UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

Commission file number 1-14982

 

HUTTIG BUILDING PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

43-0334550

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

555 Maryville University Drive Suite 400

St. Louis, Missouri

 

63141

(Address of principal executive offices)

 

(Zip code)

(314) 216-2600

(Registrant’s telephone number, including area code)

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o

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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

 

Accelerated filer

¨

 

 

 

 

 

Non-accelerated filer

x

(Do not check if smaller reporting company)

Smaller reporting company

¨

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

The number of shares of Common Stock outstanding on March 31, 2016 was 25,143,005 shares.

 

 

 

 

 


 

 

 

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

  

 

 

 

 

 

 

Item 1.

  

Financial Statements

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016, December 31, 2015 and March 31, 2015 (unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

7

 

 

 

 

 

Item 2.

 

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

 

11

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

15

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

15

 

 

 

 

 

Item 6.

 

Exhibits

 

16

 

 

 

 

 

Signatures

 

17

 

 

 

 

 

Exhibit Index

 

18

 

 

 

2


 

PART 1 FINANCI AL INFORMATION

 

ITEM 1 — FINANCIAL STATEMENTS

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(In Millions, Except Per Share Data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Net sales

 

$

158.8

 

 

$

147.4

 

Cost of sales

 

 

126.8

 

 

 

118.9

 

Gross margin

 

 

32.0

 

 

 

28.5

 

Operating expenses

 

 

28.9

 

 

 

27.9

 

Operating income

 

 

3.1

 

 

 

0.6

 

Interest expense, net

 

 

0.5

 

 

 

0.5

 

Income from continuing operations before income taxes

 

 

2.6

 

 

 

0.1

 

Income tax expense

 

 

1.1

 

 

 

 

Income from continuing operations

 

 

1.5

 

 

 

0.1

 

Loss from discontinued operations, net of taxes

 

 

(0.1

)

 

 

(0.1

)

Net income

 

$

1.4

 

 

$

0.0

 

 

 

 

 

 

 

 

 

 

Net income from continuing operations per

   share - basic and diluted

 

$

0.06

 

 

$

 

Net loss from discontinued operations per

   share - basic and diluted

 

$

 

 

$

 

Net income per share - basic and diluted

 

$

0.06

 

 

$

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Basic shares outstanding

 

 

24.4

 

 

 

23.9

 

Diluted shares outstanding

 

 

24.4

 

 

 

23.9

 

 

See notes to condensed consolidated financial statements

 

 

3


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(In Millions)

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

Cash and equivalents

 

$

2.8

 

 

$

0.3

 

 

$

0.7

 

Trade accounts receivable, net

 

 

74.9

 

 

 

56.3

 

 

 

67.7

 

Net Inventories

 

 

74.5

 

 

 

64.3

 

 

 

81.7

 

Other current assets

 

 

7.4

 

 

 

7.3

 

 

 

6.7

 

Total current assets

 

 

159.6

 

 

 

128.2

 

 

 

156.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT:

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

4.3

 

 

 

4.3

 

 

 

4.3

 

Buildings and improvements

 

 

26.5

 

 

 

26.5

 

 

 

25.5

 

Machinery and equipment

 

 

37.9

 

 

 

37.3

 

 

 

36.0

 

Gross property, plant and equipment

 

 

68.7

 

 

 

68.1

 

 

 

65.8

 

Less accumulated depreciation

 

 

51.3

 

 

 

50.9

 

 

 

49.4

 

Property, plant and equipment, net

 

 

17.4

 

 

 

17.2

 

 

 

16.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

6.3

 

 

 

6.3

 

 

 

6.3

 

Other

 

 

1.6

 

 

 

1.7

 

 

 

2.0

 

Deferred income taxes

 

 

23.7

 

 

 

24.0

 

 

 

8.0

 

Total other assets

 

 

31.6

 

 

 

32.0

 

 

 

16.3

 

TOTAL ASSETS

 

$

208.6

 

 

$

177.4

 

 

$

189.5

 

 

See notes to condensed consolidated financial statements

 

4


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(In Millions, Except Share Data)

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

2015

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1.0

 

 

$

1.2

 

 

$

1.1

 

Trade accounts payable

 

 

60.9

 

 

 

43.6

 

 

 

60.3

 

Deferred income taxes

 

 

5.6

 

 

 

4.9

 

 

 

8.0

 

Accrued compensation

 

 

4.4

 

 

 

5.5

 

 

 

3.7

 

Other accrued liabilities

 

 

10.3

 

 

 

13.8

 

 

 

10.2

 

Total current liabilities

 

 

82.2

 

 

 

69.0

 

 

 

83.3

 

NON-CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

64.3

 

 

 

47.4

 

 

 

76.9

 

Other non-current liabilities

 

 

7.8

 

 

 

8.1

 

 

 

3.7

 

Total non-current liabilities

 

 

72.1

 

 

 

55.5

 

 

 

80.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred shares: $.01 par (5,000,000 shares authorized)

 

 

 

 

 

 

 

 

 

Common shares: $.01 par (50,000,000 shares authorized: 25,143,005;

   24,977,208; and 24,868,951 shares issued at March 31, 2016,

 

 

 

 

 

 

 

 

 

 

 

 

   December 31, 2015 and March 31, 2015, respectively)

 

 

0.3

 

 

 

0.2

 

 

 

0.2

 

Additional paid-in capital

 

 

41.5

 

 

 

41.6

 

 

 

40.3

 

Retained earnings (accumulated deficit)

 

 

12.5

 

 

 

11.1

 

 

 

(14.9

)

Total shareholders' equity

 

 

54.3

 

 

 

52.9

 

 

 

25.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 

$

208.6

 

 

$

177.4

 

 

$

189.5

 

 

See notes to condensed consolidated financial statements

 

 

5


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(In Millions)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

1.4

 

 

$

 

Adjustments to reconcile net income to

   net cash used in operating activities:

 

 

 

 

 

 

 

 

Net loss from discontinued operations

 

 

0.1

 

 

 

0.1

 

Depreciation and amortization

 

 

0.7

 

 

 

0.7

 

Non-cash interest expense

 

 

0.1

 

 

 

0.1

 

Stock-based compensation

 

 

0.4

 

 

 

0.4

 

Deferred Taxes

 

 

1.0

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Trade accounts receivable

 

 

(18.6

)

 

 

(18.8

)

Net Inventories

 

 

(10.2

)

 

 

(14.3

)

Trade accounts payable

 

 

17.3

 

 

 

20.9

 

Other

 

 

(5.0

)

 

 

(2.4

)

Total cash used in operating activities

 

 

(12.8

)

 

 

(13.3

)

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(0.6

)

 

 

(0.2

)

Total cash used in investing activities

 

 

(0.6

)

 

 

(0.2

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Borrowings of debt, net

 

 

16.3

 

 

 

14.3

 

Repurchase shares of common stock

 

 

(0.4

)

 

 

(0.6

)

Total cash provided by financing activities

 

 

15.9

 

 

 

13.7

 

Net increase in cash and equivalents

 

 

2.5

 

 

 

0.2

 

Cash and equivalents, beginning of period

 

 

0.3

 

 

 

0.5

 

Cash and equivalents, end of period

 

$

2.8

 

 

$

0.7

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

0.4

 

 

$

0.4

 

Income taxes paid

 

 

0.2

 

 

 

0.1

 

 

See notes to condensed consolidated financial statements

 

 

6


 

HUTTIG BUILDING PRODUCTS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Huttig Building Products, Inc. and Subsidiary (the “Company” or “Huttig”) were prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and reflect all adjustments (including normal recurring accruals) which, in the opinion of management, are considered necessary for the fair presentation of the results for the periods presented. These statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

The condensed consolidated results of operations and resulting cash flows for the interim periods presented are not necessarily indicative of the results that might be expected for the full year. Due to the seasonal nature of Huttig’s business, operating profitability is usually lower in the Company’s first and fourth quarters than in the second and third quarters.

