and Tenant agree that any work carried on at the Demised Properties shall not be done and shall not be deemed to have been done at the request of Landlord. If any contractor or party entitled to lien rights gives notice to Landlord pursuant to Section 19 of the Construction Lien Act (Ontario) or Section 2728 of the Civil Code of Quebec , Landlord shall have the
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right to refuse to assume responsibility. Tenant, at its expense, shall discharge any lien or charge filed against the Demised Properties or the Land in connection with any Alterations within twenty (20) days after Tenants receipt of notice thereof by (i) payment, (ii) filing the bond required by law or (iii) otherwise in accordance with all applicable Laws (and Landlord may perform same at Tenants sole cost and expense if Tenant fails to do so within such twenty (20) day period). Tenant shall provide evidence reasonably satisfactory to Landlord that such lien has been removed or bonded within such twenty (20) day period .
ARTICLE 7 | REPAIRS AND MAINTENANCE |
Section 7.01 Except as otherwise provided in this Article, Tenant, at its sole cost and expense, shall maintain each of the Demised Properties and each part thereof, structural and non-structural, in good order, condition and repair, including all areas outside of any buildings (including all sidewalks, driveways, landscaping, trash enclosures, and trash compacting and loading areas on the Demised Properties), and including any roof on any buildings, in a neat and clean condition, and shall take such reasonable actions necessary for the preservation and safety thereof. Landlord shall have no duty whatsoever to maintain, replace, upgrade, or repair any portion of the Demised Properties, including any structural items, roof or roofing materials.
Section 7.02 Promptly following the Commencement Date, Tenant covenants to take such reasonable actions and efforts to complete, at Tenants sole cost and expense, during the first (1 st ) year of the Lease Term, the recommended repairs listed on Schedule 7.02 attached hereto and made a part hereof.
ARTICLE 8 | COMPLIANCE WITH LAW |
Section 8.01 Tenant shall, throughout the Lease Term, at its sole cost and expense, comply with, and cause any subtenants or other occupants at the Demised Properties to comply with, (a) applicable Law, (b) insurance requirements required by this Lease and (c) all of the covenants, conditions and agreements contained in any Easement Agreement. Tenant will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement without, in each case, the prior written consent of Landlord. Landlord will not alter, modify, amend or terminate any Easement Agreement, give any consent or approval thereunder, or enter into any new Easement Agreement the effect of which will be to interfere with Tenants use of, or access to, any of the Demised Properties, in any way materially affect Tenants ability to operate its business, in any way materially increase Tenants obligations hereunder, or in any way materially reduce Tenants rights hereunder, without first obtaining Tenants prior written consent thereto.
ARTICLE 9 | DISCLAIMER AND INDEMNITIES |
Section 9.01 To the extent not prohibited by applicable Law, none of the Landlord Parties shall be liable for, under any circumstances, and Tenant hereby releases all Landlord Parties from, any loss, injury, death or damage to person or property (including any business or any loss of income or profit therefrom) of Tenant, Tenants members, officers, directors, shareholders, agents, employees, contractors, customers, invitees, or any other Person in or about the Demised Properties, whether the same are caused by (a) fire, explosion, falling plaster, steam, dampness, electricity, gas, water, rain; (b) breakage, leakage or other defects of Tenant Equipment, Building Equipment, sprinklers, wires, appliances, plumbing fixtures, water or gas pipes, roof, air conditioning, lighting fixtures, street improvements, or subsurface improvements; (c) theft, acts of God, acts of the public enemy, riot, strike, insurrection, civil unrest, war, court order, requisition or order of governmental body or authority; (d) any act or omission of any other occupant of the Demised Properties; (e) operations in construction of any private, public or quasi-public work; (f) Landlords reentering and taking possession of the Demised Properties in accordance with the
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provisions of this Lease or removing and storing the property of Tenant as herein provided; or (g) any other cause, including damage or injury that arises from the condition of the Demised Properties, from occupants of adjacent property, from the public, or from any other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same are inaccessible to Tenant, or that may arise through repair, alteration or maintenance of any part of the Demised Properties or failure to make any such repair, from any condition or defect in, on or about the Demised Properties including any Environmental Conditions or the presence of any mold or any other Hazardous Materials, or from any other condition or cause whatsoever; provided, however, that the foregoing release set forth in this Section 9.01 shall not be applicable to any claim against a Landlord Party to the extent, and only to the extent, that such claim is directly attributable to the gross negligence or willful misconduct of such Landlord Party. Without limiting the foregoing, Tenant hereby waives, to the extent permitted by applicable Law, any right to any consequential, special, indirect or punitive damages against any Landlord Parties arising out of any claim in connection with or related to this Lease or the Demised Properties.
Section 9.02 In addition to any and all other obligations of Tenant under this Lease (including under any indemnity or similar provision set forth herein), to the extent permitted by applicable Law, Tenant hereby agrees to fully and forever indemnify, protect, defend and hold all Landlord Parties free and harmless of, from and against any and Losses: (a) arising out of or in any way related to or resulting directly or indirectly from: (i) the use, occupancy, or activities of Tenant, its subtenants, agents, employees, contractors, or invitees in or about any of the Demised Properties; (ii) any failure on the part of Tenant to comply with any applicable Law, including any Environmental Laws; (iii) the existence of any Default or Event of Default under this Lease (iv) any undertaking by Tenant under Section 3.03(c) ; and (v) any other breach of Tenants obligations under this Lease and (b) whether heretofore now existing or hereafter arising out of or in any way related to or resulting directly or indirectly from the presence or Release at, on, under, to or from the Demised Properties of Hazardous Materials not attributable to any Landlord Party.
Section 9.03 The provisions of this Article 9 shall survive the expiration or sooner termination of this Lease. Tenant hereby waives, to the extent permitted by Law, the provisions of any applicable Law restricting the release of claims, or extent of release of claims, that Tenant does not know or suspect to exist at the time of release, that, if known, would have materially affected Tenants decision to agree to the release contained in this Article 9 . In this regard, Tenant hereby agrees, represents, and warrants to Landlord that Tenant realizes and acknowledges that factual matters now unknown to Tenant may hereafter give rise to Losses that are presently unknown, unanticipated and unsuspected, and Tenant further agrees, represents and warrants that the release provided hereunder has been negotiated and agreed upon in light of that realization, and Tenant nevertheless hereby intends to release, discharge and acquit the parties set forth herein above from any such unknown Losses that are in any manner set forth in or related to this Lease, the Demised Properties and all dealings in connection therewith.
ARTICLE 10 | INSURANCE |
Section 10.01 As of the Commencement Date and throughout the Lease Term, Tenant shall, at its sole expense, obtain, pay for and maintain (or cause to be obtained, paid for and maintained), with financially sound and reputable insurers (as further described in Section 10.03 ), (a) comprehensive all risk insurance covering loss or damage to each Demised Property (including Improvements now existing or hereafter erected thereon) caused by fire, lightning, hail, windstorm, hurricane, explosion, vandalism, malicious mischief, leakage of sprinkler systems, and such other losses, hazards, casualties, liabilities and contingencies as are normally and usually covered by all risk or special property policies in effect where such Demised Property is located, endorsed to include building ordinance or law coverage sufficient to provide coverage for costs to comply with building and zoning codes and ordinances
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including demolition costs and increased cost of construction, (b) business income and interruption insurance to include loss of business at limits sufficient to cover 100% of the annual revenues at the Demised Properties minus any non-fixed expenses payable by Tenant to Landlord with a period of indemnity not less than twelve (12) months from time of loss (such amount being adjusted annually) and an extended period of indemnity of one hundred eighty (180) days, and (c) flood insurance for all Demised Properties in amounts acceptable to Landlord and Landlords Mortgagee. The policy(ies) referred to in clauses (a) and (c) above shall be in an amount equal to one hundred percent (100%) of the full replacement cost of the Improvements and the Building Equipment at each Demised Property (without any deduction for depreciation), and the policy(ies) referred to in clauses (a) and (c) above shall contain a replacement cost endorsement and an agreed amount or waiver of co-insurance provisions endorsement. The deductible under the policies referred to in clauses (a) and (c) above shall not exceed $500,000; provided, however that if, in the future, Tenant can demonstrate that the marketplace for such insurance typically provides for a deductible of $1,000,000 for companies of Tenants size, then, provided the same is permitted by Landlords Mortgagee, the deductible may be increased to $1,000,000 following written notice to Landlord. If any Demised Property is located in an area prone to geological phenomena, including sinkholes, mine subsidence or earthquakes with a probable maximum loss (PML) greater than 15%, the insurance policies referred to in clause (a) and (c) above shall cover such risks and in such amounts, form and substance, as are commercially reasonable and available.
Section 10.02 As of the Commencement Date and throughout the Lease Term, Tenant shall maintain, with financially sound and reputable insurers (as further described in Section 10.03 ), public liability and other types of insurance with respect to its business and each Demised Property (including all Improvements now existing or hereafter erected thereon) against all losses, hazards, casualties, liabilities and contingencies as customarily carried or maintained by persons of established reputation engaged in similar businesses. Without limiting the foregoing, Tenant shall maintain or cause to be maintained policies of insurance with respect to each Demised Property in the following amounts and covering the following risks:
(a) Broad form boiler and machinery or breakdown insurance in an amount equal to the full replacement cost of the Improvements at each Demised Property (without any deduction for depreciation) in which the boiler or similar vessel is located, and including coverage against loss or damage from (i) leakage of sprinkler systems and (ii) damage, breakdown or explosion of steam boilers, electrical machinery and equipment, air conditioning, refrigeration, pressure vessels or similar apparatus and mechanical objects now or hereafter installed at the applicable Demised Property, and (iii) business interruption.
(b) During any period of construction, reconstruction, renovation or alteration at any Demised Property, a complete value, All Risks Builders Risk form or Course of Construction insurance policy in non-reporting form and in an amount reasonably satisfactory to Landlord.
(c) Commercial General Liability insurance covering claims for personal injury, bodily injury, death or property damage occurring upon, in or about each Demised Property on an occurrence form and in an amount not less than $1,000,000 per occurrence and $2,000,000 in the aggregate, which shall provide coverage for premises and operations, products and completed operations and contractual liability, with a deductible in an amount not to exceed $1,000,000, and an umbrella liability policy in the amount of $25,000,000. Liquor Liability insurance, in amounts and subject to terms reasonably approved by Landlord, shall also be maintained by Tenant, if alcohol is sold or served at any Demised Property.
(d) Workers compensation with statutory limits and employers liability insurance in an amount of $1,000,000 per accident, per employee and in the aggregate.
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(e) Such other insurance (including increased amounts of insurance) and endorsements, if any, with respect to the Demised Properties and the operation thereof as Landlord or Landlords Mortgagee may reasonably require from time to time and as customarily carried or maintained by persons of established reputation engaged in similar businesses.
Section 10.03 Each carrier providing any insurance, or portion thereof, required by this Article shall have the legal right to conduct its business in the jurisdiction in which the applicable Demised Property is located, and shall have a claims paying ability rating by S&P of not less than A- and an A.M. Best Company, Inc. rating of not less than A and financial size category of not less than IX. Tenant shall cause all insurance that it is required to maintain hereunder to contain a mortgagee clause and loss payee clause in favor of Landlords Mortgagee in accordance with this Section to be payable to Landlords Mortgagee as a mortgagee and not as a co-insured, as its interest may appear.
Section 10.04 All insurance policies required to be maintained by Tenant hereunder and renewals thereof (a) shall provide for a term of not less than one year, and (b) if the same are insurance policies covering any property (i) shall include a standard non-contributory mortgagee endorsement or its equivalent in favor of, and in form acceptable to, Landlords Mortgagee, (ii) shall contain an agreed value clause updated annually (if the amount of coverage under such policy is based upon the replacement cost of the applicable Demised Property) and (iii) shall designate Landlord as loss payee and if there is a Landlords Mortgage, Landlords Mortgagee as mortgagee and loss payee. In addition, all property insurance policies (except for flood and earthquake limits) must automatically reinstate after each loss, and the commercial general liability and excess/umbrella liability policies shall include Landlord and Landlords Mortgagee as additional insureds, to the extent of occurrences that arise from Tenants operation at the Demised Properties, as their interests may appear.
Section 10.05 Any insurance provided for in this Article may be effected by a blanket policy or policies of insurance; provided, that the amount of the total insurance available with respect to the Demised Properties shall provide coverage and indemnity at least equivalent to separate policies in the amounts herein required, and provided further that in other respects, any such policy or policies shall comply with the provisions of this Article. Any increased coverage provided by individual or blanket policies shall be satisfactory; provided, the aggregate liability limits covering the Demised Properties under such policies shall otherwise comply with the provisions of this Article.
Section 10.06 Every insurance policy carried by either Landlord or Tenant with respect to the Demised Properties shall include provisions waiving the insurers subrogation rights against the other party, prior to the occurrence of damage or loss. Subject to the above, each party hereby waives, to the fullest extent permitted by Law, any rights of recovery against the other party for any direct damage or consequential loss covered by said policies (or by policies required to be carried hereunder by such party) whether or not such damage or loss shall have been caused by any acts or omissions of the other party.
Section 10.07 The policies of insurance required to be maintained by Tenant under this Article 10 shall (a) name Tenant as the insured and Landlord and Landlords Mortgagees as additional insureds, as their interests may appear, and (b) include primary coverage in favor of all additional insureds (and with provisions that any other insurance carried by any additional insured or Landlord shall be non-contributing and that naming Landlord and the additional parties listed above in this Section as additional insureds shall not negate any right Landlord or such parties would have had as claimants under the policy if not so designated). The business interruption insurance required pursuant to Section 10.01 shall name Landlord and Landlords Mortgagees as loss payees. All insurance policies required under this Article 10 shall also provide that the beneficial interest of Landlord in such policies shall be fully transferable. In the event Tenant fails to procure or maintain any policy of insurance required under Article 10 , or if the insurance company or coverages provided fail to meet the requirements contained in this Article 10 , Landlord may, at its option, purchase such insurance and charge Tenant all costs and expenses incurred in procuring and maintaining such insurance.
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Section 10.08 Tenant shall provide to Landlord, beginning on the Commencement Date and continuing annually thereafter, certificates from all applicable insurance carriers evidencing coverage and, at Landlords request, the payment of premiums or accompanied by other evidence of such payment (e.g. receipts, canceled checks). Each insurance policy required to be carried by Tenant hereunder shall include a provision requiring the insurer to provide Landlord with not less than thirty (30) days prior written notice of cancellation. Upon the occurrence of both of the following events, Tenant shall pay insurance premiums to Landlord no later than thirty (30) days prior to the date such premiums are due in lieu of payment directly to the applicable the insurance carriers: (i) delivery to Tenant of a written request therefor from Landlord, and (ii) the occurrence and continuance of any Default under this Section 10.08 by Tenant, or any occurrence and the continuance of any Event of Default under any provision in this Lease. Any insurance premiums timely paid by Tenant to Landlord pursuant to this Section shall be applied towards payment of the insurance premium next coming due when such premiums are due and payable.
ARTICLE 11 | DAMAGE OR DESTRUCTION |
Section 11.01 If at any time during the Lease Term, any of the Demised Properties or any part thereof shall be damaged or destroyed by fire or other casualty of any kind or nature, Tenant shall promptly apply for all permits required by applicable Law, but in any event not later than sixty (60) days after the first date of such damage or destruction, and, upon issuance of such permits, thereafter diligently proceed to repair, replace or rebuild such Demised Property as nearly as possible to its condition and character immediately prior to such damage, with such variations and Alterations requested by Landlord as may be permitted under (and subject to the provisions of) Article 6 (the Restoration Work ).
Section 11.02 All property and casualty insurance proceeds payable to Landlord or Tenant (except (a) insurance proceeds payable to Tenant on account of the Tenant Equipment or Tenants inventory; and (b) insurance proceeds payable from property or comprehensive general public liability insurance) at any time as a result of casualty to the Demised Properties shall be paid jointly to Landlord and Tenant for purposes of payment for the cost of the Restoration Work, except as may be otherwise expressly set forth herein; provided, however, that any such proceeds received by Landlord or Landlord and Tenant jointly, resulting from business interruption insurance maintained by Tenant in accordance with clause (a) of Section 10.02, shall be promptly delivered to Tenant upon Landlords or Landlords and Tenants joint receipt thereof. Landlord and Tenant shall cooperate in order to obtain the largest possible insurance award lawfully obtainable and shall execute any and all consents and other instruments and take all other actions necessary or desirable in order to effectuate same and to cause such proceeds to be paid as hereinbefore provided. The proceeds of any such insurance in the case of loss shall, to the extent necessary, be used first for the Restoration Work (including if completed by Landlord or a third party after any substitution of the applicable Demised Property pursuant to Article 31 ), to be disbursed in accordance with Section 11.04 to the extent the Net Award is in excess of the Threshold Amount. If insurance proceeds as a result of a casualty to the relevant Demised Property are insufficient to complete the Restoration Work necessary by reason of such casualty, then Tenant shall be responsible for the payment of such amounts necessary to complete such Restoration Work.
Section 11.03 Subject to the terms hereof, this Lease shall not be affected in any manner by reason of the total or partial destruction to any Demised Property or any part thereof, and Tenant, notwithstanding any applicable Law, present or future, waives, to the fullest extent permitted by Law, all rights to quit or surrender any Demised Property or any portion thereof because of the total or partial destruction of any Demised Property (prior to the expiration of this Lease). Without limiting the foregoing, no Rent shall abate as a result of any casualty.
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Section 11.04 If any Net Award is in excess of the Threshold Amount, Landlord (or Landlords Mortgagee if required by any Landlords Mortgage) shall hold the Net Award in a fund (the Restoration Fund ) and disburse amounts from the Restoration Fund in accordance with the following conditions:
(a) prior to commencement of restoration, (i) the architects, contracts, contractors, plans and specifications and a budget for the restoration shall have been reasonably approved by Landlord, (ii) Landlord and Landlords Mortgagee shall be provided with mechanics lien insurance (if available) and acceptable performance and payment bonds which insure satisfactory completion of and payment for the restoration, are in an amount and form and have a surety acceptable to Landlord, and name Landlord and Landlords Mortgagee as additional dual obligees, and (iii) appropriate waivers of mechanics and materialmens liens shall have been filed;
(b) at the time of any disbursement, no mechanics or materialmens liens shall have been filed against any of the Demised Properties and remain undischarged;
(c) disbursements shall be made from time to time in an amount not exceeding the cost of the Restoration Work completed since the last disbursement, upon receipt of (i) satisfactory evidence, including architects certificates, of (x) the stage of completion, (y) the estimated total cost of completion and (z) performance of the Restoration Work to date in a good and workmanlike manner in accordance with the contracts, plans and specifications, (ii) waivers of liens for any work for which disbursements were previously made, and waiver of liens for payments made in connection with the requested disbursement, subject only to receipt of payment therefor, (iii) contractors and subcontractors sworn statements as to completed Work and the cost thereof for which payment is requested and (iv) other evidence of cost and payment so that Landlord and Landlords Mortgagee can verify that the amounts disbursed from time to time are represented by Work that is completed, in place and free and clear of mechanics and materialmens lien claims;
(d) each request for disbursement shall be accompanied by a certificate of Tenant, signed by the president or a vice president of Tenant, describing the Restoration Work for which payment is requested, stating the cost incurred in connection therewith, stating that Tenant has not previously received payment for such Restoration Work and, upon completion of the Restoration Work, stating that the Restoration Work has been fully completed and complies with the applicable requirements of this Lease;
(e) Landlord may retain ten percent (10%) of the Restoration Fund until the Restoration Work is fully completed;
(f) If the Restoration Fund is held by Landlord, the Restoration Fund shall not be commingled with Landlords other funds; and
(g) such other reasonable conditions as Landlord or Landlords Mortgagee may impose for purposes of confirming completion of the Restoration Work and the cost thereof.
Prior to commencement of restoration and at any time during restoration, if the estimated cost of completing the Restoration Work free and clear of all liens, as reasonably determined by Landlord, exceeds the amount of the Net Award available for such restoration (the difference between the estimated cost and the Net Award, the Shortfall Amount ), then Tenant shall be required to directly pay for all
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Restoration Work costs up to the Shortfall Amount, prior to utilizing (or Landlord disbursing) any portion of the Net Award to pay for such Restoration Work. Should any balance of the Net Award remain after the completion of the Restoration Work, such balance shall be paid to Landlord.
ARTICLE 12 | EXPROPRIATION |
Section 12.01 Landlord and Tenant hereby agree that in no event shall any taking of any Demised Property for any public or quasi-public use under any statute or by right of expropriation, or by purchase in lieu thereof, or the taking, expropriation, reconfiguration or vacation of any adjacent property or street that requires the use, reconstruction or remodeling of any material part of any Demised Property, in any way relieve Tenant of any obligations under this Lease (as to the applicable Demised Property or otherwise), except as explicitly provided in this Article.
Section 12.02 If any portion of any Demised Property, or existing access to or from any Demised Property, is taken for any public or quasi-public use under any statute or by right of expropriation, or by purchase in lieu thereof, or by agreement between Landlord and those authorized to exercised such rights, or if any adjacent property or street is so taken or condemned or reconfigured or vacated by any competent authority in such manner as to require the use, reconstruction or remodeling of any material part of any Demised Property, and as a result thereof, (a) the value of such Demised Property is reduced by twenty percent (20%) or more or (b) Tenant is prevented, or would be prevented after reasonable repair and reconstruction by Tenant, use of such Demised Property for the Permitted Uses in a manner similar to the use prior to such taking or use of the required parking and access; then , Tenant shall have the right, upon notice to be given to Landlord no later than forty-five (45) days after the date Tenant received notice of such taking, to terminate this Lease as to such Demised Property (but not any other Demised Property) as of the date that title to the applicable Demised Property, or portion thereof, actually transfers to the applicable authority.
Section 12.03 Tenant agrees that Landlord has the right in its sole discretion, and at Tenants sole cost and expense, to oppose any proposed taking regarding any Demised Property. The parties hereto agree to cooperate in applying for and in prosecuting any claim for any taking regarding any Demised Property and further agree that the aggregate net award or indemnity shall be distributed as follows:
(a) Landlord shall be entitled to the entire award or indemnity for the condemned Demised Property; and
(b) Tenant shall be entitled to any award that may be made for the taking of Tenants inventory and personal property, or costs related to the removal and relocation of Tenants inventory and personal property; provided, that none of the foregoing reduces Landlords award or indemnity.
Section 12.04 Except in the case of a termination of this Lease with respect to a Demised Property as described in Section 12.02 , in the case of an expropriation of any portion of any Demised Property, Tenant at its own expense shall proceed with diligence (subject to reasonable time periods for purposes of adjustment of any award or indemnity and unavoidable delays) to repair or reconstruct (or cause to be repaired and reconstructed) the affected Improvements to a complete architectural unit and in a condition as nearly as possible to the value and condition immediately prior to such taking, and all such Restoration Work shall be performed in accordance with the standards and requirements for Alterations set forth in Article 6 and, to the extent the cost to repair or reconstruct the affected Improvements exceeds the Threshold Amount, the amount in excess of the Threshold Amount shall be held in the Restoration Fund in accordance with the provisions of Section 11.04
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Section 12.05 In case of an expropriation of all or any portion of any Demised Property, and to the extent Tenant terminates this Lease with respect to the applicable Demised Property, pursuant to Section 12.02 , the Base Rent payable hereunder shall be reduced by the Adjustment Amount as set forth on Exhibit A-1 for such Demised Property.
Section 12.06 Notwithstanding any other provision of this Agreement, any compensation for a temporary taking shall be payable to Tenant without participation by Landlord, and there shall be no abatement of Rent as a result of any temporary expropriation affecting any of the Demised Properties.
Section 12.07 If Landlord or Tenant shall receive any notice of any proposed or pending expropriation or taking proceeding affecting any of the Demised Properties, the party receiving such notice shall promptly furnish a copy thereof to the other party.
ARTICLE 13 | FINANCIAL AND REPORTING COVENANTS |
Section 13.01 Books and Records . Tenant shall keep accurate books and records of account of all of the Demised Properties sufficient to permit the preparation of financial statements in accordance with GAAP. Landlord and its duly authorized representatives shall have the right to examine, copy and audit Tenants records and books of account at all reasonable times during regular business hours. Tenant shall provide, or cause to be provided, to Landlord, in addition to any other financial statements required under this Lease, the following financial statements and information, all of which must be prepared in a form reasonably acceptable to Landlord:
(a) Promptly, and in any event within the greater of (i) one hundred thirty (130) days, after the end of each calendar year, or (ii) to the extent the same are required to be filed with the SEC, five (5) business days after annual audited financial statements are filed with the SEC (as hereinafter defined), (y) audited statements of the financial position of Tenant, or, if Tenant does not prepare audited statements, of Guarantor, as of the end of each such calendar year, including a balance sheet and statement of profits and losses, expenses and retained earnings, changes in financial position and cash flows for such calendar year (but only to the extent such financial statements or reports are not contained in any required filings with the SEC), which statements shall be duly certified by an officer of Tenant or Guarantor, as applicable, to fairly represent the financial condition of Tenant or Guarantor, as applicable, as of the date thereof, prepared by Tenant or Guarantor, as applicable, in accordance with GAAP, and accompanied by a statement of a nationally recognized accounting firm acceptable to Landlord in its sole discretion that such financial statements present fairly, in all material respects, the financial condition of Tenant or Guarantor, as applicable, as of the end of the calendar year being reported on and that the results of the operations and cash flows for such year were prepared, and are being reported on, in conformity with GAAP, and (z) unaudited EBITDA for such calendar year along with an unaudited report of the revenues derived from the operations of each individual Demised Property for such calendar year; and
(b) Tenant shall also furnish to Landlord (i) within forty-five (45) days after the end of each of the three remaining quarters, unaudited financial statements, certified by an officer of Tenant or Guarantor, as applicable, to fairly represent the financial condition of Tenant or Guarantor, as applicable, as of the date thereof, prepared in accordance with GAAP, but only to the extent any such financial statement or reports are not contained in any required filings with the Securities and Exchange Commission ( SEC ), and all filings, if any, of Form 10-K, Form 10-Q and other required filings with the SEC pursuant to the provisions of the Securities Exchange Act of 1934, as amended, or any other Law and (ii) within ten (10) days following receipt of Landlords reasonable request any other property level information regarding one or more of the Demised Properties that Tenant or Guarantor is required to prepare and provide in connection with any credit facility for Tenant, Guarantor or any of their Affiliates, or to any public shareholder or to the SEC, but only to the extent such information is not contained in any public filing filed therewith.
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Section 13.02 Litigation . Tenant shall deliver prompt written notice to Landlord of any litigation or governmental proceedings pending or threatened against Tenant that might materially adversely affect the condition of Tenant or Guarantor or the business or operations at any Demised Property.
ARTICLE 14 | INTENTIONALLY OMITTED. |
ARTICLE 15 | EVENTS OF DEFAULT |
Section 15.01 Events Of Default . Subject to the terms of this Article, the occurrence of any of the following shall constitute an event of default by Tenant under this Lease ( Event of Default ):
(a) Nonpayment of Base Rent . Failure to pay any installment of Base Rent on or before the date when due. Notwithstanding the foregoing, Tenant shall have a five (5) Business Day grace period for payment of one installment of Base Rent twice in any twelve (12) month period during the Lease Term.
(b) Nonpayment of Additional Rent . Failure to pay any amount of Additional Rent on or before the date when due and such failure continuing for five (5) Business Days after Tenant receives notice of such failure.
(c) Bankruptcy and Insolvency . If at any time during the Lease Term, (i) Tenant or Guarantor files an Application, (ii) any creditor or other Person that is an Affiliate of Tenant or Guarantor files against Tenant or Guarantor any Application, or any creditor or other Person (whether or not an Affiliate of Tenant or Guarantor) files against Tenant or Guarantor any Application, where Tenant or Guarantor, or an Affiliate of Tenant or Guarantor, cooperates or colludes with such creditor or other Person in connection with such Application or the filing thereof, (iii) any creditor or other Person that is not an Affiliate of Tenant or Guarantor files an Application against Tenant, where none of Tenant or Guarantor or an Affiliate of Tenant or Guarantor cooperates or colludes with such creditor or other Person in connection with such Application or the filing thereof, and such Application is not vacated or withdrawn within sixty (60) days after the filing thereof, (iv) a trustee, interim receiver, receiver, receiver and manager, administrative receiver, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official is appointed to take possession of any of the Demised Properties, or of all or substantially all of the business or assets of Tenant or Guarantor, and such appointment is not vacated or withdrawn and possession restored to Tenant within sixty (60) days thereafter, (v) a general assignment or arrangement is made by Tenant for the benefit of creditors, (vi) any trustee, interim receiver, receiver, receiver and manager, administrative receiver, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official takes possession of any Demised Property, or of all or substantially all of the business or assets of Tenant or Guarantor by authority of any attachment, execution, or other judicial seizure proceedings, and such attachment or other seizure remains undismissed or undischarged for a period of sixty (60) days after the levy thereof, (vii) Tenant admits in writing its inability to pay its debts as they become due; or (viii) Tenant or Guarantor files an answer admitting or failing timely to contest a material allegation of any Application filed against Tenant or Guarantor.
(d) Delivery of Notices and Other Documents . The failure by Tenant to deliver any of the notices or other documents required to be delivered to Landlord under this Lease, in each case within the time periods required herein (other than any such notices or other documents specifically
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addressed in another clause of this Section 15.01 , for which Tenant will have the grace periods (if any) and notice rights (if any) set forth in such other clause); provided, however, that if no time period is stated in this Lease for the delivery by Tenant of any notice or other document to Landlord, then Tenant shall have a grace period of ten (10) Business Days after the date of the event or occurrence first giving rise to the obligation to deliver such notice or other document to Landlord.
(e) Liens . Any claim of Lien is recorded against any Demised Property and such f Lien continues for one hundred twenty (120) days after Tenant receives notice thereof without discharge (by bonding or other means available pursuant to the applicable Law), or satisfaction being made by or on behalf of Tenant.
(f) Other Obligations . The failure by Tenant to timely perform any obligation, agreement or covenant under this Lease, other than those matters specified in Sections 15.01(a)-(e) above, and such failure continuing for a period of thirty (30) days after written notice of such failure is delivered to Tenant, or such longer period as is reasonably necessary to remedy such default (but such cure period, including any extension under Article 16 , shall not exceed one hundred twenty (120) days in the aggregate); provided that Tenant shall commence to cure the failure within such thirty (30) day period and shall diligently and in good faith proceed with and continue the curing of the default until fully cured.
(g) US Lease . If there exists any Event of Default (as such term is defined in the US Lease) under the terms of the US Lease; provided , that the provisions of this Section 15.01(g) shall not be applicable if the US Lease has been assigned or otherwise transferred to an unrelated third party by the landlord thereunder in accordance with the provisions of the US Lease.
(h) Guaranty . If there exists any default or breach, beyond any applicable notice or cure period under the Guaranty.
(i) SNDA . The failure by Tenant to deliver the SNDA described in Section 23.01 within the time period specified thereon, with such failure continuing for a period of ten (10) Business Days after notice of such failure is delivered to Tenant.
(j) Estoppel Certificate . The failure by Tenant to deliver the Estoppel Certificate described in Article 24 within the time period specified therein, with such failure continuing for a period of ten (10) Business Days after notice of such failure is delivered to Tenant.
(k) Sale Proceeds . The failure of Tenant or its Affiliates to: (i) apply substantially all of the proceeds of the sale of the Demised Properties from Landlord to either (A) (I) the purchase of USP Holdings and (II) upon the completion of such purchase, to own USP Holdings or (B) the repayment, in whole or in part, of one or more of those certain loans made pursuant to that certain (I) Senior Lien Term Loan Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Lenders Party, and Credit Suisse AG, Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc., (II) Junior Lien Term Loan Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Lenders Party, and Credit Suisse AG, Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc. or (III) ABL Credit Agreement dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings, Ltd., Stardust Finance Holdings, Inc., The Additional Revolving Borrowers Party Thereto, The Lenders Party Thereto, and Credit Suisse AG, Bank of America, N.A., Barclays Bank PLC, Citibank, N.A., Credit Suisse Securities (USA) LLC, and Citigroup Global Markets, Inc. (clause (I), (II) and (III) of this Section 15.01(k) , the Existing Loans ) and (ii) provide to Landlord with reasonably satisfactory evidence thereof within ninety (90) days after the date of this Lease.
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As used in this Lease, Default means any breach or default under this Lease or the US Lease or the Guaranty, whether or not the same is an Event of Default thereunder, and also any breach or default under this Lease or the US Lease or the Guaranty, that after notice or lapse of time or both, would constitute an Event of Default under the applicable lease or the Guaranty, if that breach or default were not cured within any applicable grace or cure period.
Section 15.02 Remedies Upon Event of Default . During the existence of an Event of Default by Tenant, in addition to any other remedies available to Landlord at Law or in equity or elsewhere hereunder, Landlord shall have the following remedies:
(a) Termination . Landlord shall have the right, with or without notice or demand, immediately upon expiration of any applicable notice or grace period specified herein, to terminate this Lease (or Tenants possession of any of the Demised Properties), and at any time thereafter recover possession of all or any portion of the Demised Properties or any part thereof and expel and remove therefrom Tenant and any other Person occupying the same by any lawful means, and repossess and enjoy all or any portion of the Demised Properties without prejudice to any of the remedies that Landlord may have under this Lease. If Landlord elects to terminate this Lease (or to terminate Tenants right of possession), Landlord shall also have the right to reenter the Demised Properties and take possession of and remove all personal property of Tenant, if any, in such Demised Properties, subject to the rights thereto of any of Tenants lenders under any credit facility and the terms of any Landlord collateral access agreement (or similar document) that may be entered into between Landlord and any of Tenants lenders. If Landlord elects to terminate this Lease and/or Tenants right to possession, or if Tenants right to possession is otherwise terminated by operation of Law, Landlord may recover, as damages from Tenant, the following: (i) all Rent then due under this Lease through the date of termination; (ii) the Rent due for the remainder of the Lease Term in excess of the fair market rental value of the Demised Properties for the remainder of the Lease Term, including any and all Additional Rent (each discounted by the discount rate established by the Royal Bank of Canada plus one percent (1%)); (iii) the cost of reletting the Demised Properties, including the anticipated period of vacancy until such Demised Properties can be re-let at their fair market rental values; and (iv) any other costs and expenses that Landlord may reasonably incur in connection with the Event of Default. Unless required by applicable Law, Landlord shall have no obligation to mitigate its damages caused by the Event of Default (or Tenants Default under this Lease), but if Landlord does attempt to so mitigate its damages, such efforts by Landlord shall not waive Landlords right to recover damages under the foregoing provisions.
(b) Continuation after Event of Default . If Landlord does not elect to terminate this Lease, then this Lease shall continue in effect, and Landlord may enforce all of its rights and remedies under this Lease, including the right to recover Rent as it becomes due, and Landlord, without terminating this Lease, may exercise all of the rights and remedies of a landlord at law or in equity, subject to Article 26 . Landlord shall not be deemed to have terminated this Lease except by an express statement in writing. Acts of maintenance or preservation, efforts to relet the Demised Properties, or the appointment of a receiver upon application of Landlord to protect Landlords interest under this Lease shall not constitute an election to terminate Tenants right to possession unless such election is expressly stated in writing by Landlord. Notwithstanding any such reletting without such termination, Landlord may at any time thereafter elect to terminate Tenants right to possession and this Lease. If Landlord elects to relet the Demised Properties for the account of Tenant, the rent received by Landlord from such reletting shall be applied as follows: first, to the payment of any and all costs of such reletting (including attorneys fees, brokers fees, and the cost of alterations and repairs to any of the Demised Properties, and tenant improvement costs); second, to the payment of any and all indebtedness other than Rent due hereunder from Tenant to Landlord; third, to the payment of any and all Rent due and unpaid hereunder; and the balance, if any, shall be held by Landlord and applied in payment of future Rent as it becomes due. If the rent received from the reletting is less than the sum of the costs of reletting, other indebtedness due by Tenant, and the Rent due by Tenant, then Tenant shall pay the deficiency to Landlord within ten (10) days after written demand by Landlord. Such deficiency shall be calculated and paid monthly.
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(c) Efforts to Relet . No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlords interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenants right to possession, or to accept a surrender of the Demised Properties, nor shall same operate to release Tenant in whole or in part from any of Tenants obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives, to the fullest extent permitted by Law, any right otherwise available under any law to redeem or reinstate this Lease.
(d) Appointment of a Receiver: If, and to the extent permitted by applicable Law, an Event of Default shall have occurred and be continuing, Landlord, upon application to a court of competent jurisdiction or by the appointment by an instrument in writing, shall be entitled to the appointment of a privately appointed or court appointed receiver or receiver and manager, interim receiver, liquidator, trustee-in-bankruptcy, administrator, administrative receiver and other like or similar official to take possession of and to operate the Demised Properties and to collect the rents, profits, issues, and revenues therefrom. Tenant will pay to Landlord upon demand all expenses, including receivers fees, attorneys fees, cost and agents compensation, incurred pursuant to the provisions contained in this paragraph.
(e) ProvinceSpecific Remedy . Landlord may pursue any other remedy now or hereafter available to Landlord under the Laws of the provinces in which the Demised Properties are located, in addition to and not as an alternative remedy to those provided hereunder.
Section 15.03 Late Fee . If any payment of Base Rent or Additional Rent is not received by Landlord from Tenant when such payment is due to Landlord hereunder, such payment shall be deemed delinquent, and Tenant shall pay to Landlord a late fee of five percent (5%) of each such delinquent payment (the Late Fee ), due and payable to Landlord simultaneously with the delinquent Base Rent or delinquent Additional Rent, as the case may be.
Section 15.04 Default Rate . If any payment of Base Rent or Additional Rent is not received by Landlord from Tenant when such payment is due to Landlord hereunder, such payment shall bear interest at the rate of the lesser of (x) four percent (4%) over the Prime Rate per annum or (y) the highest rate allowed by applicable law.
ARTICLE 16 | FORCE MAJEURE |
If either party is prevented or delayed from timely performance of any obligation or satisfying any condition under this Lease by any event or circumstance beyond the control of such party, exclusive of financial inability of a party, but including any of the following if beyond the control of (and not caused by) such party: strike, lockout, labor dispute, civil unrest, inability to obtain labor, materials or reasonable substitutes thereof, acts of God, present or future governmental restrictions, regulations or control, insurrection, and sabotage, then the time to perform such obligation or satisfy such condition shall be extended by the delay caused by such event or circumstance. The provisions of this Article shall in no event operate to delay the Commencement Date or to excuse Tenant from the payment of all Rent as and when due under this Lease.
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ARTICLE 17 | NOTICES |
(a) Any notice, demand or other communication to be given under the provisions of this Lease by either party hereto to the other party hereto shall be effective only if in writing and (i) personally served, (ii) mailed by Canadian registered or certified mail, return receipt requested, postage prepaid, (iii) sent by a nationally recognized courier service (such as Federal Express) for next-day delivery, to be confirmed in writing by such courier, or (iv) sent by facsimile (with answer back acknowledged), addressed as follows:
To Tenant: | Forterra Pipe & Precast, Ltd. | |
Forterra Pressure Pipe, Inc. | ||
Forterra Pipe & Precast Québec Ltd. | ||
c/o Forterra Building Products | ||
511 E. John Carpenter Freeway, Suite 600 | ||
Irving, Texas 75062 | ||
Attention: Lori Browne | ||
Facsimile: (469) 284-8678 | ||
To Landlord: | FORT-NOM HOLDINGS (ONQC) INC. | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Asset Management | ||
With a copy to: | FORT-NOM HOLDINGS (ONQC) INC | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Legal Transactions Department |
(b) Subject to the terms of this subsection (b), all notices, demands and other communications sent in the foregoing manner shall be deemed delivered when actually received or refused by the party to whom sent, unless (i) mailed, in which event the same shall be deemed delivered on the day of actual delivery as shown by the addressees registered or certified mail receipt or at the expiration of the third (3rd) Business Day after the date of mailing, whichever first occurs, or (ii) sent by facsimile, in which event the same shall be deemed delivered only if a duplicate notice sent pursuant to a method described in subsection (a)(i), (a)(ii) or (a)(iii) of this Article 17 is delivered within one Business Day after such facsimile is received by the recipient. Notwithstanding the foregoing, if any notice, demand or other communication is not received during business hours on a Business Day, such notice, demand or other communication shall be deemed to have been delivered at the opening of business on the next Business Day.