 

 

2. NEW ACCOUNTING STANDARDS

 

In March 2016, the Financial Accounting Standards Board ("FASB") issued accounting guidance, "Improvements to Employee Share-Based Payment Accounting", which will simplify the income tax consequences, accounting for forfeitures and classification on the Statements of Consolidated Cash Flows. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted. Huttig is required to adopt the standard in the first quarter of 2017. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued accounting guidance, "Leases", which will supersede the existing lease guidance and will require all leases with a term greater than 12 months to be recognized in the statements of financial position and eliminate current real estate-specific lease guidance, while maintaining substantially similar classification criteria for distinguishing between finance leases and operating leases. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. This standard will be adopted on a modified retrospective basis. Huttig is required to adopt the standard in the first quarter of 2019. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.

In November 2015, the FASB issued accounting guidance, "Balance Sheet Classification of Deferred Taxes", which removes the requirement to separate deferred tax liabilities and assets into current and noncurrent amounts and instead requires all such amounts be classified as noncurrent on the Statement of Financial Position. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption permitted, including adoption in an interim period, for financial periods not yet reported. The standard may be adopted on a prospective or retrospective basis. Huttig is required to adopt the standard in the first quarter of 2017. The Company is currently evaluating the impact this guidance will have on the consolidated financial statements and related disclosures.

 

 

3. COMPREHENSIVE INCOME

Comprehensive income refers to net income adjusted by gains and losses that in conformity with GAAP are excluded from net income. Other comprehensive items are amounts that are included in shareholders’ equity in the condensed consolidated balance sheets. The Company has no comprehensive income (loss) items and therefore the comprehensive net income (loss) is equal to net income (loss) for all periods presented.

 

 

7


 

4. DEBT

Debt consisted of the following (in millions):

 

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

2015

 

Revolving credit facility

 

$

62.9

 

 

$

46.1

 

 

$

75.5

 

Other obligations

 

 

2.4

 

 

 

2.5

 

 

 

2.5

 

Total debt

 

 

65.3

 

 

 

48.6

 

 

 

78.0

 

Less current portion

 

 

1.0

 

 

 

1.2

 

 

 

1.1

 

Long-term debt

 

$

64.3

 

 

$

47.4

 

 

$

76.9

 

 

Credit Agreement — The Company has a $160.0 million asset-based senior secured revolving credit facility (“credit facility”).  Borrowing availability under the credit facility is based on eligible accounts receivable, inventory and real estate. The real estate component of the borrowing base amortizes monthly over 12.5 years on a straight-line basis.  Borrowings under the credit facility are collateralized by substantially all of the Company’s assets, and the Company is subject to certain operating limitations applicable to a loan of this type, which, among other things, place limitations on indebtedness, liens, investments, mergers and acquisitions, dispositions of assets, cash dividends and transactions with affiliates. The entire unpaid balance under the credit facility is due and payable on May 28, 2019.

At March 31, 2016, under the credit facility, the Company had revolving credit borrowings of $62.9 million outstanding at a weighted average interest rate of 1.96% per annum, letters of credit outstanding totaling $3.0 million, primarily for health and workers’ compensation insurance and $79.8 million of excess committed borrowing capacity.  The Company pays an unused commitment fee of 0.25% per annum. In addition, the Company had $2.4 million of capital lease and other obligations outstanding at March 31, 2016.

The sole financial covenant in the credit facility is the fixed charge coverage ratio (“FCCR”) of 1.05:1.00 which must be tested by the Company if the excess committed borrowing availability falls below an amount in a range between $12.5 million to $20.0 million, which amounts depend on the Company’s borrowing base, and must also be tested on a pro forma basis prior to consummation of certain significant transactions outside the ordinary course of the Company’s business, as defined in the credit agreement.

The Company believes that cash generated from its operations and funds available under the credit facility will provide sufficient funds to meet the operating needs of the Company for at least the next twelve months.  However, if the Company’s availability falls below the required threshold and the Company does not meet the minimum FCCR, its lenders would have the right to terminate the loan commitments and accelerate the repayment of the entire amount outstanding under the credit facility. The lenders could also foreclose on the Company’s assets that secure the credit facility. If the credit facility is terminated, the Company would be forced to seek alternative sources of financing, which may not be available on terms acceptable to it, or at all.

 

 

5. CONTINGENCIES

The Company carries insurance policies on insurable risks with coverage and other terms that it believes to be appropriate. The Company generally has self-insured retention limits and has obtained fully insured layers of coverage above such self-insured retention limits. Accruals for self-insurance losses are made based on claims experience. Liabilities for existing and unreported claims are accrued for when it is probable that future costs will be incurred and can be reasonably estimated.

As described in Note 7 — “Commitments and Contingencies” to the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,  the Company was previously identified as a potentially responsible party in connection with the cleanup of contamination at a formerly owned property in Montana. On February 18, 2015, the Montana Department of Environmental Quality (the “DEQ”) issued an amendment to the unilateral administrative order of the DEQ outlining the final remediation of the property in its Record of Decision (the “ROD”).  Under the ROD, the DEQ estimated the remediation costs of the property to be $8.3 million.  

8


 

The Company submitted a comprehensive final remedial action work plan (the “RAWP”) in September 2015 that was approved by the DEQ.  During the process of finalizing the RAWP in the third quarter of 2015 the Company considered a multitude of factors includi ng, but not limited to, consultation with third party experts, the evaluation of remedial action alternatives, and discussions with DEQ.  The culmination of the information, data, and risk analysis resulted in excluding certain potential cost savings remed ial action alternatives from the final RAWP that had been previously proposed for inclusion in the RAWP.  Eliminating these potential cost savings remedial action alternatives from the final RAWP caused the Company to reassess the total estimated remediati on costs of the project.    The Company estimates the total cost of implementing the RAWP to be $7.9 million at March 31, 2016 down from the $8.0 million estimate as of December 31, 2015 . The Company is currently implementing the RAWP and has received appr oval for certain specific work plans required prior to commencing field work at the site.  The Company anticipates field work will commence in the second quarter of 2016 subject to DEQ oversight and approval.

As of March 31, 2016, the Company believes the accrual represents a reasonable best estimate of the total remaining remediation costs, based on facts, circumstances, and information currently available to Huttig.  However, there are currently unknown variables relating to the actual levels of contaminants and amounts of soil that will ultimately require treatment or removal and as part of the remediation process, additional soil and groundwater sampling, and bench and pilot testing is required to ensure the remediation will achieve the projected outcome required by the DEQ.  Potential indemnification or other claims we may be able to assert against third parties and possible insurance coverage have also been considered but any potential recoveries have not been recognized at this time. The ultimate final amount of remediation costs and expenditures are difficult to estimate with certainty and as a result, the amount of actual costs and expenses ultimately incurred by Huttig with respect to this property could be lower than, or exceed the amount accrued as of  March 31, 2016 by a material amount and could have a material adverse effect on our liquidity, financial condition or operating results of any fiscal quarter or year in which estimated costs or additional expenses are, or are not incurred.    

On June 29, 2015, certain private plaintiffs owning properties adjacent to the Montana site sued the Company, Crane Co., and other defendants in the Montana Fourth Judicial District Court seeking remediation of the property in excess of what is contemplated by the ROD and other damages. In October 2015, the lawsuit was amended to include additional plaintiffs and was formally served.  Crane Co. asserted its right of indemnification under the Distribution Agreement between the Company and Crane Co. dated December 6, 1999.  The Company continues to defend the lawsuit vigorously.

The Company has filed a declaratory action against certain liability insurers seeking, inter alia, defense and indemnification for the costs of implementing the final remediation activities associated with the Montana property and defense and indemnification costs associated with the related lawsuit described above.  This case currently is pending in the United States District Court for the Eastern District of Missouri.  A trial date has been set for August 21, 2017. The parties are in discovery.

In addition, some of the Company’s current and former distribution centers are located in areas of current or former industrial activity where environmental contamination may have occurred, and for which the Company, among others, could be held responsible. The Company currently believes that there are no material environmental liabilities at any of its distribution center locations.

The Company accrues expenses for contingencies when it is probable that an asset has been impaired or a liability has been incurred and management can reasonably estimate the expense. Contingencies for which the Company has made accruals include environmental, product liability and other legal matters. It is possible, however, that actual expenses could, or could not exceed our accrual by a material amount which could have a material adverse effect on the Company’s future liquidity, financial condition or operating results in the period in which any such additional expenses are incurred or recognized.

 

 

6. EARNINGS PER SHARE

The Company calculates its basic income per share by dividing net income allocated to common shares outstanding by the weighted average number of common shares outstanding.  Although we don’t currently pay dividends, holders of unvested shares of restricted stock have a right to participate in dividends on the same basis as common shares. As a result, these share-based awards meet the definition of participating securities and the Company applies the two-class method to compute earnings per share. The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders. In periods in which the Company has net losses, the losses are not allocated to participating securities because the participating security holders are not obligated to share in such losses.  The following table presents the number of participating securities and earnings allocated to those securities (in millions).

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Earnings allocated to participating shareholders

 

$

 

 

$

 

Number of participating securities

 

 

0.8

 

 

 

1.1

 

9


 

 

The diluted earnings per share calculations include the effect of the assumed exercise using the treasury stock method for both stock options and unvested restricted stock units, except when the effect would be anti-dilutive.  The following table presents the number of common shares used in the calculation of net income per share from continuing operations (in millions).

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Weighted-average number of common shares-basic

 

 

24.4

 

 

 

23.9

 

Dilutive potential common shares

 

 

 

 

 

 

Weighted-average number of common shares-dilutive

 

 

24.4

 

 

 

23.9

 

 

 

7. INCOME TAXES

 

The Company’s effective tax rate for continuing operations was 42% and 0% in the quarter ended March 31, 2016 and 2015, respectively. The 2016 tax rate was negatively impacted by expiration of stock options and non-deductible permanent items. Prior to September 30, 2015, the Company recognized no income tax expense or benefit as it had 100% valuation allowance on all of its net deferred tax assets. As of March 31, 2016, the Company has $7.2 million valuation allowance primarily relating to certain state net operating loss carryforwards that are not likely to be realized in future periods.

 

 

 

8. STOCK-BASED EMPLOYEE COMPENSATION

The Company recognized $0.4 million in non-cash stock-based compensation expense in each of the three-month periods ended March 31, 2016 and March 31, 2015, respectively.  During the first three months of 2016, the Company granted an aggregate of 307,036 shares of restricted stock at a fair market value of $3.331 per share under its 2005 Executive Incentive Compensation Plan, as amended and restated. The restricted shares vest in three equal installments on the first, second and third anniversaries of the grant date.  The unearned compensation expense is being amortized into expense on a straight-line basis over the requisite service period for the entire award. As of March 31, 2016 and 2015, the total compensation expense not yet recognized related to all outstanding restricted stock/unit awards was $2.2 million and $2.9 million, respectively.

 

 

10


 

ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Huttig is a distributor of a broad array of building material products used principally in new residential construction, home improvement, and remodeling and repair projects.  We distribute our products through 27 distribution centers serving 41 states and sell primarily to building materials dealers, national buying groups, home centers and industrial users, including makers of manufactured homes.

The following table sets forth our sales by product classification as a percentage of total sales:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

Millwork(1)

 

 

51

%

 

 

48

%

Building Products(2)

 

 

39

%

 

 

40

%

Wood Products(3)

 

 

10

%

 

 

12

%

Total Net Product Sales

 

 

100

%

 

 

100

%

 

(1)

Millwork generally includes exterior and interior doors, pre-hung door units, windows, mouldings, frames, stair parts and columns.

(2)

Building products generally include composite decking, connectors, fasteners, housewrap, siding, roofing products, insulation and other miscellaneous building products.

(3)

Wood products generally include engineered wood products and other wood products, such as lumber and panels.

Industry Conditions

New housing activity in the United States has shown modest improvement each year since 2009.  However, 2016 activity is still below the historical average of 1.4 million total housing starts from 1959 to 2015 based on statistics tracked by the United States Census Bureau. Total housing starts were approximately 1.1 million in 2015. Through March 31, 2016, based on the most recent data provided by the United States Census Bureau, total new housing starts were approximately 15% above 2015 levels for the corresponding three-month period.

Various factors historically have caused our results of operations to fluctuate from period to period. These factors include levels of residential construction, the mix of single family and multi-family starts as a percent of the total residential construction, home improvement and remodeling activity, weather, prices of commodity wood and steel products, interest rates, competitive pressures, availability of credit and other local, regional and national economic conditions. Many of these factors are cyclical or seasonal in nature. We anticipate that further fluctuations in operating results from period to period will continue in the future. Our results in the first and fourth quarter of each year are generally adversely affected by winter weather patterns in the Midwest, Northeast and Northwest, which typically result in seasonal decreases in levels of construction activity in these areas. As much of our overhead and expenses remain relatively fixed throughout the year, our operating profits tend to be lower during the first and fourth quarters.

We believe we have the product offerings, distribution channels, personnel, systems infrastructure and financial and competitive resources necessary for continued operations. Our future revenues, costs and profitability, however, are all likely to be influenced by a number of risks and uncertainties, including those discussed under the “Cautionary Statement” below.

Critical Accounting Policies

We prepare our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require management to make estimates and assumptions. Management bases these estimates and assumptions on historical results and known trends as well as management forecasts. Actual results could differ from these estimates and assumptions and these differences may be material. For a discussion of our significant accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2015 in Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies.” During the three months ended March 31, 2016, there were no material changes to the critical accounting policies and estimates discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Net sales were $158.8 million in 2016, which was $11.4 million, or 7.7%, higher than in 2015.  The increase was primarily due to higher levels of construction activity and the addition of a new product line.

Sales increased in the millwork and building products category but declined in the wood products category in 2016 compared to 2015.  Millwork sales increased 12% in 2016 to $80.2 million. Building products sales increased 6% in 2016 to $62.2 million.  Wood product sales decreased 2% in 2016 to $16.4 million primarily due to pricing volatility, lower levels of project shipments, and a decreased focus on lower margin products.

Gross margin increased 12% to $32.0 million in 2016 compared to $28.5 million in 2015.  As a percentage of sales, gross margin increased to 20.2% in 2016 from 19.3% in 2015.  The increase in gross margin percentage was primarily due to our operational initiatives as well as improved product mix as we continue to expand our value-add capabilities to service the repair/remodel construction segment.