(c) Either Landlord or Tenant may from time to time change its address for receiving notices under this Lease by providing written notice to the other party in accordance with this Article 17 .
ARTICLE 18 | ACCESS |
Section 18.01 Landlord and its designees shall have the right, upon not less than twenty-four (24) hours prior written notice to Tenant (except in the event of an emergency, where no prior notice shall be required), to enter upon any of the Demised Properties at
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reasonable hours to inspect such Demised Properties or, during the period commencing one year prior to the end of the Lease Term (or at any time if an Event of Default occurs), for the purpose of exhibiting same to prospective tenants and posting or erecting for lease or similar signage at the Demised Properties, all in Landlords discretion. Landlords Mortgagee shall have the right, upon not less than seventy-two (72) hours prior written notice to Tenant, to enter upon any of the Demised Properties at reasonable hours to inspect such Demised Properties, and Tenant shall reasonably cooperate with Landlords Mortgagee to effectuate same. Any such entry and/or inspection by Landlord or Landlords Mortgagee shall not unreasonably interfere with Tenants ability to conduct its business operations at the Demised Properties.
Section 18.02 Upon prior written notice from Landlord, Tenant shall permit such qualified persons as Landlord may designate ( Site Reviewers ) to visit the Leased Premises during normal business hours and in a manner which does not unreasonably interfere with Tenants operations and perform, as agents of Landlord, environmental site investigations and assessments (Environmental Site Assessments) on the Leased Premises in any of the following circumstances: (i) in connection with any sale, financing or refinancing of the Leased Premises, (ii) within the six month period prior to the expiration of the Term, (iii) if an Event of Default exists, or (iv) at any other time that, in the reasonable opinion of Landlord, new information gives rise to a reasonable basis to believe that an Environmental Condition exists in violation of any applicable Environmental Law or involving a Release of Hazardous Materials which exceeds an applicable industrial remediation standard under any applicable Environmental Law. Where specifically required by a third party in the context of clause (i), above, or where undertaken pursuant to clauses (ii), (iii) and (iv), such Site Assessments may include both above and below the ground testing of Environmental Media for Environmental Conditions or Hazardous Materials and such other tests as may be necessary, in the reasonable opinion of the Site Reviewers, to conduct such testing. Tenant shall supply to the Site Reviewers such historical and operational information regarding the Leased Premises as may be reasonably requested by the Site Reviewers and as may be in Tenants possession or reasonably available to Tenant to facilitate the Environmental Site Assessments, and shall make available for meetings with the Site Reviewers appropriate personnel having knowledge of such matters. The cost of performing and reporting Environmental Site Assessments under clause (i) if such sale is to Tenant or any affiliate or designee of Tenant, under clause (iii), and under clause (iv) if any Environmental Condition or Release of Hazardous Materials which requires remediation to meet applicable industrial remediation standards or are in violation of any applicable Environmental Law is actually discovered, shall be paid by Tenant, otherwise such costs shall be paid by Landlord.
ARTICLE 19 | SIGNS |
Tenant may, at Tenants sole cost and expense, install or erect, at or on any Demised Property, signs of any height or dimensions and bearing such inscriptions as Tenant shall reasonably determine; provided, however, that no sign shall be installed or erected by Tenant at or on any Demised Property until all governmental approvals and permits required therefor by any applicable Laws and/or any Governmental Authority have been obtained, and all fees pertaining thereto have been paid by Tenant.
ARTICLE 20 | IMPROVEMENTS AND BUILDING EQUIPMENT; TENANT EQUIPMENT |
Section 20.01 Excepting any Tenant Equipment, any Building Equipment and other Improvements at the Demised Properties on the Commencement Date shall be the property of Landlord. In the event that Tenant installs or erects any fixtures or other Improvements, with the exception of Tenant Equipment, to the Demised Properties after the Commencement Date, such fixtures or other Improvements shall be the property of Landlord and remain upon and be surrendered with the Demised
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Properties. Notwithstanding the foregoing provisions, Tenant shall be liable for all property taxes, assessments, and similar charges assessed against or allocable to any property at the Demised Properties (irrespective of whether such property is Building Equipment owned by Landlord or Tenant Equipment or other personal property owned by Tenant) and that are attributable to any period of time during the Lease Term.
Section 20.02 During the Lease Term, Tenant shall be entitled to use the Building Equipment in Tenants operations at the Demised Properties. Tenant shall keep the Building Equipment in good working order, condition and repair, shall not remove the Building Equipment from the Demised Properties (subject to the terms of this Section) and shall not permit any lien, hypothec, security interest or other encumbrance to attach to the Building Equipment, except as may be caused by Landlord, and except any such liens that are being contested by Tenant in good faith by appropriate proceedings and that have been bonded over by Tenant to the reasonable satisfaction of Landlord or for which Tenant provides alternative security to the reasonable satisfaction of Landlord. Tenant shall keep (or cause to be kept) the Building Equipment insured and shall be responsible for any casualty or other loss to Building Equipment or occasioned by Building Equipment. Subject to the provisions of Article 6 , Tenant may, from time to time, retire or replace Building Equipment with new items of equipment of equal or greater value purchased by Tenant, in which event such replaced equipment shall constitute Building Equipment.
S ection 20.03 For the avoidance of doubt, in the event Tenant installs or erects any fixtures that are included within the definition of Tenant Equipment after the Commencement Date, such fixtures shall be the property of Tenant and be removed by Tenant before the expiration or earlier termination of this Lease, including without limitation, any underground storage tanks (and associated vent and fill ports and piping) that are in use at the Commencement Date, which shall be removed or, if approved by Landlord in writing, closed in place in accordance with applicable Law, unless Landlord expressly consents in writing to the continued presence of any such underground storage tanks. Landlord shall advise Tenant in writing whether Landlord elects to retain or to have Tenant remove or close any underground storage tanks (and associated vent and fill ports and piping) at least six (6) months prior to expiration of this Lease or thirty (30) days prior to the early termination thereof, as applicable.
ARTICLE 21 | END OF TERM; HOLDING OVER |
Section 21.01 Upon the expiration or earlier termination of this Lease, Tenant shall peaceably and quietly quit and surrender the Demised Properties and all Alterations that are then part of the Demised Properties (subject to any removal obligations under Section 6(a) ), vacant, broom clean and in good order, repair and condition and otherwise in the condition required by this Lease. Any Tenant Equipment or trade fixtures and personal property of Tenant remaining on the Demised Properties at the expiration of the Lease Term shall become the property of Landlord without payment therefor, but subject to (a) the rights thereto of any Tenants lenders under any credit facility and the terms of any Landlord collateral access agreement (or similar document) that may be entered into between the Landlord and any of Tenants lenders, unless Landlord shall have required removal of same by Tenant by notice to Tenant and (b) the provisions of Section 21.03 , if applicable.
Section 21.02 If Tenant holds over in possession of any of the Demised Properties after the expiration of the Lease Term, then such holding over shall not be deemed to extend the Lease Term or renew this Lease, but rather the tenancy thereafter shall continue as a tenancy at sufferance pursuant to the terms and conditions contained in this Lease, at one hundred ten percent (110%) of the Base Rent otherwise then applicable for all of the Demised Properties that are the subject of the holding over (in addition to all Additional Rent due and payable for all of the Demised Properties that are the subject of the holding over).
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Section 21.03 Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the right to give to Landlord a Post-Occupancy Removal Notice no later than twelve (12) months prior to the expiration date of the Lease Term. If Tenant duly and timely gives to Landlord the Post-Occupancy Removal Notice, the Lease Term shall not be deemed extended, but Landlord shall not institute any holdover proceedings against Tenant during the Post-Occupancy Period; provided that (i) such occupancy of the Demised Properties shall be for the sole purpose of removing all Tenant Equipment, (ii) Tenant shall remain responsible for the payment of Base Rent and Rent otherwise then applicable for all of the Demised Properties for the entire Post-Occupancy Period on a per diem basis and (iii) all of the other terms and conditions of this Lease shall remain in full force and effect during such Post-Occupancy period.
Section 21.04 This Article 21 shall survive the expiration or termination of this Lease.
ARTICLE 22 | TENANT ASSIGNMENT AND SUBLETTING |
Section 22.01
(a) Except as otherwise explicitly provided in this Article 22 and Article 23 , neither Tenant, nor Tenants successors or assigns, shall assign or transfer, in whole or in part, by operation of Law or otherwise, this Lease, or sublet the Demised Properties, in whole or in part, without the prior written consent of Landlord in each instance, which may be granted or withheld by Landlord, in its reasonable discretion, in accordance with the provisions of this Section 22.01 , and subject, in each case, to the provisions of Section 22.01(c) . Any purported sublease or assignment in violation of this Section 22 shall be null and void. Notwithstanding anything to the contrary contained in this Lease, provided that there shall be no Event of Default, Tenant shall have the right, without the prior written consent of Landlord, to (1) assign this Lease to an Affiliate of Tenant or to any entity with which Tenant may merge or consolidate or to which Tenant may sell all or substantially all of its assets or capital stock so long as (A) Landlord shall have received a notice of such assignment from Tenant, (B) the assignee assumes by written instrument reasonably satisfactory to Landlord all of Tenants obligations under this Lease and (C) such assignment is for a valid business purpose and not to avoid any obligations under this Lease and (2) sublease up to thirty percent (30%) of the gross leasable area of the Demised Properties so long as (A) the permitted use under the sublease is limited to the operation of a Permitted Use, (B) the term of the sublease, including any extension options, does not (and cannot) extend beyond the scheduled Lease Term (or any early termination of this Lease) and (C) Tenant remains primarily liable for the obligations under this Lease (each, a Preapproved Sublet ). In the event Tenant sells, conveys or leases all or substantially all of its assets to any Person, Tenant shall assign this Lease to such Person, and such Person shall assume all of Tenants obligations hereunder.
(b) If this Lease is assigned or transferred, or if all or any part of the Demised Properties is sublet or occupied by any party other than Tenant, Landlord may collect rent from the assignee, transferee, subtenant or occupant and apply the net amount collected to the Rent reserved in this Lease, but no such assignment, subletting, occupancy or collection shall be deemed a waiver of any covenant or condition of this Lease or Landlords acceptance of the assignee, transferee, subtenant or occupant as tenant, or a release by Landlord of Tenant from the performance or further performance by Tenant of its obligations under this Lease. Without limiting the generality of the forgoing, Tenant expressly acknowledges and agrees that, in the event of any assignment of this Lease, Tenant shall remain jointly and severally liable with the assignee for all of the obligations under this Lease, and in all other cases of any transfer of Tenants interest under this Lease, Tenant shall remain primarily liable for such obligations. Subject to the foregoing, the consent by Landlord to an assignment, transfer or subletting shall not in any way be construed to relieve Tenant from obtaining the express written consent of Landlord in each instance to any subsequent similar action that Tenant may desire to take.
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(c) Except as expressly permitted by clause (a)(1) and (a)(2) of Section 22.01 above, if Tenant desires to assign this Lease , whether by operation of law or otherwise (each a Non-Preapproved Assignment ), to a Person ( Non-Preapproved Assignee ) then Tenant shall, not less than thirty (30) days prior to the date on which it desires to make a Non-Preapproved Assignment, submit to Landlord information regarding the following with respect to the Non-Preapproved Assignee and the Non-Preapproved Assignment (collectively, the Review Criteria ): (a) the proposed effective date of the Non-Preapproved Assignment, (b) all of the terms of the proposed Non-Preapproved Assignment and the consideration therefor, (c) the name, address and business of the proposed Non-Preapproved Assignee, (d) information concerning the character of the Non-Preapproved Assignee (including current financial statements thereof certified by an officer, partner or owner thereof, business credit and personal references and a description of the history of the Non-Preapproved Assignee), and (e) proposed use of the Demised Properties by the Non-Preapproved Assignee. Landlord shall review such information and shall approve or disapprove the Non-Preapproved Assignee and the Non-Preapproved Assignment no later than twenty (20) days following receipt of all such information, and Landlord shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on Landlords review of the Review Criteria applying prudent business judgment. If a response is not received by Tenant by the expiration of such twenty (20) day period, such Non-Preapproved Assignee and Non-Preapproved Assignment shall be deemed disapproved.
(d) Other than pursuant to Preapproved Sublets, at no time during the Lease Term shall subleases exist for more than thirty percent (30%) of the gross leasable area of the Demised Properties without the prior written consent of Landlord, which consent shall be granted or withheld based on a review of the Review Criteria as they relate to the proposed sublessee and the terms of the proposed sublease. Landlord shall be deemed to have acted reasonably in granting or withholding consent if such grant or disapproval is based on Landlords review of the Review Criteria applying prudent business judgment.
Section 22.02 Upon any sublease or assignment permitted as provided in this Article 22 , Tenant shall deliver to Landlord copies of such sublease or assignment agreement promptly (but no later than ten (10) days) following execution and delivery thereof. In no event shall Tenant be entitled to amend, extend or otherwise modify any sublease or assignment agreement that required the prior written consent of Landlord pursuant to the terms hereof without the prior written consent of Landlord, which consent Landlord may withhold in its reasonable discretion, taking into consideration the factors set forth in Section 22.01(c) .
Section 22.03 Subject to the terms of this Lease, this Lease shall be binding upon, enforceable by, and inure to the benefit of the parties hereto and their respective heirs, successors, representatives and assigns.
Section 22.04 [Intentionally Omitted].
ARTICLE 23 | FINANCINGS |
Section 23.01 Subject to and in accordance with the terms and provisions of the SNDA referenced below, this Lease shall be subject and subordinate to all present and future ground or underlying leases of any of the Demised Properties and to the lien of any hypothecs, security interests, mortgages or trust deeds, now or hereafter in force, against any of the Demised Properties, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such hypothecs, security interests, mortgages or trust deeds, unless the holders of such hypothecs, security interests, mortgages or trust deeds, or the lessors under such ground or underlying leases, require in writing that this Lease be superior thereto; and Tenant
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covenants and agrees in the event any proceedings are brought for the exercise of any hypothecary rights, mortgage rights or the institution for proceedings to enforce on any hypothec, security interest, mortgage or deed of trust to which this Lease is subordinate, or in the event of any termination of any ground or underlying lease to which this Lease is subordinate, to attorn, without any deductions, claims or set-offs whatsoever, to the purchaser upon any such foreclosure sale, if so requested to do so by such purchaser, and to the ground or underlying lease lessor, if so requested to do so by such ground or underlying lease lessor, and to recognize such purchaser or ground or underlying lease lessor, as the case may be, as the lessor under this Lease; provided, however, that the foregoing subordination to future ground or underlying leases of the Demised Properties and to the lien of any future hypothecs, security interests, mortgages or trust deeds in force against the Demised Properties shall be conditioned upon Landlord providing Tenant with a subordination, non-disturbance and attornment agreement in favor of Tenant in the form attached hereto as Exhibit C , or other commercially reasonable form requested by Landlord that provides, without limitation, that this Lease and the rights of Tenant hereunder shall survive the exercise of any hypothecary rights, mortgage rights or the institution for proceedings to enforce brought under such hypothec, security interest, mortgage or deed of trust or termination of such ground or underlying lease (as applicable), provided an Event of Default has not occurred and is not continuing under this Lease (either, an SNDA ). Tenant shall, and shall use commercially reasonable efforts to cause any subtenant, from time to time, within ten (10) Business Days after any request by Landlord, to execute and deliver such other instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease (at Landlords election) to any such hypothecs, mortgages, security interests, trust deeds, ground or underlying leases (including, at Landlords election, one or more additional SNDAs requested by Landlords Mortgagee).
Section 23.02 Landlord agrees that, upon the request of any Person that shall be Tenants or its Affiliates senior secured lender, subordinate senior lender, purchase money equipment lender or an equipment lessor of Tenant, Landlord shall execute and deliver a commercially reasonable waiver of Landlords statutory lien rights, if any, and a consent and agreement with respect to the respective rights of Landlord and such Person regarding the security interests in, and the timing and removal of, any inventory, equipment or other collateral in which such Person has a secured interest (the Collateral ), in substantially the form attached hereto as Exhibit H or in such other reasonable form as the parties may agree.
ARTICLE 24 | ESTOPPEL CERTIFICATES |
Tenant shall, without charge, at any time and from time to time, within ten (10) Business Days after any request by Landlord, deliver to Landlord or any other Person specified by Landlord, a completed Estoppel Certificate, duly executed and acknowledged, in substantially the form as set forth on Exhibit D attached hereto, or other commercially reasonable estoppel certificate confirming such information regarding this Lease and Tenant as Landlord may request (either, an Estoppel Certificate ). Tenants failure to deliver to Landlord any Estoppel Certificate requested by Landlord as and when provided in this Article shall be deemed conclusive against Tenant as to the truthfulness of the items stated in such Estoppel Certificate requested by Landlord.
ARTICLE 25 | REGISTRATION |
Neither Landlord nor Tenant shall register this Lease; provided, however, concurrently with the execution hereof, each party shall join in the execution and registration of a notice of lease (or similar instrument) in a form substantially similar to the form attached hereto as (i) Exhibit E-1 , covering each of the Demised Properties in Ontario, and (ii) Exhibit E-2 , covering each of the Demised Properties in Québec. Tenant shall pay all costs charged by the applicable local registry in connection with the registration of any such notice of lease (or similar instrument).
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ARTICLE 26 | APPLICABLE LAW; JURISDICTION |
Section 26.01
(a) For all purposes relating to any Demised Property located in the Province of Ontario, this Lease shall be construed in accordance with, and this Lease and all matters arising out of or relating to this Lease (whether in contract, tort or otherwise) shall be governed by, the law of the Province of Ontario and the federal laws of Canada applicable in that province.
(b) For all purposes relating to any Demised Property located in the Province of Québec, this Lease shall be construed in accordance with, and this Lease and all matters arising out of or relating to this Lease (whether in contract, tort or otherwise) shall be governed by, the law of the Province of Québec and the federal laws of Canada applicable in that province.
(c) If any provision of this Lease or the application thereof shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by applicable Law.
Section 26.02
(a) FOR ALL PURPOSES RELATING TO ANY DEMISED PROPERTY LOCATED IN THE PROVINCE OF ONTARIO, TENANT AND LANDLORD EACH HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY PROVINCIAL COURT LOCATED WITHIN THE PROVINCE OF ONTARIO, AND EACH IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS LEASE SHALL BE LITIGATED IN SUCH COURTS (EXCEPT FOR FORCIBLE ENTRY, DETAINER ACTIONS, EVICTIONS OR SIMILAR PROCEEDINGS WHICH SHALL BE LITIGATED IN COURTS LOCATED WITHIN THE PROVINCE IN WHICH THE APPLICABLE DEMISED PROPERTY IS LOCATED). TENANT AND LANDLORD EACH ACCEPTS, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS (EXCEPT AS PROVIDED ABOVE IN THIS PARAGRAPH), WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS LEASE.
(b) FOR ALL PURPOSES RELATING TO ANY DEMISED PROPERTY LOCATED IN THE PROVINCE OF QUÉBEC, TENANT AND LANDLORD EACH HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY PROVINCIAL COURT LOCATED WITHIN THE PROVINCE OF QUÉBEC, AND EACH IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS LEASE SHALL BE LITIGATED IN SUCH COURTS (EXCEPT FOR FORCIBLE ENTRY, DETAINER ACTIONS, EVICTIONS OR SIMILAR PROCEEDINGS WHICH SHALL BE LITIGATED IN COURTS LOCATED WITHIN THE PROVINCE IN WHICH THE APPLICABLE DEMISED PROPERTY IS LOCATED). TENANT AND LANDLORD EACH ACCEPTS, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS (EXCEPT AS PROVIDED ABOVE IN THIS PARAGRAPH), WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS LEASE.
(c) TENANT AND LANDLORD EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS ARTICLE ARE A MATERIAL INDUCEMENT TO THE OTHER PARTYS ENTERING INTO THIS LEASE.
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ARTICLE 27 | LIABILITY OF PARTIES |
Section 27.01 The obligations of Landlord under this Lease are not personal obligations of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord. Tenant shall look solely to the Demised Properties for satisfaction of any liability of Landlord and shall not look to other assets of Landlord nor seek recourse against the assets of the individual members, partners, directors, officers, shareholders, agents or employees of Landlord or Landlords Affiliates. Whenever Landlord transfers its interest in any Demised Property, Landlord shall be automatically released from further performance under this Lease with respect to such Demised Property and from all further liabilities and expenses hereunder related to such Demised Property, whether arising before or after such transfer, to the extent the transferee of Landlords interest under this Lease assumes Landlords performance, liabilities and expenses under this Lease related to such Demised Property.
Section 27.02 The obligations of Tenant under this Lease are not personal obligations of the individual members, partners, directors, officers, shareholders, agents or employees of Tenant, and Landlord shall not seek recourse against the assets of the individual members, partners, directors, officers, shareholders, agents or employees of Tenant. Landlord, on behalf of itself and its successors and assigns, hereby waives any and all personal liability against Tenant, and the individual members, partners, directors, officers, shareholders agents or employees thereof, directly or indirectly, under or in connection with this Lease or any agreement made or entered into under or pursuant to the provisions of this Lease or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter. If more than one Person is named as Tenant and/or Landlord hereunder, the obligations under this Lease of all such Persons named as Tenant and/or Landlord, respectively, shall be joint and several.
ARTICLE 28 | ATTORNEYS FEES; EXPENSES |
Without limiting any other obligation of Tenant to timely indemnify or reimburse Landlord hereunder (including under Article 9 and Article 29 ), if any party to this Lease shall bring any action or proceeding for any relief against the other, declaratory or otherwise, arising out of this Lease, the losing party shall pay to the prevailing party a reasonable sum for actual out-of-pocket attorneys fees and costs incurred in bringing or defending such action or proceeding and/or enforcing any judgment granted therein, all of which shall be deemed to have accrued upon the commencement of such action or proceeding and shall be paid whether or not such action or proceeding is prosecuted to final judgment. Any judgment or order entered in such action or proceeding shall contain a specific provision providing for the recovery of attorneys fees and costs, separate from the judgment, incurred in enforcing such judgment. The prevailing party shall be determined by the trier of fact based upon an assessment of which partys major arguments or positions taken in the proceedings could fairly be said to have prevailed over the other partys major arguments or positions on major disputed issues; provided, however, that the parties agree that in no event shall Tenant be deemed a prevailing party if an Event of Default then exists under this Lease. For the purposes of this provision, attorneys fees shall include fees incurred in the following: (i) court homologation of any decree or ruling; (ii) contempt proceedings; (iii) levy, seizure, enforcement of judgment, exercise of hypothecary, mortgage or other creditors rights, and debtor and third party examinations; (iv) discovery; and (v) bankruptcy and insolvency litigation. This provision is intended to be expressly severable from the other provisions of this Lease, is intended to survive any judgment and is not to be deemed merged into the judgment.
ARTICLE 29 | ENVIRONMENTAL |
Section 29.01 Tenant acknowledges that Landlord makes no warranties or representations of any kind, or in any manner or in any form whatsoever, as to the status of Environmental Conditions or Hazardous Materials at the Demised Properties. Tenant shall conduct at its own expense any and all
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investigations regarding Environmental Conditions of the Demised Properties and will satisfy itself as to the absence or existence of Hazardous Materials contamination of the Demised Properties and the suitability of the Demised Properties for Tenants operations. Tenants entry into this Lease shall be made at its sole risk.
Section 29.02 Tenant shall comply with all Environmental Laws and cause and ensure the Demised Properties and all operations thereon (whether by Tenant or any subtenant) comply with all applicable Environmental Laws. Tenant shall not suffer or permit any Loss, on, at, under or affecting the Demised Properties of any source if the same pose a health or safety risk to invitees or employees. From and after the Commencement Date, Tenant shall be entitled to use, receive, store, handle, generate, treat, recycle or transport Hazardous Materials at the Demised Properties, in amounts customarily used in Tenants business and which shall be used, received, stored, handled, generated, treated, recycled or transported in full compliance with all applicable Environmental Laws. Tenant covenants to, and shall, undertake all Remedial Activities necessary to comply with applicable Environmental Laws arising out of any Use or Release of Hazardous Materials, by Tenant or its agents, employees, representatives, invitees, licensees, subtenants, customers or contractors ( Other Parties ), or otherwise adversely affecting any Demised Property, at Tenants sole cost and expense, and shall give prompt written notice of same to Landlord. If any Remedial Activities relating to Hazardous Materials released on or at any Demised Property are required to be performed at any location other than the Demised Properties, Tenant shall use commercially reasonable efforts to obtain any required access agreements from third parties.
Section 29.03 In addition to any other obligation herein, Tenant shall indemnify, defend, protect and hold Landlord Parties free and harmless from and against any and all Losses and other obligations of any kind whatsoever that may be made against or incurred by Landlord Parties in connection with any of the following: (a) the violation of any Environmental Law or (b) a Release of Hazardous Materials or Environmental Conditions at, on, under, about or from the Demised Properties, in each case during the Lease Term (and in the event of any holding over by Tenant or any Post-Occupancy Period, during any period that Tenant occupies the relevant Demised Property) and any Environmental Claims, whether or not the same constitute a violation of any Environmental Law, including any and all reasonable costs and fees of attorneys or experts incurred by Landlord in defending against same. This and any other right of Landlord under this Lease shall inure to the benefit of Landlords successors and assigns, as well as Landlords Mortgagees, and their respective successors and assigns as third party beneficiaries. This Section shall survive termination of this Lease.
Section 29.04 Tenant shall promptly inform Landlord in writing of (a) any and all enforcement actions, demands for the initiation of Remedial Activities where no Remedial Activities are currently being conducted, or other governmental or regulatory actions, notices or orders (excluding routine actions such as permit renewals) instituted, completed or threatened pursuant to any Environmental Laws affecting the Demised Properties; (b) all claims made or threatened by any third Person against Tenant or the Demised Properties relating in any way whatsoever to Hazardous Materials or Environmental Conditions (the matters set forth in clauses (a) and (b) are hereinafter referred to as Environmental Claims ); (c) Tenants receiving notice or otherwise becoming aware of any material Release of Hazardous Materials at, on, in, under to or from the Demised Properties or on, in or under any adjoining property. Tenant shall also supply to Landlord within seven (7) Business Days after Tenant first receives or sends the same, copies of all claims, complaints, notices, warnings, asserted violations or other material communications relating in any way to the matters described in this Section.
Section 29.05 In addition to any other obligations herein, Tenant shall be solely responsible for and shall indemnify, protect, defend, and hold harmless all Landlord Parties from and against any and all Losses directly or indirectly arising out of or associated in any manner whatsoever with Tenants Use or the presence or Release of Hazardous Materials at, on, under, about or from the Demised Properties
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prior to or during the Lease Term (and in the event of any holding over by Tenant or any Post-Occupancy Period, during any period that Tenant occupies the relevant Demised Property). Tenants indemnity and release includes: (a) the costs associated with Remedial Activities, including all necessary plans and reports, incurred by any federal, provincial or local governmental agency or entity or by any other Person, incurred pursuant to any applicable Environmental Laws; (b) any oversight charges, fines, damages or penalties arising from the presence or Release of Hazardous Materials, and any related Remedial Activities, incurred pursuant to the provisions of any applicable Environmental Laws; (c) any liability to third parties arising out of the presence or Release of Hazardous Materials for personal injury, bodily injury, or property damage arising under any statutory or common law theory, including damages assessed for the maintenance of a public or private nuisance, the costs of Remedial Activities, or for the carrying on of an abnormally dangerous activity; (d) all direct or indirect compensatory or consequential damages, or third party claims for punitive damages, arising out of any claim based on the presence or Release of Hazardous Materials or damage or threatened damage to Environmental Conditions; (e) any and all reasonable costs, fees and expenses of attorneys, consultants and experts incurred or sustained in making any investigation on account of any claim, in prosecuting or defending any action brought in connection therewith, in obtaining or seeking to obtain a release therefrom, or in enforcing any of the agreements herein contained; (f) Rent during any period of Remedial Activities equal to the Base Rent then in effect, or if this Lease has terminated, the Base Rent that was in effect on the termination date; and (g) Losses pursuant to Environmental Laws resulting from any action or omission or use of the Demised Properties by any subtenant. The foregoing indemnity shall apply to Losses attributable to Tenants Use of Hazardous Materials irrespective of whether any of Tenants activities were or will be undertaken in accordance with Environmental Laws or other applicable Laws. Tenant specifically agrees that it shall not sue or seek contribution from any Landlord Party in any matter relating to any Hazardous Material liability. All costs and expenses paid or incurred by Landlord for which Tenant is obligated to indemnify Landlord under this Section shall be paid promptly by Tenant to Landlord. This Section shall survive termination of this Lease.
Section 29.06 Without limiting the foregoing or anything contained in Article 8 , Tenant acknowledges that Governmental Authorities from time to time may impose obligations affecting some or all of the Demised Properties, or operations thereon, in response to climate change issues, including energy efficiency mandates, water conservation mandates, restrictions on sales or use of certain fuels, mandates for alternative fuels, permitting obligations, restrictions on or a duty to inventory and report green house gas emissions, requirements to purchase carbon credits, construction, operational or other measures to mitigate risks of drought, fire, flood, rising sea levels, storm surge risks, so-called extreme weather risks and other legal obligations, whether adopted pursuant to Environmental Laws or other Laws. Tenant at its sole cost and expense shall ensure the Demised Properties, and operations thereon, comply with any such applicable Laws, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties. Moreover, Tenant agrees that the cost or disruption to operations imposed by any such applicable Laws, permits, and requirements of all Governmental Authorities having jurisdiction over the relevant Demised Properties shall not excuse full performance of this Lease by Tenant.
ARTICLE 30 | LANDLORD ASSIGNMENT |
Section 30.01 This Lease shall be fully assignable by Landlord or its successors and assigns, subject to the terms of Article 27 and this Article 30 . In the event that from time to time Landlord desires to assign its interest in this Lease with respect to the Demised Properties (including to one or more Affiliates of Landlord), then Landlord, at its cost and expense, shall prepare a landlord assignment and assumption of lease agreement, pursuant to which Landlord shall assign all its right, title and interest in and to this Lease to a transferee, and such transferee shall agree to be bound by all of the terms and conditions hereof and to assume and perform all of Landlords duties, obligations and liabilities
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hereunder, from and after the date of such transfer (the Landlord Assignment and Assumption Agreement ). In such event, Landlord shall provide Tenant with a fully executed copy of any such Landlord Assignment and Assumption Agreement within five (5) Business Days after the mutual execution thereof. In addition, Tenant shall execute and deliver (or cause to be executed and delivered, as applicable) to Landlord any other instruments and documents requested by Landlord in connection with the assignment, including any commercially reasonable subordination, non-disturbance and attornment agreement that may be requested by Landlords assignees lenders. Without limiting the foregoing, Tenant agrees to cooperate reasonably with Landlord in connection with any such assignment. From and after the effective date of any such Landlord Assignment and Assumption Agreement, Landlord shall be automatically released (without need for any further agreement or other document) from any liability thereafter arising with respect to this Lease to the extent the transferee of Landlords interest under this Lease assumes Landlords performance, liabilities and expenses under this Lease. In no event shall Landlord have any liability under any Landlord Assignment and Assumption Agreement for any acts occurring from and after the date thereof. Without limiting the foregoing, Tenant agrees that Landlord may agree in its sole discretion with any purchaser or assignee of any of the Demised Properties covered by a Landlord Assignment and Assumption Agreement to provide (or have a Landlords Affiliate provide) asset management and/or act as servicer regarding the Demised Properties.
Section 30.02 Landlord and Tenant agree that this Lease constitutes a true lease and not a financing or other form of transaction (including for provincial law purposes and federal income tax purposes). In furtherance of the foregoing, Landlord and Tenant each irrevocably waives, to the fullest extent permitted by Law, any claim or defense based upon the characterization of this Lease as anything other than a true lease and irrevocably waives any claim or defense that asserts that this Lease is anything other than a true lease. Landlord and Tenant covenant and agree that they will not assert that this Lease is anything but a true lease. Landlord and Tenant each stipulate and agree not to challenge the validity, enforceability or characterization of this Lease of the Demised Properties as a true lease and further stipulate and agree that nothing contained in this Lease creates or is intended to create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like. Landlord and Tenant each shall support the intent of the parties that the lease of the Demised Properties pursuant to this Lease is a true lease and does not create a joint venture, partnership (either de jure or de facto), equitable mortgage, trust, financing device or arrangement, security interest or the like, if, and to the extent that, any challenge occurs. Tenant has discussed the characterization of this Lease with its independent auditors and Tenant believes that this Lease will be treated as an operating lease rather than a capital lease. Landlord shall have the sole right to claim all depreciation with respect to the Demised Properties. For the avoidance of doubt, Tenant shall be entitled to claim all depreciation with respect to any Tenant Equipment. Nothing in this Lease shall be deemed to constitute a guaranty, warranty or representation by either Landlord or Tenant as to the actual treatment of this transaction for provincial law purposes and for federal law purposes
Section 30.03 Landlord and Tenant agree that this Lease constitutes a single and indivisible lease as to all of the Demised Properties collectively and shall not be subject to severance or division. In furtherance of the foregoing, and Landlord and Tenant each (a) waives, to the fullest extent permitted by Law, any claim or defense based upon the characterization of this Lease as anything other than a master lease of all the Demised Properties and irrevocably waives, to the fullest extent permitted by Law, any claim or defense that asserts that this Lease is anything other than a master lease, (b) covenants and agrees that it will not assert that this Lease is anything but a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, (c) stipulates and agrees not to challenge the validity, enforceability or characterization of this Lease of the Demised Properties as a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, and (iv) shall support the intent of the parties that this Lease is a unitary, unseverable instrument pertaining to the lease of all, but not less than all, of the Demised Properties, if, and to the extent that, any challenge
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occurs. To the extent that legal, tax or title insurance requirements in consummating the purchase of the Demised Properties by Landlord or leasing the Demised Properties to Tenant, may require, or may have required, individual purchase price allocations (including allocations of values for individual provincial or local transfer tax purposes and title insurance coverage amounts) or individual rent allocations (including allocations of rents in certain provinces for tax purposes), Landlord and Tenant agree that such individual allocations are solely to comply with legal, tax or title insurance requirements, and shall not be used or construed, directly or indirectly, to vary the intent of Landlord and Tenant that this Lease constitutes a single and indivisible lease of all the Demised Properties collectively and is not an aggregation of separate leases. The foregoing agreements and waivers by Tenant in this Section 30.03 are made as a material inducement to Landlord to enter into the transaction contemplated by this Lease and that, but for the foregoing agreements and waivers by Tenant, Landlord would not consummate this Lease.
ARTICLE 31 | REPLACEMENTS |
Section 31.01 Property Replacements . The Tenant named herein (together with Tenants Affiliates), at its election, may substitute not more than thirty five percent (35%) (i.e., as of the date of this Lease, up to two (2) individual Demised Properties; but not more than an aggregate 187,740 square feet of the Demised Properties, such amount being referred to herein as the Replacement Cap ) of the Demised Properties (each a Replaced Property ) with one or more tracts of real property on which Tenant operates a Permitted Use (each a Replacement Property ), it being understood that a Replaced Property may be replaced with more than one Replacement Property. Tenant may not substitute any additional Demised Properties, over and above the Replacement Cap, without first obtaining the prior written consent of Landlord and any Landlords Mortgagee, which may be withheld in Landlords sole discretion. As a condition to Landlord approval, Tenant shall submit for Landlords review evidence of the fair market value of the proposed Replacement Property, as determined by an appraisal thereof, taking into consideration all relevant factors, prepared by an independent appraiser member of the Appraisal Institute of Canada who is mutually satisfactory to Landlord and Tenant with not less than ten (10) years experience appraising properties similar to the proposed Replacement Property, in the metropolitan area in which the proposed Replacement Property is located, which shall be reasonably satisfactory to Landlord and any Landlords Mortgagee and compliant with Landlords Mortgagees regulatory requirements, as well as current survey, current environmental report, records of any administrative proceedings or environmental claims involving the proposed Replacement Property, current title report (with copies of underlying title documents) and profit/loss statements for the previous two years of the Replacement Property and similar data with respect thereto, as well as evidence of the fair market value of the proposed Replaced Property satisfactory to Landlord and any Landlords Mortgagee and compliant with Landlords Mortgagees regulatory requirements, and other information with respect to the Replaced Property as Landlord and Landlords Mortgagee may reasonably request. Provided that (a) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, determine that the Replacement Property has equivalent or greater fair market value and equivalent or stronger financial operating history than the Replaced Property (with the parties acknowledging that any Replaced Property that has been subject to a casualty and not fully reconstructed shall be valued as of the date immediately preceding such casualty, or assuming a full reconstruction thereof, whichever results in a higher fair market value); (b) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, determine that the Replacement Property has no material title defects or material environmental defects that require remediation pursuant to a Phase I Environmental Site Assessment Report completed by a nationally recognized environmental consulting firm reasonably acceptable to Landlord and Tenant, and has no other material liability substantially greater than the Replaced Property on the date of the applicable substitution; (c) Tenant has satisfied such other conditions as Landlord or Landlords Mortgagees may impose in their reasonable good faith discretion; (d) Landlord and Landlords Mortgagees, in their reasonable good faith discretion, approve the substitution (such approval rights encompassing, without limitation, the consideration of the location, age, profitability and Tenants strategic use of the
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Replacement Property, as well as such other factors that institutional real estate investors typically apply in the underwriting of to-be-acquired real property, and (e) there shall be no Event of Default occurring at the time in question, then Landlord, within thirty (30) days after the submission of all reports and other information required hereunder (such thirty (30) day period is referred to in this Article as the Consideration Period ) shall approve the substitution of the Replacement Property for the Replaced Property. Subject to the foregoing, in the event that Landlord fails to approve the proposed substitution, Landlord shall deliver to Tenant a written notice within ten (10) days following the expiration of the Consideration Period disapproving the proposed substitution and describing which of Landlords and/or Landlords Mortgagees conditions have not been satisfied. In the event of any such disapproval, Tenant shall have an additional fifteen (15) day period from and after the date Landlords disapproval notice is delivered to Tenant to submit any additional information or documentation to Landlord regarding satisfaction of the foregoing conditions. In the event all the foregoing conditions are still not satisfied, then Landlord shall deliver to Tenant a second written notice within ten (10) days following the expiration of such fifteen (15) day period disapproving the proposed substitution and describing which of said conditions have not been satisfied.