Operating expenses increased $1.0 million to $28.9 million in 2016, compared to $27.9 million in 2015.  The increase was primarily due to higher personnel costs as a result of hiring additional personnel and expenses attributable to higher variable costs associated with increased sales.  The increase in personnel costs was partially offset by a decrease in fuel expense due to lower fuel costs.  As a percentage of sales, operating expenses were 18.2% in 2016 and 18.9% in 2015.

Net interest expense was $0.5 million in both 2016 and 2015.

Income tax expense of $1.1 million was recognized for the quarter ended March 31, 2016 as we believe it is more likely than not that we will utilize federal and certain state tax net operating loss carryforwards in the future, as compared to the prior quarter when a full valuation allowance was applicable and no income tax expense was recognized for the quarter ended March 31, 2015.

As a result of the foregoing factors, we reported income from continuing operations of $1.5 million in the first quarter of 2016 compared to $0.1 million in the first quarter of 2015.

Discontinued Operations

We recorded a $0.1 million after-tax loss from discontinued operations in the first three months of both 2016 and 2015.  The loss in both periods was due to environmental and related legal expenses.  See further discussion under “Contingencies” below.

Liquidity and Capital Resources

We depend on cash flow from operations and funds available under our credit facility to finance our operations, including seasonal working capital needs, capital expenditures and other capital needs. Our working capital requirements are generally greatest in the second and third quarters, which reflect the seasonal nature of our business. The second and third quarters are also typically our strongest operating quarters, largely due to more favorable weather throughout many of our markets compared to the first and fourth quarters. We typically generate cash from working capital reductions in the fourth quarter of the year and typically use cash as we build working capital during the first quarter in preparation for our second and third quarters. We also maintain significant inventories to meet the rapid delivery requirements of our customers and to enable us to obtain favorable pricing, delivery and service terms with our suppliers. Accounts receivable also typically increase during peak periods commensurate with the sales increase.  At March 31, 2016 and March 31, 2015, inventories and accounts receivable constituted approximately 72% and 79% of our total assets, respectively.  We closely monitor operating expenses and inventory levels during seasonally affected periods and, to the extent possible, manage variable operating costs to minimize seasonal effects on our profitability.

Operations.   Cash used in operating activities decreased by $0.5 million to $12.8 million in the first three months of 2016, compared to $13.3 million in the first three months of 2015.  In the first three months of 2016, we recorded net income of $1.4 million compared to no profit or loss in the corresponding period in 2015. Accounts receivable increased by $18.6 million during the first three months of 2016, compared to an increase of $18.8 million in the year-ago comparable period. The increase in accounts receivable over the first three months of the year was commensurate with sales activity including the seasonality of our sales.  Days’ sales outstanding increased to 43.0 days at March 31, 2016 as compared to 41.9 days at March 31, 2015 based on annualized first quarter sales and quarter-end accounts receivable balances for the respective periods. Inventory increased by $10.2 million in the first three months of 2016 compared to an increase of $14.3 million in the corresponding period of 2015. The increase in inventories over the first three months of the year represented normal seasonality and participation in certain early buy programs coupled with anticipated increased sales activity in 2016 as compared to 2015.  Our inventory turns increased to 7.3 turns in 2016 from 6.4 turns in 2015 based on

12


 

annualized first quarter cost of goods sold and average inventory balances for the respective quarters. Accounts payable increased by $17.3 million in the first three months of 2016, compared to a $20.9 millio n increase in the corresponding year-ago period. The increase was primarily a result of our inventory build for the respective periods.  Days’ payable outstanding decreased to 43.8 days at  March 31, 2016 from 46.3 days at March 31, 2015 based on annualize d first quarter costs of goods sold and quarter-end accounts payable balances for the respective periods.

Investing.   In the first three months of 2016, net cash used in investing activities was $0.6 million, which compares to $0.2 million for the corresponding period in 2015.  The Company invested $0.6 million in machinery and equipment at various locations in the first three months of 2016, compared to $0.2 million for the corresponding period in 2015.

Financing.   Cash provided from financing activities of $15.9 million in 2016 reflected net borrowings of $16.3 million offset by the Company’s repurchase of 0.1 million shares of its common stock for $0.4 million.  Cash provided from financing activities of $13.7 million in the first three months of 2015 reflected net borrowings of $14.3 million offset by the Company’s repurchase of 0.2 million shares of its common stock for $0.6 million.  The shares repurchased in both periods were retired.

Credit Agreement. See Note 4 – “Debt” of the Notes to Condensed Consolidated Financial Statements (unaudited) in Item 1 for information on our credit agreement.

Off-Balance Sheet Arrangements

In addition to funds available from operating cash flows and the credit facility as described above, we use operating leases as a principal off-balance sheet financing technique. Operating leases are employed as an alternative to purchasing certain property, plant and equipment. For a discussion of our off-balance sheet arrangements, see our Annual Report on Form 10-K for the year ended December 31, 2015 in Part II, Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Commitments and Contingencies.” During the three months ended March 31, 2016, there were no material changes to our off-balance sheet arrangements discussed in our Annual Report on Form 10-K for the year ended December 31, 2015.

Contingencies

We carry insurance policies on insurable risks with coverage and other terms that we believe to be appropriate. We generally have self-insured retention limits and have obtained fully insured layers of coverage above such self-insured retention limits. Accruals for self-insurance losses are made based on claims experience. Liabilities for existing and unreported claims are accrued for when it is probable that future costs will be incurred and can be reasonably estimated.

See Note 5 – “Contingencies” of the Notes to Condensed Consolidated Financial Statements (unaudited) in Item 1 for information on certain legal proceedings in which the Company is involved.

Cautionary Statement Relevant to Forward-looking Information for the Purpose of “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project” or similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words.  Statements made in this Quarterly Report on Form 10-Q and our annual report to stockholders looking forward in time, including, but not limited to, statements regarding our current views with respect to financial performance, future growth in the housing market, distribution channels, sales, favorable supplier relationships, inventory levels, the ability to meet customer needs, enhanced competitive posture, no material financial impact from litigation or contingencies, including environmental proceedings, are included pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995.

These statements present management’s expectations, beliefs, plans and objectives regarding our future business and financial performance. These forward-looking statements are based on current projections, estimates, assumptions and judgments, and involve known and unknown risks and uncertainties. We disclaim any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.

13


 

There are a number of factors, some of which are beyond our control that could cause our actual results to differ mater ially from those expressed or implied in the forward-looking statements. These factors include, but are not limited to: the strength of construction, home improvement and remodeling markets and the recovery of the homebuilding industry to levels consistent with the historical average of total housing starts; the cyclical nature of our industry; the cost of environmental compliance, including remediation of the Missoula site in accordance with regulatory requirements and cost estimates and actual expenses we may incur to resolve proceedings we are involved in arising out of the Missoula site; any limitations on our ability to utilize our deferred tax assets to reduce future tax liabilities; our ability to comply with, and the restrictive effect of, the financ ial covenant applicable under our credit facility; the loss of a significant customer; deterioration of our customers’ creditworthiness or our inability to forecast such deteriorations; commodity prices; termination of key supplier relationships; competiti on with existing or new industry participants; goodwill impairment;  the seasonality of our operations; significant uninsured claims; federal and state transportation regulations; fuel cost increases; our failure to attract and retain key personnel; deteri oration in our relationship with our unionized employees, including work stoppages or other disputes; funding requirements for multi-employer pension plans for our unionized employees; product liability claims and other legal proceedings; the integration o f any business we acquire; and those set forth under Item 1A-“Risk Factors” in the Company’s Annual Report on Form 1 0-K for the year ended December 31,  2015. These factors may not constitute all factors that could cause actual results to differ from those discussed in any forward-looking statement. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results.

 

 

14


 

ITEM 4 — CONTROL S AND PROCEDURES

Evaluation of Disclosure Controls and Procedures  – As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company, under the supervision and with the participation of our Disclosure Committee and management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective as of March 31, 2016.

Changes in Internal Control of Financial Reporting – There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS 

See Note 5 – Contingencies of the Notes to Condensed Consolidated Financial Statements (unaudited) in Item 1 for information on legal proceedings in which the Company is involved.  See also Part I, Item 3-“Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

15


 

ITEM 6 — EXHIBITS

The exhibits filed as part of this Report on Form 10-Q are listed in the Exhibit Index immediately preceding the exhibits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


 

SIGNAT URES

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

 

 

 

HUTTIG BUILDING PRODUCTS, INC.

 

 

 

 

 

/s/   Jon P. Vrabely

Date: May 3, 2016

 

 

 

 

Jon P. Vrabely

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

HUTTIG BUILDING PRODUCTS, INC.

 

 

 

 

 

/s/   Oscar A. Martinez

Date: May 3, 2016

 

 

 

 

Oscar A. Martinez

 

 

Vice President and Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

17


 

EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

 

    2.1

 

Distribution Agreement dated December 6, 1999 between Crane Co. and the Company. (Incorporated by reference to Exhibit No. 2.1 of Amendment No. 4 to the Company’s Registration Statement on Form 10 (File No. 1-14982) filed with the Securities and Exchange Commission on December 6, 1999 (the “Form 10”).)

 

 

 

    3.1

 

Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Form 10 filed with the Securities and Exchange Commission on September 21, 1999).

 

 

 

    3.2

 

Amended and Restated Bylaws of the Company (as of September 26, 2007) (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the Securities and Exchange Commission on September 28, 2007).

 

 

 

*10.1

 

Amended and Restated Employment Agreement dated March 16, 2016 between the Company and Jon P. Vrabely (Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the Securities and Exchange Commission on March 18, 2016.)

 

 

 

*10.2

 

Form of Change in Control Agreement.

 

 

 

*10.3

  

Form of Restricted Stock Award Agreement for Jon P. Vrabely.

 

 

 

*10.4

 

Form of Cash Long Term Incentive Plan Award Agreement for Jon P. Vrabely.

 

 

 

  10.5

 

Fourth Amendment to the Amended and Restated Credit Agreement dated March 21, 2016 by and among the Company, Huttig, Inc., Wells Fargo Capital Finance, LLC and the other parties signatory thereto.

 

 

 

  31.1

 

Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

10l.SCH

 

XBRL Taxonomy Extension Scheme Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

*Management contract or compensatory plan or arrangement.

 

 

18

 

Exhibit 10.2

HUTTIG BUILDING PRODUCTS, INC. CHANGE IN CONTROL AGREEMENT

(2016 Amended and Restated Form)

AGREEMENT by and between HUTTIG BUILDING PRODUCTS, INC., a Delaware corporation (the “Company”), and [insert name] (the “Employee”), dated _______________ (the “Agreement”).

The Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Employee as an officer of the Company, notwithstanding the possibility, threat, or occurrence of a Change in Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control, to encourage the Employee’s full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control, and to provide the Employee with compensation arrangements upon a Change in Control which provide the Employee with individual financial security and which are competitive with those of other corporations and, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. This Agreement shall generally become effective on the Effective Date, provided that the covenants contained in Section 10 of this Agreement shall be effective immediately upon execution of this Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

1. Certain Definitions .

(a) The “Effective Date” shall be the first date during the “Change in Control Period” (as defined in Section 1(b)) on which a Change in Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee’s employment with the Company is terminated prior to the date on which a Change in Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control or (2) otherwise arose in connection with or anticipation of a Change in Control, then for all purposes of this Agreement the “Effective Date” shall mean the date immediately prior to the date of such termination.

(b) The “Change in Control Period” is the period commencing on the date hereof and ending on the earlier to occur of (i) the third anniversary of such date or (ii) the first day of the month next following the Employee’s normal retirement date (“Normal Retirement Date”) under the Huttig Building Products, Inc. Savings & Investment Plan, or any successor retirement plan (the “Retirement Plan”); provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the “Renewal Date”), the Change in Control Period shall be automatically extended so as to terminate on the earlier of (x) three years from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee’s Normal

 


 

Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change in Control Period shall not be so extended.

2. Change in Control . For purposes of this Agreement, a “Change in Control” shall means, and shall be deemed to have occurred upon, the first to occur of any of the following events:

(a) the first purchase of shares pursuant to a tender offer or exchange offer (other than a tender offer or exchange offer by the Company) for all or part of the shares of the common stock of the Company (“Shares”) or any securities convertible into such Shares,

(b) the receipt by the Company of a Schedule 13D or other notice indicating that a person is the “beneficial owner” (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Shares calculated as provided in paragraph (d) of said Rule 13d-3,

(c) the date of consummation of any merger, reorganization, consolidation, share exchange, transfer of assets or other transaction having similar effect involving the Company (“Business Transaction”) in which the Company will not be the continuing or surviving corporation or pursuant to which Shares would be converted into cash, securities or other property, other than a Business Transaction in which the holders of the Shares immediately prior to the Business Transaction would own more than 50% of the common stock of the surviving corporation immediately after the Business Transaction,

(d) the date of consummation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company,

(e) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company, or

(f) the date upon which the individuals who constitute the Board as of the Restatement Effective Date of the 2005 Executive Incentive Compensation Plan, as amended and restated, (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to such date whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company) shall, for purposes of this Agreement, be considered as though such person were a member of the Incumbent Board.

For purposes of this Agreement, in all respects, the definition of “Change in Control” hereunder shall be interpreted, and limited to the extent necessary, to comply with Code Section 409A, and the provisions of Treasury Notice 2005-1, Proposed Treasury Regulation Section 1.409A and any successor statute, regulation and guidance thereto.

3. Employment Period . The Company hereby agrees to continue the Employee in its employ, and the Employee hereby agrees to remain in the employ of the Company, for the period commencing on the Effective Date and ending on the earlier to occur of (a) the third anniversary

 


 

of such date or (b) the first day of the month coinciding with or next following the Employee’s Normal Retirement Date (the “Employment Period”).

4. Terms of Employment .

(a) Position and Duties .

(i) During the Employment Period, (A) the Employee’s position (including status, offices, titles and reporting requirements) authority, duties and responsibilities shall be at least commensurate in all material respects with those held, exercised and assigned at any time during the 90-day period immediately preceding the Effective Date and (B) the Employee’s services shall be performed at the location where the Employee was employed immediately preceding the Effective Date or any office or location less than thirty-five (35) miles from such location.

(ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Employee is entitled, the Employee agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Employee hereunder, to use the Employee’s reasonable best efforts to perform faithfully and efficiently such responsibilities.  It is expressly understood and agreed that to the extent that any outside activities have been conducted by the Employee prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Employee’s responsibilities to the Company.

(b) Compensation .

(i) Base Salary . During the Employment Period, the Employee shall receive an annual base salary (“Base Salary”) at a rate at least equal to twelve times the highest monthly base salary paid or payable to the Employee by the Company during the twelve-month period immediately preceding the month in which the Effective Date occurs, payable in accordance with the Company’s regular payroll practices.  During the Employment Period, the Base Salary shall be reviewed at least annually and shall be increased at any time and from time to time as shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key employees of the Company and its subsidiaries. Any increase in Base Salary shall not serve to limit or reduce any other obligation to the Employee under this Agreement. Base Salary shall not be reduced after any such increase.