In the event Landlord approves the substitution of the Replacement Property for the Replaced Property, Tenant shall execute and deliver to Landlord such instruments and documents as Landlord shall reasonably require in connection therewith, including a registrable transfer, deed of sale or similar document, an amendment to this Lease, and an amended or new notice of lease (or similar instrument) covering the Replacement Property, and Landlord shall convey the Replaced Property to Tenant (or Tenants designee) as is, with all faults, without any express or implied warranties. Any substitution of a Replacement Property for a Replaced Property shall not alter any of the other obligations of Tenant under this Lease, including the Base Rent due from Tenant hereunder. Without limitation, Tenant shall be responsible for all Additional Rent (including real property taxes) regarding the Replaced Property up to the date of transfer. Tenant shall pay all reasonable out-of-pocket expenses paid or incurred by Landlord pursuant to this Section, including, (i) Landlords, Affiliates of Landlords and Landlords Mortgagees legal fees and expenses, any fees charged by Landlords Mortgagees for the release of the Replaced Property, the costs of any title policies (owners and/or lenders) on the Replacement Property, registration costs, and, without limiting any of Tenants obligations set forth in Article 3 of this Lease, any sales, transfer, and other taxes and registration fees, and any taxes required to be withheld, which may be payable in connection with the conveyance of Replacement Property by Tenant or Replaced Property to Tenant (including any interest or penalties imposed with respect to the late payment of any such taxes), and (ii) such amount, which, when added to such payment, shall yield to Landlord (after deduction of all expenses payable by Landlord with respect to all such payments) a net amount which Landlord would have realized from such payment had no such expenses been incurred.
ARTICLE 32 | GUARANTY |
Section 32.01 Guarantor shall guaranty Tenants obligations under this Lease pursuant to the Guaranty Agreement substantially in the form of Exhibit G, executed and delivered to Landlord as of the Commencement Date (the Guaranty ). In the event Guarantor shall cease to own, directly or indirectly, substantially all of the assets of Tenant, Guarantor shall deliver a Replacement Guaranty, pursuant to Section 32.02 below.
Section 32.02 Notwithstanding anything to the contrary contained herein, including, but not limited to, the fact that LSF9 Concrete Holdings Ltd is being set forth as the Guarantor on the Commencement Date of this Lease (LSF9 Concrete Holdings Ltd., in such capacity, the Original Guarantor ), if at any time during the Lease Term, any change in the organizational structure of Original Guarantor or any Affiliate thereof shall occur or be contemplated, including, but not limited to, resulting from either (i) the transfer, merger, or other change of Control of Original Guarantor or any
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Affiliate thereof or (ii) any contemplated initial public offering of common stock in either the United States or the United Kingdom involving Original Guarantor or any Affiliate thereof, , then Tenant shall have the right to provide one or more replacement guarantors to replace the Original Guarantor with respect to all of the obligations of Original Guarantor in respect of any guaranty relating to this Lease (each such action, a Replacement Guaranty ), subject to the terms and full satisfaction of all of the following conditions precedent:
(a) Tenant has provided Landlord with not less than thirty (30) days prior written notice, which notice shall include the name and jurisdiction of each proposed replacement guarantor;
(b) no Event of Default has occurred and is continuing;
(c) the proposed replacement guarantor is an Approved Replacement Guarantor (as hereinafter defined);
(d) each Approved Replacement Guarantor shall deliver to Landlord a guaranty (in the form attached as Exhibit G attached hereto), pursuant to which such Approved Replacement Guarantor agrees to be liable under such guaranty from and after the Commencement Date (and the Original Guarantor or any subsequent Approved Replacement Guarantor then being replaced shall be released from any further liability under the applicable guaranty) for all periods from and after the Commencement Date, and pursuant to which such Approved Replacement Guarantor shall be the Guarantor for all purposes set forth in this Lease);
(e) Tenant shall submit to Landlord true, correct and complete copies of all documents reasonably requested by Landlord concerning the organization and existence of such Approved Replacement Guarantor;
(f) Tenant shall pay all of Landlords reasonable out-of-pocket costs and expenses in connection with the Replacement Guaranty; and
(g) The change in organizational structure giving rise to such Replacement Guaranty is for a valid business purpose and not principally to avoid any obligations of Guarantor under the Guaranty.
Notification of any proposed Replacement Guaranty may be revoked by Tenant at any time prior to such Replacement Guaranty having been consummated.
ARTICLE 33 | LANDLORDS RIGHTS UNDER LEASE |
Any and all rights of Landlord under this Lease shall inure to the benefit of Landlords successors and assigns, as well as Landlords Mortgagees and their successors and assigns as third party beneficiaries.
ARTICLE 34 | RIGHT OF FIRST REFUSAL |
Section 34.01 In consideration of the sum of Ten and 00/100 Dollars ($10.00) paid to Landlord by Tenant, the receipt and sufficiency of which is hereby acknowledged, Landlord hereby grants Tenant a right of first refusal to purchase a Demised Property, subject to the terms and conditions set forth in this Article 34 . If at any time during the Lease Term, Landlord shall receive a bona fide offer from a Competitor for the purchase of any of the Demised Properties (whether or not solicited by Landlord) and Landlord either has accepted such offer or shall desire to accept such offer, Landlord shall notify Tenant
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of any such offer (the Offering Notice ) by notice to Tenant specifying the following terms and information: (a) the name and address of the third-party offeror, (b) the purchase price for such Demised Property, and (c) any other terms and conditions set forth in such offer or, if applicable, the purchase agreement between Landlord and such third-party offeror (the Third-Party Purchase Agreement ) that are material to the sale of such Demised Property, as determined by Landlord in Landlords commercially reasonable discretion.
Section 34.02 Tenant shall have fifteen (15) Business Days after the date of delivery of the Offering Notice to exercise the right of first refusal granted in this Article 34 (the Review Period ). Such right of first refusal shall be exercisable by Tenant notifying Landlord (within such Review Period) of Tenants irrevocable election to purchase the applicable Demised Properties, subject only to the terms and conditions set forth in the Offering Notice (the Exercise Notice ). Time shall be of the essence with respect to Tenants election and the giving of the Exercise Notice, and any failure to give Landlord the Exercise Notice within such Review Period shall be deemed to be an election by Tenant to waive the rights with respect to the Offering Notice granted to Tenant under this Article 34 .
Section 34.03 Upon Tenant giving Landlord the Exercise Notice, Landlord and Tenant shall irrevocably instruct counsel, consistent with this Article 34 and the terms of the Offering Notice. At or before the close of the purchase of a Demised Property pursuant to the terms of this Article 34, Landlord shall deliver to its counsel its deed of sale (or such other type of deed as is specified in the Offering Notice) conveying to Tenant all of Landlords right, title and interest in such Demised Property, in the condition and state of title specified in the Offering Notice. Both Landlord and Tenant agree to execute a purchase agreement, escrow instructions, an amendment to this Lease, an amended notice of lease or memorandum of lease (or similar instrument) and such other instruments as may be necessary or appropriate to consummate the sale of such Demised Property in the manner provided in this Article 34 .
Section 34.04 In the event Tenant waives or is deemed to have waived its right of first refusal to purchase the applicable Demised Property, Landlord shall have the right to sell and convey the Demised Properties to such third-party offeror on the terms set forth in the Offering Notice, and upon the consummation of such a sale, Tenants right of first refusal shall cease to exist with respect to such Demised Property. Landlord shall not (a) consummate such a sale to the third party offeror for a net effective purchase price less than ninety five percent (95%) of the net purchase price set forth in the Offering Notice or (b) sell such Demised Property to a different Competitor than the Competitor disclosed in the applicable Offering Notice, without once again being required to offer such Demised Property to Tenant in accordance with this Article 34 ; it being agreed Tenants right of first refusal shall remain in full force and effect for the remainder of the Lease Term with respect to such Demised Property, subject to the terms of this Article 34 .
Section 34.05 Notwithstanding anything contained herein to the contrary, it shall be a condition to Tenants right of first refusal under this Article 34 that on the date that the Exercise Notice is delivered, (a) this Lease has not been terminated, (b) Tenant (together with Tenants Affiliates) is the named tenant herein and (c) there is no Event of Default then occurring or continuing.
ARTICLE 35 | EXISTING LOANS |
Tenant represents and warrants to Landlord that as of the date of this Lease, to Tenants actual knowledge, the Existing Loans are in full force and effect.
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ARTICLE 36 | INTERPRETATION; MISCELLANEOUS |
Section 36.01 For purposes of this Lease, (a) the words include, includes and including shall be deemed to be followed by the words without limitation (unless already expressly followed by such phrase), and (b) the words herein, hereof, hereby, hereto and hereunder refer to this Lease as a whole. Unless the context otherwise requires, references herein: (x) to Articles, Sections, Exhibits, and Schedules mean the Articles and Sections of, and the Exhibits and Schedules attached to, this Lease; (y) to a lease, instrument or other document means such lease, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Lease; and (z) to a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Lease to the same extent as if they were set forth verbatim herein. Titles to Articles and headings of Sections are inserted for convenience of reference only and shall not be deemed a part of or to affect the meaning or interpretation of this Lease. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. All references in this Lease to sums denominated in dollars or with the symbol $ refer to the lawful currency of Canada, unless such reference specifically identifies another currency. Where a provision of this Lease requires that that consent of a party shall not be unreasonably withheld, or that such consent is in such partys reasonable discretion, such provision shall be deemed to require that such consent not be unreasonably withheld, conditioned, or delayed.
Section 36.02 This Lease may be executed in counterparts and shall be binding on all the parties hereto as if one document had been signed. The delivery of an executed copy of this Lease by facsimile transmission shall have the same force and effect as the delivery of the original, signed copy of this Lease. Time is of the essence of every provision of this Lease. Any provision of this Lease explicitly providing for the performance by Tenant of obligations upon or after the expiration or termination of this Lease shall survive any such expiration or termination. This Lease and the Exhibits attached hereto, all of which form a part hereof, set forth all the covenants, promises, agreements, conditions and understandings between Landlord and Tenant concerning the Demised Properties, and there are no covenants, promises, agreements, conditions or understandings heretofore made, either oral or written, between them other than as herein set forth. No modification, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each party. The captions, section numbers, and index appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles nor in any way affect this Lease. Nothing contained in this Lease shall be construed to create the relationship of principal and agent, partnership, joint venture or any other relationship between the parties hereto other than the relationship of landlord and tenant. Except as explicitly set forth in this Lease, there shall be no third party beneficiaries of this Lease or any of the agreements contained herein. The failure of Landlord or Tenant to insist upon strict performance of any of the terms and conditions hereof shall not be deemed a waiver of any rights or remedies that party or any other such party may have, and shall not be deemed a waiver of any subsequent breach or default in any of such terms, covenants or conditions.
ARTICLE 37 | QUIET ENJOYMENT |
From and after the Commencement Date until the expiration or termination of the Lease Term, and provided no Event of Default exists, Tenant shall have quiet enjoyment of the Demised Properties; subject to the terms and conditions of this Lease.
-37- | MASTER LAND AND BUILDING LEASE |
ARTICLE 38 | NO MERGER OF TITLE |
There shall be no merger of this Lease with any of the leasehold estates created hereunder or with any fee estate or other leasehold interest in any of the Demised Properties, whether by reason of the fact that the same Person may acquire, hold or own, directly or indirectly more than one or all of such legal interests in any Demised Property, unless and until: (a) under applicable Law such estates may be merged, and (b) all Persons having any leasehold interest or fee estate in any of the Demised Properties, or any part thereof sought to be merged, shall enter into a written agreement effecting such a merger under applicable Law and shall duly register same; provided, however, no such merger shall occur unless in each instance Landlord and any Landlords Mortgagee shall be a party to such agreement.
ARTICLE 39 | BROKERS |
Landlord (a) represents that it has dealt with no broker or brokers in connection with the negotiation, execution and delivery of this Lease (other than Tenants broker) and (b) agrees to indemnify, defend, protect (with counsel selected by the Tenant, subject to the approval of Landlord) and hold Tenant free and harmless of, from and against any and all Losses arising from (including all brokerage commissions and/or finders fees due or alleged to be due as a result of) any agreement or purported agreement made by Landlord.
Tenant (a) represents that it has dealt with no broker or brokers other than CBRE, Inc. in connection with the negotiation, execution and delivery of this Lease and (b) agrees to indemnify, defend, protect (with counsel selected by Landlord, subject to the approval of Tenant) and hold Landlord free and harmless of, from and against any and all Losses arising from (including all brokerage commissions and/or finders fees due or alleged to be due as a result of) any agreement or purported agreement made by Tenant.
ARTICLE 40 | LANGUAGE |
The parties have requested that this Lease and all related documents be drawn up in English only. Les parties aux présentes ont exigé que le présent contrat et tous les documents qui sy rattachent soient rédigés en anglais seulement.
ARTICLE 41 | PROVINCE SPECIFIC PROVISIONS |
Section 41.01 Ontario . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the Province of Ontario govern the interpretation or enforcement of this Lease with respect to any Demised Property located in the Province of Ontario, as determined by a court of competent jurisdiction:
(a) Planning Act (Ontario) . This Lease and the provisions hereof, which create or are intended to create an interest in the Demised Properties, shall be effective to create such an interest with respect to the Demised Properties located in Ontario only if the subdivision control provisions of the Planning Act (Ontario) are complied with. Until any required consent is obtained, the Lease Term shall be deemed to be twenty-one (21) years less one (1) day. Tenant shall be obligated to obtain any required consent at its sole cost and expense and Landlord shall, without delay, provide such consents and authorizations as are necessary to permit Tenant to make any required applications to comply with the Planning Act (Ontario) as aforesaid.
-38- | MASTER LAND AND BUILDING LEASE |
Section 41.02 Quebec . Without limiting the choice of law provision set forth in Article 26 , the following provisions shall apply to the extent that the laws of the Province of Quebec govern the interpretation or enforcement of this Lease with respect to any Demised Property located in the Province of Quebec, as determined by a court of competent jurisdiction:
(a) Civil Code of Quebec Waivers . Landlord and Tenant agree to waive the application of Articles 1854 and following of the Civil Code of Quebec to the extent modified by the terms of this Lease. In particular, and without limiting the generality of the foregoing, Tenant hereby waives the benefit of Articles 1859, 1861, 1863, 1865, 1868 and 1883 of the Civil Code of Quebec .
[SIGNATURES FOLLOW ON NEXT PAGE]
-39- | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF, the parties have executed this Lease to be effective as of the date first above written.
LANDLORD: | ||
FORT-NOM HOLDINGS (ONQC) INC., | ||
a British Columbia corporation, | ||
By: |
/s/ Gino M. Sabatini |
|
Name: | Gino M. Sabatini | |
Its: | Managing Director |
[SIGNATURES CONTINUE ON NEXT PAGE]
Signature Page | MASTER LAND AND BUILDING LEASE |
TENANT: | ||
FORTERRA PIPE & PRECAST, LTD., an Ontario corporation |
||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
FORTERRA PRESSURE PIPE, INC., a Quebec corporation |
||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President | |
FORTERRA PIPE & PRECAST QUÉBEC, LTD., a Québec corporation |
||
By: |
/s/ Lori M. Browne |
|
Name: | Lori M. Browne | |
Its: | Vice President |
Signature Page | MASTER LAND AND BUILDING LEASE (Canada) |
SCHEDULE 1
DEFINED TERMS
The following capitalized terms used in this Lease have the following meanings.
Abandon or Abandoned means to completely fail (or to have completely failed) to look after a Demised Property or to completely and finally withdraw (or to have completely and finally withdrawn) from a Demised Property.
Additional Rent means any and all fees, expenses, taxes and charges of every kind and nature arising in connection with or relating to the Demised Properties (other than Base Rent), including (i) any and all taxes (including Real Estate Taxes), fees, utility service charges, insurance premiums, and other costs, and any amounts owed by Tenant under any indemnity to Landlord hereunder, including as set forth in Article 9 and Article 29 ; and (ii) all fees and penalties that may accrue on any amounts due from Tenant hereunder if Tenant fails to pay such amounts in a timely manner.
Affiliate means in relation to any Person, any Person which shall (i) control, (ii) be under the control of, or (iii) be under common control with such Person (the term control as used herein shall be deemed to mean ownership of more than 25% of the outstanding voting stock of a corporation or other majority equity and control interest if such Person is not a corporation) and the power to direct or cause the direction of the management or policies of such Person.
Allocated Base Rent Amount is defined in Section 30.01 .
Alterations means all changes, additions, improvements or repairs to, all alterations, reconstructions, restorations, renewals, replacements or removals of, and all substitutions or replacements for, any of the Improvements or Building Equipment, both interior and exterior, structural and non-structural, and ordinary and extraordinary and shall include any Major Alterations.
Annual Renewal Term Base Rent Notice is defined in Exhibit B.
Application means the commencement of proceedings for substantive relief in any bankruptcy, insolvency, debt restructuring, reorganization, readjustment of debt, dissolution, liquidation, winding-up or other similar proceedings (including proceedings under the Bankruptcy and Insolvency Act (Canada), the Winding-up and Restructuring Act (Canada), the Companies Creditors Arrangement Act (Canada), the incorporating statute of the relevant corporation or other similar legislation), including proceedings for the appointment of a trustee, interim receiver, receiver, receiver and manager, administrative receiver, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official with respect to the relevant corporation or all or any material part of its property or assets, or under any other present or future federal or provincial statute, law or regulation of similar intent or application.
Approved Replacement Guarantor means a Person (1) for whom, prior to any Replacement, Landlord shall have received evidence that such Person has never been the subject of a voluntary or involuntary (to the extent the same has not been discharged) bankruptcy proceeding and there are no material outstanding judgments against such Person and (2) (x) who is under common Control with Tenant and owns a direct or indirect interest in Tenant and (y) for whom consolidated financial statements are prepared, which financial statements include the results of Tenant.
Arbitrator is defined in Section 31.01 .
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Arbitrator Appointment Notices is defined in Section 31.01 .
Base Rent is defined in Section 3.02(b) .
Beginning CPI is defined in Exhibit B .
Building Equipment is defined in the Recitals to this Lease.
Building Equipment Alteration is defined in the first paragraph of Article 6 .
Business Day means any day excluding (i) Saturday, (ii) Sunday, (iii) any day that is a legal holiday under the Laws of the province of Québec or the province of Ontario, and (iv) any day on which banking institutions located in the province of Québec or the province of Ontario are generally not open for the conduct of regular business.
Commencement Date is defined in the first paragraph of this Lease.
Competitor means any entity that is primarily engaged in the business of concrete or steel pressure or non-pressure pipes, ductile iron pipe, corrugated metal pipe, HDPE / PVC / GRP pipe, concrete boxes and box culverts, manholes, specialty precast products including, without limitation, utility vaults, retaining walls, mechanically stabilized earth walls, median barriers, erosion mats, pile caps, utility trench, and other precast or pre-stressed concrete products. In addition, the definition of Competitor may be reasonably amended from time to time by Tenant, to the extent that Tenant actually enters new lines of business, by serving Notice on Landlord under the terms of this Agreement; provided, such amended definition complies with the Permitted Uses set forth herein.
Consideration Period is defined in Section 31.01 .
Control means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.
CPI is defined in Section 3.02 .
Default is defined in Section 15.01 .
Delinquent Party has the meaning set forth in Section 31.01 for use in that Section.
Demised Properties is defined in the Recitals to this Lease.
Easement Agreement means any conditions, covenants, restrictions, easements, declarations, licenses and other agreements as may now or hereafter be recorded in the applicable land records for any of the Demised Properties, to the extent such agreements (or a copy thereof) have been, or are, promptly after the execution thereof, provided to Tenant.
Eligibility Requirements is defined in Section 23.02 .
Environmental Claims is defined in Section 29.04 .
Environmental Laws means any federal, provincial or local law, statute, ordinance, permit condition, regulation or written policy pertaining to public or worker health or safety, natural resources, climate change, or the regulation protection of the indoor or outdoor environment, the regulation or reporting of
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Hazardous Materials, including the following: (i) the Environment Quality Act (Québec) and the Environmental Protection Act (Ontario), and all regulations, published governmental policies, and administrative or judicial orders promulgated under or implementing or enforcing said laws; (ii) all provincial or local laws and regulations which implement the foregoing federal laws or which pertain to public health and safety, occupational health and safety, natural resources or environmental protection, all as amended from time to time, and all regulations, published governmental policies, and administrative or judicial orders promulgated under the foregoing laws; (iii) all federal and provincial common law, including the common law of public or private nuisance, trespass, negligence or strict liability, where such common law pertains to public health and safety, occupational health and safety, natural resources, environmental protection, the public trust doctrine, or the use and enjoyment of property, and all judicial orders promulgated under said laws; and (iv) all similar provincial laws, regulations, permit conditions, or binding governmental policies or which otherwise regulate environmental matters and are applicable to any of the Demised Properties.
Environmental Media means soil, fill material, or other geologic materials at all depths, groundwater at all depths, surface water including storm water and sewerage, indoor and outdoor air, and all living organisms, including all animals and plants, whether such Environmental Media are located on or off the Demised Properties.
Equipment Relocation is defined in Section 4.03 .
Estoppel Certificate is defined in Article 24 .
Event of Default is defined in Section 15.01 .
Exercise Notice is defined in Article 34 .
Existing Loans is defined in Section 15.01(k) .
Existing Subleases is defined in Section 22.04 .
Extension Notice is defined in Section 2.02(a) .
Failing Party has the meaning set forth in Section 31.01 for use in that Section.
Fair Market Rental Value has the meaning set forth in Section 3.02 for use in that Section.
First Option Period is defined in Section 2.02(a) .
GAAP means Canadian generally accepted accounting principles as in effect from time to time, including those set forth in the Handbook of the Canadian Professional Accountants, which are applicable to the circumstances as of the date of determination.
Governmental Authority means (i) any international, foreign, federal, provincial, regional, county or municipal government, or political subdivision thereof, (ii) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, or (iii) any court, administrative tribunal or public utility.
Guarantor means LSF9 Concrete Holdings Ltd., a company incorporated under the laws of the Bailiwick of Jersey, or any replacement guarantor, pursuant to a Replacement Guaranty delivered in accordance with the terms hereof.
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Guaranty shall mean the Guaranty of Master Land and Building Lease dated as of the date hereof from Guarantor to Landlord guaranteeing the payment and performance by Tenant of all of Tenants obligations under this Lease, or any Replacement Guaranty delivered in accordance with the terms hereof.
Hazardous Materials means any ignitable, reactive, explosive, corrosive, carcinogenic, mutagenic, toxic or radioactive material, whether virgin material, secondary material, by-product, waste or recycled material, defined, regulated or designated as a contaminant, pollutant, hazardous or toxic substance, material, waste, contaminant or pollutant under any Environmental Laws or otherwise regulated as hazardous under any other Canadian, state, provincial or local law, statute, regulation or ordinance presently in effect or as amended or promulgated in the future during the Term hereof, and shall specifically include: (i) those materials included within the definitions of hazardous substances, extremely hazardous substances, hazardous materials, toxic substances toxic pollutants, hazardous air pollutants toxic air contaminants, solid waste, hazardous waste, pollutants, contaminants, greenhouse gasses or similar categories under any Environmental Laws; (ii) those materials that create liability under common law theories of public or private nuisance, negligence, trespass or strict liability; and (iii) specifically including any material, waste or substance that contains: (A) petroleum or petroleum derivatives byproducts, including crude oil and any fraction thereof and waste oil; (B) asbestos; (C) polychlorinated biphenyls; (D) formaldehyde; and (E) radon. If not already defined as a Hazardous Material under any of the foregoing terms, mold and fungi of any type or concentration shall be deemed a Hazardous Material hereunder if present in any Improvements under such conditions or circumstance as to represent blight or any unsanitary condition or that impairs the use of any Improvements or portion thereof for its intended uses. Hazardous Materials may be man-made or naturally occurring.
Improvements is defined in the Recitals to this Lease.
Initial Adjustment Dates is defined in Section 3.02(a) .
Initial Base Date is defined in Section 3.02(a) .
Initial Base Rent Escalation is defined in Section 3.02(a) .
Land is defined in the Recitals to this Lease.
Landlord is defined in the first paragraph of this Lease.
Landlord Assignment and Assumption Agreement is defined in Section 30.01 .
Landlord Award Amount means the amount of the award or indemnity actually received by Landlord for any taking of any portion of any Demised Property, less any and all costs and expenses incurred by Landlord in connection with such taking (including any and all costs and expenses incurred by Landlord in connection with obtaining such award or indemnity).
Landlord Parties means, collectively, (i) Landlord and any Landlords Mortgagee, and (ii) any successors or assigns of any of Landlord, or any Landlords Mortgagee.
Landlords Account is defined in Section 3.01 .
Landlords Mortgagee means any Persons holding a hypothec, mortgage, deed of trust, deed to secure debt or similar instrument encumbering Landlords interest in the Demised Properties or portion thereof.
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Late Fee is defined in Section 15.03 .
Law means all international, foreign, federal, provincial and local statutes, treaties, rules, regulations, ordinances, codes, directives, orders, or binding policies issued pursuant thereto, and binding administrative or judicial precedents.
Lease is defined in the first paragraph of this agreement.
Lease Term is defined in Section 2.01(a) .
Leasehold Mortgage means any leasehold deed of trust, hypothec, mortgage, deed to secure debt, assignment of leases and rents, assignment, security agreement, or other security document securing financing from a lender of Tenant and encumbering Tenants leasehold interest in any Demised Property.
Liens means liens, hypothecs, mortgages, security interests, charges and encumbrances.
Losing Party has the meaning set forth in Section 31.01 for use in that Section.
Losses means all losses, claims, demands, actions, causes of action, settlements, obligations, duties, indebtedness, debts, controversies, remedies, choses in action, liabilities, costs, penalties, fines, damages, injuries, judgments, forfeitures, or expenses (including reasonable attorneys, consultant, testing and investigation and expert fees and court costs), whether known or unknown, liquidated or unliquidated, or direct or indirect.
MDDEL is defined in Section 4.05 .
Net Award shall mean the entire proceeds of any insurance required under Section 10.01 and Section 10.01 (to the extent payable to Landlord or Landlords Mortgagee), less any expenses incurred by Landlord and Landlords Mortgagee in collecting such award or proceeds.
Notice Date has the meaning set forth in Section 31.01 for use in that Section.
Non-Preapproved Assignee is defined in Section 22.01(c) .
Non-Preapproved Assignment is defined in Section 22.01(c) .
Offering Notice is defined in Article 34 .
Option Period is defined in Section 2.02(a) .
Option Period Adjustment Date is defined in Section 2.02(a) .
Option Period Base Date is defined in Section 2.02(a) .
Option Period Base Rent Escalation is defined in Section 2.02(c).
Option Renewal Adjustment Date is defined in Section 2.02(a) .
Original Lease Term is defined in Section 2.01(a) .
Original Movable Building Equipment is defined in Recital A .
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Other Parties is defined in Section 29.02 .
Permitted Uses means any heavy manufacturing or other industrial use and any ancillary uses (including ancillary office uses) related thereto, as Tenant may determine in Tenants reasonable business judgment, provided that such use: (a) does not violate any applicable law, ordinance or regulation (including, but not limited to, those relating to environmental, zoning and land use matters); or (b) does not violate registered matters or restrictions affecting the Demised Property (which, if created by Landlord during the Lease Term, were consented to by Tenant).
Person means an individual, corporation, partnership, joint venture, association, joint-stock company, trust, estate, limited liability company, non-incorporated organization or association, or any other entity, any Government Authority or any agency or political subdivision thereof.
Post-Occupancy Period means the number of days that Tenant shall require (not to exceed sixty (60) consecutive days) for the sole purpose of removing all Tenant Equipment from the Demised Properties, which period shall commence on the date immediately succeeding the expiration date of the Lease Term.
Post-Occupancy Removal Notice means a statement by Tenant of the Post-Occupancy Period delivered to Landlord no later than twelve (12) months prior to the expiration date of the Lease Term.
Preapproved Sublet is defined in Section 22.01(a) .
Prior Months is defined in Exhibit B .
Real Estate Taxes means (i) all taxes and general and special assessments and other impositions in lieu thereof, or as a supplement thereto and any other tax measured by the value of real property and assessed on a uniform basis against the owners of real property, including any substitution in whole or in part therefor due to a future change in the method of taxation, and, except as otherwise provided in this Lease, including any increase in any of the foregoing resulting from any sale, exchange, mortgage, encumbrance, or other disposition by Landlord, in each case assessed against, or allocable or attributable to, any of the Demised Properties and accruing during or prior to the Lease Term, and (ii) all transfer taxes imposed in connection with this Lease.
Release means any active or passive spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into any Environmental Media. For the purposes of this Lease, Release also includes any threatened Release.
Remedial Activities means any investigation, work plan, preparation, removal, repair, cleanup, abatement, remediation, monitored natural attenuation, natural resource damage assessment and restoration, closure, post-closure, detoxification or remedial activity of any kind whatsoever necessary to address Environmental Conditions to the extent required by Environmental Laws.
Rent means Base Rent plus Additional Rent.
Repairs means all replacements, renewals, alterations, additions and betterments necessary for Tenant to properly maintain each Demised Property in good order, repair and condition, safe and fit for its permitted use under this Lease.
Replaced Property is defined in Section 31.01 .
Replacement Property is defined in Section 31.01 .
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
Restoration Fund is defined in Section 11.04 .
Restoration Work is defined in Section 11.01 .
Review Criteria is defined in Section 22.01(c) .
Review Period is defined in Article 34 .
Second Option Period is defined in Section 2.02(a) .
Second Option Period Adjustment Date is defined in Section 3.02(a) .
Second Option Period Base Date is defined in Section 3.02(a) .
Shortfall Amount is defined in Section 11.04 .
Site Reviewers is defined in Section 18.02 .
Structural Encroachment is defined in Section 8.03 .
SNDA is defined in Section 23.01 .
Tenant is defined in the first paragraph of this Lease.
Tenant Equipment is defined in the Recitals to this Lease.
Tenants Lender means any lender of Tenant that holds a Leasehold Mortgage.
Threshold Amount means One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) for a period of twelve (12) consecutive months, or such lesser amount as may be required to be placed within an escrow account by any Landlords Mortgagee.
US Demised Properties means those certain properties listed on Exhibit A-2 .
Use means the receipt, handling, generation, storage, treatment, recycling, disposal, transfer, transportation, introduction, or incorporation into, on, about, under or from the Demised Properties of Hazardous Materials.
US Lease means that certain Master Land and Building Lease, dated on or about the date hereof, between Pipe Portfolio Owner Exchange (Multi) LP, a Delaware limited partnership, as Landlord and Forterra Pipe & Precast, LLC, a Delaware limited liability company, Forterra Pressure Pipe, Inc., an Ohio corporation, Forterra Concrete Products, Inc., an Iowa corporation, and Forterra Concrete Industries, Inc., a Tennessee corporation, collectively, as Tenant, covering the US Demised Properties.
USP Holdings means USP Holdings, Inc.
Winning Party has the meaning set forth in Section 31.01 .
SCHEDULE 1 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 2
LIST OF ORIGINAL MOVABLE BUILDING EQUIPMENT
[See Attached]
SCHEDULE 2-1 | MASTER LAND AND BUILDING LEASE |
Forterra Sale leaseback
Site Detailed data
SCHEDULE 4.04
LIST OF VIOLATIONS OF LAW
[None]
SCHEDULE 4.04 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 4.05
LIST OF OPEN BUILDING PERMITS, ESA NOTICES, MUNICIPAL AGREEMENTS AND MDDEL NON-CONFORMITY NOTICE
PART A:
STOUFFVILLE DEMISED PROPERTY:
1. | Town of Whitchurch-Stouffville Building Permit No. 2002-0214. |
2. | Town of Whitchurch-Stouffville Building Permit No. 2003-0369. |
3. | Town of Whitchurch-Stouffville Building Permit No. 2015-0594. |
UXBRIDGE DEMISED PROPERTY:
4. | Electrical Safety Authority SAP Notification No. 14824936. |
PART B:
OTTAWA DEMISED PROPERTY:
1. | Supplementary Development Agreement made October 21, 2002 between Hanson Pipe & Products Canada, Inc. and City of Ottawa, notice of which was registered against title to the Ottawa Demised Property on February 25, 2004 as Instrument No. OC302893. |
PART C:
MASCOUCHE DEMISED PROPERTY:
2. | Non-Conformity Notice ( Avis de non-conformité ) issued by Ministère du Développement Durable, de lEnvironnement et de la Lutte contre les Changements Climatiques du Québec to HBP Pipe & Precast Québec Ltd. (now known as Forterra Pipe & Precast Québec, Ltd.) on January 13, 2016 bearing reference number 7610-14-01-05085-01-401315979 |
SCHEDULE 4.05 | MASTER LAND AND BUILDING LEASE |
SCHEDULE 7.02
LIST OF REQUIRED REPAIRS
[See Attached]
SCHEDULE 7.02 | MASTER LAND AND BUILDING LEASE |
PCA Summary of Immediate and Short-term Recommendations
Partner
|
Forterra
Site # |
Street Address |
City |
State |
Post Code |
Country |
Immediate & Short-term
Repairs Total Cost |
Immediate & Short-term Recommendations
|
||||||||||||
57 | 35 | 2099 Roseville Road | Cambridge | Ontario | N1R5S3 | CAN | $ | 0 | NA | |||||||||||
58 | 32 | 3374 Rideau Road | Gloucester | Ontario | K1G3N4 | CAN | $ | 15,000 | Short-term Repair - Section 5.3: Reported capital improvement - replace main electrical panels. | |||||||||||
59 | 33 | 5387 Bethesda Rd | Stouffville | Ontario | L4A7X3 | CAN | $ | 0 | NA | |||||||||||
60 | 34 | 102 Prouse Road | Uxbridge | Ontario | L4A7X4 | CAN | $ | 3,000 | Short-term Repair - Section 3.3.2: Restripe parking lot. | |||||||||||
61 | 30 | 1331 Avenue De La Gare | Mascouche | Quebec | J7K3G6 | CAN | $ | 5,000 |
Immediate Repair - Section 3.3.2: Repair potholes and remove potential trip hazards at asphalt pavement throughout site. Short-term Repair - Section 4.3.1: Several areas of damaged metal panels were observed at isolated locations of the plant building. Repair of the observed damages is recommended. |
|||||||||||
62 | 31 | 699-701 Boulevard Industriel | Saint-Eustache | Quebec | J7R6C3 | CAN | $ | 13,700 |
Immediate Repair - Section 3.3.2: Extensive linear cracking, map or alligator cracking, and pothole formation were noted in isolated locations throughout the subject property. Repair is recommended. Short-term Repair - Section 4.3.1: Several areas of damaged and oxidized metal panels were observed at isolated locations of the plant building. Repair of the observed damages is recommended. Immediate Repair - Section 4.4.1: Several areas of water damage were observed at ceiling locations underneath several skylights. New flashing / sealant around the skylights is recommended. |
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|
|
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Total: |
$ | 36,700 | ||||||||||||||||||
|
|
EXHIBIT A-1
LOCATION/ADDRESS OF DEMISED PROPERTIES/ADJUSTMENT AMOUNTS
ADDRESS |
CITY | STATE |
POSTAL
CODE |
COUNTRY |
ADJUSTMENT
AMOUNTS |
|||||||||||||||
2099 Roseville Road |
Cambridge | Ontario | N1R5S3 | CAN | 19.389 | % | ||||||||||||||
3374 Rideau Road |
Gloucester | Ontario | K1G3N4 | CAN | 8.166 | % | ||||||||||||||
5387 Bethesda Road |
Stouffville | Onatrio | L4A7X3 | CAN | 26.846 | % | ||||||||||||||
102 Prouse Road |
Uxbridge | Ontario | L4A7X4 | CAN | 6.357 | % | ||||||||||||||
1331 Avenue de la Gare |
Maschouche | Quebec | J7K3G6 | CAN | 7.364 | % | ||||||||||||||
699-701 Industrial Blvd. |
Saint-Eustache | Quebec | J7R6C3 | CAN | 31.879 | % | ||||||||||||||
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100.000 | % | |||||||||||||||||||
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EXHIBIT A-1 | MASTER LAND AND BUILDING LEASE |
EXHIBIT A-2
LIST OF US DEMISED PROPERTIES
Name of Plant |
Street |
City | State | Post Code | Country | |||||||
1. | Billings, MT | 1521 South 32nd Street West | Billings | MT | 59102 | USA | ||||||
2. | Bonner Spring, KS | 23600 West 40th Street | Bonner Spring | KS | 66226 | USA | ||||||
3. | Hawley, MN | 401 Michael Street S; and 1025 Cretex Street | Hawley | MN | 56549 | USA | ||||||
4. | Iowa Falls, IA | 540 Country Club Road | Iowa Falls | IA | 50126 | USA | ||||||
5. | Marshalltown, IA | 2002 East Olive Street | Marshalltown | IA | 50158 | USA | ||||||
6. | Menoken, ND | 1101 158th Street Northeast | Menoken | ND | 58558 | USA | ||||||
7. | Rapid City, SD | 1601 Culvert Street | Rapid City | SD | 57701 | USA | ||||||
8. | Cedar Hill Pipe Plant | 2138 Highway 67 South | Cedar Hill | TX | 75104 | USA | ||||||
9. | Columbus Gravity Pipe Plant | 1500 Haul Rd. | Columbus | OH | 43207 | USA | ||||||
10. | Deland Precast Plant | 840 West Ave | Deland | FL | 32720 | USA | ||||||
11. | EI Mirage | 12600 W. Northern Ave | El Mirage | AZ | 85335 | USA | ||||||
12. | Florin Road | 7020 Tokay Avenue | Sacramento | CA | 95828 | USA | ||||||
13. | Grand Prairie Gravity Plant, Grand Prairie Precast Plant, Grand Prairie | 1000 N. MacArthur Blvd. | Grand Prairie | TX | 75050 | USA | ||||||
14. | Houston Box Plant, Houston Jersey Village Gravity Pipe Plant, Houston Precast Plant | 11201 FM 529 | Houston | TX | 77240 | USA |
EXHIBIT A-2 | MASTER LAND AND BUILDING LEASE |
15. | Jackson Pipe Plant | 2840 West Northside Drive | Jackson | MS | 39213 | USA | ||||||
16. | Macedonia Plant | 7925 Empire Parkway | Macedonia | OH | 44056 | USA | ||||||
17. | Oklahoma City Pipe Plant | 6504 S. Interpace | Oklahoma City | OK | 73135 | USA | ||||||
18. | Shafter | 30781 San Diego St | Shafter | CA | 93263 | USA | ||||||
19. | Waco Precast Plant | 11710 Chapel Road | Hewitt | TX | 76643 | USA | ||||||
20. | Winter Haven Pipe Plant | 1285 Lucerne Loop Road | Winter Haven | FL | 33881 | USA | ||||||
21. | Bakewell | 550 Industrial Blvd | Sale Creek | TN | 373273 | USA | ||||||
22. | South Beloit | 4416 Prairie Hill Road | South Beloit | IL | 61080 | USA | ||||||
23. | Bar Nunn, WY | 2175 Westwinds Road | Bar Nunn | WY | 82601 | USA | ||||||
24. | Cedar Rapids, IA | 3921 J Street Southwest | Cedar Rapids | IA | 52404 | USA | ||||||
25. | Oskaloosa, KS | 5150 US Highway 59 | Lawrence | KS | 66066 | USA | ||||||
26. | Shakopee, MN | 7070 Cretex Avenue | Shakopee | MN | 55379 | USA | ||||||
27. | Dayton Precast Plant | 1504 N. Gettysburg Ave. | Dayton | OH | 45417 | USA | ||||||
28. | Gretna Pipe Plant | 55 Dritches Hayes Clary Ave | Gretna | FL | 32332 | USA | ||||||
29. | Marianna Precast Plant | 4043 Family Dollar Parkway | Marianna | FL | 32448 | USA | ||||||
30. | Robstown Gravity Pipe Plant | 1610 Highway 77 South | Robstown | TX | 78380 | USA |
EXHIBIT A-2 | MASTER LAND AND BUILDING LEASE |
31. | Athens Precast Plant | 625 B Hancock Industrial Way | Athens | GA | 30605 | USA | ||||||
32. | Little Rock Pipe Plant | 1300 Bond Street | Little Rock | AR | 72202 | USA | ||||||
33. | Montgomery Gravity Pipe Plant | 1616 Parallel Street | Montgomery | AL | 36104 | USA | ||||||
34. | New Orleans Gravity Pipe Plant | 13201 Old Gentilly Road | New Orleans | LA | 70150 | USA | ||||||
35. | Rome Pipe Plant | 223 John Davenport Drive | Rome | GA | 30165 | USA | ||||||
36. | St. Martinville Pipe Plant | 520 W. Port Street | St. Martinville | LA | 70582 | USA | ||||||
37. | West Memphis Pipe Plant | 501 East Jefferson | West Memphis | AR | 72301 | USA | ||||||
38. | Plattsmouth, NE | 369 Wiles Road | Plattsmouth | NE | 68048 | USA | ||||||
39. | Lubbock | 1624 Marshall St | Lubbock | TX | 79415 | USA | ||||||
40. | Sherman-Dixie Lexington | 759 Phillips Lane and 760 Phillips Lane | Lexington | KY | 40504 | USA | ||||||
41. | Sherman-Dixie Franklin | 313 Downs Boulevard | Franklin | TN | 37064 | USA |
EXHIBIT A-2 | MASTER LAND AND BUILDING LEASE |
EXHIBIT B
METHOD OF CPI ADJUSTMENT FOR OPTION PERIOD BASE RENT
(a) As of each Option Period Adjustment Date when the average CPI determined in clause (i) below exceeds the Beginning CPI (as defined in this Paragraph), the annual Base Rent in effect immediately prior to the applicable Option Period Adjustment Date shall be multiplied by a fraction, the numerator of which shall be the difference between (i) the average CPI for the three (3) most recent calendar months (the Prior Months ) ending prior to such Option Period Adjustment Date for which the CPI has been published on or before the forty-fifth (45 th ) day preceding such Option Period Adjustment Date and (ii) the Beginning CPI, and the denominator of which shall be the Beginning CPI. The product of such multiplication shall be added to the Base Rent in effect immediately prior to such Option Period Adjustment Date. Notwithstanding the foregoing, at each Option Period Adjustment Date, the CPI Adjustment shall be no greater than four percent (4%) of the annual Base Rent in effect immediately prior to the applicable Option Period Adjustment Date. As used herein, Beginning CPI shall mean the average CPI for the three (3) calendar months corresponding to the Prior Months, but occurring one (1) year earlier. If the average CPI determined in clause (i) is the same or less than the Beginning CPI, the Base Rent will remain the same for the ensuing one (1) year period.