(ii) Annual Bonus . In addition to Base Salary, the Employee shall be eligible (but not entitled) to receive, for each fiscal year during the Employment Period, an annual bonus (an “Annual Bonus”) (either pursuant to any incentive compensation plan maintained by the Company or otherwise) in cash on the same basis as in the fiscal year immediately preceding the fiscal year in which the Effective Date occurs or, if more favorable to the Employee, on the same basis as awarded at any time thereafter to other key employees of the Company and its subsidiaries.  

 


 

(iii) Incentive, Savings and Retirement Plans . In addition to Base Salary and Annual Bonus payable as hereinabove provided, the Employee shall be entitled to participate during the Employment Period in all incentive, savings and retirement plans, practices, policies and programs applicable to other key employees of the Company and its subsidiaries.

Such plans, practices, policies and programs, in the aggregate, shall provide the Employee with compensation, benefits and reward opportunities at least as favorable in the aggregate as the most favorable of such compensation, benefits and reward opportunities provided by the Company for the Employee under such plans, practices, policies and programs as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter with respect to other key employees of the Company and its subsidiaries.

(iv) Welfare Benefit Plans . During the Employment Period, the Employee and/or the Employee’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its subsidiaries (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs), at least as favorable as the most favorable of such plans, practices, policies and programs in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee’s family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries.

(v) Expenses . During the Employment Period, the Employee shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Employee in accordance with the most favorable policies, practices and procedures of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries.

(vi) Fringe Benefits . During the Employment Period, the Employee shall be entitled to fringe benefits, including use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries.

(vii) Office and Support Staff . During the Employment Period, the Employee shall be entitled to an office or offices of a size and with furnishings and other appointments, and to secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Employee by the Company and its subsidiaries at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as provided at any time thereafter with respect to other key employees of the Company and its subsidiaries.

 


 

(viii) Vacation . During the Employment Period, the Employee shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its subsidiaries as in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries.

5. Termination .

(a) Death or Disability . This Agreement shall terminate automatically upon the Employee’s death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of “Disability” set forth below), it may give to the Employee written notice (given in accordance with Section 12(b) hereof) of its intention to terminate the Employee’s employment. In such event, the Employee’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee’s duties. For purposes of this Agreement, “Disability” means the Employee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, or t he Employee is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

(b) Cause . The Company may terminate the Employee’s employment for “Cause.” For purposes of this Agreement, “Cause” shall constitute either (i) personal dishonesty or breach of fiduciary duty involving personal profit at the expense of the Company; (ii) repeated violations by the Employee of the Employee’s obligations under Section 4(a) of this Agreement which are demonstrably willful and deliberate on the Employee’s part and which are not remedied in a reasonable period of time after receipt of written notice from the Company; (iii) the commission of a criminal act related to the performance of duties, or the furnishing of proprietary confidential information about the Company to a competitor, or potential competitor, or third party whose interests are adverse to those of the Company; (iv) habitual intoxication by alcohol or drugs during work hours; (v) conviction of a felony; or (vi) any breach of any material Company policy or any material term of this Agreement or any other agreement by and between the Employee and the Company after written notice of the detailed nature of said breach and the opportunity to cure said breach (if curable) within 30 days of receipt of written notice.

(c) Good Reason . The Employee’s employment may be terminated by the Employee for Good Reason. For purposes of this Agreement, “Good Reason” means:

(i) the assignment to the Employee of any duties inconsistent in any respect with the Employee’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and

 


 

inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee;

(iii) the Company’s requiring the Employee to be based at any office or location other than that described in Section 4(a)(i)(B) hereof, except for travel reasonably required in the performance of the Employee’s responsibilities;

(iv) any purported termination by the Company of the Employee’s employment otherwise than as expressly permitted by this Agreement; or

(v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of “Good Reason” made by the Employee shall be conclusive; provided (i) the Employee gives the Company notice of such Good Reason event within 60 days of its occurrence, (ii) the Company does not cure such event within 30 days, and (iii) the Employee terminates within 30 days of the Company’s failure to cure, subject to the Notice of Termination requirements below.

(d) Notice of Termination . Any termination by the Company for Cause or by the Employee for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by the Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstance in enforcing his rights hereunder.

(e) Date of Termination . “Date of Termination” means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; provided, however, that (i) if the Employee’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be.

 


 

6. Obligations of the Company upon Termination .

(a) Termination, In General .  In the event of a termination during the Employment Period for any reason, the Company shall pay to the Employee (or the Employee’s estate, in the event of death) upon the Date of Termination all amounts of accrued and owing compensation, including (A) Base Salary through the Date of Termination at the rate in effect on the Date of Termination or, if higher, at the highest annual rate in effect at any time from the 90-day period preceding the Effective Date through the Date of Termination (the “Highest Base Salary”), (B) accrued but unpaid or unused vacation as may be required under applicable law, (C) timely submitted reimbursements accrued and owing as of the Date of Termination, and (D) any vested benefits or entitlements under any employee benefit plans of the Company in which the Employee participates (e.g., vested 401(k) plan balances, rights to COBRA continuation coverage under group medical plans, life insurance and disability insurance plan benefits, etc.), subject to the terms and conditions of such plans (collectively, the “Accrued Obligations”).  Payments made pursuant to this Section 6(a) shall be in lieu of, and non-duplicative of, payments under any other agreement between Employee and the Company.

(b) Death . If, during the Employment Period, the Employee’s employment is terminated by reason of the Employee’s death, this Agreement shall terminate without further obligations to the Employee’s legal representatives under this Agreement, except the Company shall pay to the Employee’s legal representatives the following, in addition to the Accrued Obligations:

(i) An amount equal to the product of (A) the Average Annual Bonus and (B) a fraction, the numerator of which is the number of days in the then current fiscal year through the Date of Termination, and the denominator of which is 365.  

(ii) Such amount shall be payable in a single lump sum cash payment as soon as practicable, and not more than 60 days, following the Date of Termination due to death.

For purposes of this Agreement, the “Average Annual Bonus” shall be the average bonus paid or payable to the Employee by the Company and its affiliated companies in respect of the three fiscal years immediately preceding the fiscal year in which the termination occurs.

(c) Disability . If, during the Employment Period, the Employee’s employment is terminated by reason of the Employee’s Disability, this Agreement shall terminate without further obligations to the Employee except the Company shall pay to the Employee the following, in addition to the Accrued Obligations:

(i) The Employee shall be paid an amount equal to the product of (A) the Average Annual Bonus and (B) a fraction, the numerator of which is the number of days in the then current fiscal year through the Date of Termination, and the denominator of which is 365.  

(ii) Such amount shall be payable in a single lump sum cash payment as soon as practicable, and not more than 60 days, following the Date of Termination due to Disability.

 


 

(d ) Cause; Other than for Good Reason . If, during the Employment Period, the Employee’s employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee other than the Accrued Obligations.

(e) Good Reason; Other Than for Cause or Disability .  If, during the Employment Period, the Company shall terminate the Employee’s employment other than for Cause, Disability, or death or if the Employee shall terminate his employment for Good Reason, the Company shall pay to the Employee the following amounts, in addition to the Accrued Obligations:

(i) The product of (x) the greater of the Annual Bonus paid or payable (annualized for any fiscal year consisting of less than twelve full months or for which Employee has been employed for less than twelve full months) to the Employee for the most recently completed fiscal year during the Employment Period, if any, or the Average Annual Bonus, such greater amount being hereafter referred to as the “Highest Annual Bonus,” and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; plus

(ii) the product of (x) two and (y) the sum of (i) the Highest Base Salary and (ii) the Average Annual Bonus; plus

(iii) an amount equal to two years of COBRA premiums based on the terms of Company’s group health plan and Employee’s coverage under such plan as of the Termination Date (regardless of any COBRA election actually made by Employee or the actual COBRA coverage period under Company’s group health plan).

All such payments under clauses (i), (ii), and (iii) of this Section 6(e) shall be paid to the Employee in a lump sum in cash within 60 days of the Termination Date; provided that the Employee has signed a release of all claims Employee may have against Company, its affiliates, and its or their officers, directors and agents, in the form required by the Company (the “Release”) and such Release has become irrevocable on or before the payment date.

(f) Section 409A .  Notwithstanding any other provision to the contrary, with respect to the timing of payments under this Section 6, if, at the time of the Employee’s termination, the Employee is deemed to be a “specified employee” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any successor statute, regulation and guidance thereto) of the Company, then only to the extent necessary to comply with the requirements of Code Section 409A, any payments to which the Employee may become entitled under this Section 6 which are subject to Code Section 409A (and not otherwise exempt from its application) will be withheld until the first business day of the seventh month following the termination of Employee’s employment, at which time Employee shall be paid an aggregate amount of payments otherwise due to the Employee under the terms of this Section 6 for the preceding 6-month period, as applicable.  Each separate payment in the series of separate payments shall be analyzed separately for purposes of determining whether such payment is subject to, or exempt from compliance with, the requirements of Code Section 409A.

 


 

7. Non-exclusivity of Rights . Nothing in this Agreement shall prevent or limit the Employee’s continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option, restricted stock, stock appreciation right, or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program provided, however, that in the event the terms of any such plan, policy, practice or program concerning the payment of benefits thereunder shall conflict with any provision of this Agreement, the terms of this Agreement shall take precedence but only if and to the extent the payment would not adversely affect the tax exempt status (if applicable) of any such plan, policy, practice or program and only if the employee agrees in writing that such payment shall be in lieu of any corresponding payment from such plan, policy, practice or program.

8. Full Settlement . The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Employee about the amount of any payment pursuant to Section 9 of this Agreement), plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code.

9. Certain Limitations on Payments by the Company .  Notwithstanding anything in this Agreement to the contrary, in the event that it is determined by an independent accounting firm chosen by mutual agreement of the parties (the “Accounting Firm”) that any economic benefit, payment or distribution by the Company to or for the benefit of the Employee, whether paid, payable, distributed or distributable pursuant to the terms of this Agreement or otherwise (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Code (such excise tax referred to in this Agreement as the “Excise Tax”), then the value of any such Payments payable under this Agreement (the “Agreement Payments”) which constitute “parachute payments” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm, will be reduced so that the present value of all Payments (calculated in accordance with Section 280G of the Code and the regulations thereunder), in the aggregate, is equal to 2.99 times the Employee’s “base amount,” within the meaning of Section 280G(b)(3) of the Code (the “Reduced Amount”).  Notwithstanding the foregoing, the Agreement Payments shall be reduced to the Reduced Amount only if the Accounting Firm determines that the Employee would have a greater “Net After-Tax Receipt” (as defined below) of aggregate Payments if the Employee’s Agreement Payments were reduced to the Reduced Amount.  “Net After Tax-Receipt” shall mean the present value (as determined in accordance with Section 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on the Employee with respect

 


 

thereto under Sections 1 and 4999 of the Code and under applicable state and local laws (and including any employment, social security or Medicare taxes, and other taxes (including any other excise taxes)), determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Employee’s taxable income for the tax year in which the Change in Control occurs, or such other rate(s) as the Accounting Firm determines to be likely to apply to the Employee in the relevant tax year(s) in which any Payment is expected to be made.

10. Certain Employee Covenants .

(a) Confidential Information . The Employee shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its subsidiaries, and their respective businesses, which shall have been obtained by the Employee during the Employee’s employment by the Company or any of its subsidiaries and which shall not be or become public knowledge (other than by acts by the Employee or his representatives in violation of this Agreement). After termination of the Employee’s employment with the Company, the Employee shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. In no event shall an asserted violation of the provisions of this subsection (a) constitute a basis for deferring or withholding any amounts otherwise payable to the Employee under this Agreement.

(b) Covenant Not To Compete . At all times during the Employee’s employment by the Company or any of its subsidiaries and for one year following termination of the Employee’s employment, the Employee shall not, unless acting with the prior written consent of the Company, directly or indirectly (i) own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing or control of, or be associated as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit his name to be used in connection with, any profit or not-for-profit business or enterprise which at any time during such period designs, manufactures, assembles, sells, distributes or provides products (or related services) in competition with those designed, manufactured, assembled, sold, distributed or provided, or under active development, by the Company (including all future developments in and improvements on such products and services) in any part of the world; (ii) offer or provide employment to, interfere with or attempt to entice away from the Company, either on a full-time or part-time or consulting basis, any person who then currently is, or who within one year prior thereto had been, employed by the Company; (iii) directly or indirectly, solicit the business of, or do business with, any customer, supplier, or prospective customer or supplier of the Company with whom the Employee had direct or indirect contact or about whom the Employee may have acquired any knowledge while employed by the Company; or (iv) take any action which  is intended, or would reasonably be expected, to harm the Company or its reputation or which would reasonably be expected to lead to unwanted or unfavorable publicity to the Company; provided , however , that this provision shall not be construed to prohibit the ownership by the Employee of not more than 2% of any class of securities of any corporation which is engaged in any of the foregoing businesses that has a class of securities registered pursuant to the Securities Exchange Act of 1934. If the Employee’s spouse engages in any of the restricted activities set forth in the preceding sentence, the Employee shall be deemed to have indirectly engaged in such activities in violation of this

 


 

covenant. This provision shall be extended at the option of the Company, for a period of time equal to all periods during which the Employee is in violation of the foregoing covenant not to compete and to extend the covenant not to compete to run from the date any injunction may be issued against the Employee, should that occur, to enable the Company to receive the full benefit of the covenant not to compete agreed to herein by the Employee.

(c) Rights and Remedies Upon Breach . It is recognized that the services to be rendered under this Agreement by the Employee are special, unique and of extraordinary character. If the Employee breaches, or threatens to commit a breach of, any of the provisions of Section 10(a) or 10(b) (the “Covenants”), then the Company and/or any of its affiliates shall have the following rights and remedies, each of which shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Company under law or in equity:

(i) Specific Performance . The right and remedy to have the Covenants specifically enforced by any court having equity jurisdiction, including obtaining an injunction to prevent any continuing violation thereof, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company and that money damages will be difficult to ascertain and will not provide adequate remedy to the Company.

(ii) Severability of Covenants . If any of the Covenants, or any part thereof, are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the Covenants or the enforceability thereof in any other jurisdiction, which shall be given full effect, without regard to the invalidity or unenforceability in such other jurisdiction.

(iii) Blue-Pencilling . If any of the Covenants, or any part thereof, are held to be unenforceable because of the duration of such provision or the geographical scope covered thereby, the parties agree that the court making such determination shall have the power to reduce the duration or geographical scope of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced; provided, however, that the determination of such court shall not affect the enforceability of the Covenants in any other jurisdiction.