(b) Effective as of a given Option Period Adjustment Date, Base Rent payable under this Lease until the next succeeding Option Period Adjustment Date shall be the Base Rent in effect after the adjustment provided for as of such Option Period Adjustment Date.
(c) Notice of the new annual Base Rent (each an Annual Renewal Term Base Rent Notice ) shall be delivered to Tenant on or before the tenth (10 th ) day preceding each Option Period Adjustment Date. If Landlord does not deliver an Annual Renewal Term Base Rent Notice on or before the tenth (10 th ) day preceding the applicable Option Period Adjustment Date, Tenant shall provide written notice of such failure to Landlord, and, if Landlord fails to deliver the applicable Annual Renewal Term Base Rent Notice within ten (10) Business Days after receipt of such notice from Tenant, then such failure shall be deemed a waiver of Landlords rights to collect such sums until the next succeeding Option Period Adjustment Date.
EXHIBIT B | MASTER LAND AND BUILDING LEASE |
EXHIBIT C
FORM OF SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT ( Agreement ) is entered into as of [ ], 20[ ] (the Effective Date ) by and among [ ] (together with any other holder of the Loan (defined below) and their respective successors and assigns, Mortgagee ), [ ] , a [ ] (hereinafter, the Tenant ) and [ ] , a [ ] ( Landlord ).
RECITALS
A. Landlord owns title in the real property described in Exhibit A attached hereto (the Property ).
B. Mortgagee has made or intends to make a loan to Landlord (the Loan ).
C. To secure the Loan, Landlord has or will encumber the Property by entering into a hypothec, mortgage or deed of trust in favor of Mortgagee (as amended, increased, renewed, extended, spread, consolidated, severed, restated, or otherwise changed from time to time, the Mortgage ) to be registered in the land registries.
D. Pursuant to the Lease dated [ ], (the Lease ) between Landlord and Tenant, Landlord leased the Property to Tenant, as more particularly described in the Lease (the Leased Premises ).
E. [A Notice of Lease dated by and between Tenant and Landlord regarding the Lease is [to be] registered [herewith] with the .]
F. Tenant and Mortgagee desire to agree upon the relative priorities of their interests in the Property and their rights and obligations if certain events occur.
NOW, THEREFORE, for good and sufficient consideration, Tenant and Mortgagee agree:
1. Definitions . The following terms shall have the following meanings for purposes of this agreement.
a. Foreclosure Event . A Foreclosure Event means: (i) foreclosure under the Mortgage; (ii) any other exercise by Mortgagee of rights and remedies (whether under the Mortgage or under applicable law, including bankruptcy law) as holder of the Loan and/or the Mortgage, as a result of which Mortgagee becomes owner of the Property; or (iii) delivery by Landlord to Mortgagee (or its designee or nominee) of a deed or other conveyance of Landlords interest in the Property in lieu of any of the foregoing.
b. Former Landlord . A Former Landlord means Landlord and any other party that was landlord under the Lease at any time before the occurrence of any attornment under this Agreement.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
c. Offset Right . An Offset Right means any right or alleged right of Tenant to any defense (other than one arising from actual payment and performance, which payment and performance would bind a Successor Landlord pursuant to this Agreement), claim, counterclaim, reduction, deduction, or abatement against Tenants payment of Rent or performance of Tenants other obligations under the Lease, arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
d. Rent . The Rent means any fixed rent, base rent or additional rent under the Lease.
e. Successor Landlord . A Successor Landlord means any party that becomes owner of the Property as the result of a Foreclosure Event.
f. Termination Right . A Termination Right means any right of Tenant to cancel or terminate the Lease or to claim a partial or total eviction arising (whether under the Lease or under applicable law) from Landlords breach or default under the Lease.
g. Other Capitalized Terms . If any capitalized term is used in this Agreement and no separate definition is contained in this Agreement, then such term shall have the same respective definition as set forth in the Lease.
2. Subordination . Subject to the provisions hereof, the Lease, as the same may hereafter be modified, amended or extended, shall be, and shall at all times remain, subject and subordinate to the Lien of the Mortgage (but not to the terms thereof), and all advances made under the Mortgage. Notwithstanding the foregoing, Mortgagee may elect, in its sole and absolute discretion, to subordinate the Lien of the Mortgage to the Lease.
3. Nondisturbance, Recognition and Attornment .
a. No Exercise of Mortgage Remedies Against Tenant . So long as Tenant is not in default under the Lease beyond any applicable grace or cure periods with respect to a default that would allow Landlord, pursuant to the Lease, to terminate same (an Event of Default ), Mortgagee (i) shall not terminate or disturb Tenants possession of the Leased Premises or rights under the Lease, except in accordance with the terms of the Lease and (ii) shall not name or join Tenant as a defendant in any exercise of Mortgagees rights and remedies arising upon a default under the Mortgage, unless applicable law requires Tenant to be made a party thereto as a condition to proceeding against Landlord or prosecuting such rights and remedies. In the latter case, Mortgagee may join Tenant as a defendant in such action only for such purpose and not to terminate the Lease or otherwise adversely affect Tenants rights under the Lease or this Agreement in such action.
b. Recognition and Attornment . Upon Successor Landlord taking title to the Property (i) Successor Landlord shall be bound to Tenant under all the terms and conditions of the Lease (except as provided in this Agreement); (ii) Tenant shall recognize and attorn to Successor Landlord as Tenants direct landlord under the Lease as affected by this Agreement; and (iii) the Lease shall continue in full force and effect as a direct lease, in accordance with its terms (except as provided in this Agreement), between Successor Landlord and Tenant. Tenant hereby acknowledges that, pursuant to the Mortgage and assignment of rents, leases and profits, Landlord has granted to Mortgagee an absolute, present assignment of the Lease and Rents which provides that Tenant continue making payments of Rents and other amounts owed by Tenant under the Lease to Landlord and to recognize the rights of Landlord under the Lease until notified otherwise in writing by Mortgagee. After receipt of such notice from Mortgagee, Tenant shall thereafter make all such payments directly to Mortgagee or as Mortgagee may otherwise direct, without any further inquiry on the part of Tenant. Landlord specifically agrees that Tenant may
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
conclusively rely upon any written notice Tenant receives from Mortgagee notwithstanding any claim by Landlord contesting the validity of any term or condition of such notice, including, but not limited to, any default claimed by Mortgagee, and that Landlord shall not make any claim of any kind whatsoever against Tenant or Tenants leasehold interest with respect to any amounts paid to Mortgagee by Tenant or any acts performed by Tenant, pursuant to such written notice, and such amounts paid to Mortgagee shall be credited to amounts due under the Lease as if such amounts were paid directly to Landlord.
c. Further Documentation . The provisions of this Article 3 shall be effective and self-operative without any need for Successor Landlord or Tenant to execute any further documents. Tenant and Successor Landlord shall, however, confirm the provisions of this Article 3 in writing upon request by either of them within thirty (30) days of such request.
4. Protection of Successor Landlord . Notwithstanding anything to the contrary in the Lease or the Mortgage, Successor Landlord shall not be liable for or bound by any of the following matters:
a. Claims Against Former Landlord . Any Offset Right that Tenant may have against any Former Landlord, unless (i) such Offset Right arises after the date Mortgagee encumbers the Property with the Mortgage and (ii) Tenant shall have given written notice to Mortgagee of such Offset Right promptly upon Tenants actual knowledge of the occurrence of the event(s) giving rise to such Offset Right. The foregoing shall not limit either (x) Tenants right to exercise against Successor Landlord any Offset Right otherwise available to Tenant because of events occurring after the date of a Foreclosure Event or because of events occurring on or before the date of a Foreclosure Event, notice of which shall have been given to Mortgagee, or (y) Successor Landlords obligation to correct any conditions that existed as of the date of a Foreclosure Event that violate Successor Landlords obligations as landlord under the Lease.
b. Prepayments . Any payment of Rent that Tenant may have made to Former Landlord more than thirty (30) days before the date such Rent was first due and payable under the Lease with respect to any period after the date of a Foreclosure Event and Tenants receipt of notice of such Foreclosure Event other than, and only to the extent that, the Lease expressly required such a prepayment or such payment was delivered to Mortgagee or Successor Landlord.
c. Security Deposit; Representations and Warranties . Any obligation (i) with respect to any security deposited with Former Landlord, unless such security was actually delivered to Mortgagee or Successor Landlord; or (ii) arising from a breach by Former Landlord of representations and warranties contained in the Lease; or (iii) without in any way superseding subsection (a) above, to pay Tenant any sum(s) accrued prior to Successor Landlord becoming owner of the Property and owed to Tenant by Former Landlord, unless actually paid over to Successor Landlord.
d. Modification, Amendment or Waiver . Any modification or amendment of the Lease, or any waiver of the terms of the Lease, made without Mortgagees written consent (which consent shall not be unreasonably withheld, conditioned or delayed), excepting, however, commercially reasonable non-material amendments or modifications of the Lease (for the avoidance of doubt, such non-material modifications do not include any changes in the rights of any Landlord Mortgagee as such term is defined in the Lease, reductions in rent, reductions in length of term, imposition of material obligations on Landlord or material reductions of the obligations of Tenant under the Lease) which are the result of good faith, arms length negotiations between Landlord and Tenant and of which Mortgagee receives prompt notice together with a copy of such amendment.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
e. Surrender, Etc. Any consensual or negotiated surrender, cancellation, or termination of the Lease, in whole or in part, agreed upon between Landlord and Tenant, unless effected unilaterally by Tenant pursuant to the express terms of the Lease.
5. Exculpation of Successor Landlord . Notwithstanding anything to the contrary in this Agreement or the Lease, Successor Landlords obligations and liability under the Lease shall never extend beyond Successor Landlords (or its successors or assigns) interest, if any, in the Property from time to time, including without limitation insurance and expropriation proceeds, security deposits, escrows, Successor Landlords interest in the Lease, and the proceeds from any sale, lease or other disposition of the Property (or any portion thereof) by Successor Landlord (collectively, the Successor Landlords Interest ). Tenant shall look exclusively to Successor Landlords Interest (or that of its successors and assigns) for payment or discharge of any obligations of Successor Landlord under the Lease as affected by this Agreement. If Tenant obtains any money judgment against Successor Landlord with respect to the Lease or the relationship between Successor Landlord and Tenant, then Tenant shall look solely to Successor Landlords Interest (or that of its successors and assigns) to collect such judgment. Tenant shall not collect or attempt to collect any such judgment out of any other assets of Successor Landlord. Nothing set forth in this paragraph shall be construed to limit Tenants equitable remedies, including specific performance and injunctive relief.
6. Casualty and Expropriation . Mortgagee agrees that, notwithstanding any provision of the Mortgage or any instrument secured by the Mortgage, any insurance proceeds and any expropriation awards which may be received by any party hereto and which relate to the Property shall be used or disbursed in accordance with the terms of the Lease.
7. Mortgagees Right to Cure . Notwithstanding anything to the contrary in the Lease or this Agreement, before exercising any Offset Right or Termination Right:
a. Notice to Mortgagee . Tenant shall provide Mortgagee with notice of the breach or default by Landlord giving rise to same (the Default Notice ) and, thereafter, the opportunity to cure such breach or default as provided for below.
b. Mortgagees Cure Period . After Mortgagee receives a Default Notice, Mortgagee shall have a period of thirty (30) days under the Lease in which to cure the breach or default by Landlord. Mortgagee shall have no obligation to cure (and, without limiting anything contained in Section 4(a) above, shall have no liability or obligation for not curing) any breach or default by Landlord, except to the extent that Mortgagee agrees or undertakes otherwise in writing. In addition, as to any breach or default by Landlord the cure of which requires possession and control of the Property, if Mortgagee undertakes such cure or causes such cure to be commenced by a receiver within the period permitted by this paragraph, and so long as Mortgagee continues to or causes a receiver to diligently and in good faith cure such breach or default, Mortgagees cure period shall continue for such additional time (but in any event not to exceed ninety (90) days in the aggregate) as Mortgagee may reasonably require to either (i) obtain possession and control of the Property with due diligence and thereafter cure the breach or default with reasonable diligence and continuity; or (ii) obtain the appointment of a receiver and give such receiver a reasonable period of time in which to cure the default. Nothing set forth in this paragraph shall limit Tenants rights to cure a breach or default and receive any reimbursement to which it is entitled under the Lease.
8. Miscellaneous .
a. Notices . Any notice or request given, or demand made, under this Agreement by one party to the other shall be in writing, and may be given or be served by hand delivered personal service, or
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
by depositing the same with a reliable overnight courier service or by deposit in the Canadian mail, postpaid, registered or certified mail, and addressed to the party to be notified, with return receipt requested or by telefax transmission, with the original machine- generated transmit confirmation report as evidence of transmission. Notice deposited in the mail in the manner hereinabove described shall be effective from and after the expiration of three (3) days after it is so deposited; however, delivery by overnight courier service shall be deemed effective on the next succeeding business day after it is so deposited, and notice by personal service or telefax transmission shall be deemed effective when delivered to its addressee or within two (2) hours after its transmission, unless given after 3:00 p.m. on a business day, in which case it shall be deemed effective at 9:00 a.m. on the next business day. For purposes of notice, the addresses and telefax number of the parties shall, until changed as herein provided, be as follows:
If to Mortgagee, at:
and
If to Tenant, at:
and:
b. Successors and Assigns . This Agreement shall bind and benefit the parties, their successors and assigns, any Successor Landlord, and its successors and assigns. If Mortgagee assigns the Mortgage, then upon delivery to Tenant of written notice thereof accompanied by the assignees written assumption of all obligations under this Agreement, all liability of the assignor shall terminate.
c. Entire Agreement . This Agreement constitutes the entire agreement between Mortgagee and Tenant regarding the subordination of the Lease to the Mortgage and the rights and obligations of Tenant and Mortgagee as to the subject matter of this Agreement.
d. Interaction with Lease and with Mortgage . If this Agreement conflicts with the Lease, then this Agreement shall govern as between the parties and any Successor Landlord, including upon any attornment pursuant to this Agreement. This Agreement supersedes, and constitutes full compliance with, any provisions in the Lease that provide for subordination of the Lease to, or for delivery of nondisturbance agreements by the holder of, the Mortgage.
e. Mortgagees Rights and Obligations . Except as expressly provided for in this Agreement, Mortgagee shall have no obligations to Tenant with respect to the Lease. If a Foreclosure Event occurs, then all rights and unaccrued obligations of Mortgagee under this Agreement shall terminate, without thereby affecting in any way the rights and obligations of Successor Landlord provided for in this Agreement or under the Lease.
f. Interpretation; Governing Law . For all purposes relating to any Property located in the Province of Ontario, the interpretation, validity and enforcement of this Agreement shall be governed by and construed under the laws of the province of Ontario, excluding its principles of conflict of laws. For all purposes relating to any Property located in the Province of Québec, the interpretation, validity and enforcement of this Agreement shall be governed by and construed under the laws of the province of Québec, excluding its principles of conflict of laws.
g. Amendments . This Agreement may be amended, discharged or terminated, or any of its provisions waived, only by a written instrument executed by the party to be charged.
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
h. Due Authorization . Tenant represents to Mortgagee that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions. Mortgagee represents to Tenant that it has full authority to enter into this Agreement, which has been duly authorized by all necessary actions.
i. Execution . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
j. Language . The parties have requested that this Agreement and all related documents be drawn up in English only. Les parties aux présentes ont exigé que le présent contrat et tous les documents qui sy rattachent soient rédigés en anglais seulement .
[THIS SPACE INTENTIONALLY LEFT BLANK]
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF, Mortgagee, Tenant and Landlord have caused this Agreement to be executed as of the date first above written.
MORTGAGEE : | ||||||
[SIGNATURE PAGES CONTINUE ON FOLLOWING PAGE]
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
TENANT : | ||||||
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
LANDLORD : | ||||||
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
LIST OF EXHIBITS
If any exhibit is not attached hereto at the time of execution of this Agreement, it may thereafter be attached by written agreement of the parties, evidenced by initialing said exhibit.
Exhibit A - Legal Description of the Land
EXHIBIT C | MASTER LAND AND BUILDING LEASE |
EXHIBIT D
FORM OF TENANTS ESTOPPEL CERTIFICATE
The undersigned, , whose address is represents and certifies as follows:
1. The undersigned is the tenant ( Tenant ) under that certain Master Land and Building Lease dated with as Landlord (the Lease ), covering the properties described therein (collectively the Demised Properties ), a true and correct copy of which (together with all amendments thereof) is attached hereto as Exhibit A . [Tenant understands that ( Secured Party ) intends to enter into financing arrangements with Landlord, as borrower, to be secured, among other things, by certain mortgages, deeds of trust and assignments of leases and rents, as amended, covering the Demised Properties.]
2. The Lease constitutes the only agreement, promise, understanding or commitment (either written or oral) Tenant has with respect to the Demised Properties and any right of occupancy or use thereof.
3. The Lease is in full force and effect and has not been assigned, subleased, supplemented, modified or amended, in whole or in part, except as follows:
4. Tenant has not given Landlord any notice of termination under the Lease.
5. Tenant took possession of the Demised Properties on or about , , and commenced paying rent on or about , . Tenant presently occupies the Demised Properties, is open for business and operating at all of the Demised Properties, and is paying rent on a current basis. No rent has been paid by Tenant in advance except for the monthly rental that becomes due on , and no deposits, including security deposits and prepayments of rent, have been made in connection with the Lease. Tenant agrees not to pay rent more than one (1) month in advance unless otherwise specified in the Lease.
6. The monthly base rental is the sum of Dollars ($ ). Landlord has not agreed to reimburse Tenant for or to pay Tenants rent obligation under any other lease
7. The Lease term commenced on , expires on , and there are no options to renew except: .
8. Tenant is not in default of any of its obligations under the Lease, nor have there occurred any events that with the passage of time or giving of notice or both, will result in any such default. To the best knowledge of Tenant, there are no defaults under the Lease by Landlord, nor have any events occurred that with the passage of time or giving of notice or both, will result in any such default. To the best of Tenants knowledge and belief, Tenant does not presently have (nor with the passage of time or giving of notice or both will have) any offset, charge, Lien, claim, termination right or defense under the Lease.
EXHIBIT D | MASTER LAND AND BUILDING LEASE |
9. Tenant has no right of first offer, right of first refusal, or option to purchase, with respect to all or any portion of any Demised Properties[.][, except as set forth in Article 34 of the Lease].
10. Tenant is aware that third parties[, including Secured Party,] intend to rely upon this Certificate and the statements set forth herein and that the statements and facts set forth above shall be binding on Tenant.
11. Tenant is not entitled to any concession or rebate of rent or other charges from time to time due and payable under the Lease, and there are no unpaid or unreimbursed construction allowances or other offsets due Tenant under the Lease.
12. To the best of Tenants knowledge and belief, there are no rental, lease or similar commissions payable with respect to the Lease.
13. Any notices to be provided hereunder shall be provided pursuant to the notice provisions of the Lease.
14. Tenant and the persons executing this Certificate on behalf of Tenant have the power and authority to execute and deliver this Certificate, thereby binding Tenant.
IN WITNESS WHEREOF, Tenant has executed this Certificate this day of , 20 .
TENANT | ||
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a | ||
By: |
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Name: |
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Title: |
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EXHIBIT D | MASTER LAND AND BUILDING LEASE |
EXHIBIT E-1
FORM OF NOTICE OF LEASE (ONTARIO)
(See Attached)
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
LRO #4 | Notice of Lease | In preparation on 2016 4 01 at 13:37 |
Properties
PIN | 04326 0075 LT | |
Description | PT LT 26 CON 5RF GLOUCESTER; PT LT 27 CON 5RF GLOUCESTER AS IN N760146; GLOUCESTER | |
Address |
3374 RIDEAU ROAD OTTAWA |
Consideration
Consideration | $ 2.00 |
Party From(s)
Name |
FORT-NOM HOLDINGS (ONQC) INC. Acting as a company |
|
Address for Service | ||
I, Gino M. Sabatini, Managing Director, have authority to bind the corporation.
This document is not authorized under Power of Attorney by this party. |
Party To(s)
Name |
FORTERRA PIPE & PRECAST, LTD. Acting as a company |
|
Address for Service |
Forterra Pipe & Precast, LLC c/o Forterra Building Products 511 E. John Carpenter Freeway, Suite 600 Irving, Texas 75062 Attention: Lori Browne |
|
Name |
FORTERRA PRESSURE PIPE, INC. Acting as a company |
|
Address for Service |
Forterra Pipe & Precast, LLC c/o Forterra Building Products 511 E. John Carpenter Freeway, Suite 600 Irving, Texas 75062 Attention: Lori Browne |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
Name |
FORTERRA PIPE & PRECAST QUÉBEC, LTD. Acting as a company |
|
Address for Service |
Forterra Pipe & Precast, LLC c/o Forterra Building Products 511 E. John Carpenter Freeway, Suite 600 Irving, Texas 75062 Attention: Lori Browne |
Statements
The applicant is prepared to produce the document for inspection within fourteen (14) days of the request and the applicant consents to the cancellation of the document on presentation of proof satisfactory to the Land Registrar that the document was not produced upon request.
Term | See Schedule. Expiry Date: See Schedule | |
Right or option to purchase | See Schedule | |
Provision for renewal or extension | See Schedule |
Calculated Taxes
Provincial Land Transfer Tax | $ 0.00 |
File Number
Party From Client File Number: | 241844 | |
Party to Client File Number: | 254889 |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
LAND TRANSFER TAX STATEMENTS |
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In the matter of the conveyance of: | 04326 0075 | PT LT 26 CON 5RF GLOUCESTER; PT LT 27 CON 5RF GLOUCESTER AS IN N760146; GLOUCESTER |
BY: | FORT-NOM HOLDINGS (ONQC) INC. | |||||
TO: |
FORTERRA PIPE & PRECAST, LTD. FORTERRA PRESSURE PIPE, INC. FORTERRA PIPE & PRECAST QUÉBEC, LTD.
|
% (all PINs) % (all PINs) % (all PINs) |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
C. Address for Service |
Forterra Pipe & Precast, LLC c/o Forterra Building Products 511 E. John Carpenter Freeway, Suite 600 Irvine, Texas 75062 Attention: Lori Browne |
|||||||
D. (i) Last Conveyance(s): | PIN 04326 - 0075 Registration No. | |||||||
(ii) Legal Description for Property Conveyed: Same as in last conveyance Yes x No ¨ Not known ¨ |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
SCHEDULE OF ADDITIONAL PROVISIONS
Reference is made to a lease dated as of April 5, 2016 (the Lease ) made between, among others, FORT-NOM Holdings (ONQC) Inc. (the Landlord ), as landlord, and Forterra Pipe & Precast, Ltd., Forterra Pressure Pipe, Inc. and Forterra Pipe & Precast Québec, Ltd. (collectively, the Tenant ), as tenant.
1. DEMISED PROPERTY:
Subject to and in accordance with the terms and conditions contained in the Lease, the Landlord leased unto the Tenant, and the Tenant leased from the Landlord, among other things, the whole of the lands referenced in the Notice of Lease to which this Schedule is attached, together with all improvements located thereon (collectively, the Demised Property ).
2. COMMENCEMENT DATE:
April 5, 2016 (the Commencement Date).
3. ORIGINAL LEASE TERM AND TERMINATION DATE:
The Lease shall commence on the Commencement Date and terminate on April 4, 2036 (the Original Lease Term ).
4. OPTION TO EXTEND:
The Tenant has the option to extend the Original Lease Term for one (1) option period of nine (9) years and eleven (11) months upon and subject to the terms set forth in the Lease (the Option Period ).
If the Option Period is exercised by the Tenant, the Lease will expire on March 4, 2046.
5. RIGHT OF FIRST REFUSAL:
Subject to the terms and conditions set out in the Lease, the Landlord grants the Tenant a right of first refusal to purchase the Demised Property if at any time during the term of the Lease the Landlord receives a bona fide offer from certain enumerated third parties for the purchase of the Demised Property (whether or not solicited by the Landlord) and the Landlord has either accepted such offer or desires to accept such offer.
6. PURPOSE OF NOTICE OF LEASE:
The purpose of this Notice of Lease is to give notice of the Lease. There are further terms, covenants and conditions governing the relationship between the Landlord and the Tenant contained in the Lease and failure to mention any such other terms, covenants and conditions shall not detract from the parties rights and obligations pursuant thereto. In the event of a contradiction or inconsistency between any term herein and that of the Lease, the term of the Lease shall prevail.
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
EXHIBIT E-2
FORM OF NOTICE OF LEASE (QUÉBEC)
(See Attached)
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
(Eustache Form)
NOTICE PURSUANT TO ARTICLE 2999.1 OF THE CIVIL CODE OF QUÉBEC: REGISTRATION OF RIGHTS UNDER A LEASE ON AN IMMOVABLE OTHER THAN A DWELLING
NOTICE GIVEN in the City of Montréal, Province of Québec, on the Fifth (5th) day of April two thousand sixteen (2016) by Elise Beauregard.
I. | IDENTIFICATION OF THE LEASE, LANDLORD AND TENANT |
The rights published under the present notice result from a lease between FORT-NOM HOLDINGS (ONQC) INC., as Lessor (the Landlord ) and FORTERRA PRESSURE PIPE, INC. and FORTERRA PIPE & PRECAST QUÉBEC, LTD., as Lessee (the Tenant ), signed by the Tenant and Landlord on April 5, 2016 (the Lease ).
II. | DESCRIPTION OF THE IMMOVABLE |
The immovable which is the subject of the Lease (the Property ) is described in Schedule A.
III. | COMMENCEMENT AND EXPIRY DATES OF THE LEASE |
The commencement date of the Lease is April 5, 2016 and the initial term of the Lease (the Term ) is for the period described in Schedule A.
IV. | OPTIONS TO RENEW |
Tenant has the right to renew the Term for the period described in Schedule A, the whole as more fully set forth in the Lease.
V. | RIGHT OF FIRST REFUSAL |
The Landlord has granted to the Tenant a right of first refusal to purchase the Property, subject to the terms and conditions set forth in the Lease.
VI. | PURPOSE OF NOTICE OF LEASE |
This Notice of Lease is executed and recorded to give public notice of the Lease between the parties and all terms and conditions of the Lease are incorporated by reference into this Notice of Lease and this Notice of Lease does not modify the provisions of the Lease. If there are any conflicts between the Lease and this Notice of Lease, the provisions of the Lease shall prevail. The rights and obligations set forth herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Any term not defined herein shall have the meaning as set forth in the Lease.
VII. | SCHEDULE A |
Schedule A attached hereto forms an integral part of the present notice.
|
Elise Beauregard |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
CERTIFICATE
RE: Notice of registration of rights under a lease pursuant to Article 2999.1 of the Civil Code of Quebec , in the City of Montréal, Province of Québec, on the Fifth (5th) day of April two thousand sixteen (2016) by Elise Beauregard.
I, the undersigned Antoine Lessard, advocate practising with the law firm Davies Ward Phillips & Vineberg LLP, in Montréal, Québec, certify that:
1. | I have verified the identity, quality and capacity of the signatory of the foregoing Notice of Lease; |
2. | This Notice of Lease is valid as to its form. |
3. | This Notice of Lease represents the will expressed by the said signatory; and |
4. | This Notice of lease is exact as to its content. |
CERTIFIED in the City of Montréal, Province of Québec, on the Fifth (5th) day of April two thousand sixteen (2016).
|
||
Name: | Antoine Lessard , advocate | |
Address: | Davies Ward Phillips & Vineberg, LLP | |
1501 McGill College, Suite 2600 | ||
Montréal, Québec H3A 3N9 |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
SCHEDULE A
Legal Description of the Property :
1. An immovable situated in the City of Saint-Eustache, Province of Québec, know and designated as lot ONE MILLION NINE THOUSAND SEVENTY-FOUR HUNDRED AND FIFTY-EIGHT (1 974 058) on the plan of the Cadastre of Québec, registration division of Deux-Montagnes.
With a building thereon erected bearing civic number 699 Industriel Boulevard, City of Saint-Eustache, Province of Québec.
2. An immovable situated in the City of Saint-Eustache, Province of Québec, know and designated as lot ONE MILLION NINE THOUSAND SEVENTY-FOUR HUNDRED AND FIFTY-SEVEN (1 974 057) on the plan of the Cadastre of Québec, registration division of Deux-Montagnes.
With a building thereon erected bearing civic number 701 Industriel Boulevard, City of Saint-Eustache, Province of Québec.
3. An vacant land situated in the City of Saint-Eustache, Province of Québec, know and designated as lot ONE MILLION NINE THOUSAND SEVENTY-FIVE HUNDRED TWO HUNDRED AND NINETY-TWO (1 975 292) on the plan of the Cadastre of Québec, registration division of Deux-Montagnes.
Initial Term :
The Lease shall commence on April 5, 2016 and terminate on April 4, 2036.
Commencement Date :
April 5, 2016
Option to renew:
One (1) option period of nine (9) years and eleven (11) months from and after the commencement date, expiring on March 4, 2046.
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
(Mascouche Form)
NOTICE PURSUANT TO ARTICLE 2999.1 OF THE CIVIL CODE OF QUÉBEC: REGISTRATION OF RIGHTS UNDER A LEASE ON AN IMMOVABLE OTHER THAN A DWELLING
NOTICE GIVEN in the City of Montréal, Province of Québec, on the Fifth (5 th ) day of April two thousand sixteen (2016) by Elise Beauregard.
I. | IDENTIFICATION OF THE LEASE, LANDLORD AND TENANT |
The rights published under the present notice result from a lease between FORT-NOM HOLDINGS (ONQC) INC., as Lessor (the Landlord ) and FORTERRA PIPE & PRECAST QUÉBEC, LTD., as Lessee (the Tenant ), signed by the Tenant and Landlord on April 5, 2016 (the Lease ).
II. | DESCRIPTION OF THE IMMOVABLE |
The immovable which is the subject of the Lease (the Property ) is described in Schedule A.
III. | COMMENCEMENT AND EXPIRY DATES OF THE LEASE |
The commencement date of the Lease is April 5, 2016 and the initial term of the Lease (the Term ) is for the period described in Schedule A.
IV. | OPTIONS TO RENEW |
Tenant has the right to renew the Term for the period described in Schedule A, the whole as more fully set forth in the Lease.
V. | PURPOSE OF NOTICE OF LEASE |
This Notice of Lease is executed and recorded to give public notice of the Lease between the parties and all terms and conditions of the Lease are incorporated by reference into this Notice of Lease and this Notice of Lease does not modify the provisions of the Lease. If there are any conflicts between the Lease and this Notice of Lease, the provisions of the Lease shall prevail. The rights and obligations set forth herein shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Any term not defined herein shall have the meaning as set forth in the Lease.
VI. | SCHEDULE A |
Schedule A attached hereto forms an integral part of the present notice.
|
Elise Beauregard |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
CERTIFICATE
RE: Notice of registration of rights under a lease pursuant to Article 2999.1 of the Civil Code of Quebec , in the City of Montréal, Province of Québec, on the Fifth (5 th ) day of April two thousand sixteen (2016) by Elise Beauregard.
I, the undersigned Antoine Lessard, advocate practising with the law firm Davies Ward Phillips & Vineberg LLP, in Montréal, Québec, certify that:
5. | I have verified the identity, quality and capacity of the signatory of the foregoing Notice of Lease; |
6. | This Notice of Lease is valid as to its form. |
7. | This Notice of Lease represents the will expressed by the said signatory; and |
8. | This Notice of lease is exact as to its content. |
CERTIFIED in the City of Montréal, Province of Québec, on the Fifth (5 th ) day of April two thousand sixteen (2016).
|
||
Name: | Antoine Lessard, advocate | |
Address: | Davies Ward Phillips & Vineberg, LLP | |
1501 McGill College, Suite 2600 | ||
Montréal, Québec H3A 3N9 |
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
SCHEDULE A
Legal Description of the Property :
1. An immovable situated in the City of Mascouche, Province of Québec, know and designated as lot FIVE MILLION FIFTY THOUSAND SIX HUNDRED AND NINETY SEVEN (5 050 697) on the plan of the Cadastre of Québec, registration division of lAssomption.
With a building thereon erected bearing civic number 1331, avenue de la Gare, City of Mascouche, Province of Québec.
2. An immovable situated in the City of Mascouche, Province of Québec, know and designated as being composed of lots FIVE MILLION FIFTY THOUSAND SIX HUNDRED AND NINETY TWO (5 050 692), FIVE MILLION FIFTY THOUSAND SEVEN HUNDRED AND NINETEEN (5 050 719) and FIVE MILLION FIFTY-FOUR THOUSAND TWO HUNDRED AND SEVENTY-EIGHT (5 054 278) on the plan of the Cadastre of Québec, registration division of lAssomption.
With a building thereon erected bearing civic number 1331, avenue de la Gare, City of Mascouche, Province of Québec.
Initial Term :
The Lease shall commence on April 5, 2016 and terminate on April 4, 2036.
Commencement Date :
April 5, 2016
Option to renew:
One (1) option period of nine (9) years and eleven (11) months from and after the commencement date, expiring on March 4, 2046.
EXHIBIT E | MASTER LAND AND BUILDING LEASE |
EXHIBIT F
[INTENTIONALLY OMITTED]
EXHIBIT F | MASTER LAND AND BUILDING LEASE |
EXHIBIT G
FORM OF GUARANTY
GUARANTY OF MASTER LAND AND BUILDING LEASE
This Guaranty (the Guaranty ) is executed as of the day of April, 2016, by LSF9 CONCRETE HOLDINGS LTD, a company incorporated under the laws of the Bailiwick of Jersey with registered number 117752 (together with its successors and permitted assigns, Guarantor ), in favor of FORT-NOM HOLDINGS (ONQC) INC., a company incorporated under the laws of British Columbia ( Landlord ) with reference to the following facts:
A. Forterra Pipe & Precast, Ltd., an Ontario corporation, Forterra Pressure Pipe, Inc./Forterra Conduite Sous Pression, Inc., a Québec corporation, and Forterra Pipe & Precast Québec, Ltd./Forterra Tuyaux et Préfabriqués Québec, Ltée, a Québec corporation (individually and collectively, jointly and severally, as co-tenants Tenant ) have entered into that certain Master Land and Building Lease, dated as of April , 2016 (as amended or otherwise modified from time to time, the Lease ), by and among Landlord and Tenant, pursuant to which Landlord has agreed to lease the Demised Properties described in the Lease (such properties, the Premises ) to Tenant.
B. Guarantor, directly or indirectly, owns 100% of the issued and outstanding equity interests of Tenant.
C. As a condition precedent to the execution and delivery of the Lease by Landlord, Landlord requires that Guarantor unconditionally guaranty the performance by Tenant of its obligations set forth under the Lease.
D. Guarantor has a material financial interest in Tenant and expects to derive material financial benefit from the Lease, and Guarantor desires Landlord enter into the Lease with Tenant.
In consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor hereby covenants and agrees with Landlord as follows:
1. Guarantor absolutely, irrevocably and unconditionally guarantees to and for the benefit of Landlord and its successors and assigns the punctual and full payment as they accrue and become due of all rents of every kind under the Lease and the full, faithful and timely performance of each and all of the covenants, agreements, obligations, representations, indemnities, warranties and liabilities of Tenant (and/or of Tenants assigns and successors to all or any portion of Tenants interest in the Lease) under the Lease (each an Obligation , and collectively, the Obligations ) until all such Obligations have been fully paid, performed and discharged. The liability of Guarantor hereunder shall be for all Obligations owed to Landlord including, without limitation, costs and fees (including, without limitation, actual attorneys and experts fees and disbursements and court costs that would have accrued under the Lease) and all other Obligations that would have been paid, performed and discharged by Tenant (or Tenants assigns and successors to all or any portion of Tenants interest in the Lease or the Premises) but for the commencement of proceedings for substantive relief in any bankruptcy, insolvency, debt restructuring, reorganization, readjustment of debt, dissolution, liquidation, winding-up or other similar proceedings (including proceedings under the Bankruptcy and Insolvency Act (Canada), the Winding-up and Restructuring Act (Canada), the Companies Creditors Arrangement Act (Canada), the incorporating statute of the relevant corporation or other similar legislation (collectively, the Bankruptcy Laws )), including proceedings for the appointment of a trustee, interim receiver, receiver, receiver and manager, administrative receiver, custodian, liquidator, provisional liquidator, administrator, sequestrator or other like official with respect to the relevant corporation or all or any material part of its property or assets, and
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
other expenses incurred by Landlord in the enforcement of this Guaranty. The Obligations are to be construed in the most comprehensive sense and shall include all covenants, agreements, obligations, indemnities, representations, warranties and liabilities of Tenant, express or implied, under the Lease and shall continue, unaffected by any actual, purported or attempted assignment, transfer or sublease of all or any portion of Tenants interest in the Lease or the Premises. Notwithstanding the foregoing, only upon any failure to fully pay, perform and discharge any of the Obligations, which failure constitutes a default under the Lease, which default remains uncured beyond any applicable cure period, if any, provided in the Lease (herein called a Breach ), Guarantor, upon written demand from Landlord, shall fully pay, perform and discharge the Obligation or Obligations in question, and shall pay all damages, losses, costs, expenses (including, without limitation, actual attorneys and experts fees and court costs) and liabilities of Landlord that may arise in consequence of the Breach.
2. The obligations of Guarantor hereunder shall remain in full force and effect without regard to, and shall not be affected or impaired by, the following, any or all of which may be taken without the consent of, or notice to, Guarantor nor shall any of the following give Guarantor any recourse or right of action against Landlord, each and all of which are hereby expressly authorized by Guarantor to be undertaken at any time and from time to time:
(a) | Any amendment, modification, addition or supplement of or to the Lease; |
(b) | Any renewal, extension or continuation of the Lease or the term thereof, whether pursuant to a written agreement or otherwise, and including without limitation, any holding over by Tenant after the expiration of the term of the Lease, including any renewal or extension term, whether or not consented to by Landlord; |
(c) | Any exercise or non-exercise or delay in the exercise or assertion by Landlord of any right or privilege under this Guaranty or the Lease; |
(d) | Any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other similar proceeding relating to Guarantor or Tenant, or any action taken in respect of Tenant, this Guaranty, the Lease and/or the Premises by any trustee, receiver, debtor-in-possession or the like, by Landlord or by any court, in any such proceeding, including, without limitation, any assumption or rejection of the Lease under the Bankruptcy Laws, whether or not Guarantor shall have had notice or knowledge of any of the foregoing; |
(e) | Any extension of time or other indulgence granted to Tenant or any waiver with respect to the payment of rents, additional rents and other charges and expenses to be paid by Tenant or with respect to the performance and observance of any other obligations of Tenant under the Lease; |
(f) | Any assignment of the Lease or any subletting of all or any portion of the Premises; |
(g) | The acceptance by Landlord of any security (including any real or personal property collateral) for the punctual and full payment of said rents or the punctual and full performance and observance of said Tenant obligations, or the release, surrender, substitution or omission to act, by Landlord with respect to any such security; |
(h) | Any disaffirmance or abandonment by Tenant, any debtor-in-possession or any trustee of Tenant; |
(i) | Any other act or omission to act by Landlord; and |
(j) | Any other matter whatsoever whereby Guarantor would or might be released. |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
3. Guarantor hereby knowingly, irrevocably, unconditionally and voluntarily waives:
(a) | All presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty; |
(b) | Any right to require Landlord to proceed against Tenant or any other person at any time or to proceed against or exhaust any security held by Landlord at any time or to pursue any other remedy whatsoever at any time; |
(c) | Any defense arising out of the absence, impairment or loss of any right of reimbursement, contribution or subrogation or any other right or remedy of the Guarantor against the Tenant, whether resulting from any action or election of remedies by Landlord or otherwise; |
(d) | Any defense arising by reason of any invalidity or unenforceability of the Lease or any disability of Tenant, or by any cessation from any cause whatsoever of the liability of Tenant, including, without limitation, (i) any rejection or termination of the Lease under the Bankruptcy Laws or (ii) any reduction, diminution or limitation upon or discharge of the liability of Tenant under the Bankruptcy Laws; |
(e) | Any defense based upon an election of remedies by Landlord; |
(f) | Any duty of Landlord to advise Guarantor of any information known to Landlord regarding the financial condition of Tenant and all other circumstances affecting the ability of Tenant to perform its obligations under the Lease, as more particularly described in Paragraph 10 below; |
(g) | Any duty of Landlord to give Guarantor notice of any demand by Landlord or any notice of any type or nature under the Lease, including, without limitation, any notice relating to any default by the Tenant under the Lease; |
(h) | Any defense based upon any express or implied amendment, modification, addition or supplement of or to the Lease or of or to Tenants obligations under the Lease made without the consent of Guarantor, which consent shall not be required; |
(i) | Any defense based upon the lack of perfection or continuing perfection or failure of priority of collateral security, if any, which may now or hereafter be given for performance of the Obligations; |
(j) | Any defense based upon the failure by Landlord to marshal assets; |
(k) | Any defense based upon any act or omission of Landlord that results in or aids in the discharge or release of Tenant; |
(l) | Any defense based upon any law that provides that the obligations of a guarantor must not be larger in amount nor in other respects more burdensome than that of the principal or that reduces a guarantors obligation in proportion to the principal obligation; |
(m) | Any defense based upon any failure of Landlord to file or enforce or compromise a claim in any bankruptcy proceeding; |
(n) | Any defense based upon the avoidance of any lien in favor of Landlord for any reason; |
(o) | Any defense based upon the right to enforce any remedy against any other person; |
(p) | Any defense based upon the right, if any, to the benefit of, or to direct the application of any security held by Landlord, and, until all of the Obligations have been paid and performed in full, all rights of subrogation, any right to enforce any remedy that Landlord now has or hereafter may have against Tenant, and any right to participate in any security now or hereafter held by Landlord; |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
(q) | Any defense based upon the benefits or defenses, if Guarantor is entitled to any benefits or defenses, of any or all anti-deficiency statutes or single-action legislation; and |
(r) | Any setoff, defense or counter-claim that Tenant or Guarantor may have or claim to have against Landlord. |
4. Until all amounts payable to Landlord under the Lease have been paid in full, Guarantor shall have no right of subrogation and Guarantor waives, to the fullest extent permitted by law, any right to enforce any remedy that Landlord now has or may hereafter have against Tenant.
5. Without prejudice to the generality of any waiver granted in this Guaranty, the Guarantor irrevocably and unconditionally abandons and waives any right which it may have at any time under the laws of Jersey whether by virtue of the droit de discussion or otherwise to require (i) that recourse be had to assets of any other person before any claim is enforced against it in respect of the obligations or liabilities assumed by it under this and (ii) whether by virtue of the droit de division or otherwise to require that any liability under this Guaranty be divided or apportioned with any other person or reduced in any manner whatsoever.
6. This Guaranty shall extend to each and every Obligation to be performed or observed under the Lease by Tenant and its successors and assigns. Successive demands may be made upon, and successive actions for the enforcement of such demands may be brought against, Guarantor upon successive defaults in the making of particular payments and the performance and observance of particular Obligations under the Lease, and the enforcement of this Guaranty against Guarantor with respect to any particular payment or Obligations under the Lease shall not operate to exhaust this Guaranty or as a waiver of the right to proceed under this Guaranty with respect to any future default or defaults.
7. Notwithstanding anything to the contrary herein contained in this Guaranty, this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time, payment, or any part thereof, of any or all of the Obligations guaranteed hereby is rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be restored or returned by Landlord upon the insolvency, bankruptcy or reorganization of Tenant or if Landlord elects to return such payment or any part thereof in its sole discretion, all as though such payment or application of proceeds had not been made. Without limiting the generality of the foregoing, if prior to any such rescission, invalidation, declaration, restoration or return, this Guaranty shall have been canceled or surrendered, this Guaranty shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of Guarantor in respect of the amount of the affected payment or application of proceeds.
8. Notwithstanding anything to the contrary contained herein, Guarantor may be replaced by an Approved Replacement Guarantor, as defined in the Lease and subject to the conditions set forth in Section 32.02 of the Lease. Concurrently with any such replacement, Landlord shall execute and deliver documentation reasonably requested by Guarantor to evidence the release of Guarantor from this Guaranty from and after the date of such replacement.
9. Subject to Paragraph 7 above, this Guaranty is an irrevocable, continuing guaranty and Guarantor agrees that this Guaranty shall remain in full force and effect until all of the Obligations are fully paid, performed and discharged, regardless of the expiration or earlier termination of the Lease, and regardless of the bankruptcy, reorganization, dissolution or insolvency of Tenant, its successors and assigns, and regardless of any actual, attempted or purported assignment, sublease or other transfer of all or any portion of Tenants interest in the Lease. Guarantor further agrees that this Guaranty may not be revoked by Guarantor. If any provision of this Guaranty is held to be invalid or unenforceable, the validity and enforceability of the other provisions of this Guaranty shall not be affected. This Guaranty shall remain in full force and effect notwithstanding future changes of conditions, including any changes in law or invalidity or irregularity in the creation of any of the Obligations.
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
10. In giving this Guaranty, Guarantor is not concerned with Tenants financial condition and hereby knowingly and irrevocably waives any right Guarantor may possess to require Landlord to disclose to Guarantor any information Landlord may now or hereafter possess concerning Tenants present or future character, credit, collateral or financial condition. Guarantor assumes the responsibility for being and keeping informed of the financial condition of Tenant and of all circumstances bearing upon the risk of non-payment and nonperformance of the Obligations that diligent inquiry would reveal.
11. No delay or failure by Landlord to execute any remedy against Tenant or Guarantor will be construed as a waiver of that right or remedy. All remedies of Landlord are cumulative.
12. This Guaranty shall be one of payment and performance and not merely of collection.
13. In any action or proceeding brought to enforce the terms of this Guaranty, the prevailing party shall be entitled to recover any and all costs and expenses, including, without limitation, actual attorneys fees and court costs, incurred in any such action or proceeding.
14. Any notice, demand or other communication to be given under the provisions of this Guaranty by either party hereto to the other party hereto shall be effective only if in writing and (i) personally served, (ii) mailed by Canadian registered or certified mail, return receipt requested, postage prepaid, (iii) sent by a nationally recognized courier service (such as Federal Express) for next-day delivery, to be confirmed in writing by such courier, or (iv) sent by facsimile (with answer back acknowledged), addressed as follows:
I F TO G UARANTOR , TO : | c/o Forterra Building Products | |
511 E. John Carpenter Freeway, Suite 600 Irving, TX 75062 |
||
Attention: Chief Financial Officer | ||
with copies to: | ||
Lone Star Americas Acquisitions LLC | ||
2711 N. Haskell Avenue, Suite 1700 | ||
Dallas, TX 75204 | ||
Attention: General Counsel | ||
I F TO L ANDLORD . TO : | FORT-NOM HOLDINGS (ONQC) INC. | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Asset Management | ||
With a copy to: | FORT-NOM HOLDINGS (ONQC) INC. | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Legal Transactions Department | ||
With another copy to: | FORT-BEN HOLDINGS (ONQC) LTD. | |
c/o W. P. Carey Inc. | ||
50 Rockefeller Plaza, 2 nd Floor | ||
New York, New York 10020 | ||
Attention: Legal Transactions Department |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
or to such other address or addresses as either Landlord or Guarantor may from time to time designate to the other by written notice in accordance herewith. Subject to the terms of this section, all notices, demands and other communications sent in the foregoing manner shall be deemed delivered when actually received or refused by the party to whom sent, unless (i) mailed, in which event the same shall be deemed delivered on the day of actual delivery as shown by the addressees registered or certified mail receipt or at the expiration of the third (3rd) business day after the date of mailing, whichever first occurs, or (ii) sent by facsimile, in which event the same shall be deemed delivered only if a duplicate notice sent pursuant to a method described in subsection (i), (ii) or (iii) of this Article 13 is delivered within one business day after such facsimile is received by the recipient. Notwithstanding the foregoing, if any notice, demand or other communication is not received during business hours on a business day, such notice, demand or other communication shall be deemed to have been delivered at the opening of business on the next business day.
14. Guarantor agrees that this Guaranty shall be construed as an absolute, unconditional, irrevocable, continuing and unlimited obligation of Guarantor without regard to the regularity, validity or enforceability of any liability or obligation hereby guaranteed.
15. The right of Landlord to demand and Guarantors obligation to pay and to perform fully the Obligations shall not be suspended, abridged or affected in any way whatsoever by the fact that the Obligations or any part thereof are at any time secured by real or personal property or otherwise. With or without notice to Guarantor and without affecting Guarantors liability hereunder or with respect to the Obligations hereby guaranteed, Landlord, from time to time, either before, at or after any Breach and whether or not Landlord is under any contractual or equitable obligation to do so, may (a) accept security for the Obligations hereby guaranteed, (b) release or accept other security in exchange or in substitution for collateral, if any, that may be held or any part thereof, (c) accept substitutes for or release Guarantor or any substitutes for Guarantor as party hereto, or (d) subordinate any security interest in any collateral or any portion thereof to the rights of other creditor or creditors.
16. This Guaranty shall continue for the term of the Lease and any extensions or renewals thereof and until all obligations and liabilities of Tenant and its successors and assigns to Landlord under or relating to the Lease have been fully paid or satisfied (subject to reinstatement of the Guaranty as provided in Paragraph 6 above).
17. For all purposes relating to any Premises located in the Province of Ontario, the interpretation, validity and enforcement of this Guaranty shall be governed by and construed under the laws of the province of Ontario and the federal laws of Canada applicable in that province. For all purposes relating to any Premises located in the Province of Québec, the interpretation, validity and enforcement of this Guaranty shall be governed by and construed under the laws of the province of Québec and the federal laws of Canada applicable in that province. To the extent they are applicable, and if they are applicable, to the full extent it is permissible by law to do so, the Guarantor expressly waives the provisions of Articles 1881, 2355, 2362, 2363, 2365 and 2366 of the Civil Code of Quebec .
18. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
19. This Guaranty or the provisions hereof shall not be modified, amended or waived in any manner unless the same be in writing and signed by Landlord and Guarantor.
20. If there be more than one undersigned Guarantor, each undersigned Guarantor is executing this instrument, and shall be unconditionally liable hereon, jointly and severally (or solidarily). Landlord may make demand upon or pursue any remedies against any one or more Guarantor, whether or not any demand is made upon or any remedies are pursued against any other Guarantor. Each Guarantor expressly agrees that recourse may be had against any and all property of Guarantor, regardless of whether such property constitutes community property, quasi-community property or separate property.
22. Landlord shall have the right, without any consent from Guarantor, to assign this Guaranty, in whole and not in part, in connection with any assignment of Landlords rights (including, without limitation, Landlords rights under Article 14 of the Lease) and obligations under the Lease. Upon the Owner becoming the Landlord pursuant to Article 14 of the Lease, upon the request of Landlord or Owner, as the case may be, Guarantor shall execute and deliver an acknowledgment that this Guaranty runs in favor of Landlord. Except as set forth in Paragraph 7 above, Guarantor may not assign, delegate or otherwise transfer all or any part of its respective rights and/or obligations under this Guaranty without the prior written consent of Landlord. Subject to the restrictions on transfer set forth in the immediately preceding sentence, this Guaranty shall be binding upon, and inure to the benefit of, Landlord and Guarantor and their respective successors and assigns. Any attempted assignment, delegation or transfer in violation of this Paragraph 22 shall be, and is hereby declared, null and void ab initio .
23. Guarantor agrees to deliver all financial reports required to be delivered by Guarantor pursuant to Section 13.01 of the Lease within the time frames set forth therein.
24. Guarantor acknowledges that it has requested and consented that this Guarantee and all documents, notices, correspondence and legal proceedings consequent upon, ancillary or relating directly or indirectly hereto, forming part hereof or resulting herefrom be drawn up in English only. La caution reconnaît quelle a exigé et consenti à ce que la présente Convention ainsi que tous les documents, avis, correspondances et procédures légales qui sy rapportent, directement ou indirectement, en font partie ou en découlent soient rédigés en anglais seulement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
IN WITNESS WHEREOF , the undersigned has executed and delivered this Guaranty as of the date first above written.
GUARANTOR | ||
LSF9 CONCRETE HOLDINGS LTD, a corporation incorporated under the laws of the Bailiwick of Jersey |
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Name: | ||
Title: |
[SIGNATURE PAGES CONTINUE ON NEXT PAGE]
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
Accepted and Agreed: | ||
LANDLORD: | ||
FORT-NOM HOLDINGS (ONQC) INC., a British Columbia corporation |
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Name: | ||
Title: |
EXHIBIT G | MASTER LAND AND BUILDING LEASE |
EXHIBIT H
FORM OF COLLATERAL ACCESS AGREEMENT
This COLLATERAL ACCESS AGREEMENT (this Agreement ) is entered into by [NAME OF LANDLORD] ( Landlord ), to and for the benefit of [MODIFY AS APPROPRIATE: Bank of America, N.A. as Collateral Agent for the Secured Creditors (as defined below)] (in such capacity and together with any successor thereto, the Collateral Agent ). Unless otherwise defined herein, all capitalized terms used herein and defined in the Credit Agreement referred to below shall be used herein as therein defined.
RECITALS:
WHEREAS , Landlord is the record title holder and owner of certain premises as set forth in Schedule 1 attached hereto and made a part hereof (collectively, the Premises );
WHEREAS , [NAMES OF TENANT] , a [JURISDICTIONS OF INCORPORATION/ FORMATION AND FORM OF EACH ENTITY] (collectively, as co-tenants, Tenant ), have possession of the Premises in accordance with that certain Master Land and Building Lease dated as of [ ], 2016 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Lease );
WHEREAS , reference is made to that certain [MODIFY AS APPROPRIATE: ABL Credit Agreement, dated as of March 13, 2015 (as it may be amended, amended and restated, supplemented, extended, refinanced or otherwise modified from time to time, the Credit Agreement ), among LSF9 Concrete Ltd, a company incorporated under the laws of the Bailiwick of Jersey ( Jersey ) with registered number 117753 (including its permitted successors, Holdings ), LSF9 Concrete Holdings Ltd, a company incorporated under the laws of Jersey with registered number 117752 (including its permitted successors, Mid-Holdings ), Stardust Finance Holdings, Inc., a Delaware corporation (including its permitted successors, the Initial Borrower ), the other borrowers party thereto, the several banks and other financial institutions or entities from time to time parties thereto as lenders and as issuing banks (the Lenders ), the Collateral Agent and Credit Suisse AG as administrative agent (together with its successors in such capacity, the Administrative Agent and, together with the Collateral Agent and the Lenders, the Lender Creditors ), pursuant to which Tenant (an affiliate of the Initial Borrower) has executed a guarantee and collateral agreement and other collateral documents in relation to the Credit Agreement];
WHEREAS , Tenants repayment (or guaranty ) of the extensions of credit made by the Lenders under the Credit Agreement will be secured by substantially all of the assets of Tenant, including, without limitation, all of the following now or hereafter located on the Premises [ MODIFY AS APPROPRIATE SO THAT THE COLLATERAL IS SPECIFICALLY IDENTIFIED: (i) all inventory of Tenant, (ii) all equipment used in Tenants business, (iii) all leasehold improvements of Tenant, and (iv) all furniture and all other personal property ] (collectively, the Collateral ); and
WHEREAS , the Collateral Agent has requested that Landlord execute this Agreement as a requirement under the Credit Agreement.
Exhibit H |
NOW , THEREFORE , in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Collateral Agent hereby covenant and agree as follows:
1. Landlord Lien . For so long as the Credit Agreement remains in effect, (a) Landlord (i) waives and releases unto the Collateral Agent and its successors and assigns any and all security interests and hypothecs created by statute, contract (including the Lease) or by common law and any and all other rights, claims, prior claims, liens and demands of every kind which it now has or may hereafter have against the Collateral and (ii) agrees that any rights, claims or demands it may have in or to the Collateral (to the extent not effectively waived pursuant to clause (a)(i) of this paragraph 1), shall, subject to the terms of this Agreement, be subordinate to the rights of the Collateral Agent in respect thereof, and Landlord hereby cedes priority and preference of rank of any of its hypothecs charging the Collateral to the Collateral Agents hypothecs charging the Collateral.
(b) Landlord further agrees not to assert any claim to the Collateral while the Credit Agreement remains in effect, subject to the terms of this Agreement. Landlord acknowledges that the Collateral Agent shall have a first priority security interest in, and hypothec on, the Collateral, and Landlord authorizes the Collateral Agent to file and record [Uniform Commercial Code/Personal Property Security Act/Civil Code] financing statements (or local law equivalent) against the Collateral.
(c) Tenant hereby unconditionally releases Landlord from any claim or action regarding Collateral Agents removal of the Collateral as permitted by this Agreement.
2. Nature of Collateral . The Collateral may be installed in or located on the Premises and is not and shall not be deemed to be a fixture, an immovable or part of the underlying real estate but shall at all times be considered personal (movable) property. Landlord acknowledges that the Collateral is and will remain personal (movable) property and not fixtures, immovables or part of the underlying real estate even though it may be affixed to or placed on the Premises. For the avoidance of doubt, the Collateral shall expressly exclude all Building Equipment (as such term is defined in the Lease).
3. Collateral Agents Access . (a) Landlord agrees that so long as the Lease is in full force and effect, Landlord will not prevent the Collateral Agent or its designees from entering upon the Premises at all reasonable times to inspect, appraise or remove the Collateral; provided , that (i) Collateral Agent shall give to Landlord not less than five (5) days notice of Collateral Agents election to enter the Premises, (ii) such notice shall indicate whether such entry is due to an event of default under the Credit Agreement and (iii) if Landlord shall have given Collateral Agent a Disposition Notice (as defined in paragraph 3(b) below), such entry shall not be governed by this paragraph 3(a), but shall instead be governed by paragraph 3(b).
(b) In the event that Landlord intends to take possession of the Premises during the term of the Lease or to terminate the Lease prior to the expiration of the Lease term, Landlord shall give to Collateral Agent a copy of such notice at the same time as such notice is given to Tenant (each such notice, a Disposition Notice ). If Collateral Agent intends to exercise Collateral Agents rights under this paragraph 3(b), within fifteen (15) days after Collateral Agent actually receives a Disposition Notice, Collateral Agent shall send a notice to Landlord stating that Collateral Agent elects to exercise its rights under this paragraph 3(b) in accordance with the terms of this Agreement (each such notice, a Disposition Election ). If Collateral Agent duly and timely gives a Disposition Election to Landlord, Landlord agrees that within the 90-day period after the Collateral Agent delivers to Landlord a Disposition Election (the Disposition Period ), the Collateral Agent shall have the right, but not the obligation, to enter upon and into the Premises on a non-exclusive basis for the sole purpose of inspecting or removing the Collateral or conducting a public or private sale of the Collateral. Landlord further agrees that during the Disposition Period, Landlord will not interfere with the Collateral Agents actions in removing the Collateral from the Premises or such other of the Collateral Agents actions in otherwise enforcing its security interest in the Collateral in accordance with the terms of this Agreement. Notwithstanding anything to the contrary in this paragraph, Landlord acknowledges that the Collateral Agent shall at no time have any obligation to remove the Collateral from the Premises. The Collateral Agent shall not be liable solely as a result (A) of any diminution in value of the Premises caused by the absence of the Collateral actually removed or (B) the need to replace the Collateral after such removal.
Exhibit H |
(c) In entering upon or into the Premises under either clause (a) or (b) set forth above of this paragraph 3, the Collateral Agent hereby agrees that it shall (i) indemnify, defend and hold Landlord harmless from and against any and all claims, judgments, liabilities, costs and expenses incurred by Landlord (excluding as a result of the Landlords own gross negligence or breach) and caused by the Collateral Agent and/or the Collateral Agents designee entering upon or into the Premises and taking any of the foregoing actions with respect to the Collateral (and such costs shall include any damage to the Premises made by the Collateral Agent in severing and/or removing the Collateral therefrom and taking any of the foregoing actions with respect to the Collateral), (ii) promptly repair, at the end of the Disposition Period, at its sole cost and expense any damage to the Premises that is caused by Collateral Agent and/or its designees taking any of the foregoing actions to its condition prior to such damage, and (iii) to the extent not already paid by Tenant, pay all Base Rent (as defined in the Lease), for such time as the Collateral Agent actually occupies all or any portion of the Premises, pro rated on a per diem basis based on a thirty (30) day month, with such payment to be made in arrears every thirty (30) days during the Disposition Period. By way of example only, if the Disposition Period were to commence on Monday May 1, 2017 and continue through Wednesday, June 9, 2017, Collateral Agent would be responsible for the payment of Base Rent applicable to a 40-day period, and (A) the first payment of Base Rent would be due and payable to Landlord on May 31, 2017 (i.e., the date immediately succeeding the first 30-day period) and (B) the second payment of Base Rent would be due and payable to Landlord on June 10, 2017. Further, if Collateral Agent did not access the Premises during the weekends of such 40-day period, Collateral Agent would nevertheless be responsible for Base Rents during such 40-day period. Collateral Agent shall give Landlord such advance notice as is reasonably practicable under the circumstances (but no less than 24 hours prior notice) of the date that Collateral Agent shall cease actual occupancy of the Premises, and the Disposition Period shall cease upon the date set forth in such notice (subject to such 24 hours notice requirement).
(d) Notwithstanding anything to the contrary contained herein, (i) if Collateral Agent fails to duly and timely give a Disposition Election to Landlord in accordance with clause (b) of this paragraph 3, then , the Collateral remaining in or on the Premises shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in any manner Landlord sees fit, and Collateral Agent shall no longer be permitted access to the Premises; (ii) if Collateral Agent fails to remove any Collateral left on a certain location that is part of the Premises (such location, a Specified Location ) at the end of the Disposition Period, then , the Collateral remaining in or on such Specified Location shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in or on such Specified Location in any manner Landlord sees fit; and (iii) if, within five (5) days following notice from Landlord to Collateral Agent, Collateral Agent fails to (A) take steps to repair damage to any Specified Location in accordance with clause (c)(ii) of this paragraph 3 or (B) cease or rectify any action(s) by Collateral Agent which are beyond the scope permitted under this Agreement (e.g., removing any of the Building Equipment) on the Premises or any portion thereof or (C) timely pay the Base Rent then due in accordance with paragraph 3(b), then , the Collateral remaining in or on such Specified Location shall be deemed abandoned and Landlord shall be entitled, though not obligated, to dispose of such Collateral in or on such Specified Location in any manner Landlord sees fit.
(e) In the event that Landlord gives to Tenant a notice of a default under the Lease, Landlord shall simultaneously give to Collateral Agent a copy of such notice (a Default Notice ). Collateral Agent shall have the right, but not the obligation, to cure any such default(s) within the last day of the cure period available to Tenant under the terms of the Lease.
Exhibit H |
4. Delivery of Notices . All notices to the Collateral Agent under this Agreement shall be in writing and sent by (a) United States certified mail, return receipt requested, postage pre-paid or (b) a nationally recognized courier service (such as Federal Express) for next-day delivery, to be confirmed in writing by such courier overnight delivery service, addressed as follows:
To Collateral Agent :
Bank of America, N.A., as Collateral Agent
901 Main Street, 11 th Floor
TX1-492-11-23
Dallas, Texas 75202
Attn: Laura Parrish
Telephone: 214-209-4755
To Landlord :
Pipe Portfolio Owner (Multi) LP
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Asset Management Department
With another copy to:
Pipe Portfolio Owner (Multi) LP
c/o W. P. Carey Inc.
50 Rockefeller Plaza, 2 nd Floor
New York, New York 10020
Attention: Legal Transactions Department
Any party hereto may change its address, telecopy or telephone number for notices and other communications hereunder by notice to all of the other parties hereto.
7. Expiration of Agreement . The provisions of this Agreement shall continue in effect until Landlord has received the Collateral Agents written confirmation that Tenant has paid and performed all of its obligations under the Credit Agreement (or upon such date that the Credit Agreement is no longer in effect, whichever shall first occur).
8. Governing Law . This Agreement and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the law of the State of New York without regard to conflict of law principles.
9. Successors and Assigns . The terms and provisions of this Agreement shall inure to the benefit of and be binding upon the successor and assigns of Landlord (including any successor owner of the Premises) and the Collateral Agent. Landlord acknowledges that it shall not effect a partial assignment of
Exhibit H |
the Lease. [MODIFY AS APPROPRIATE: The Collateral Agent may, without the consent of the Landlord (or any of the Landlords successor or assigns), freely assign, at any time, all or a portion of its right and obligations under this Agreement to the Senior Lien Term Loan Administrative Agent or the Junior Lien Term Loan Administrative Agent, as applicable]; provided , that only one party at any given time shall act as Collateral Agent under this Agreement, and Landlord shall not be required to give a Default Notice or Disposition Notice to more than one party with respect to notices to Collateral Agent. Landlord will disclose the terms and conditions of this Agreement to any purchaser or successor to Landlords interest in all or any portion of the Premises and shall require that any such purchaser or successor assume Landlords obligations under this Agreement.
10. Amendments . This Agreement may not be changed or terminated orally and is binding upon, and inures to the benefit of, the parties hereto, the Secured Parties and each of their respective successors and assigns.
11. Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed an original, but together the counterparts shall constitute one and the same document.
12. Credit Agreement . The parties thereto may, without in any way affecting or limiting this Agreement, and without notice to Landlord, modify, supplement, restate (in whole or in part), replace or refinance the Credit Agreement or any of the other Loan Documents thereunder.
13. Waiver of Trial by Jury . LANDLORD, TENANT AND COLLATERAL AGENT EACH HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE BETWEEN LANDLORD, TENANT AND/OR COLLATERAL AGENT IN ANY WAY RELATED TO THIS AGREEMENT.
14. Language . The parties hereto confirm that it is their wish that this Agreement and any other document executed in connection with the transactions contemplated herein be drawn up in the English language only and that all other documents contemplated thereunder or relating thereto, including notices, may also be drawn up in the English language only. Les parties aux présentes confirment que cest leur volonté que cette convention et les autres documents y reliés soient rédigés en anglais seulement et que tous les documents, y compris tous avis, envisagés par cette convention et les autres documents peuvent être rédigés en anglais seulement.
[ Signatures page follows ]
Exhibit H |
IN WITNESS WHEREOF , the undersigned have caused this Agreement to be duly executed and delivered as of the day and year first set forth above.
[NAME OF LANDLORD] | ||
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Title: | ||
[BANK OF AMERICA, N.A., as Collateral Agent] | ||
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Title: |
TENANT ACKNOWLEDGMENTS: | ||
By: |
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Exhibit H |
By: |
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Exhibit H |
Schedule 1
Insert Schedule of Addresses for Premises
Exhibit H |
Exhibit 10.14
TAX RECEIVABLE AGREEMENT
by and between
[Lone Star]
and
Forterra, Inc.
Dated as of [●], 2016
TABLE OF CONTENTS
P AGE | ||||||
ARTICLE 1 | ||||||
D EFINITIONS | ||||||
Section 1.01. |
Definitions |
2 | ||||
ARTICLE 2 | ||||||
D ETERMINATION OF R EALIZED T AX B ENEFIT | ||||||
Section 2.01. |
Covered Tax Assets |
15 | ||||
Section 2.02. |
Tax Benefit Schedule |
15 | ||||
Section 2.03. |
Procedures, Amendments |
16 | ||||
ARTICLE 3 | ||||||
T AX B ENEFIT P AYMENTS | ||||||
Section 3.01. |
Payments |
17 | ||||
Section 3.02. |
Offsets |
18 | ||||
Section 3.03. |
No Duplicative Payments |
18 | ||||
Section 3.04. |
Change Notices |
18 | ||||
ARTICLE 4 | ||||||
T ERMINATION | ||||||
Section 4.01. |
Early Termination; Breach of Agreement; Credit Events |
18 | ||||
Section 4.02. |
Early Termination Notice |
19 | ||||
Section 4.03. |
Payment upon Early Termination |
19 | ||||
ARTICLE 5 | ||||||
C OMPANY O BLIGATIONS AND L ATE P AYMENTS | ||||||
Section 5.01. |
Company Obligations |
20 | ||||
Section 5.02. |
Late Payments by the Company |
20 | ||||
ARTICLE 6 | ||||||
C OMPANY T AX M ATTERS ; C ONSISTENCY ; C OOPERATION | ||||||
Section 6.01. |
Participation in Company Tax Matters |
20 | ||||
Section 6.02. |
Consistency |
21 | ||||
Section 6.03. |
Cooperation |
21 | ||||
ARTICLE 7 | ||||||
M ISCELLANEOUS | ||||||
Section 7.01. |
Notices |
22 | ||||
Section 7.02. |
Counterparts |
23 | ||||
Section 7.03. |
Entire Agreement; Third-Party Beneficiaries |
23 | ||||
Section 7.04. |
Governing Law |
23 | ||||
Section 7.05. |
Severability |
23 | ||||
Section 7.06. |
Headings |
23 | ||||
Section 7.07. |
Setoff |
23 | ||||
Section 7.08. |
Successors; Assignment; Amendments; Waivers |
23 |
i
Section 7.09. |
Titles and Subtitles |
24 | ||||
Section 7.10. |
Waiver of Jury Trial |
24 | ||||
Section 7.11. |
Reconciliation |
24 | ||||
Section 7.12. |
Withholding |
25 | ||||
Section 7.13. |
Confidentiality |
25 | ||||
Section 7.14. |
Affiliated Corporations; Admission of the Company into a Consolidated Group; Transfers of Corporate Assets |
26 | ||||
Section 7.15. |
Tax Treatment |
26 | ||||
Section 7.16. |
TRA Party Representative |
27 |
ii
TAX RECEIVABLE AGREEMENT
This TAX RECEIVABLE AGREEMENT (this Agreement ), dated as of [ ], 2016, is hereby entered into by and between Forterra, Inc., a Delaware corporation (the Company ), [Lone Star], a [ ] (along with any successor as provided in Section 7.08, the TRA Party Representative ), and the stockholders listed on Schedule A (each, a TRA Party ). Capitalized terms used herein have the respective meanings set forth in Section 1.01.
RECITALS
WHEREAS, the TRA Parties are the record owners of one hundred percent (100%) of the Common Stock on the date hereof;
WHEREAS, the Company intends to effect an initial public offering of Common Stock of the Company pursuant to the Registration Statement (the IPO );
WHEREAS, the Company and its U.S. Subsidiaries file a consolidated U.S. federal income Tax Return and its Canadian Subsidiaries file Canadian income Tax Returns (collectively, the Company Group );
WHEREAS, the Company Group will be entitled to utilize certain Tax assets that relate to periods (or portions thereof) ending on or prior to, or arrangements in existence on or prior to, the IPO (as more fully described herein, the Covered Tax Assets );
WHEREAS, the income, gain, loss, expenses, deductions and other Tax items of the Company Group may be affected by the Covered Tax Assets;
WHEREAS, the Company has agreed to make payments to the TRA Parties in an amount equal to eighty-five percent (85%) of the aggregate reduction in Taxes payable realized by the Company Group as a result of the utilization of the Covered Tax Assets, and to ease administrative burdens, an assumed tax rate shall be used to calculate the Company Groups state and local liabilities for Taxes;
NOW, THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
D EFINITIONS
Section 1.01. Definitions .
As used in this Agreement, the terms set forth in this Article 1 shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined).
Actual Tax Liability means, with respect to any Taxable Year, the liability for U.S. and Canadian federal, state, provincial and local income Taxes of the Company Group, applying the principles in Section 2.02(b).
Advisory Firm means any law firm or accounting firm mutually selected by the Company and the TRA Party Representative that is nationally recognized as being expert in Tax matters and is not an Affiliate of the Company or the TRA Party Representative.
Advisory Firm Letter means a letter from the Advisory Firm stating that the relevant schedule, notice or other information to be provided by the Company to the TRA Parties and all supporting schedules and work papers were prepared in a manner consistent with the terms of this Agreement and, to the extent not expressly provided in this Agreement, on a reasonable basis in light of the facts and applicable law in existence on the date to which such schedule, notice or other information relates.
Affiliate means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, Controls, is Controlled by or is under common Control with, such first Person.
Agreed Rate means a rate per annum equal to LIBOR plus 100 basis points.
Agreement is defined in the preamble of this Agreement.
Amended Schedule is defined in Section 2.03(b) of this Agreement.
Applicable Percentage with respect to a TRA Party, means the quotient, expressed as a percentage set forth opposite such TRA Partys name on Schedule A, obtained by dividing (i) the number of outstanding shares of Common Stock owned by such TRA Party immediately prior to the IPO by (ii) the aggregate number of shares of Common Stock issued and outstanding immediately prior to the IPO.
Approved Assignment is defined in Section 7.16(d) of this Agreement.
Bankruptcy Code means Title 11 of the United States Code.
Board means the board of directors of the Company.
2
Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
Canadian Basis Assets means the financing expenses that are deductible in computing income of a Subsidiary under the Canadian Tax Act, capital cost allowance and cumulative eligible capital, and the reduction of taxable gain attributable to existing tax cost in respect of assets (other than cash, cash equivalents, receivables, inventory and other current assets) owned by the Canadian Subsidiaries on the IPO Date.
Canadian Tax Act means the Income Tax Act (Canada) and the regulations promulgated thereunder, in each case, as amended from time to time.
Change of Control means the occurrence of any of the following events:
(a) any person or group (within the meaning of Sections 13(d) and 14(d) of the Exchange Act but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) shall become the beneficial owner, directly or indirectly, of voting stock of the Company entitling such person or group to cast more than fifty percent (50%) of the votes eligible to be cast in an election of directors of the Company;
(b) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement or series of related agreements for the sale or other disposition, directly or indirectly, by the Company of all or substantially all of the Companys assets, other than such sale or other disposition by the Company of all or substantially all of the Companys assets to an entity at least fifty percent (50%) of the combined voting power of the voting securities of which are owned by shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale; or
(c) there is consummated a merger or consolidation of the Company or any direct or indirect Subsidiary of the Company with any other corporation or other entity, and, immediately after the consummation of such merger or consolidation, either (i) the board of directors of the Company immediately prior to the merger or consolidation does not constitute at least a majority of the board of directors of the company surviving the merger or, if the surviving company is a subsidiary, the ultimate parent thereof, or (ii) all of the Persons who were the respective beneficial owners of the voting securities of the Company immediately prior to such merger or consolidation do not beneficially own, directly or indirectly, more than 50% of the combined voting power of the then-outstanding voting securities of the Person resulting from such merger or consolidation.
Change Notice is defined in Section 3.04 of this Agreement.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Common Stock means the issued and outstanding shares of common stock of the Company.
3
Company is defined in the preamble of this Agreement, provided that the term Company includes, where the context requires, LSF9 Concrete Ltd. and its Subsidiaries.
Company Group is defined in the preamble of this Agreement.
Confidential Information means all information of a confidential or proprietary nature (whether or not specifically labeled or identified as confidential), in any form or medium, that relates to the business, products, financial condition, services, or research or development of either party or their respective suppliers, distributors, customers, independent contractors or other business relations. Confidential Information includes, but is not limited to, the following: (i) internal business and financial information (including information relating to strategic and staffing plans and practices, business, finances, training, marketing, promotional and sales plans and practices, cost, rate and pricing structures and accounting and business methods); (ii) identities of, individual requirements of, specific contractual arrangements with, and information about, either partys suppliers, distributors, customers, independent contractors or other business relations and their confidential information; (iii) trade secrets, know-how, compilations of data and analyses, techniques, systems, formulae, recipes, research, records, reports, manuals, documentation, models, data and databases relating thereto; (iv) inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable); and (v) other intellectual property rights. Notwithstanding the foregoing, Confidential Information does not include (a) information that either party can demonstrate was or has become generally available to the public other than as a result of disclosure by such party or its Affiliates, (b) information that is disclosed to a party or its Affiliates, other than under an obligation of confidentiality, by a third party who had no obligation not to disclose such information to others or (c) information that is independently developed after the date hereof by a party or its Affiliates without the use of the other partys or its Affiliates Confidential Information.
Consolidated EBITDA 1 of the Company for any period means (a) Consolidated Net Income of the Company and its Subsidiaries for such period plus (b) without duplication of each other and with amounts that are adjusted pursuant to the definition of Consolidated Net Income, and to the extent deducted in determining such Consolidated Net Income for such period (except with respect to clauses (viii), (x) and (xx) below), the sum of:
(i) | provision for Taxes based on income, profits or capital of the Company and its Subsidiaries, including federal, state, franchise and similar taxes and withholding taxes for such period, taxes in lieu of income taxes and payroll tax credits, income tax credits and similar tax credits; |
(ii) | total interest expense (net of interest income to the extent not already included in total interest expense for such period) and, to the extent not reflected in such total interest expense, payments made in respect of hedging obligations or other derivative instruments entered into for the purpose of hedging interest rate risk (minus any |
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Capitalized terms not otherwise defined in this definition shall have the meanings ascribed to them in the Credit Agreement. |
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payments received in respect of such hedging obligations or other derivative instruments), amortization or write off of debt discount and debt issuance costs and commissions and discounts and other fees and charges (including bank fees, agency fees, fees and charges relating to surety bonds in connection with any financing activities and commissions, discounts and other fees and charges owed with respect to letters of credit, bankers acceptance or any similar facilities) associated with Indebtedness (including the Loans and Letters of Credit); |
(iii) | depreciation and amortization expense (which, for the avoidance of doubt, will include amortization of debt expense); |
(iv) | amortization of intangibles (including goodwill) and organization costs; |
(v) | (A) costs and expenses in connection with the Transactions, (B) any transaction fees, costs and expenses (including up-front fees, commissions, premiums or charges) incurred in connection with, to the extent permitted under the Loan Documents and whether or not consummated, equity issuances (including an IPO), Investments, Dispositions, recapitalizations, refinancings, mergers, amalgamations, option buyouts or the incurrence or repayment of Indebtedness or any amendments, waivers or other modifications under the agreements relating to such Indebtedness or similar transactions and (C) costs in connection with strategic initiatives, transition costs and other business optimization and information systems-related costs (including non-recurring employee bonuses in connection therewith and non-recurring product and Intellectual Property development costs); |
(vi) | non-cash compensation expense, including deferred compensation, and any other non-cash losses, charges and expenses (including write-offs or write-downs but not including any write-off or write-down of inventory or accounts receivable); |
(vii) | any Permitted Management Fees paid or accrued during such period and any other management, monitoring, consulting, transaction and advisory fees (including termination fees) and related indemnities, charges and expenses paid to or on behalf of any direct or indirect parent company of the Company or any of the Permitted Investors, to the extent permitted to be paid under Section 6.9 (and any accruals in respect thereof) ( provided , that any amounts that are added back to Consolidated EBITDA pursuant to this clause (vii) in respect of items accrued during such period shall not be added back to Consolidated EBITDA pursuant to this clause in any subsequent period); |
(viii) | cash receipts (or any netting arrangements resulting in reduced cash expenditures) not included in Consolidated EBITDA or Consolidated Net Income in any period to the extent non-cash gains relating to such cash receipts or netting arrangement were deducted in the calculation of Consolidated EBITDA pursuant to clause (c) below for any previous period and not added back; |
(ix) |
(A) any costs or expenses incurred pursuant to any management equity plan or stock option plan, share-based incentive compensation plan or any other management or |
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employee benefit plan or agreement, pension plan, any stock subscription or stockholders agreement or any distributor equity plan or agreement, (B) any executive compensation charges or expenses and (C) any charges, costs, expenses, accruals or reserves in connection with the rollover, acceleration or payout of equity interests held by management, in each case to the extent that such charges, costs, expenses, accruals or reserves are funded with net cash proceeds contributed to the Company as a capital contribution or net cash proceeds of issuances of Capital Stock of the Initial Borrower (other than Disqualified Capital Stock or any Cure Amount); |
(x) | expected run-rate cost savings, operating expense reductions, other operating improvements and synergies relating to any Pro Forma Transactions (including the Transactions) (as determined by the Company in good faith subject to the provisions of Section 1.5(c)); |
(xi) | restructuring and similar charges (including severance, relocation costs, costs related to entry into new markets, costs related to closure/consolidation of facilities, integration and facilities opening costs and other business optimization expenses, signing costs, retention or completion bonuses, transition costs and curtailments or modifications to pension and post-retirement employee benefit plans (including any settlement of pension liabilities)); |
(xii) | any loss realized upon any sale, abandonment or other disposition of any asset of any Group Member (including pursuant to any Sale and Leaseback Transaction) that is not sold, abandoned or otherwise disposed of in the ordinary course of business (as determined in good faith by the Company) (including, for the avoidance of doubt, the Permitted English Business Sale); |
(xiii) | earn-out obligations (including any Acquisition Earn-Out Payments) incurred in connection with any Permitted Acquisition or other Investment and paid or accrued during the applicable period; |
(xiv) | unrealized net losses resulting from changes in the fair market value of any non-speculative Hedge Agreements and the net costs of implementation of any non-speculative Hedge Agreements, and losses, charges and expenses attributable to the early extinguishment or conversion of Indebtedness, Hedge Agreements or other derivative instruments (including deferred financing expenses written off and premiums paid) and any currency translation losses; |
(xv) | any non-controlling or minority interest expense consisting of income attributable to third parties in respect of their Capital Stock in non-Wholly Owned Subsidiaries; |
(xvi) | losses, charges and expenses related to payments made to option holders of the Company or any of its direct or indirect parent companies in connection with, or as a result of, any distribution being made to equity-holders of such Person or any of its direct or indirect parent companies, which payments are being made to compensate such option holders as though they were equity-holders at the time of, and entitled to share in, such distribution; |
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(xvii) | losses or discounts on sales of Permitted Receivables Financing Assets in connection with any Permitted Receivables Financing; |
(xviii) | the adjustments set forth on Schedule 1.1A; |
(xix) | any extraordinary, non-recurring or unusual losses or expenses; and |
(xx) | to the extent not included in determining Consolidated Net Income for such period, business interruption insurance proceeds in an amount representing the earnings for such period that such proceeds are intended to replace (whether or not yet received so long as the Company in good faith expects to receive the same within the four fiscal quarters immediately following such business interruption (it being understood that to the extent not actually received within such four fiscal quarters, such amount shall be deducted in calculating Consolidated EBITDA for such fiscal quarters)); minus |
(c) | to the extent included in determining Consolidated Net Income for such period, the sum of: |
(i) | interest income on cash and Cash Equivalents and other similar securities (except to the extent deducted in determining total interest expense), |
(ii) | any other non-cash income (other than amounts accrued in the ordinary course of business consistent under accrual-based revenue recognition procedures in accordance with GAAP), excluding any such income that represents the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period (other than such cash charges that have not increased Consolidated EBITDA), |
(iii) | any gain realized upon any sale, abandonment or other disposition of any asset of any Group Member (including pursuant to any Sale and Leaseback Transaction) that is not sold, abandoned or otherwise disposed of in the ordinary course of business (as determined in good faith by the Company) (including, for the avoidance of doubt, the Permitted English Business Sale), |
(iv) | any extraordinary, non-recurring or unusual gain, |
(v) | unrealized net gains resulting from changes in the fair market value of any non-speculative Hedge Agreements, gains attributable to the early extinguishment or conversion of Indebtedness or Hedge Agreements, and currency translation gains, and |
(vi) | any non-controlling or minority interest income consisting of loss attributable to third parties in respect of their Capital Stock in non-Wholly Owned Subsidiaries. |
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Consolidated Net Income 2 of the Company for any period means the consolidated net income (or loss) of the Company and its Subsidiaries for such period (including, in the event of any acquisition, the income (or deficit) of any Person (or the income (or deficit) associated with assets acquired from such Person) accrued during the measurement period prior to the date it becomes a Subsidiary of the Company or it or the relevant acquired assets are acquired, merged or amalgamated into or consolidated with any Group Member on a pro forma basis as if the acquisition occurred on the first day of the measurement period), determined on a consolidated basis in accordance with GAAP (adjusted to reflect any charge, tax or expense to the extent not otherwise reflected in the consolidated net income (or loss) of the Company and incurred or accrued by Holdings or any direct or indirect parent of Holdings during such period attributable to the operations of Group Members as though such charge, tax or expense had been incurred by the Company, to the extent that the Company has made any Restricted Payment or other payment to or for the account of Holdings in respect thereof); provided , that, for the avoidance of doubt, in calculating Consolidated Net Income of the Company and its consolidated Subsidiaries for any period, there shall be included the aggregate amount actually paid to Group Members in cash during such period on account of business interruption insurance representing the earnings for such period that such proceeds are intended to replace; provided , further , that in calculating Consolidated Net Income of the Company and its consolidated Subsidiaries for any period, there shall be excluded, without duplication,
a. | [reserved]; |
b. | [reserved]; |
c. | [reserved]; |
d. | any net unrealized gains and losses resulting from obligations under Hedge Agreements or other derivative instruments and the application of Statement of Financial Accounting Standards Board Accounting Standards Codification 815 (Derivatives and Hedging); |
e. | effects of adjustments (including the effects of such adjustments pushed down to the Group Members) in the inventory, property and equipment, software, goodwill, intangible assets, in-process research and development, deferred revenue and debt line items thereof in such Persons consolidated financial statements pursuant to GAAP resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to any consummated acquisition or the amortization or write-off of any amounts thereof; |
f. | any gain or loss realized upon the disposal, abandonment or discontinuation of operations of any Group Member, and any income (loss) from disposed, abandoned or discontinued operations (but if such operations are classified as discontinued because they are subject to an agreement to dispose of such operations, only when and to the extent such operations are actually disposed of), including in each case any closure of any branch; |
g. | any impairment charge or asset write-off, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities (but excluding any write-off or write- |
2 |
Capitalized terms not otherwise defined in this definition shall have the meanings ascribed to them in the Credit Agreement. |
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down related to inventory or accounts receivable) or as a result of a change in law or regulation, in each case pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP; |
h. | any net gain or loss resulting from currency translation gains or losses related to currency remeasurements of Indebtedness (including any net loss or gain resulting from hedging agreements for currency exchange risk) and any other foreign currency translation gains or losses; |
i. | any expenses, charges or losses that are covered by indemnification or other reimbursement provisions in connection with any Investment, Permitted Acquisition or any sale, conveyance, transfer or other disposition of assets permitted under this Agreement, to the extent actually indemnified or reimbursed, or, so long as the Company has made a good-faith determination that a reasonable basis exists for such indemnification or reimbursement and only to the extent that such amount is in fact indemnified or reimbursed within four fiscal quarters of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so indemnified or reimbursed within such four fiscal quarters); |
j. | any cash charges associated with the rollover, acceleration or payout of Common Stock by, or to, management or other holders of Common Stock of the Company or any of its parent companies or Subsidiaries in connection with the Transactions; and |
k. | the cumulative effect of a change in accounting principles during such period, whether effected through a cumulative effect adjustment or a retroactive application in each case in accordance with GAAP. |
Consolidated Net Leverage Ratio means, as of any date, the ratio of consolidated funded indebtedness for borrowed money of the Company and its Subsidiaries measured on a consolidated basis as of such date, less unrestricted cash of the Company and its Subsidiaries as of such date (up to [ ]) to Consolidated EBITDA for the four fiscal quarters most recently ended on or prior to such date.
Consolidated Return is defined in Section 7.14(a) of this Agreement.
Control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Covered Tax Assets means, in each case, as applied under U.S. federal, state, local and Canadian federal and provincial law:
(a) the U.S. Basis Assets;
(b) the Canadian Basis Assets;
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(c) NOLs and Tax Credits of the Company and (without duplication) any member of the Company Group existing as of the IPO Date;
(d) deductions in respect of payments made to employees, independent contractors or other providers of services to the Company and its Subsidiaries under the Long-Term Incentive Plan;
(e) deductions in respect of transaction expenses attributable to the Companys acquisition of the stock of USP Holdings, Inc. in April 2016; and
(f) deductions attributable to Imputed Interest;
provided that (i) in order to determine whether any item described in clauses (a)-(c) is a Covered Tax Asset or a Post-IPO Tax Asset, the Taxable Year of the relevant member of the Company Group that includes the IPO Date (the Straddle Year ) shall be deemed to end as of the end of the IPO Date, and, except as otherwise provided below, the Company and the TRA Parties shall, acting reasonably, together determine the amount of any such item arising in the Straddle Year, or any portion thereof, that is included in the amount of Covered Tax Assets; and (ii) Covered Tax Assets shall include any Covered Tax Asset that becomes an NOL following the IPO Date as a result of such Covered Tax Asset not being fully utilized in the year in which it arises.
Covered Tax Benefits for any Taxable Year means 85% of the Realized Tax Benefits.
CRA means the Canada Revenue Agency.
Credit Agreement means the ABL Credit Agreement, dated as of March 13, 2015 among LSF9 Concrete Ltd., LSF9 Concrete Holdings Ltd., Stardust Finance Holdings, Inc., the additional revolving borrowers party thereto and the lenders party thereto.
Credit Event means the occurrence of any of the following events:
(a) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or any of its Subsidiaries or its debts, or of a substantial part of its assets, under any federal, state or non-U.S. bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any of its Subsidiaries or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
(b) the Company or any of its Subsidiaries shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any federal, state or non-U.S. bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (a) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary of the Company or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
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(c) the Company or any of its Subsidiaries engages in any other action or fails to take any action that constitutes an event of default under any indebtedness or guarantee having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $30 million if such event of default is not waived by the applicable creditor or cured by the Company within 30 days of its occurrence.
Credit Event Notice is defined in Section 4.01(c) of this Agreement.
Default Rate means a rate per annum equal to LIBOR plus 500 basis points.
Determination has the meaning ascribed to such term in Section 1313(a) of the Code or any other event (including the execution of a Form 870-AD) that finally and conclusively establishes the amount of any liability for Tax.
Early Termination Date means the date of an Early Termination Notice for purposes of determining the Early Termination Payment.
Early Termination Notice is defined in Section 4.02 of this Agreement.
Early Termination Payment is defined in Section 4.03(b) of this Agreement.
Early Termination Rate means the lesser of (i) 6.50% per annum, compounded annually, and (ii) LIBOR plus 100 basis points.
Early Termination Schedule is defined in Section 4.02 of this Agreement.
Excess Payment is defined in Section 3.02 of this Agreement.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Expert is defined in Section 7.11 of this Agreement.
Imputed Interest means the portion of any Tax Benefit Payment payable by the Company to a TRA Party that is to be treated as imputed interest under Sections 483 and 1274 of the Code and any similar provision of applicable Tax law.
Independent Directors means the members of the Board other than members of the Board that have been appointed or designated by a TRA Party or its Affiliates.
IPO is defined in the preamble of this Agreement.
IPO Date means the closing date of the IPO.
IRS means the U.S. Internal Revenue Service.
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Law means any U.S. or Canadian federal, state, provincial, local or non-U.S. and non-Canadian statute, law, ordinance, regulation, rule, code, order, injunction, judgment, determination, directive, ruling, decree, requirement or rule of law, or any other provision, decision or requirement having the force and effect of law.
LIBOR means, for each month (or portion thereof) during any period, an interest rate per annum equal to the rate of interest published in The Wall Street Journal, Eastern Edition, two Business Days prior to the first day of such month as the London Interbank Offered Rate applicable to such month. In the event that The Wall Street Journal, Eastern Edition, is not published or such rate does not appear in The Wall Street Journal, Eastern Edition, LIBOR shall be determined by any other publicly available source of such market rate for London interbank offered rates for U.S. dollar deposits for such month (or portion thereof).
Long-Term Incentive Plan means the LSF9 Concrete Holdings Ltd. Long Term Incentive Plan.
LTIP Party means Lone Star Fund IX (U.S.) and its Affiliates.
LTIP Trigger Transaction is defined in clause (f) of the definition of Valuation Assumptions.
NOLs means net operating loss carryforwards, capital loss carryforwards, non-capital losses, net capital losses and disallowed interest expense carryforwards under Section 163(j) of the Code for U.S. and Canadian federal, state, provincial and local income tax purposes.
Non-Tax Benefit Tax Liability means, with respect to any Taxable Year, the overall liability for Taxes of the Company Group using the same methods, elections, conventions and similar practices used on the Company Groups actual Tax Returns, but excluding the use of any Covered Tax Assets and calculated assuming a combined state and local income tax rate equal to five (5) percent.
Non-TRA Portion is defined in Section 2.02(b) of this Agreement.
Objection Notice is defined in Section 2.03(a) of this Agreement.
Payment Date means any date on which a Tax Benefit Payment is required to be made by the Company pursuant to this Agreement.
Person means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity.
Post-IPO Tax Assets means (a) any Tax attribute of the Company Group first arising in a Taxable Year or portion thereof beginning after the IPO Date, which shall include the allocation of any Tax attributes arising in a Straddle Year as set forth in the definition of Covered Tax Assets and shall exclude any Covered Tax Assets and (b) any Tax attribute of any corporation or other entity acquired by the Company or any of its Subsidiaries by purchase, merger, or otherwise (in each case, from a Person or Persons other than the Company and its
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Subsidiaries and, in each case, whether or not such corporation or other entity survives) after the IPO Date that relates to periods (or portions thereof) ending on or prior to the date of such acquisition; provided that Post-IPO Tax Assets shall not include any NOL of the Company or any Subsidiary arising in a year following the IPO Date as a result of a Covered Tax Asset not being fully utilized, provided, further , that Post-IPO Assets shall not include tax basis in or other tax attributes arising from cash, cash equivalents, receivables, inventory, or other current assets.
Realized Tax Benefit means, for a Taxable Year, the excess, if any, of the Non-Tax Benefit Tax Liability over the Actual Tax Liability of the Company Group (as determined based on the principles set forth in Section 2.02(b)). If all or a portion of the liability for Taxes for a Taxable Year arises as a result of an audit or assessment by the IRS or CRA (or other Taxing Authority) of any Taxable Year, such liability shall not be reflected in the determination of the Realized Tax Benefit unless and until there has been a Determination.
Reconciliation Dispute is defined in Section 7.11 of this Agreement.
Reconciliation Procedures means those procedures set forth in Section 7.11 of this Agreement.
Registration Statement means the registration statement on Form S-1 (File No. 333-212449) of the Company, as amended.
Schedule means (i) any Tax Benefit Schedule and (ii) the Early Termination Schedule.
Senior Indebtedness is defined in Section 5.01(a) of this Agreement.
Senior Obligations is defined in Section 5.01(a) of this Agreement.
Subsidiaries means, with respect to any Person, as of any date of determination, any other Person as to which such Person owns, directly or indirectly, or otherwise controls more than fifty percent (50%) of the voting power or other similar interests or the sole general partner interest or managing member or similar interest of such Person.
Tax Benefit Payment is defined in Section 3.01(b) of this Agreement.
Tax Benefit Schedule is defined in Section 2.02 of this Agreement.
Tax Claim is defined in Section 6.01 of this Agreement.
Tax Credit means U.S. and Canadian federal, state, provincial and local and non-U.S. and non-Canadian tax credits that may be utilized to offset U.S. or Canadian federal, state, provincial, or local or non-U.S. and non-Canadian income or alternative minimum Tax.
Tax Return means any return, declaration, report or similar statement required to be filed with respect to Taxes (including any attached schedules), including, without limitation, any information return, claim for refund, amended return and declaration of estimated Tax.
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Taxable Year means a taxable year as defined in Section 441(b) of the Code or any comparable section of state, local or Canadian tax law (and, therefore, for the avoidance of doubt, may include a period of less than twelve months for which a Tax Return is made), ending on or after the IPO Date.
Taxes means any and all U.S. and Canadian federal, state, provincial and local and non-U.S. and non-Canadian taxes, assessments or similar charges measured with respect to net income or profits and any interest related to such Taxes.
Taxing Authority means any domestic, non-U.S., federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising any taxing authority or any other authority exercising regulatory authority with respect to Taxes.
TRA Party is defined in the preamble to this Agreement.
TRA Party Representative is defined in the preamble to this Agreement.
TRA Portion is defined in Section 2.02(b) of this Agreement.
Treasury Regulations means the final, temporary and proposed regulations under the Code promulgated from time to time (including corresponding provisions and succeeding provisions) as in effect for the relevant taxable period.
U.S. Basis Assets means U.S. federal, state and local amortization and depreciation deductions, and the reduction of taxable gain attributable to (i) existing tax basis in the assets (other than cash, cash equivalents, receivables, inventory and other current assets) owned by the Company on the IPO Date or (ii) any increase of the tax basis of the Companys assets arising from the []. 3
Valuation Assumptions means, as of an Early Termination Date, the assumptions that (a) in each Taxable Year ending on or after such Early Termination Date, the Company Group will generate taxable income sufficient to fully utilize all Covered Tax Assets (in accordance with all applicable limitations) during such Taxable Year or future Taxable Years, as applicable; (b) the U.S. federal and Canadian federal and provincial income Tax rates that will be in effect for each such Taxable Year will be those specified for each such Taxable Year by the Code, the Canadian Tax Act, applicable provincial law and other law as in effect on the Early Termination Date; (c) the effective state and local income tax rates that will be in effect for each such Taxable Year shall be 5%; (d) any non-amortizable assets will be disposed of on the fifteenth anniversary of the IPO in a fully taxable transaction for U.S. federal, Canadian federal and provincial and non-U.S. and non-Canadian income tax purposes; provided that in the event of a Change of Control, such non-amortizable assets shall be deemed disposed of at the time of sale of the relevant asset if earlier than such fifteenth anniversary; (e) any payment obligations pursuant to this Agreement will be satisfied on the date that any Tax Return to which such payment
3 |
To describe transaction in which the Company is formed in connection with the IPO. |
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obligation relates is required to be filed excluding any extensions; and (f) to the extent relevant for purposes of determining any amount deemed paid under the Long-Term Incentive Plan, if such Early Termination Date arises by reason of a transaction in which there is a sale of Common Stock to a Person that is not an Affiliate of the Company (an LTIP Trigger Transaction ), all of the stock then owned by the LTIP Party was sold at the price at which such stock was sold in the LTIP Trigger Transaction on such Early Termination Date (it being understood that if all of the stock held by the LTIP Party prior to such LTIP Trigger Transaction is in fact sold in such LTIP Trigger Transaction, then the amount and price of such stock sold shall be determined entirely by reference to the LTIP Trigger Transaction) and, otherwise, that all stock then owned by the LTIP Party was sold on such Early Termination Date at its fair market value as of such date.
ARTICLE 2
D ETERMINATION OF R EALIZED T AX B ENEFIT
Section 2.01. Covered Tax Assets. The Company, on the one hand, and the TRA Parties, on the other hand, acknowledge that the Company Group may, and to the extent permitted by applicable law and consistent with the principles set forth under Section 2.02(b) shall, reduce the amount of Taxes that the Company Group would otherwise be required to pay in the future as a result of the Covered Tax Assets.
Section 2.02. Tax Benefit Schedule.
(a) Tax Benefit Schedule . Within 45 calendar days after the filing of the Companys U.S. federal income Tax Return for a Taxable Year, the Company shall provide to the TRA Party Representative a schedule showing, in reasonable detail, (i) the calculation of the Covered Tax Benefit (if any) and the Tax Benefit Payment (if any) for such Taxable Year (together, a Tax Benefit Schedule ) and (ii) supporting information (including work papers and valuation reports) reasonably necessary to support the calculation of such payment. The Schedule will become final as provided in Section 2.03(a) and may be amended as provided in Section 2.03(b) (subject to the procedures set forth in Section 2.03(a)).
(b) Applicable Principles . For purposes of calculating the Covered Tax Benefit, carryovers or carrybacks of any Tax item attributable to the Covered Tax Assets shall be considered to be subject to the rules of the Code (or any successor statute) and the Treasury Regulations (and any relevant provisions of the Canadian Tax Act, state, provincial or local tax law) governing the use, limitation and expiration of carryovers or carrybacks of the relevant type; provided , however , that the Covered Tax Assets treated as resulting in a Realized Tax Benefit for one Taxable Year shall not be treated as resulting in a Realized Tax Benefit for any other Taxable Year. In addition, for purposes of determining the Realized Tax Benefit for any Taxable Year, the Company Group shall be assumed (i) to utilize any item of loss, deduction or credit arising in such Taxable Year (and permitted to be utilized in such Taxable Year) before carrying back or carrying forward to such Taxable Year, or otherwise utilizing in such Taxable Year, any Covered Tax Asset that is permitted to be so carried back, carried forward or utilized; (ii) to utilize any available Covered Tax Asset that is permitted (or, for the avoidance of doubt, that would be so permitted but for a Post-IPO Tax Asset) to be carried back, carried forward or utilized in such Taxable Year before utilizing any Post-IPO Tax Asset, and (iii) to utilize any
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Covered Tax Asset in the earliest Taxable Year in which such Covered Tax Asset is permitted to be utilized. If a carryover or carryback of any Tax attribute includes a portion that is attributable to the Covered Tax Assets (a TRA Portion ) and another portion that is not (a Non-TRA Portion ), the Company shall be assumed to utilize the TRA Portion before utilizing the Non-TRA Portion.
Section 2.03. Procedures, Amendments .
(a) Procedure . Each time the Company delivers an applicable Schedule to the TRA Party Representative under this Agreement, including any Amended Schedule delivered pursuant to Section 2.03(b) and any Early Termination Schedule or amended Early Termination Schedule delivered pursuant to the procedures set forth in Section 4.02, the Company shall also: (i) deliver supporting schedules and work papers, as determined by the Company or as reasonably requested by the TRA Party Representative that provide a reasonable level of detail regarding the data and calculations that were relevant for purposes of preparing the Schedule; (ii) deliver an Advisory Firm Letter supporting such Schedule; (iii) deliver a declaration signed by the chief financial officer of the Company to the effect that the activities underlying the computations reflected in the Schedule have been made without regard to any transaction which was substantially motivated by the intent to reduce or defer any Tax Benefit Payment or Early Termination Payment; and (iv) allow the TRA Party Representative and its advisors to have reasonable access to the appropriate representatives, as determined by the Company or as reasonably requested by the TRA Party Representative at the Company and the Advisory Firm in connection with a review of such Schedule. Without limiting the generality of the preceding sentence, the Company shall ensure that any Tax Benefit Schedule that is delivered to the TRA Party Representative along with any supporting schedules and work papers, provides a reasonably detailed presentation of the calculation of the Actual Tax Liability (the with calculation) and the Non-Tax Benefit Tax Liability (the without calculation), and identifies any material assumptions or operating procedures or principles that were used for purposes of such calculations. An applicable Schedule or amendment thereto shall become final and binding on the Parties thirty calendar days from the date on which the TRA Party Representative first received the applicable Schedule or amendment thereto unless:
(i) the TRA Party Representative, within thirty calendar days after receiving the applicable Schedule or amendment thereto, provides the Company with written notice of a material objection to such Schedule that is made in good faith and that sets forth in reasonable detail the TRA Parties material objection (an Objection Notice ); or
(ii) the TRA Party Representative provides a written waiver of its right to deliver an Objection Notice within the time period described in clause (i) above, in which case such Schedule or amendment thereto becomes binding on the date the waiver from the TRA Party Representative is received by the Company.
In the event that the TRA Party Representative timely delivers an Objection Notice pursuant to clause (i) above, and if the Parties, for any reason, are unable to successfully resolve the issues raised in the Objection Notice within thirty calendar days after receipt by the Company of the Objection Notice, the Company and the TRA Party Representative shall employ the reconciliation procedures as described in Section 7.11 of this Agreement (the Reconciliation Procedures ).
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(b) Amended Schedule . The applicable Schedule for any Taxable Year may be amended from time to time by the Company (i) in connection with a Determination affecting the Schedule; (ii) to correct material inaccuracies in the Schedule identified as a result of the receipt of additional factual information relating to a Taxable Year after the date the Schedule was provided to the TRA Party Representative; (iii) to reflect a material change (relative to the amounts in the original Schedule) in the Realized Tax Benefit for such Taxable Year attributable to an amended Tax Return filed for such Taxable Year, in each case with respect to any member of the Company Group; or (iv) to comply with the Experts determination under the Reconciliation Procedures (such amended Schedule, an Amended Schedule ); provided , however , that such a change under clause (i) shall not be taken into account on an Amended Schedule unless and until there has been a Determination with respect to such change. The Company shall deliver any Amended Schedule to the TRA Party Representative within 30 calendar days of any of the foregoing events described in clauses (i) through (iv) occurring, and any such Amended Schedule shall be subject to the procedures set forth in Section 2.03(a).
ARTICLE 3
T AX B ENEFIT P AYMENTS
Section 3.01. Payments .
(a) Payments . Within five Business Days of a Tax Benefit Schedule with respect to a Taxable Year becoming final in accordance with Section 2.03(a) or Section 7.11, the Company shall pay to each of the TRA Parties an amount equal to the TRA Partys Applicable Percentage multiplied by the Tax Benefit Payment for such Taxable Year determined pursuant to Section 3.01(b). Each such Tax Benefit Payment shall be made by wire transfer of immediately available funds to a bank account designated to the Company by the applicable TRA Party or as otherwise agreed by the Company and the applicable TRA Party.
(b) Amount of Payments . A Tax Benefit Payment shall equal, with respect to any Taxable Year, the amount of Covered Tax Benefits, if any, for the Taxable Year, increased by:
(i) interest calculated at the Agreed Rate from the due date (without extensions) for filing the U.S. federal income Tax Return with respect to Taxes for such Taxable Year until the Payment Date; and
(ii) any increase in a Covered Tax Benefit that has become final under Section 2.03(b), together with interest calculated at the Agreed Rate from the original Payment Date with respect to the Schedule that was amended;
provided , however , that the amounts described in Section 3.01(b)(ii) above shall not be taken into account in determining a Tax Benefit Payment attributable to any Taxable Year to the extent such amounts were taken into account in determining any Tax Benefit Payment for a preceding Taxable Year. Notwithstanding the foregoing, for each Taxable Year ending on or after a Change of Control, all Tax Benefit Payments shall be calculated by using Valuation Assumptions (a), (d), (e) and (f), substituting in each case the terms the closing date of a Change of Control for an Early Termination Date.
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Section 3.02. Offsets . In the event that a Tax Benefit Schedule is amended pursuant to Section 2.03(b) for any Taxable Year reflecting a decrease in the Tax Benefit Payment for such year and payments have previously been made based on the greater Tax Benefit Payment (such excess, an Excess Payment ), any amounts that would otherwise be due to the TRA Parties at any subsequent time under Section 3.01(b) shall be reduced (but not below zero) until the aggregate amount of such reduction equals the amount of such Excess Payment. For the avoidance of doubt, if all future payments are insufficient to repay any Excess Payment, the TRA Parties shall have no obligation to return such Excess Payment to the Company.
Section 3.03. No Duplicative Payments . It is intended that the provisions of this Agreement will not result in duplicative payment of any amount (including interest) required under this Agreement.
Section 3.04. Change Notices . If the Company or any of its Subsidiaries receives a 30-day letter, a final audit report, a statutory notice of deficiency or similar written notice from the IRS, CRA or any Taxing Authority with respect to the Tax treatment of any Covered Tax Asset (a Change Notice ), which, if sustained, would result in (a) a reduction in the amount of Realized Tax Benefit with respect to a Taxable Year preceding the taxable year in which the Change Notice is received or (b) a reduction in the amount of Tax Benefit Payments, the Company will be required to pay to the TRA Parties with respect to Taxable Years after and including the year in which the Change Notice is received, prompt written notice shall be given to the TRA Party Representative.
ARTICLE 4
T ERMINATION
Section 4.01. Early Termination; Breach of Agreement; Credit Events .
(a) Company s Early Termination Right . With the written approval of (x) a majority of the Independent Directors of the Board and (y) the TRA Party Representative, the Company may terminate this Agreement by paying to the TRA Parties the Early Termination Payment. Upon the Companys payment of the Early Termination Payment, the Company shall not have any further payment obligations under this Agreement, other than with respect to any: (A) prior Tax Benefit Payment agreed to by the Company and the TRA Party Representative as due and payable but unpaid as of the date the Early Termination Notice is delivered and (B) current Tax Benefit Payment due for the Taxable Year ending prior to, with or including the date of the Early Termination Notice (except to the extent that such amount is included in the Early Termination Payment).
(b) Acceleration upon Breach of Agreement. In the event that the Company breaches any of its material obligations under this Agreement, whether as a result of failure to make any payments when due (subject to the last sentence of this Section 4.01(b)), failure to honor any material obligation required hereunder or by operation of law as a result of the rejection of this Agreement in a case commenced under the Bankruptcy Code or otherwise, then all obligations
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hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date of the breach and shall include, but not be limited to, (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of the breach; (ii) any Tax Benefit Payment agreed to by the Company and the TRA Party Representative as due and payable but unpaid as of such date; and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including such date (except to the extent that such amount is included in the Early Termination Payment). The parties agree that the failure to make any material payment due pursuant to this Agreement within three months of the date such payment is due shall be deemed to be a breach of a material obligation under this Agreement for all purposes of this Agreement, and that it will not be considered to be a breach of a material obligation under this Agreement to make a payment due pursuant to this Agreement within three months of the date such payment is due.
(c) Acceleration upon a Credit Event . In the event that either party becomes aware that an event described in clause (c) in the definition of Credit Event exists with respect to the Company or any of its Subsidiaries, such party shall provide written notice to the other party (the Credit Event Notice ). In the event that the Credit Event is not cured within ten days of delivery of such Credit Event Notice or upon the occurrence of an event described in clauses (a) and (b) in the definition of Credit Event, all obligations hereunder shall be accelerated and such obligations shall be calculated as if an Early Termination Notice had been delivered on the date the Credit Event and shall include, but not be limited to, (i) the Early Termination Payment calculated as if an Early Termination Notice had been delivered on the date of the Credit Event; (ii) any Tax Benefit Payment agreed to by the Company and the TRA Party Representative as due and payable but unpaid as of such date; and (iii) any Tax Benefit Payment due for the Taxable Year ending prior to, with or including such date (except to the extent that such amount is included in the Early Termination Payment).
Section 4.02. Early Termination Notice . If the Company chooses to exercise its right of early termination under Section 4.01(a) above, the Company shall deliver to the TRA Party Representative notice of the Companys decision to exercise such right (the Early Termination Notice ). Upon the delivery of the Early Termination Notice or the occurrence of an event described in Section 4.01(b) or (c), the Company shall deliver a schedule (the Early Termination Schedule ) showing in reasonable detail the information required pursuant to Section 2.02 and the calculation of the Early Termination Payment. The delivery and finalization of such Early Termination Schedule shall be governed by Section 2.03.
Section 4.03. Payment upon Early Termination .
(a) Timing of Payment . Within ten Business Days after the Early Termination Schedule becomes final and binding on the parties hereto, the Company shall pay to the TRA Parties the Early Termination Payment. Such payment shall be made by wire transfer of immediately available funds to a bank account designated by the applicable TRA Party or as otherwise agreed by the Company and such TRA Party.
(b) Amount of Payment. The Early Termination Payment with respect to any TRA Party means an amount equal to such TRA Partys Applicable Percentage of the present value, discounted at the Early Termination Rate as of such date, of all Tax Benefit Payments that
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would be required to be paid by the Company to the TRA Parties beginning from the Early Termination Date applying the Valuation Assumptions. For purposes of calculating the present value pursuant to this Section 4.03(b) of all Tax Benefit Payments that would be required to be paid, it shall be assumed that absent the Early Termination Notice all Tax Benefit Payments would be paid on the due date (without extensions) for filing the Companys Tax Return with respect to Taxes for each Taxable Year.
ARTICLE 5
C OMPANY O BLIGATIONS AND L ATE P AYMENTS
Section 5.01. Company Obligations .
(a) Notwithstanding any other provision of this Agreement to the contrary, any Tax Benefit Payments and Early Termination Payment required to be made by the Company to the TRA Parties under this Agreement shall rank subordinate and junior in right of payment to any principal, interest or other amounts due and payable in respect of (i) any obligations in respect of indebtedness, other than intercompany indebtedness, for borrowed money of the Company and its Subsidiaries ( Senior Indebtedness ), (ii) payments in respect of letters of credit of the Company and its Subsidiaries, (iii) cash management obligations of the Company and its Subsidiaries and (iv) hedging obligations entered into with the providers of the Senior Indebtedness or Affiliates thereof (collectively, the Senior Obligations ) and shall rank pari passu in right of payment with all current or future unsecured obligations of the Company that are not Senior Obligations.
(b) Without the prior written consent of the TRA Party Representative (not to be unreasonably withheld, conditioned or delayed), the Company shall not incur any obligation after the IPO Date if the terms of such obligation would restrict the Company from making Tax Benefit Payments or the Early Termination Payment under this Agreement.
(c) For so long as the Agreement remains outstanding, the Company shall not incur any indebtedness for borrowed money if, immediately after giving effect to such incurrence and the application of proceeds therefrom, the Companys Consolidated Net Leverage Ratio pro forma for such indebtedness exceeds 5.70 to 1.00.
Section 5.02. Late Payments by the Company . The amount of all or any portion of any Tax Benefit Payment or Early Termination Payment required to be made by the Company to any TRA Party under this Agreement that is not made to such TRA Party when due under the terms of this Agreement shall be payable together with any interest thereon, computed at the Default Rate and commencing from the date on which such payment was due and payable.
ARTICLE 6
C OMPANY T AX M ATTERS ; C ONSISTENCY ; C OOPERATION
Section 6.01. Participation in Company Tax Matters . Except as otherwise provided herein, the Company shall have full responsibility for, and sole discretion over, all Tax matters concerning the Company Group, including, without limitation, the preparation, filing or amending of any Tax Return and defending, contesting or settling any issue pertaining to Taxes
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(a Tax Claim ), provided that the Company shall act in good faith in connection with its control of any matter which is reasonably expected to affect the TRA Parties rights and obligations under this Agreement, provided further that the Company shall not enter into any settlement with respect to, or agree to concede, any Tax Claim that could have a material effect on the TRA Parties rights (including the right to receive payments) under this Agreement without the consent of the TRA Party Representative (not to be unreasonably withheld, conditioned or delayed). The Company shall notify the TRA Party Representative of, and keep the TRA Party Representative reasonably informed with respect to, the portion of any audit of the Company Group by a Taxing Authority the outcome of which is reasonably expected to affect the TRA Parties rights and obligations under this Agreement, and shall give the TRA Party Representative reasonable opportunity to provide information and participate (at its own expense) in the applicable portion of such audit.
Section 6.02. Consistency . Except upon the written advice of an Advisory Firm, the Company and the TRA Parties agree to report and cause to be reported for all purposes, including U.S. and Canadian federal, state, provincial, local and non-U.S. and non-Canadian tax purposes and financial reporting purposes, all Tax-related items (including, without limitation, the Tax Benefit Payments) in a manner consistent with that specified by the Company in any Schedule or statement required to be provided by or on behalf of the Company under this Agreement or under applicable Tax law. Any dispute concerning such advice shall be subject to the Reconciliation Procedures; provided , however , that only the TRA Party Representative shall have the right to object to such advice pursuant to this Section 6.02. In the event that an Advisory Firm is replaced with another firm acceptable to the Company and the TRA Party Representative pursuant to the definition of Advisory Firm , such replacement Advisory Firm shall be required to perform its services under this Agreement using procedures and methodologies consistent with those used by the previous Advisory Firm, unless otherwise required by law (or the Company and the TRA Party Representative agree to the use of other procedures and methodologies).
Section 6.03. Cooperation . Each of the Company, on the one hand, and the TRA Parties, on the other hand, shall (a) furnish to the other party in a timely manner such information, documents and other materials as the other party may reasonably request for purposes of making or approving any determination or computation necessary or appropriate under this Agreement, preparing any Tax Return or contesting or defending any audit, examination or controversy with any Taxing Authority relating to this Agreement; (b) make itself available to the other party and its representatives to provide explanations of documents and materials and such other information as the requesting party or its representatives may reasonably request in connection with any of the matters described in clause (a) above; and (c) reasonably cooperate in connection with any such matter, and the requesting party shall reimburse the other party for any reasonable third-party costs and expenses incurred pursuant to this Section 6.03.
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ARTICLE 7
M ISCELLANEOUS
Section 7.01. Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed duly given and received (a) on the date of delivery if delivered personally, or by facsimile upon confirmation of transmission by the senders fax machine if sent on a Business Day (or otherwise on the next Business Day); (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier service; or (c) when sent by electronic mail (with hard copy to follow) during a Business Day (or on the next Business Day if sent after the close of normal business hours or on any non-Business Day). All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:
If to the Company, to:
Forterra, Inc.
511 E. John Carpenter Freeway
Irving, TX 75062
Attn: Lori Browne
E-mail: lori.browne@forterrabp.com
with a copy (which shall not constitute notice to the Company) to:
[●]
[Address]
[Address]
Attn: [●]
E-mail: [●]
If to the TRA Party Representative or any TRA Party, to:
Hudson Advisors L.P.
2711 North Haskell Avenue, Suite 1800
Dallas, TX 75204
Attn: Kyle Volluz
Email: kvolluz@hudson-advisors.com
with a copy (which shall not constitute notice to the TRA Parties) to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attn: Neil Barr
E-mail: neil.barr@davispolk.com
Any party hereto may change its address or e-mail address by giving the other party hereto written notice in the manner set forth above.
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Section 7.02. Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. Delivery of an executed signature page to this Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Agreement.
Section 7.03. Entire Agreement; Third-Party Beneficiaries . This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
Section 7.04. Governing Law . This Agreement shall be governed by, and construed in accordance with, the law of the State of New York, without regard to the conflicts of laws provisions thereof.
Section 7.05. Severability . Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable Law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable Law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
Section 7.06. Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
Section 7.07. Setoff. Except as provided in Section 3.02, any Tax Benefit Payment or Early Termination Payment due under this Agreement shall be paid in full when due, without setoff, recoupment, deduction, adjustment or charge of any kind.
Section 7.08. Successors; Assignment; Amendments; Waivers .
(a) Provided that written notice is provided to the Company at least ten Business Days prior to an assignment or transfer, each TRA Party may assign or transfer (including by way of a pledge, rehypothecation, grant of a participation in, or sale) this Agreement to any Person without the prior written consent of the Company or any other TRA Party.
(b) No provision of this Agreement may be amended unless such amendment is approved in writing by the Company and the TRA Party Representative. For the avoidance of doubt, any amendment of this Agreement that is approved in writing by the Company and the TRA Party Representative shall be binding upon the TRA Parties. No provision of this Agreement may be waived unless such waiver is in writing and signed by the party against whom the waiver is to be effective. Notwithstanding anything contained herein to the contrary, the TRA Party Representative may, in its good faith discretion, amend Schedule A without the consent of any other party hereto; provided that such amendment does not materially, adversely and disproportionately affect any TRA Party vis-à-vis any other TRA Party.
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(c) All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by written agreement, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 7.09. Titles and Subtitles . The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
Section 7.10. Waiver of Jury Trial . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION, ACTION, PROCEEDING, CROSS-CLAIM, OR COUNTERCLAIM IN ANY COURT (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF, RELATING TO OR IN CONNECTION WITH (A) THIS AGREEMENT OR THE VALIDITY, PERFORMANCE, INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR (B) THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, AUTHORIZATION, EXECUTION, DELIVERY, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
Section 7.11. Reconciliation . In the event that the Company and the TRA Party Representative are unable to resolve a disagreement with respect to the matters governed by Section 2.03, Section 4.02 and Section 6.02 (which matters, for the avoidance of doubt, may include the calculations of any amounts set forth in any Schedule or Amended Schedule) within the relevant period designated in this Agreement (a Reconciliation Dispute ), the Reconciliation Dispute shall be submitted for determination to a nationally recognized expert (the Expert ) in the particular area of disagreement mutually acceptable to both parties. The Expert shall be a partner in a nationally recognized accounting firm or a law firm (other than the Advisory Firm or the preparer of the Advisory Firm Letter), and the Expert shall not, and the firm that employs the Expert shall not, have any material relationship with the Company or the TRA Party Representative or other actual or potential conflict of interest. If the parties are unable to agree on an Expert within 15 days of receipt by the respondent(s) of written notice of a Reconciliation Dispute, the Expert shall be appointed by the International Chamber of Commerce Centre for Expertise, unless the parties mutually agree to extend such 15-day period. The Expert shall resolve any matter relating to the Early Termination Schedule or an amendment thereto within thirty calendar days and shall resolve any matter relating to a Tax Benefit Schedule or an amendment thereto within fifteen calendar days or as soon thereafter as is reasonably practicable, in each case after the matter has been submitted to the Expert for resolution. Notwithstanding the preceding sentence, if the matter is not resolved before any payment that is the subject of a disagreement is due or any Tax Return reflecting the subject of a disagreement is due, the undisputed amount shall be made on the date prescribed by this Agreement and such Tax Return may be filed as prepared by the Company, subject to adjustment (by an increase or decrease in the amount of subsequent payments otherwise due under this Agreement) or amendment of such Tax Return upon resolution. The costs and expenses relating
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to the engagement of such Expert or amending any Tax Return shall be borne inversely based upon the relative success (in terms of percentages) of each partys claims. For example, if the final determination reflects a 60-40 compromise of the parties claims, the costs and expenses would be allocated 40% to the party whose claim was determined to be 60% successful and 60% to the party whose claim was determined to be 40% successful. Any dispute as to whether a dispute is a Reconciliation Dispute within the meaning of this Section 7.11 shall be decided by the Expert. The Expert shall finally determine any Reconciliation Dispute and the determinations of the Expert pursuant to this Section 7.11 shall be final and binding on the Company and all TRA Parties and may be entered and enforced in any court having jurisdiction. The determination of the Expert with respect to any dispute that is submitted to it for determination pursuant to this Section 7.11 shall be based solely on presentations and materials provided by the parties hereto that are in accordance with the guidelines and procedures set forth in this Agreement (i.e., such determination shall not be made on the basis of an independent review by the Expert). The Expert shall not assign a value to any Reconciliation Dispute that is greater than the greatest value for such item assigned by the Company, on the one hand, or the TRA Party Representative, on the other hand, or less than the smallest value for such assigned by the Company, on the one hand, and the TRA Party Representative, on the other hand.
Section 7.12. Withholding . The Company shall be entitled to deduct and withhold from any amount payable to any TRA Parties pursuant to this Agreement such amounts as the Company is required to deduct and withhold under the Code or any provision of state, local or foreign tax law, with respect to entering into or making payments under this Agreement. To the extent amounts are so withheld and paid over to the appropriate governmental authority by the Company, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the TRA Party in respect of whom such withholding was made. The Company shall provide evidence of such payment to such TRA Party. To the extent the amount of any withholding hereunder cannot be finally determined until after the end of the taxable year in which the amount otherwise payable to such TRA Parties pursuant to this Agreement is required to be paid, the Company shall be entitled to deduct and withhold the maximum amount of tax that, in the Companys reasonable judgment, may be required to be remitted to the applicable government authority with respect to such TRA Party, and after the applicable amount of withholding is finally determined, the Company shall promptly pay over any excess withheld amounts to such TRA Party. Notwithstanding the foregoing, if a withholding obligation arises as a result of a Change of Control that causes the Company (or its successor) to become a non-U.S. Person, any amount payable to a TRA Party under this Agreement shall be increased such that after all required deductions and withholdings have been made (including such deductions and withholdings applicable to additional sums payable under this sentence) the TRA Party receives an amount equal to the sum that it would have received had no such deductions or withholdings been made.
Section 7.13. Confidentiality.
(a) Each party shall maintain in strict confidence and shall not disclose to any third party (except to its Affiliates in connection with performing any duties as necessary for the other party hereunder) any and all Confidential Information, except as may be necessary in order to comply with a requirement of Law, in which case the receiving party shall, if permissible, promptly notify the disclosing party of any such requirement and such disclosing party shall be
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permitted to seek confidential treatment for such information; provided that any party hereto or its Affiliates may disclose the terms of this Agreement in any registration statement relating to the IPO, provided further that the foregoing shall not prohibit any TRA Party from disclosing such terms and information to (i) its lenders, (ii) prospective purchasers of such TRA Party or its assets and such prospective purchasers lenders, and (iii) legal counsel and other representatives of any of the foregoing.
(b) With respect to any such Confidential Information, each of the parties hereto shall: (i) use the same degree of care in safeguarding the other partys Confidential Information as it uses to safeguard its own information which is proprietary and/or treated as confidential; and (ii) upon the discovery of any inadvertent disclosure or unauthorized use of the Confidential Information, or upon obtaining notice of such disclosure or use from the other party, take or cause to be taken all necessary actions to prevent any further inadvertent disclosure or unauthorized use.
Section 7.14. Affiliated Corporations; Admission of the Company into a Consolidated Group; Transfers of Corporate Assets .
(a) If the Company or any member or members of the Company Group was, is or becomes a member of an affiliated, combined, unitary or consolidated group of corporations that files a consolidated income tax return pursuant to Sections 1501 et seq. of the Code or any comparable provision of applicable state, local or non-U.S. Tax law (a Consolidated Return ): (i) the provisions of this Agreement relating to the Company shall be applied with respect to the group as a whole as of any date of determination; and (ii) Tax Benefit Payments shall be computed with reference to the consolidated taxable income of the group as a whole.
(b) If an entity in the Company Group transfers one or more assets to a corporation (or a Person classified as a corporation for U.S. income tax purposes) with which such entity does not file a consolidated Tax Return pursuant to Section 1501 of the Code (or any corresponding provision of state, local or non-U.S. law), such entity, for purposes of calculating the amount of any Tax Benefit Payment (e.g., calculating the gross income of the Companys affiliated or consolidated group and determining the Realized Tax Benefit) due hereunder, shall be treated as having disposed of such asset in a fully taxable transaction on the date of such transfer. The consideration deemed to be received by such entity shall be determined as if such transfer occurred on an arms length basis with an unrelated third party.
(c) If an entity in the Company Group transfers to a third party, directly or indirectly, stock of any Subsidiary as to which the tax basis of such Subsidiarys Covered Tax Assets exceeds the tax basis of the transferor entitys stock in such Subsidiary in a taxable transaction to a third party, such tax basis difference shall be treated for purposes of this Agreement as a Covered Tax Asset.
Section 7.15. Tax Treatment . [To come.]
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Section 7.16. TRA Party Representative .
(a) Appointment . Without further action of any of the Company, the TRA Party Representative or any TRA Party, and as partial consideration of the benefits conferred by this Agreement, the TRA Party Representative is hereby irrevocably constituted and appointed, with full power of substitution, to act in the name, place and stead of each TRA Party with respect to the taking by the TRA Party Representative of any and all actions and the making of any decisions required or permitted to be taken by the TRA Party Representative under this Agreement. The power of attorney granted herein is coupled with an interest and is irrevocable and may be delegated by the TRA Party Representative. No bond shall be required of the TRA Party Representative and it shall receive no compensation for its services.
(b) Expenses . If at any time a TRA Party Representative shall incur out-of-pocket expenses in connection with the exercise of its duties hereunder, upon written notice to the Company from the TRA Party Representative of documented costs and expenses (including fees and disbursements of counsel and accountants) incurred by the TRA Party Representative in connection with the performance of its rights or obligations under this Agreement and the taking of any and all actions in connection therewith, the Company shall reduce any future payments (if any) due to the TRA Parties hereunder pro rata (based on their respective Applicable Percentages) by the amount of such expenses which it shall instead remit directly to the requesting TRA Party Representative. In connection with the performance of its rights and obligations under this Agreement and the taking of any and all actions in connection therewith, a TRA Party Representative shall not be required to expend any of its own funds (though, for the avoidance of doubt, it may do so at any time and from time to time in its sole discretion).
(c) Limitation on Liability . The TRA Party Representative shall not be liable to any TRA Party for any act of the TRA Party Representative arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent any liability, loss, damage, penalty, fine, cost or expense is actually incurred by such TRA Party as a proximate result of the gross negligence, bad faith or willful misconduct of the TRA Party Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment). The TRA Party Representative shall not be liable for, and shall be indemnified by the TRA Parties (on a several but not joint basis) for, any liability, loss, damage, penalty or fine incurred by the TRA Party Representative (and any cost or expense incurred by the TRA Party Representative in connection therewith and herewith and not previously reimbursed pursuant to subsection (b) above) arising out of or in connection with the acceptance or administration of its duties under this Agreement, except to the extent that any such liability, loss, damage, penalty, fine, cost or expense is the proximate result of the gross negligence, bad faith or willful misconduct of the TRA Party Representative (it being understood that any act done or omitted pursuant to the advice of legal counsel shall be conclusive evidence of such good faith and reasonable judgment); provided , however , that in no event shall any TRA Party be obligated to indemnify the TRA Party Representative hereunder for any liability, loss, damage, penalty, fine, cost or expense to the extent (and only to the extent) the aggregate amount of all liabilities, losses, damages, penalties, fines, costs and expenses indemnified by such TRA Party hereunder is or would be in excess of the aggregate payments under this Agreement actually remitted to such TRA Parties.
(d) Actions of the TRA Party Representative . A decision, act, consent or instruction of the TRA Party Representative shall constitute a decision of all TRA Parties and shall be final, binding and conclusive upon each TRA Party, and the Company may rely upon any decision, act,
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consent or instruction of the TRA Party Representative as being the decision, act, consent or instruction of each TRA Party. The Company is hereby relieved from any liability to any person for any acts done by the Company in accordance with any such decision, act, consent or instruction of the TRA Party Representative, including, without limitation, any action taken by the Company in its dealings with the TRA Party Representative pursuant to and consistent with the terms of this Agreement (including, without limitation, complying with expense reimbursement requests pursuant to Section 7.16(b)). Each TRA Party hereby agrees that the TRA Party Representative may, at any time and in its sole discretion, elect to enter into a transaction which is likely to result in the assignment, in whole or in part, of this Agreement to a Person (upon such election, an Approved Assignment ), and each such TRA Party will raise no objections against such Approved Assignment, regardless of the consideration (if any) being paid in such Approved Assignment, so long as such Approved Assignment does not materially and adversely impact such TRA Parties in a manner materially adverse to the other TRA Parties. Each TRA Party will take all actions requested by the TRA Party Representative in connection with the consummation of an Approved Assignment, including the execution of all agreements, documents and instruments in connection therewith requested by the TRA Party Representative of such TRA Party. Upon the consummation of the Approved Assignment, each TRA Party will receive its Applicable Percentage of such consideration, if any, relating to such Approved Assignment. Each TRA Party will bear its Applicable Percentage of the costs of any Approved Assignment to the extent such costs are incurred for the benefit of all TRA Parties.
(e) Involvement in Company Determinations . In the event that any determination must be made under this Agreement by the TRA Party Representative or any dispute arises hereunder, should any representatives of the TRA Party Representative or its Affiliates then be serving on the Board, such directors shall be excluded from all deliberations and actions of the Board related to such determination or dispute.
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IN WITNESS WHEREOF, the Company, the TRA Party Representative and the TRA Parties have duly executed this Agreement as of the date first written above.
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Signature Page to Tax Receivable Agreement
Schedule A
TRA Parties
[Lone Star Fund IX Entity] [100]%
S-1
Exhibit 10.15
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this Agreement ) is entered into as of by and between Forterra, Inc., a Delaware corporation (the Company ), and (the Indemnitee ).
RECITALS
WHEREAS, the Board of Directors has determined that the inability to attract and retain qualified persons as directors and officers is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there shall be adequate certainty of protection through insurance and indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the Company;
WHEREAS, the Company has adopted provisions in its certificate of incorporation and bylaws providing for indemnification and advancement of expenses of its directors and officers to the fullest extent authorized by the General Corporation Law of the State of Delaware (as the same exists or may hereafter be amended, the DGCL ), and the Company wishes to clarify and enhance the rights and obligations of the Company and the Indemnitee with respect to indemnification and advancement of expenses;
WHEREAS, in order to induce and encourage highly experienced and capable persons such as the Indemnitee to serve as directors and officers of the Company and in any other capacity with respect to the Company as the Company may request, and to otherwise promote the desirable end that such persons shall resist what they consider unjustified lawsuits and claims made against them in connection with the good faith performance of their duties to the Company, with the knowledge that certain costs, judgments, penalties, fines, liabilities, and expenses incurred by them in their defense of such litigation are to be borne by the Company and they shall receive the maximum protection against such risks and liabilities as may be afforded by applicable law, the Board of Directors of the Company has determined that the following Agreement is reasonable and prudent to promote and ensure the best interests of the Company and its stockholders; and
WHEREAS, the Company desires to have the Indemnitee serve as a director or officer of the Company and in any other capacity with respect to the Company as the Company may request, as the case may be, free from undue concern for unpredictable, inappropriate, or unreasonable legal risks and personal liabilities by reason of the Indemnitee acting in good faith in the performance of the Indemnitees duty to the Company; and the Indemnitee desires to so serve the Company, provided , and on the express condition, that he or she is furnished with the protections set forth hereinafter.
AGREEMENT
NOW, THEREFORE, in consideration of the Indemnitees service as a director or officer of the Company, the parties hereto agree as follows:
1. Definitions . For purposes of this Agreement:
(a) A Change in Control will be deemed to have occurred if the individuals who, as of the date of the initial public offering of the Companys common stock, par value $0.001 per share, constitute the Board of Directors of the Company (the Incumbent Board ) cease for any reason to constitute at least a majority of the Board of Directors; provided , however , that any individual becoming a director subsequent to such date whose election, or nomination for election by the stockholders of the Company, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board of Directors.
(b) Disinterested Director means a director of the Company who is not or was not a party to the Proceeding in respect of which indemnification is being sought by the Indemnitee.
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(c) Expenses includes, without limitation, expenses incurred in connection with the defense or settlement of any action, suit, arbitration, alternative dispute mechanism, inquiry, judicial, administrative, or legislative hearing, investigation, or any other threatened, pending, or completed proceeding, whether brought by or in the right of the Company or otherwise, including any and all appeals, whether of a civil, criminal, administrative, legislative, investigative, or other nature, attorneys fees, witness fees and expenses, fees and expenses of accountants and other advisors, retainers and disbursements and advances thereon, the premium, security for, and other costs relating to any bond (including cost bonds, appraisal bonds, or their equivalents), and any expenses of establishing a right to indemnification or advancement under Sections 9, 11, 13, and 16 hereof, but shall not include the amount of judgments, fines, ERISA excise taxes, or penalties actually levied against the Indemnitee, or any amounts paid in settlement by or on behalf of the Indemnitee.
(d) Independent Counsel means a law firm or a member of a law firm that neither is presently nor in the past five years has been retained to represent (i) the Company or the Indemnitee in any matter material to either such party or (ii) any other party to the Proceeding giving rise to a request for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or the Indemnitee in an action to determine the Indemnitees right to indemnification under this Agreement.
(e) Proceeding means any action, suit, arbitration, alternative dispute mechanism, inquiry, judicial, administrative, or legislative hearing, investigation, or any other threatened, pending, or completed proceeding, whether brought by or in the right of the Company or otherwise, including any and all appeals, whether of a civil, criminal, administrative, legislative, investigative, or other nature, to which the Indemnitee was or is a party or is threatened to be made a party or is otherwise involved in by reason of the fact that the Indemnitee is or was a director, officer, employee, agent, or trustee of the Company or while a director, officer, employee, agent, or trustee of the Company is or was serving at the request of the Company as a director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan, or by reason of anything done or not done by the Indemnitee in any such capacity, whether or not the Indemnitee is serving in such capacity at the time any expense, liability, or loss is incurred for which indemnification or advancement can be provided under this Agreement.
2. Service by the Indemnitee . The Indemnitee shall serve as a director or officer of the Company faithfully and to the best of the Indemnitees ability so long as the Indemnitee is duly elected and qualified and until such time as the Indemnitees successor is elected or appointed or the Indemnitee is removed as permitted by applicable law or tenders a resignation in writing.
3. Indemnification and Advancement of Expenses . The Company shall indemnify and hold harmless the Indemnitee, and shall pay to the Indemnitee in advance of the final disposition of any Proceeding all Expenses incurred by the Indemnitee in defending any such Proceeding, to the fullest extent authorized by the DGCL, all on the terms and conditions set forth in this Agreement. Without diminishing the scope of the rights provided by this Section, the rights of the Indemnitee to indemnification and advancement of Expenses provided hereunder shall include but shall not be limited to those rights hereinafter set forth, except that no indemnification or advancement of Expenses shall be paid to the Indemnitee:
(a) to the extent expressly prohibited by applicable law or the certificate of incorporation or bylaws of the Company;
(b) for and to the extent that payment is actually made to the Indemnitee under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, provision of the certificate of incorporation or bylaws, or agreement of the Company or any other company or other enterprise (and the Indemnitee shall reimburse the Company for any amounts paid by the Company and subsequently so recovered by the Indemnitee);
(c) in connection with an action, suit, or proceeding, or part thereof initiated by the Indemnitee (including claims and counterclaims, whether such counterclaims are asserted by the Indemnitee or the Company in an action, suit, or proceeding initiated by the Indemnitee), except a judicial proceeding or arbitration pursuant to Section 11 to enforce rights under this Agreement, unless the action, suit, or proceeding, or part thereof, was authorized or ratified by the Board of Directors of the Company; or
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(d) with respect to any Proceeding brought by or in the right of the Company against the Indemnitee that is authorized by the Board of Directors of the Company, except as provided in Sections 5, 6, and 7 below.
4. Action or Proceedings Other than an Action by or in the Right of the Company . Except as limited by Section 3 above, the Indemnitee shall be entitled to the indemnification rights provided in this Section if the Indemnitee was or is a party or is threatened to be made a party to, or was or is otherwise involved in, any Proceeding (other than an action by or in the right of the Company) by reason of the fact that the Indemnitee is or was a director, officer, employee, agent, or trustee of the Company or while a director, officer, employee, agent, or trustee of the Company is or was serving at the request of the Company as a director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan, or by reason of anything done or not done by the Indemnitee in any such capacity. Pursuant to this Section, the Indemnitee shall be indemnified against all expense, liability, and loss (including judgments, fines, ERISA excise taxes or penalties, amounts paid in settlement by or on behalf of the Indemnitee, and Expenses) actually and reasonably incurred by the Indemnitee in connection with such Proceeding, if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe his or her conduct was unlawful.
5. Indemnity in Proceedings by or in the Right of the Company . Except as limited by Section 3 above, the Indemnitee shall be entitled to the indemnification rights provided in this Section if the Indemnitee was or is a party or is threatened to be made a party to, or was or is otherwise involved in, any Proceeding brought by or in the right of the Company to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee, agent, or trustee of the Company or while a director, officer, employee, agent, or trustee of the Company is or was serving at the request of the Company as a director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan, or by reason of anything done or not done by the Indemnitee in any such capacity. Pursuant to this Section, the Indemnitee shall be indemnified against all expense, liability, and loss (including judgments, fines, ERISA excise taxes or penalties, amounts paid in settlement by or on behalf of the Indemnitee, and Expenses) actually and reasonably incurred by the Indemnitee in connection with such Proceeding if the Indemnitee acted in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided , however , that no such indemnification shall be made in respect of any claim, issue, or matter as to which the DGCL expressly prohibits such indemnification by reason of any adjudication of liability of the Indemnitee to the Company, unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the Indemnitee is entitled to indemnification for such expense, liability, and loss as such court shall deem proper.
6. Indemnification for Costs, Charges, and Expenses of Successful Party . Notwithstanding any limitations of Sections 3(c), 3(d), 4 and 5 above, to the extent that the Indemnitee has been successful, on the merits or otherwise, in whole or in part, in defense of any Proceeding, or in defense of any claim, issue, or matter therein, including, without limitation, the dismissal of any action without prejudice, or if it is ultimately determined, by final judicial decision of a court of competent jurisdiction from which there is no further right to appeal, that the Indemnitee is otherwise entitled to be indemnified against Expenses, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by the Indemnitee in connection therewith.
7. Partial Indemnification . If the Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expense, liability, or loss (including judgments, fines, ERISA excise taxes or penalties, amounts paid in settlement by or on behalf of the Indemnitee, and Expenses) actually and reasonably incurred in connection with any Proceeding, or in connection with any judicial proceeding or arbitration pursuant to Section 11 to enforce rights under this Agreement, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify the Indemnitee for the portion of such expense, liability, or loss actually and reasonably incurred to which the Indemnitee is entitled.
8. Indemnification for Expenses as a Witness . Notwithstanding any other provision of this Agreement, to the maximum extent permitted by the DGCL, the Indemnitee shall be entitled to indemnification against all Expenses actually and reasonably incurred by the Indemnitee or on the Indemnitees behalf if the Indemnitee appears as a
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witness or otherwise incurs legal expenses as a result of or related to the Indemnitees service as a director or officer of the Company, in any threatened, pending, or completed action, suit, arbitration, alternative dispute mechanism, inquiry, judicial, administrative, or legislative hearing, investigation, or any other threatened, pending, or completed proceeding, whether of a civil, criminal, administrative, legislative, investigative, or other nature, to which the Indemnitee neither is, nor is threatened to be made, a party.
9. Determination of Entitlement to Indemnification . To receive indemnification under this Agreement, the Indemnitee shall submit a written request to the Secretary of the Company. Such request shall include documentation or information that is necessary for such determination and is reasonably available to the Indemnitee. Upon receipt by the Secretary of the Company of a written request by the Indemnitee for indemnification pursuant to Sections 4, 5, 6, 7, or 8, the entitlement of the Indemnitee to indemnification, to the extent not provided pursuant to the terms of this Agreement, shall be determined by the following person or persons who shall be empowered to make such determination: (a) the Board of Directors of the Company by a majority vote of Disinterested Directors, whether or not such majority constitutes a quorum; (b) a committee of Disinterested Directors designated by a majority vote of such directors, whether or not such majority constitutes a quorum; (c) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee; (d) the stockholders of the Company; or (e) in the event that a Change in Control has occurred, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee. Such Independent Counsel shall be selected by the Board of Directors and approved by the Indemnitee, except that in the event that a Change in Control has occurred, Independent Counsel shall be selected by the Indemnitee. Upon failure of the Board of Directors so to select such Independent Counsel or upon failure of the Indemnitee so to approve (or so to select, in the event a Change in Control has occurred), such Independent Counsel shall be selected upon application to a court of competent jurisdiction. The determination of entitlement to indemnification shall be made and, unless a contrary determination is made, such indemnification shall be paid in full by the Company not later than 60 calendar days after receipt by the Secretary of the Company of a written request for indemnification. If the person making such determination shall determine that the Indemnitee is entitled to indemnification as to part (but not all) of the application for indemnification, such person shall reasonably prorate such partial indemnification among the claims, issues, or matters at issue at the time of the determination.
10. Presumptions and Effect of Certain Proceedings . The Secretary of the Company shall, promptly upon receipt of the Indemnitees written request for indemnification, advise in writing the Board of Directors, or such other person or persons empowered to make the determination as provided in Section 9, that the Indemnitee has made such request for indemnification. Upon making such request for indemnification, the Indemnitee shall be presumed to be entitled to indemnification hereunder and the Company shall have the burden of proof in making any determination contrary to such presumption. If the person or persons so empowered to make such determination shall have failed to make the requested determination with respect to indemnification within 60 calendar days after receipt by the Secretary of the Company of such request, a requisite determination of entitlement to indemnification shall be deemed to have been made and the Indemnitee shall be absolutely entitled to such indemnification, absent actual fraud in the request for indemnification. The termination of any Proceeding described in Sections 4 or 5 by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself (a) create a presumption that the Indemnitee did not act in good faith and in a manner the Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had reasonable cause to believe his or her conduct was unlawful or (b) otherwise adversely affect the rights of the Indemnitee to indemnification except as may be provided herein.
11. Remedies of the Indemnitee in Cases of Determination Not to Indemnify or to Advance Expenses; Right to Bring Suit . In the event that a determination is made that the Indemnitee is not entitled to indemnification hereunder or if payment is not timely made following a determination of entitlement to indemnification pursuant to Sections 9 and 10, or if an advancement of Expenses is not timely made pursuant to Section 16, the Indemnitee may at any time thereafter bring suit against the Company in a court of competent jurisdiction in the State of Delaware seeking an adjudication of entitlement to such indemnification or advancement of Expenses. Alternatively, the Indemnitee at the Indemnitees option may seek an award in an arbitration to be conducted by a single arbitrator in the State of Delaware pursuant to the rules of the American Arbitration Association, such award to be made within 60 calendar days following the filing of the demand for arbitration. The Company shall not oppose the Indemnitees right to seek any such adjudication or award in arbitration. In any suit or arbitration brought by the Indemnitee to enforce a right
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to indemnification hereunder (but not in a suit or arbitration brought by the Indemnitee to enforce a right to an advancement of Expenses), it shall be a defense that the Indemnitee has not met any applicable standard of conduct for indemnification set forth in the DGCL, including the standard described in Section 4 or 5, as applicable. Further, in any suit brought by the Company to recover an advancement of Expenses pursuant to the terms of an undertaking, the Company shall be entitled to recover such Expenses upon a final judicial decision of a court of competent jurisdiction from which there is no further right to appeal that the Indemnitee has not met the standard of conduct described above. Neither the failure of the Company (including the Disinterested Directors, a committee of Disinterested Directors, Independent Counsel, or its stockholders) to have made a determination prior to the commencement of such suit or arbitration that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the standard of conduct described above, nor an actual determination by the Company (including the Disinterested Directors, a committee of Disinterested Directors, Independent Counsel, or its stockholders) that the Indemnitee has not met the standard of conduct described above shall create a presumption that the Indemnitee has not met the standard of conduct described above, or, in the case of such a suit brought by the Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of Expenses hereunder, or brought by the Company to recover an advancement of Expenses pursuant to the terms of an undertaking, the burden of proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section 11 or otherwise shall be on the Company. If a determination is made or deemed to have been made pursuant to the terms of Section 9 or 10 that the Indemnitee is entitled to indemnification, the Company shall be bound by such determination and is precluded from asserting that such determination has not been made or that the procedure by which such determination was made is not valid, binding, and enforceable. The Company further agrees to stipulate in any court or before any arbitrator pursuant to this Section 11 that the Company is bound by all the provisions of this Agreement and is precluded from making any assertions to the contrary. If the court or arbitrator shall determine that the Indemnitee is entitled to any indemnification or advancement of Expenses hereunder, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such adjudication or award in arbitration (including, but not limited to, any appellate proceedings) to the fullest extent permitted by law, and in any suit brought by the Company to recover an advancement of Expenses pursuant to the terms of an undertaking, the Company shall pay all Expenses actually and reasonably incurred by the Indemnitee in connection with such suit to the extent the Indemnitee has been successful, on the merits or otherwise, in whole or in part, in defense of such suit, to the fullest extent permitted by law.
12. Non-Exclusivity of Rights . The rights to indemnification and to the advancement of Expenses provided by this Agreement shall not be deemed exclusive of any other right that the Indemnitee may now or hereafter acquire under any applicable law, agreement, vote of stockholders or Disinterested Directors, provisions of a charter or bylaws (including the certificate of incorporation or bylaws of the Company), or otherwise.
13. Expenses to Enforce Agreement . In the event that the Indemnitee is subject to or intervenes in any action, suit, or proceeding in which the validity or enforceability of this Agreement is at issue or seeks an adjudication or award in arbitration to enforce the Indemnitees rights under, or to recover damages for breach of, this Agreement, the Indemnitee, if the Indemnitee prevails in whole or in part in such action, suit, or proceeding, shall be entitled to recover from the Company and shall be indemnified by the Company against any Expenses actually and reasonably incurred by the Indemnitee in connection therewith.
14. Continuation of Indemnity . All agreements and obligations of the Company contained herein shall continue during the period the Indemnitee is a director, officer, employee, agent, or trustee of the Company or while a director, officer, employee, agent, or trustee is serving at the request of the Company as a director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan, and shall continue thereafter with respect to any possible claims based on the fact that the Indemnitee was a director, officer, employee, agent, or trustee of the Company or was serving at the request of the Company as a director, officer, employee, agent, or trustee of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan. This Agreement shall be binding upon all successors and assigns of the Company (including any transferee of all or substantially all of its assets and any successor by merger or operation of law) and shall inure to the benefit of the Indemnitees heirs, executors, and administrators.
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15. Notification and Defense of Proceeding . Promptly after receipt by the Indemnitee of notice of any Proceeding, the Indemnitee shall, if a request for indemnification or an advancement of Expenses in respect thereof is to be made against the Company under this Agreement, notify the Company in writing of the commencement thereof; but the omission so to notify the Company shall not relieve it from any liability that it may have to the Indemnitee. Notwithstanding any other provision of this Agreement, with respect to any such Proceeding of which the Indemnitee notifies the Company:
(a) The Company shall be entitled to participate therein at its own expense;
(b) Except as otherwise provided in this Section 15(b), to the extent that it may wish, the Company, jointly with any other indemnifying party similarly notified, shall be entitled to assume the defense thereof, with counsel satisfactory to the Indemnitee. After notice from the Company to the Indemnitee of its election so to assume the defense thereof, the Company shall not be liable to the Indemnitee under this Agreement for any expenses of counsel subsequently incurred by the Indemnitee in connection with the defense thereof except as otherwise provided below. The Indemnitee shall have the right to employ the Indemnitees own counsel in such Proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Company, (ii) the Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and the Indemnitee in the conduct of the defense of such Proceeding, or (iii) the Company shall not within 60 calendar days of receipt of notice from the Indemnitee in fact have employed counsel to assume the defense of the Proceeding, in each of which cases the fees and expenses of the Indemnitees counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which the Indemnitee shall have made the conclusion provided for in (ii) above; and
(c) Notwithstanding any other provision of this Agreement, the Company shall not be liable to indemnify the Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without the Companys written consent, or for any judicial or other award, if the Company was not given an opportunity, in accordance with this Section 15, to participate in the defense of such Proceeding. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on or disclosure obligation with respect to the Indemnitee without the Indemnitees written consent. Neither the Company nor the Indemnitee shall unreasonably withhold its consent to any proposed settlement.
16. Advancement of Expenses . All Expenses incurred by the Indemnitee in defending any Proceeding described in Section 4 or 5 shall be paid by the Company in advance of the final disposition of such Proceeding at the request of the Indemnitee. To receive an advancement of Expenses under this Agreement, the Indemnitee shall submit a written request to the Secretary of the Company. Such request shall reasonably evidence the Expenses incurred by the Indemnitee and shall include or be accompanied by an undertaking, by or on behalf of the Indemnitee, to repay all amounts so advanced if it shall ultimately be determined, by final judicial decision of a court of competent jurisdiction from which there is no further right to appeal, that the Indemnitee is not entitled to be indemnified for such Expenses by the Company as provided by this Agreement or otherwise. The Indemnitees undertaking to repay any such amounts is not required to be secured. Each such advancement of Expenses shall be made within 20 calendar days after the receipt by the Secretary of the Company of such written request. The Indemnitees entitlement to Expenses under this Agreement shall include those incurred in connection with any action, suit, or proceeding by the Indemnitee seeking an adjudication or award in arbitration pursuant to Section 11 of this Agreement (including the enforcement of this provision) to the extent the court or arbitrator shall determine that the Indemnitee is entitled to an advancement of Expenses hereunder.
17. Severability; Prior Indemnification Agreements . If any provision or provisions of this Agreement shall be held to be invalid, illegal, or unenforceable for any reason whatsoever, (a) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal, or unenforceable, that are not by themselves invalid, illegal, or unenforceable) shall not in any way be affected or impaired thereby, and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal, or unenforceable, that are not themselves invalid, illegal, or unenforceable) shall be construed so as to give effect to the intent of the parties that the Company provide protection to the Indemnitee to the fullest enforceable extent. This Agreement shall supersede and replace any prior indemnification agreements entered into by and between the Company and the Indemnitee and any such prior agreements shall be terminated upon execution of this Agreement.
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18. Headings; References; Pronouns . The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. References herein to section numbers are to sections of this Agreement. All pronouns and any variations thereof shall be deemed to refer to the singular or plural as appropriate.
19. Other Provisions .
(a) This Agreement and all disputes or controversies arising out of or related to this Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without regard to the laws of any other jurisdiction that might be applied because of conflicts of laws principles of the State of Delaware.
(b) This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party.
(c) This Agreement shall not be deemed an employment contract between the Company and any Indemnitee who is an officer of the Company, and, if the Indemnitee is an officer of the Company, the Indemnitee specifically acknowledges that the Indemnitee may be discharged at any time for any reason, with or without cause, and with or without severance compensation, except as may be otherwise provided in a separate written contract between the Indemnitee and the Company.
(d) In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.
(e) This Agreement may not be amended, modified, or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each party. No failure or delay of either party in exercising any right or remedy hereunder shall operate as a waiver thereof, and no single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, shall preclude any other or further exercise thereof or the exercise of any other right or power.
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IN WITNESS WHEREOF, the Company and the Indemnitee have caused this Agreement to be executed as of the date first written above.
Forterra, Inc. | ||
By: |
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Name: | ||
Title: | ||
Indemnitee | ||
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Name: |
S IGNATURE P AGE TO I NDEMNIFICATION A GREEMENT
Exhibit 10.22
FORTERRA, INC.
2016 STOCK INCENTIVE PLAN
1. | Purpose |
The purpose of this Forterra, Inc. 2016 Stock Incentive Plan (the Plan) is to promote and closely align the interests of employees, officers, non-employee directors and other service providers of Forterra, Inc. (the Company) and its stockholders by providing stock-based compensation and other performance-based compensation. The objectives of the Plan are to attract and retain the best available employees for positions of substantial responsibility and to motivate Participants to optimize the profitability and growth of the Company through incentives that are consistent with the Companys goals and that link the personal interests of Participants to those of the Companys stockholders.
The Plan provides for the grant of Options, Stock Appreciation Rights, Restricted Stock Units and Restricted Stock, any of which may be performance-based, and for Incentive Bonuses, which may be paid in cash or stock or a combination thereof, as determined by the Committee.
2. | Definitions |
As used in the Plan, the following terms shall have the meanings set forth below:
(a) Affiliate means any entity in which the Company has a substantial direct or indirect equity interest, as determined by the Committee from time to time.
(b) Act means the Securities Exchange Act of 1934, as amended, or any successor thereto.
(c) Award means an Option, Stock Appreciation Right, Restricted Stock Unit, Restricted Stock or Incentive Bonus granted to a Participant pursuant to the provisions of the Plan, any of which may be subject to performance conditions.
(d) Award Agreement means a written or electronic agreement or other instrument as may be approved from time to time by the Committee and designated as such implementing the grant of each Award. An Award Agreement may be in the form of an agreement to be executed by both the Participant and the Company (or an authorized representative of the Company) or certificates, notices or similar instruments as approved by the Committee and designated as such.
(e) Beneficial Owner shall have the meaning set forth in Rule 13d-3 under the Act.
(f) Board means the board of directors of the Company.
(g) Cause has the meaning set forth in an Award Agreement or other written employment or services agreement between the Participant and the Company or an Affiliate thereof, or if no such meaning applies, means a Participants Termination of Employment by the Company or an Affiliate by reason of the Participants (i) material breach of his or her obligations under any agreement, including any employment agreement, that he has entered into with the Company or an Affiliate; (ii) intentional misconduct as an officer, employee, director, consultant or advisor of
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the Company or a material violation by the Participant of written policies of the Company; (iii) material breach of any fiduciary duty which the Participant owes to the Company; (iv) commission by the Participant of (A) a felony or (B) fraud, embezzlement, dishonesty, or a crime involving moral turpitude; (v) the habitual use of illicit drugs or other illicit substances; or (vi) unexplained absence from work or service for more than ten (10) days in any twelve (12) month period (vacation, reasonable personal leave, reasonable sick leave and disability excepted). A Participants employment or service will be deemed to have been terminated for Cause if it is determined subsequent to his or her termination of employment or service that grounds for termination of his or her employment or service for Cause existed at the time of his or her termination of employment or service.
(h) Change in Control means the occurrence of any one of the following:
(1) any Person, other than LSF9 Stardust Holdings, L.P., LSF9 Concrete Mid-Holdings, Ltd, or their respective Affiliates, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person or any securities acquired directly from the Company or its Affiliates) representing 35% or more of the combined voting power of the Companys then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (A) of paragraph 3 below; or
(2) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on the Effective Date (as defined below), constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Companys stockholders was approved or recommended by a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose appointment, election or nomination for election was previously so approved or recommended; or
(3) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than (A) a merger or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation; or
(4) the implementation of a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Companys assets, other than a sale or disposition by the Company of all or substantially all of the Companys assets to (A) an entity, at least 50% of the combined voting power of the voting securities of which is owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale, or (B) LSF9 Stardust Holdings, L.P., LSF9 Concrete Mid-Holdings, Ltd, or their respective Affiliates.
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(i) Code means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issued thereunder.
(j) Committee means the Compensation Committee of the Board (or any successor committee), or such other committee as designated by the Board to administer the Plan under Section 6.
(k) Common Stock means the common stock of the Company, par value $0.001 a share, or such other class or kind of shares or other securities as may be applicable under Section 15.
(l) Company means Forterra, Inc., a Delaware corporation, and except as utilized in the definition of Change in Control, any successor corporation.
(m) Dividend Equivalents mean an amount payable in cash or Common Stock, as determined by the Committee, with respect to a Restricted Stock Unit Award equal to the dividends that would have been paid to the Participant if the shares underlying the Award had been owned by the Participant.
(n) Effective Date means the date on which the Plan takes effect, as defined pursuant to Section 4 of the Plan.
(o) Eligible Person any current or prospective employee, officer, non-employee director or other service provider of the Company or any of its Subsidiaries; provided however that Incentive Stock Options may only be granted to employees.
(p) Fair Market Value means as of any date, the value of the Common Stock determined as follows: (i) if the Common Stock is listed on any established stock exchange, system or market, its Fair Market Value shall be the closing price for the Common Stock as quoted on such exchange, system or market as reported in the Wall Street Journal or such other source as the Committee deems reliable (or, if no sale of Common Stock is reported for such date, on the next preceding date on which any sale shall have been reported); and (ii) in the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Committee by the reasonable application of a reasonable valuation method, taking into account factors consistent with Treas. Reg. § 409A-1(b)(5)(iv)(B) as the Committee deems appropriate.
(q) Incentive Bonus means a bonus opportunity awarded under Section 11 pursuant to which a Participant may become entitled to receive an amount based on satisfaction of such performance criteria established for a specified performance period as specified in the Award Agreement.
(r) Incentive Stock Option means a stock option that is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(s) Nonqualified Stock Option means a stock option that is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
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(t) Option means a right to purchase a number of shares of Common Stock at such exercise price, at such times and on such other terms and conditions as are specified in or determined pursuant to an Award Agreement. Options granted pursuant to the Plan may be Incentive Stock Options or Nonqualified Stock Options.
(u) Participant means any Eligible Person to whom Awards have been granted from time to time by the Committee and any authorized transferee of such individual.
(v) Person shall have the meaning given in Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any of its Affiliates, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(w) Plan means the Forterra, Inc. 2016 Stock Incentive Plan as set forth herein and as amended from time to time.
(x) Restricted Stock means an Award or issuance of Common Stock the grant, issuance, vesting and/or transferability of which is subject during specified periods of time to such conditions (including continued employment or engagement or performance conditions) and terms as the Committee deems appropriate.
(y) Restricted Stock Unit means an Award denominated in units of Common Stock under which the issuance of shares of Common Stock (or cash payment in lieu thereof) is subject to such conditions (including continued employment or engagement or performance conditions) and terms as the Committee deems appropriate.
(z) Separation from Service or Separates from Service means the termination of Participants employment with the Company and all Subsidiaries that constitutes a separation from service within the meaning of Section 409A of the Code.
(aa) Stock Appreciation Right means a right granted that entitles the Participant to receive, in cash or Common Stock or a combination thereof, as determined by the Committee, value equal to the excess of (i) the Fair Market Value of a specified number of shares of Common Stock at the time of exercise over (ii) the exercise price of the right, as established by the Committee on the date of grant.
(bb) Subsidiary means any business association (including a corporation or a partnership, other than the Company) in an unbroken chain of such associations beginning with the Company if each of the associations other than the last association in the unbroken chain owns equity interests (including stock or partnership interests) possessing 50% or more of the total combined voting power of all classes of equity interests in one of the other associations in such chain.
(cc) Substitute Awards means Awards granted or Common Stock issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.
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(dd) Termination of Employment means ceasing to serve as an employee of the Company and its Subsidiaries or, with respect to a non-employee director or other service provider, ceasing to serve as such for the Company and its Subsidiaries, except that with respect to all or any Awards held by a Participant (i) the Committee may determine that a leave of absence or employment on a less than full-time basis is considered a Termination of Employment, (ii) the Committee may determine that a transition of employment to service with a partnership, joint venture or corporation not meeting the requirements of a Subsidiary in which the Company or a Subsidiary is a party is not considered a Termination of Employment, (iii) service as a member of the Board shall constitute continued employment with respect to Awards granted to a Participant while he or she served as an employee, and (iv) service as an employee of the Company or a Subsidiary shall constitute continued employment with respect to Awards granted to a Participant while he or she served as a member of the Board or other service provider. The Committee shall determine whether any corporate transaction, such as a sale or spin-off of a division or subsidiary that employs or engages a Participant, shall be deemed to result in a Termination of Employment with the Company and its Subsidiaries for purposes of any affected Participants Awards, and the Committees decision shall be final and binding.
3. | Eligibility |
Any Eligible Person is eligible for selection by the Committee to receive an Award.
4. | Effective Date and Termination of Plan |
This Plan became effective on , 2016 (the Effective Date). The Plan shall remain available for the grant of Awards until the tenth (10th) anniversary of the Effective Date. Notwithstanding the foregoing, the Plan may be terminated at such earlier time as the Board may determine. Termination of the Plan will not affect the rights and obligations of the Participants and the Company arising under Awards theretofore granted.
5. | Shares Subject to the Plan and to Awards |
(a) Aggregate Limits . The aggregate number of shares of Common Stock issuable under the Plan shall be equal to . The aggregate number of shares of Common Stock available for grant under this Plan and the number of shares of Common Stock subject to Awards outstanding at the time of any event described in Section 15 shall be subject to adjustment as provided in Section 15. The shares of Common Stock issued pursuant to Awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market.
(b) Issuance of Shares . For purposes of Section 5(a), the aggregate number of shares of Common Stock issued under this Plan at any time shall equal only the number of shares of Common Stock actually issued upon exercise or settlement of an Award. Shares of Common Stock subject to Awards that have been canceled, expired, forfeited or otherwise not issued under an Award and shares of Common Stock subject to Awards settled in cash shall not count as shares of Common Stock issued under this Plan. The aggregate number of shares available for
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issuance under this Plan at any time shall not be reduced by (i) shares subject to Awards that have been terminated, expired unexercised, forfeited or settled in cash, (ii) shares subject to Awards that have been retained or withheld by the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an Award, or (iii) shares subject to Awards that otherwise do not result in the issuance of shares in connection with payment or settlement thereof. In addition, shares that have been delivered (either actually or by attestation) to the Company in payment or satisfaction of the exercise price, purchase price or tax withholding obligation of an Award shall be available for issuance under this Plan.
(c) Substitute Awards . Substitute Awards shall not reduce the shares of Common Stock authorized for issuance under the Plan or authorized for grant to a Participant in any calendar year. Additionally, in the event that a company acquired by the Company or any Subsidiary, or with which the Company or any Subsidiary combines, has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the shares of Common Stock authorized for issuance under the Plan; provided that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were employees of such acquired or combined company before such acquisition or combination.
(d) Tax Code Limits . The aggregate number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options granted under this Plan shall be equal to , which number shall be calculated and adjusted pursuant to Section 15 only to the extent that such calculation or adjustment will not affect the status of any option intended to qualify as an Incentive Stock Option under Section 422 of the Code. Upon the expiration of the reliance period relating to the exemption for corporations that become publicly held, as specified in Treas. Reg. § 1.162-27(f), (i) the aggregate number of shares of Common Stock subject to Awards granted under this Plan during any calendar year to any one Participant shall not exceed , which number shall be calculated and adjusted pursuant to Section 15 only to the extent that such calculation or adjustment will not affect the status of any Award intended to qualify as performance-based compensation under Section 162(m) of the Code; and (ii) the maximum cash amount payable pursuant to that portion of an Incentive Bonus earned for any 12-month period to any Participant under this Plan that is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code shall not exceed $ .
(e) Limits on Awards to Non-Employee Directors. The aggregate dollar value of equity-based (based on the grant date Fair Market Value of equity-based Awards) and cash compensation granted under this Plan or otherwise during any calendar year to any non-employee director shall not exceed $ ; provided, however, that in the calendar year in which a non-employee director first joins the Board or is first designated as Chairman of the Board or Lead Director, the maximum aggregate dollar value of equity-based and cash compensation granted to the non-employee director may be up to % of the foregoing limit.
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6. | Administration of the Plan |
(a) Administrator of the Plan . The Plan shall be administered by the Committee. The Board shall fill vacancies on, and from time to time may remove or add members to, the Committee. The Committee shall act pursuant to a majority vote or unanimous written consent. Any power of the Committee may also be exercised by the Board, except to the extent that the grant or exercise of such authority would cause any Award or transaction to become subject to (or lose an exemption under) the short-swing profit recovery provisions of Section 16 of the Act or cause an Award intended to qualify as performance-based compensation under Section 162(m) of the Code not to qualify for such treatment. To the extent that any permitted action taken by the Board conflicts with action taken by the Committee, the Board action shall control. To the maximum extent permissible under applicable law, the Committee (or any successor) may by resolution delegate any or all of its authority to one or more subcommittees composed of one or more directors and/or officers of the Company, and any such subcommittee shall be treated as the Committee for all purposes under this Plan. Notwithstanding the foregoing, if the Board or the Committee (or any successor) delegates to a subcommittee comprised of one or more officers of the Company (who are not also directors) the authority to grant Awards, the resolution so authorizing such subcommittee shall specify the total number of shares of Common Stock such subcommittee may award pursuant to such delegated authority, and no such subcommittee shall designate any officer serving thereon or any executive officer or non-employee director of the Company as a recipient of any Awards granted under such delegated authority. The Committee hereby delegates to and designates the senior human resources officer of the Company (or such other officer with similar authority), and to his or her delegates or designees, the authority to assist the Committee in the day-to-day administration of the Plan and of Awards granted under the Plan, including without limitation those powers set forth in Section 6(b)(4) through (9) and to execute agreements evidencing Awards made under this Plan or other documents entered into under this Plan on behalf of the Committee or the Company. The Committee may further designate and delegate to one or more additional officers or employees of the Company or any subsidiary, and/or one or more agents, authority to assist the Committee in any or all aspects of the day-to-day administration of the Plan and/or of Awards granted under the Plan.
(b) Powers of Committee . Subject to the express provisions of this Plan, the Committee shall be authorized and empowered to do all things that it determines to be necessary or appropriate in connection with the administration of this Plan, including, without limitation:
(1) to prescribe, amend and rescind rules and regulations relating to this Plan and to define terms not otherwise defined herein;
(2) to determine which persons are Eligible Persons, to which of such Eligible Persons, if any, Awards shall be granted hereunder and the timing of any such Awards;
(3) to prescribe and amend the terms of the Award Agreements, to grant Awards and determine the terms and conditions thereof;
(4) to establish and verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, retention, vesting, exercisability or settlement of any Award;
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(5) to prescribe and amend the terms of or form of any document or notice required to be delivered to the Company by Participants under this Plan;
(6) to determine the extent to which adjustments are required pursuant to Section 15;
(7) to interpret and construe this Plan, any rules and regulations under this Plan and the terms and conditions of any Award granted hereunder, and to make exceptions to any such provisions if the Committee, in good faith, determines that it is appropriate to do so;
(8) to approve corrections in the documentation or administration of any Award; and
(9) to make all other determinations deemed necessary or advisable for the administration of this Plan.
Notwithstanding anything in this Plan to the contrary, with respect to any Award that is deferred compensation under Section 409A of the Code, the Committee shall exercise its discretion in a manner that causes such Awards to be compliant with or exempt from the requirements of such Code section. Without limiting the foregoing, unless expressly agreed to in writing by the Participant holding such Award, the Committee shall not take any action with respect to any Award which constitutes (i) a modification of a stock right within the meaning of Treas. Reg. § 1.409A-1(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an extension of a stock right, including the addition of a feature for the deferral of compensation within the meaning of Treas. Reg. § 1.409A-1 (b)(5)(v)(C), or (iii) an impermissible acceleration of a payment date or a subsequent deferral of a stock right subject to Section 409A of the Code within the meaning of Treas. Reg. § 1.409A-1(b)(5)(v)(E).
The Committee may, in its sole and absolute discretion, without amendment to the Plan but subject to the limitations otherwise set forth in Section 19, waive or amend the operation of Plan provisions respecting exercise after termination of employment or service to the Company or an Affiliate. The Committee or any member thereof may, in its sole and absolute discretion and, except as otherwise provided in Section 19, waive, settle or adjust any of the terms of any Award so as to avoid unanticipated consequences or address unanticipated events (including any temporary closure of an applicable stock exchange, disruption of communications or natural catastrophe).
(c) Determinations by the Committee . All decisions, determinations and interpretations by the Committee regarding the Plan, any rules and regulations under the Plan and the terms and conditions of or operation of any Award granted hereunder, shall be final and binding on all Participants, beneficiaries, heirs, assigns or other persons holding or claiming rights under the Plan or any Award. The Committee shall consider such factors as it deems relevant, in its sole and absolute discretion, to making such decisions, determinations and interpretations including, without limitation, the recommendations or advice of any officer or other employee of the Company and such attorneys, consultants and accountants as it may select. Members of the Board and members of the Committee acting under the Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties.
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(d) Subsidiary Awards . In the case of a grant of an Award to any Participant employed by a Subsidiary, such grant may, if the Committee so directs, be implemented by the Company issuing any subject shares of Common Stock to the Subsidiary, for such lawful consideration as the Committee may determine, upon the condition or understanding that the Subsidiary will transfer the shares of Common Stock to the Participant in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan. Notwithstanding any other provision hereof, such Award may be issued by and in the name of the Subsidiary and shall be deemed granted on such date as the Committee shall determine.
7. | Plan Awards |
(a) Terms Set Forth in Award Agreement . Awards may be granted to Eligible Persons as determined by the Committee at any time and from time to time prior to the termination of the Plan. The terms and conditions of each Award shall be set forth in an Award Agreement in a form approved by the Committee for such Award, which Award Agreement may contain such terms and conditions as specified from time to time by the Committee, provided such terms and conditions do not conflict with the Plan. The Award Agreement for any Award (other than Restricted Stock awards) shall include the time or times at or within which and the consideration, if any, for which any shares of Common Stock may be acquired from the Company. The terms of Awards may vary among Participants, and the Plan does not impose upon the Committee any requirement to make Awards subject to uniform terms. Accordingly, the terms of individual Award Agreements may vary.
(b) Termination of Employment . Subject to the express provisions of the Plan, the Committee shall specify before, at, or after the time of grant of an Award the provisions governing the effect(s) upon an Award of a Participants Termination of Employment.
(c) Rights of a Stockholder . A Participant shall have no rights as a stockholder with respect to shares of Common Stock covered by an Award (including voting rights) until the date the Participant becomes the holder of record of such shares of Common Stock. No adjustment shall be made for dividends or other rights for which the record date is prior to such date, except as provided in Section 10(b) or Section 15 of this Plan or as otherwise provided by the Committee.
8. | Options |
(a) Grant, Term and Price . The grant, issuance, retention, vesting and/or settlement of any Option shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment or engagement, passage of time, attainment of age and/or service requirements, and/or satisfaction of performance conditions. The term of an Option shall in no event be greater than ten years; provided, however, the term of an Option (other than an Incentive Stock Option) shall be automatically extended if, at the time of its scheduled expiration, the Participant holding such Option is prohibited by law or the Companys insider trading policy from exercising the Option, which extension shall expire on the thirtieth (30th) day following the date such prohibition no longer applies. The Committee will establish the price at which Common Stock may be purchased upon exercise of an Option, which, in no event will be less than the Fair Market Value of such shares on the date of grant; provided, however,
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that the exercise price per share of Common Stock with respect to an Option that is granted as a Substitute Award may be less than the Fair Market Value of the shares of Common Stock on the date such Option is granted if such exercise price is based on a formula set forth in the terms of the options held by such optionees or in the terms of the agreement providing for such merger or other acquisition that satisfies the requirements of (i) Section 409A of the Code, if such options held by such optionees are not intended to qualify as incentive stock options within the meaning of Section 422 of the Code, and (ii) Section 424(a) of the Code, if such options held by such optionees are intended to qualify as incentive stock options within the meaning of Section 422 of the Code. The exercise price of any Option may be paid in cash or such other method as determined by the Committee, including an irrevocable commitment by a broker to pay over such amount from a sale of the shares of Common Stock issuable under an Option, the delivery of previously owned shares of Common Stock or withholding of shares of Common Stock deliverable upon exercise.
(b) No Repricing without Stockholder Approval . Other than in connection with a change in the Companys capitalization (as described in Section 15), the Committee shall not, without stockholder approval, reduce the exercise price of a previously awarded Option and, at any time when the exercise price of a previously awarded Option is above the Fair Market Value of a share of Common Stock, the Committee shall not, without stockholder approval, cancel and re-grant or exchange such Option for cash or a new Award with a lower (or no) exercise price.
(c) No Reload Grants . Options shall not be granted under the Plan in consideration for and shall not be conditioned upon the delivery of shares of Common Stock to the Company in payment of the exercise price and/or tax withholding obligation under any other employee stock option.
(d) Incentive Stock Options . Notwithstanding anything to the contrary in this Section 8, in the case of the grant of an Incentive Stock Option, if the Participant owns stock possessing more than 10% of the combined voting power of all classes of stock of the Company (a 10% Stockholder), the exercise price of such Option must be at least 110% of the Fair Market Value of the shares of Common Stock on the date of grant and the Option must expire within a period of not more than five (5) years from the date of grant. Notwithstanding anything in this Section 8 to the contrary, options designated as Incentive Stock Options shall not be eligible for treatment under the Code as Incentive Stock Options (and will be deemed to be Nonqualified Stock Options) to the extent that either (a) the aggregate Fair Market Value of shares of Common Stock (determined as of the time of grant) with respect to which such Options are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Subsidiary) exceeds $100,000, taking Options into account in the order in which they were granted, or (b) such Options otherwise remain exercisable but are not exercised within three (3) months (or such other period of time provided in Section 422 of the Code) of separation of service (as determined in accordance with Section 3401(c) of the Code and the regulations promulgated thereunder).
(e) No Stockholder Rights . Participants shall have no voting rights and will have no rights to receive dividends or Dividend Equivalents in respect of an Option or any shares of Common Stock subject to an Option until the Participant has become the holder of record of such shares.
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9. | Stock Appreciation Rights |
(a) General Terms . The grant, issuance, retention, vesting and/or settlement of any Stock Appreciation Right shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment or engagement, passage of time, attainment of age and/or service requirements, and/or satisfaction of performance conditions. Stock Appreciation Rights may be granted to Participants from time to time either in tandem with or as a component of Options granted under the Plan (tandem SARs) or not in conjunction with other Awards (freestanding SARs). Upon exercise of a tandem SAR as to some or all of the shares covered by the grant, the related Option shall be canceled automatically to the extent of the number of shares covered by such exercise. Conversely, if the related Option is exercised as to some or all of the shares covered by the grant, the related tandem SAR, if any, shall be canceled automatically to the extent of the number of shares covered by the Option exercise. Any Stock Appreciation Right granted in tandem with an Option may be granted at the same time such Option is granted or at any time thereafter before exercise or expiration of such Option, provided that the Fair Market Value of Common Stock on the date of the SARs grant is not greater than the exercise price of the related Option. All freestanding SARs shall be granted subject to the same terms and conditions applicable to Options as set forth in Section 8 and all tandem SARs shall have the same exercise price as the Option to which they relate. Subject to the provisions of Section 8 and the immediately preceding sentence, the Committee may impose such other conditions or restrictions on any Stock Appreciation Right as it shall deem appropriate. Stock Appreciation Rights may be settled in Common Stock, cash, Restricted Stock or a combination thereof, as determined by the Committee and set forth in the applicable Award Agreement.
(b) No Repricing without Stockholder Approval . Other than in connection with a change in the Companys capitalization (as described in Section 15), the Committee shall not, without stockholder approval, reduce the exercise price of a previously awarded Stock Appreciation Right and, at any time when the exercise price of a previously awarded Stock Appreciation Right is above the Fair Market Value of a share of Common Stock, the Committee shall not, without stockholder approval, cancel and re-grant or exchange such Stock Appreciation Right for cash or a new Award with a lower (or no) exercise price.
(c) No Stockholder Rights . Participants shall have no voting rights and will have no rights to receive dividends or Dividend Equivalents in respect of an Award of Stock Appreciation Rights or any shares of Common Stock subject to an Award of Stock Appreciation Rights until the Participant has become the holder of record of such shares.
10. | Restricted Stock and Restricted Stock Units |
(a) Vesting and Performance Criteria . The grant, issuance, vesting and/or settlement of any Award of Restricted Stock or Restricted Stock Units shall occur at such time and be subject to such terms and conditions as determined by the Committee or under criteria established by the Committee, which may include conditions based on continued employment or engagement, passage of time, attainment of age and/or service requirements, and/or satisfaction of performance conditions. In addition, the Committee shall have the right to grant Restricted Stock or Restricted Stock Unit Awards as the form of payment for grants or rights earned or due under other stockholder-approved compensation plans or arrangements of the Company.
(b) Dividends and Distributions . Participants in whose name Restricted Stock is granted shall be entitled to receive all dividends and other distributions paid with respect to those shares of Common Stock, unless determined otherwise by the Committee. The Committee will determine whether any such dividends or distributions will be automatically reinvested in additional shares of Restricted Stock and/or subject to the same restrictions on transferability as the Restricted Stock with respect to which they were distributed or whether such dividends or distributions will be paid in cash. Shares underlying Restricted Stock Units shall be entitled to dividends or distributions only to the extent provided by the Committee. Notwithstanding anything herein to the contrary, in no event will dividends or Dividend Equivalents be paid during the performance period with respect to unearned Awards of Restricted Stock or Restricted Stock Units that are subject to performance-based vesting criteria. Dividends or Dividend Equivalents accrued on such shares shall become payable no earlier than the date the performance-based vesting criteria have been achieved and the underlying shares or Restricted Stock Units have been earned.
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11. | Incentive Bonuses |
(a) Performance Criteria . The Committee shall establish the performance criteria and level of achievement versus such criteria that shall determine the amount payable under an Incentive Bonus, which may include a target, threshold and/or maximum amount payable and any formula for determining such achievement, and which criteria may be based on performance conditions.
(b) Timing and Form of Payment . The Committee shall determine the timing of payment of any Incentive Bonus. Payment of the amount due under an Incentive Bonus may be made in cash or in Common Stock, as determined by the Committee.
(c) Discretionary Adjustments . Notwithstanding satisfaction of any performance goals and, the amount paid under an Incentive Bonus on account of either financial performance or personal performance evaluations may be adjusted by the Committee on the basis of such further considerations as the Committee shall determine.
12. | Qualifying Performance-Based Compensation |
(a) General . The Committee may establish performance criteria and level of achievement versus such criteria that shall determine the number of shares of Common Stock, Restricted Stock Units, or cash to be granted, retained, vested, issued or issuable under or in settlement of or the amount payable pursuant to an Award, which criteria may be based on Qualifying Performance Criteria or other standards of financial performance and/or personal performance evaluations. A Performance Award may be identified as Performance Share, Performance Equity, Performance Unit or other such term as chosen by the Committee. In addition, the Committee may specify that an Award or a portion of an Award is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code, provided that upon the expiration of the reliance period relating to the exemption for corporations that become publicly held, as specified in Treasury Regulation Section 1.162-27(f), the performance criteria for such Award or portion of an Award that is intended by the Committee to satisfy the requirements for performance-based compensation under Section 162(m) of the Code shall be a measure based on one or more Qualifying Performance Criteria selected by the Committee and specified at the time the Award is granted. Upon the
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expiration of the reliance period relating to the exemption for corporations that become publicly held, as specified in Treasury Regulation Section 1.162-27(f), the Committee shall certify the extent to which any Qualifying Performance Criteria has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting of any Award that is intended to satisfy the requirements for performance-based compensation under Section 162(m) of the Code. Notwithstanding satisfaction of any performance goals, the number of shares of Common Stock issued under or the amount paid under an Award may, to the extent specified in the Award Agreement, be modified, but upon the expiration of the reliance period relating to the exemption for corporations that become publicly held, as specified in Treasury Regulation Section 1.162-27(f), may only be reduced, but not increased, by the Committee on the basis of such further considerations as the Committee in its sole discretion shall determine.
(b) Qualifying Performance Criteria . For purposes of this Plan, the term Qualifying Performance Criteria shall mean any one or more of the following performance criteria, or derivations of such performance criteria, either individually, alternatively or in any combination, applied to either the Company as a whole or to a business division or unit or Subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years results or to a designated comparison group, in each case as specified by the Committee: (i) cash flow (before or after dividends), (ii) earning or earnings per share (including earnings before interest, taxes, depreciation and amortization), (iii) stock price, (iv) return on equity, (v) total stockholder return, (vi) return on capital or investment (including return on total capital, return on invested capital, or return on investment), (vii) return on assets or net assets, (viii) market capitalization, (ix) economic value added, (x) debt leverage (debt to capital), (xi) revenue, (xii) income or net income, (xiii) operating income, (xiv) operating profit or net operating profit, (xv) operating margin or profit margin, (xvi) return on operating revenue, (xvii) cash from operations, (xviii) operating ratio, (xix) operating revenue, (xx) total backlog, (xxi) days sales outstanding, (xxii) customer service, (xxiii) operational safety, reliability and/or efficiency; and (xxiv) environmental incidents. As and to the extent permitted by Section 162(m) of the Code, in the event of (A) a change in corporate capitalization, a corporate transaction or a complete or partial corporate liquidation, (B) a natural disaster or other significant unforeseen event that materially impacts the operation of the Company, (C) any extraordinary gain or loss or other event that is treated for accounting purposes as an extraordinary item under generally accepted accounting principles, or (D) any material change in accounting policies or practices affecting the Company and/or the performance goals, then, to the extent any of the foregoing events was not anticipated at the time the performance goals were established, the Committee may make adjustments to the performance goals, based solely on objective criteria, so as to neutralize the effect of the event on the applicable Award.
13. | Deferral of Payment |
The Committee may, in an Award Agreement or otherwise, provide for the deferred delivery of Common Stock or cash upon settlement, vesting or other events with respect to Restricted Stock Units, or in payment or satisfaction of an Incentive Bonus. Notwithstanding anything herein to the contrary, in no event will any election to defer the delivery of Common Stock or any other payment with respect to any Award be allowed if the Committee determines, in its sole discretion, that the deferral would result in the imposition of the additional tax under
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Section 409A(a)(1)(B) of the Code. No Award shall provide for deferral of compensation that does not comply with Section 409A of the Code. The Company, the Board and the Committee shall have no liability to a Participant, or any other party, if an Award that is intended to be exempt from, or compliant with, Section 409A of the Code is not so exempt or compliant or for any action taken by the Board or the Committee.
14. | Conditions and Restrictions Upon Securities Subject to Awards |
The Committee may provide that the Common Stock issued upon exercise of an Option or Stock Appreciation Right or otherwise subject to or issued under an Award shall be subject to such further agreements, restrictions, conditions or limitations as the Committee in its discretion may specify prior to the exercise of such Option or Stock Appreciation Right or the grant, vesting or settlement of such Award, including without limitation, conditions on vesting or transferability, forfeiture or repurchase provisions and method of payment for the Common Stock issued upon exercise, vesting or settlement of such Award (including the actual or constructive surrender of Common Stock already owned by the Participant) or payment of taxes arising in connection with an Award. Without limiting the foregoing, such restrictions may address the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued under an Award, including without limitation (i) restrictions under an insider trading policy or pursuant to applicable law, (ii) restrictions designed to delay and/or coordinate the timing and manner of sales by the Participant and holders of other Company equity compensation arrangements, (iii) restrictions as to the use of a specified brokerage firm for such resales or other transfers and (iv) provisions requiring Common Stock be sold on the open market or to the Company in order to satisfy tax withholding or other obligations.
15. | Adjustment of and Changes in the Stock |
(a) The number and kind of shares of Common Stock available for issuance under this Plan (including under any Awards then outstanding), and the number and kind of shares of Common Stock subject to the limits set forth in Section 5 of this Plan, shall be equitably adjusted by the Committee to reflect any reorganization, reclassification, combination of shares, stock split, reverse stock split, spin-off, dividend or distribution of securities, property or cash (other than regular, quarterly cash dividends), or any other event or transaction that affects the number or kind of shares of Common Stock outstanding. Such adjustment may be designed to comply with Section 424 of the Code or may be designed to treat the shares of Common Stock available under the Plan and subject to Awards as if they were all outstanding on the record date for such event or transaction or to increase the number of such shares of Common Stock to reflect a deemed reinvestment in shares of Common Stock of the amount distributed to the Companys securityholders. The terms of any outstanding Award shall also be equitably adjusted by the Committee as to price, number or kind of shares of Common Stock subject to such Award, vesting, and other terms to reflect the foregoing events, which adjustments need not be uniform as between different Awards or different types of Awards. No fractional shares of Common Stock shall be issued or issuable pursuant to such an adjustment.
(b) In the event there shall be any other change in the number or kind of outstanding shares of Common Stock, or any stock or other securities into which such Common Stock shall have been changed, or for which it shall have been exchanged, by reason of a Change in Control, other
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merger, consolidation or otherwise, then the Committee shall determine the appropriate and equitable adjustment to be effected, which adjustments need not be uniform between different Awards or different types of Awards. In addition, in the event of such change described in this paragraph, the Committee may accelerate the time or times at which any Award may be exercised, consistent with and as otherwise permitted under Section 409A of the Code, and may provide for cancellation of such accelerated Awards that are not exercised within a time prescribed by the Committee in its sole discretion.
(c) Unless otherwise expressly provided in the Award Agreement or another contract, including an employment or services agreement, or under the terms of a transaction constituting a Change in Control, the Committee may provide that any or all of the following shall occur upon a Participants Termination of Employment without Cause within twenty-four (24) months following a Change in Control: (a) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise any portion of the Option or Stock Appreciation Right not previously exercisable, (b) in the case of any Award the vesting of which is in whole or in part subject to performance criteria or an Incentive Bonus, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse and the Participant shall have the right to receive a payment based on target level achievement or actual performance through a date determined by the Committee, and (c) in the case of outstanding Restricted Stock and/or Restricted Stock Units (other than those referenced in subsection (b)), all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse. Notwithstanding anything herein to the contrary, in the event of a Change in Control in which the acquiring or surviving company in the transaction does not assume or continue outstanding Awards upon the Change in Control, immediately prior to the Change in Control, all Awards that are not assumed or continued shall be treated as follows effective immediately prior to the Change in Control: (a) in the case of an Option or Stock Appreciation Right, the Participant shall have the ability to exercise such Option or Stock Appreciation Right, including any portion of the Option or Stock Appreciation Right not previously exercisable, (b) in the case of any Award the vesting of which is in whole or in part subject to performance criteria or an Incentive Bonus, all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse and the Participant shall have the right to receive a payment based on target level achievement or actual performance through a date determined by the Committee, as determined by the Committee, and (c) in the case of outstanding Restricted Stock and/or Restricted Stock Units (other than those referenced in subsection (b)), all conditions to the grant, issuance, retention, vesting or transferability of, or any other restrictions applicable to, such Award shall immediately lapse. In no event shall any action be taken pursuant to this Section 15(c) that would change the payment or settlement date of an Award in a manner that would result in the imposition of any additional taxes or penalties pursuant to Section 409A of the Code.
(d) Notwithstanding anything in this Section 15 to the contrary, in the event of a Change in Control, the Committee may provide for the cancellation and cash settlement of all outstanding Awards upon such Change in Control.
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(e) The Company shall notify Participants holding Awards subject to any adjustments pursuant to this Section 15 of such adjustment, but (whether or not notice is given) such adjustment shall be effective and binding for all purposes of the Plan.
(f) Notwithstanding anything in this Section 15 to the contrary, an adjustment to an Option or Stock Appreciation Right under this Section 15 shall be made in a manner that will not result in the grant of a new Option or Stock Appreciation Right under Section 409A of the Code.
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 Participants death by the Participants 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 Participants death, by the Participants 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.
17. | Compliance with Laws and Regulations |
This Plan, the grant, issuance, vesting, exercise and settlement of Awards hereunder, and the obligation of the Company to sell, issue or deliver shares of Common Stock under such Awards, shall be subject to all applicable foreign, federal, state and local laws, rules and regulations, stock exchange rules and regulations, and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to register in a Participants name or deliver Common Stock prior to the completion of any registration or qualification of such shares under any foreign, federal, state or local law or any ruling or regulation of any government body which the Committee shall determine to be necessary or advisable. To the extent the Company is unable to or the Committee deems it infeasible to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Companys counsel to be necessary to the lawful issuance and sale of any shares of Common Stock hereunder, the Company and its Subsidiaries shall be relieved of any liability with respect to the failure to issue or sell such shares of Common Stock as to which such requisite authority shall not have been obtained. No Option shall be exercisable and no Common Stock shall be issued and/or transferable under any other Award unless a registration statement with respect to the Common Stock underlying such Option is effective and current or the Company has determined, in its sole and absolute discretion, that such registration is unnecessary.
In the event an Award is granted to or held by a Participant who is employed or providing services outside the United States, the Committee may, in its sole discretion, modify the provisions of the Plan or of such Award as they pertain to such individual to comply with applicable foreign law or to recognize differences in local law, currency or tax policy. The Committee may also impose conditions on the grant, issuance, exercise, vesting, settlement or
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retention of Awards in order to comply with such foreign law and/or to minimize the Companys obligations with respect to tax equalization for Participants employed outside their home country.
18. | Withholding |
To the extent required by applicable federal, state, local or foreign law, the Committee may and/or a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise with respect to any Award, or the issuance or sale of any shares of Common Stock. The Company shall not be required to recognize any Participant rights under an Award, to issue shares of Common Stock or to recognize the disposition of such shares of Common Stock until such obligations are satisfied. To the extent permitted or required by the Committee, these obligations may or shall be satisfied by the Company withholding cash from any compensation otherwise payable to or for the benefit of a Participant, the Company withholding a portion of the shares of Common Stock that otherwise would be issued to a Participant under such Award or any other award held by the Participant or by the Participant tendering to the Company cash or, if allowed by the Committee, shares of Common Stock.
19. | Amendment of the Plan or Awards |
The Board may amend, alter or discontinue this Plan and the Committee may amend, or alter any agreement or other document evidencing an Award made under this Plan but, except as provided pursuant to the provisions of Section 15, no such amendment shall, without the approval of the stockholders of the Company:
(a) increase the maximum number of shares of Common Stock for which Awards may be granted under this Plan;
(b) reduce the price at which Options may be granted below the price provided for in Section 8(a);
(c) reprice outstanding Options or SARs as described in 8(b) and 9(b);
(d) extend the term of this Plan;
(e) change the class of persons eligible to be Participants;
(f) increase the individual maximum limits in Section 5(d) or 5(e); or
(g) otherwise amend the Plan in any manner requiring stockholder approval by law or the rules of any stock exchange or market or quotation system on which the Common Stock is traded, listed or quoted.
No amendment or alteration to the Plan or an Award or Award Agreement shall be made which would materially impair the rights of the holder of an Award, without such holders consent, provided that no such consent shall be required if the Committee determines in its sole discretion and prior to the date of any Change in Control that such amendment or alteration either (i) is required or advisable in order for the Company, the Plan or the Award to satisfy any law or
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regulation or to meet the requirements of or avoid adverse financial accounting consequences under any accounting standard, or (ii) is not reasonably likely to significantly diminish the benefits provided under such Award, or that any such diminishment has been adequately compensated.
20. | No Liability of Company |
The Company, any Subsidiary or Affiliate which is in existence or hereafter comes into existence, the Board and the Committee shall not be liable to a 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 Companys counsel to be necessary to the lawful issuance and sale of any shares of Common Stock hereunder; and (b) any tax consequence expected, but not realized, by any Participant or other person due to the receipt, vesting, exercise or settlement of any Award granted hereunder.
21. | Non-Exclusivity of Plan |
Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or the Committee to adopt such other incentive arrangements as either may deem desirable, including without limitation, the granting of Restricted Stock or stock options otherwise than under this Plan or an arrangement not intended to qualify under Code Section 162(m), and such arrangements may be either generally applicable or applicable only in specific cases.
22. | Governing Law |
This Plan and any agreements or other documents hereunder shall be interpreted and construed in accordance with the laws of the State of Delaware and applicable federal law. Any reference in this Plan or in the agreement or other document evidencing any Awards to a provision of law or to a rule or regulation shall be deemed to include any successor law, rule or regulation of similar effect or applicability.
23. | No Right to Employment, Reelection or Continued Service |
Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company, its Subsidiaries and/or its Affiliates to terminate any Participants employment, service on the Board or service at any time or for any reason not prohibited by law, nor shall this Plan or an Award itself confer upon any Participant any right to continue his or her employment or service for any specified period of time. Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company, any Subsidiary and/or its Affiliates. Subject to Sections 4 and 19, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Board without giving rise to any liability on the part of the Company, its Subsidiaries and/or its Affiliates.
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24. | Specified Employee Delay |
To the extent any payment under this Plan is considered deferred compensation subject to the restrictions contained in Section 409A of the Code, such payment may not be made to a specified employee (as determined in accordance with a uniform policy adopted by the Company with respect to all arrangements subject to Section 409A of the Code) upon Separation from Service before the date that is six months after the specified employees Separation form Service (or, if earlier, the specified employees death). Any payment that would otherwise be made during this period of delay shall be accumulated and paid on the sixth month plus one day following the specified employees Separation from Service (or, if earlier, as soon as administratively practicable after the specified employees death).
25. | No Liability of Committee Members |
No member of the Committee shall be personally liable by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such persons own fraud or willful bad faith; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Companys Certificate of Incorporation and Bylaws (as each may be amended from time to time), as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
26. | Severability |
If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
27. | Unfunded Plan |
The Plan is intended to be an unfunded plan. Participants are and shall at all times be general creditors of the Company with respect to their Awards. If the Committee or the Company chooses to set aside funds in a trust or otherwise for the payment of Awards under the Plan, such funds shall at all times be subject to the claims of the creditors of the Company in the event of its bankruptcy or insolvency.
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28. | Clawback/Recoupment |
Awards granted under this Plan will be subject to recoupment in accordance with any clawback policy that the Company adopts or is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Companys securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law. In addition, the Board may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Board determines necessary or appropriate, including but not limited to a reacquisition right in respect of previously acquired shares of Common Stock or other cash or property upon the occurrence of misconduct. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for good reason or constructive termination (or similar term) under any agreement with the Company.
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Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption Experts and to the use of our reports dated July 8, 2016, with respect to the combined financial statements of Forterra Building Products and with respect to the balance sheet of Forterra, Inc., in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-212449) and related Prospectus of Forterra, Inc. for the registration of common shares.
Ernst and Young LLP
Dallas, Texas
August 12, 2016
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 (No. 333-212449) of Forterra Building Products, Inc. of our report dated July 8, 2016 relating to the financial statements of Cretex Concrete Products, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
August 12, 2016
Exhibit 23.3
Consent of Independent Auditor
We consent to the use in this Amendment No. 1 to the Registration Statement (No. 333-212449) on Form S-1 of Forterra Inc. of our report dated June 30, 2016 relating to the consolidated financial statements of USP Holdings Inc., appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to our firm under the heading Experts in such Prospectus.
/s/ RSM US LLP
Schaumburg, Illinois
August 12, 2016