(d) Assignability . The Employee specifically acknowledges and agrees that in the event the Company should undergo any change in ownership or change in structure or control, or should the Company transfer some or all of its assets to another entity, the Covenants contained herein and the right to enforce the Covenants may be assigned by the Company to any company, business, partnership, individual or entity, and that the Employee will continue to remain bound by the Covenants.

11. Successors .

(a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee’s legal representatives.

 


 

(b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

(c) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

12. Miscellaneous .

(a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force and effect.

(b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

 

If to the Employee:

 

[INSERT]

 

If to the Company:

 

Huttig Building Products, Inc.

555 Maryville University Dr.

St. Louis, MO 63141

Attention: General Counsel

 

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

(c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

(d) The Company may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation.

(e) The Employee’s failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof.

(f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective

 


 

successors and legal representatives.   The Company and the Employee agree that they will negotiate in good faith and jointly execute an amendment to modify this Agreement to the extent necessary to comply with the requirements of Section 409A of the Code, or any successor statute, regulation and guidance thereto; provided, however, under no circumstances shall the Company be obligated to increase its financial obligations to the Employee in connection with any such amendment.

(g) The Employee and the Company acknowledge that the employment of the Employee by the Company is “at will,” and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time. Upon a termination of the Employee’s employment or prior to the Effective Date, there shall be no further rights under this Agreement.

(h) The Employee hereby acknowledges and agrees that the Company makes no representations or warranties regarding the tax treatment or tax consequences of any compensation, benefits or other payments under this Agreement, including, without limitation, by operation of Section 409A of the Code, or any successor statute, regulation and guidance thereto.

 


 

IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

 

EMPLOYEE

 

 

[insert name]

 

 

HUTTIG BUILDING PRODUCTS, INC.

 

By:

 

 

 

 

 

 

 

[insert name]

 

 

 

Its:

 

[insert title]

 

 

 

Exhibit 10.3

RESTRICTED STOCK AGREEMENT

HUTTIG BUILDING PRODUCTS, INC.

2005 EXECUTIVE INCENTIVE COMPENSATION PLAN

[insert date]

The parties to this Restricted Stock Agreement (the “Agreement”) are Huttig Building Products, Inc., a Delaware corporation (the “Corporation”) and Jon Vrabely, an employee of the Corporation (the “Participant”).

Pursuant to the terms of the Huttig Building Products, Inc. 2005 Executive Incentive Compensation Plan, as amended and restated from time to time (the “Plan”), the Corporation, upon the recommendation of the Management Organization and Compensation Committee of its Board of Directors (the “Committee”), has determined to award to the Participant [insert number] shares of restricted stock, subject to the terms of the Plan as of the date of this Agreement (the “Grant Date”). As a condition to such award and pursuant to the terms of the Plan, the Corporation and the Participant hereby enter into this Agreement and agree to the terms and conditions set forth herein.

1. DEFINITIONS .

Capitalized terms in this Agreement not otherwise defined herein shall have the meanings contained in the Plan. For purposes of this Agreement, and for purposes of interpreting the terms of the Plan, the following terms shall have the following meanings:

 

(a)

“Restriction Period” shall mean a period commencing on the Grant Date and ending for 33-1/3% of the grant on each subsequent anniversary date for three years ending [insert date] .

2. AWARD OF HUTTIG SHARES

Pursuant to the provisions of the Plan and this Agreement and by the authority of the Committee, the Corporation awards [insert number] shares (the “Restricted Stock”) of the Corporation’s common stock, par value $.01 per share (“Huttig Shares”), to the Participant. The Corporation, the Board of Directors and the Committee do not guarantee the Restricted Stock from loss of value or depreciation.

 


 

3. RESTRICTIONS AND RIGHTS

 

(a)

During the Restriction Period, the Restricted Stock is subject to forfeiture in the event that the Participant attempts to sell, transfer, assign or pledge the Restricted Stock (the “Restrictions”) or the Participant violates one of the covenants contained in Section 6 of this Agreement. Except as provided under Section 5 of this Agreement, the Restrictions on the Restricted Stock shall automatically lapse:

 

(i)

upon expiration of the Restriction Period;

 

(ii)

in the event of the Participant’s retirement at or after age 65, “Disability” (as defined in the Amended and Restated Executive Agreement between the Company and the Participant dated March 16, 2016 (the “Executive Agreement”)) or death, or upon a Change in Control; provided, however, that in the event the Participant requests early retirement or otherwise leaves the employ of the Corporation, the Committee may, upon the Participant’s request and in the Committee’s sole discretion, waive or revise this provision to permit the lapse of Restrictions on all or a portion of the Restricted Stock awarded hereunder on or prior to such early retirement or other departure from the employ of the Corporation;

 

(iii)

in accordance with the terms of the Executive Agreement, in the event of the Participant’s termination of employment by the Company without “Cause,” or if the Company fails to renew the Participant’s employment at the end of the “Original Term” or any “Renewal Term” for reasons that do not constitute “Cause” (as such terms are defined in the Executive Agreement), subject to the conditions of the Executive Agreement (including any required release of claims); or

 

(iv)

as may be otherwise provided under the terms of the Plan.

 

(b)

During the Restriction Period, the Participant will be entitled to all other rights of a shareholder of the Corporation with respect to the Restricted Stock, including the right to vote the Restricted Stock and receive dividends and other distributions thereon.

4. LEGEND REQUIREMENT

Each stock certificate or book-entry notation evidencing an award of Restricted Stock shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award substantially in the following form (the “Legend”):

“The sale or transfer of these shares of stock is subject to certain restrictions on transfer as set forth in the Huttig Building Products, Inc. 2005 Executive Incentive Compensation Plan, as amended and restated from time to time, and in the associated Award Agreement. Copies of such Plan and Agreement may be obtained from Huttig Building Products, Inc., 555 Maryville University Dr., Suite 400, St. Louis, MO 63141.”

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5. TERMINATION OF EMPLOYMENT

Termination of the Participant’s employment during the Restriction Period other than as provided in Section 3(a)(i), (ii) and (iii) above shall result in the forfeiture of all Restricted Stock as to which the Restrictions have not lapsed, and the Participant shall be required to return all applicable stock certificates to the Corporation. Records of the Corporation and its Subsidiaries regarding Participant’s period of employment, termination thereof and the reasons therefor, Disability, leaves of absence, re-employment and other matters shall be conclusive for all purposes hereunder, unless determined by the Corporation or the Committee to be incorrect.

6. COVENANTS

 

(a)

The Participant agrees to be bound by all terms and provisions of the Plan, and all such provisions shall be deemed a part of this Agreement for all purposes.

 

(b)

The Participant agrees to provide the Corporation, when and if requested, with any information or documentation which the Corporation believes necessary or advisable in connection with the administration of the Plan, including data required to assure compliance with the requirements of the Securities and Exchange Commission, of any stock exchange upon which the Huttig Shares are then listed, or of any applicable federal, state or other law.

 

(c)

The Participant agrees, upon due notice and demand, to promptly pay to the Corporation the cash amount of any taxes which are required to be withheld by the Corporation either at the time the Restriction Period lapses or at the time of award (in cases where the Participant duly elects to be taxed at such earlier time); provided, however, the Corporation, in its sole discretion, may accept Restricted Stock awarded hereunder or Huttig Shares otherwise previously acquired in satisfaction thereof.

7. NO COVENANT OF EMPLOYMENT

Neither the execution and delivery of this Agreement nor the granting of any award evidenced by this Agreement shall constitute, or be evidence of, any agreement or understanding, express or implied, on the part of the Corporation or any of its subsidiaries to employ the Participant for any specific period.

8. ADMINISTRATION AND INTERPRETATION OF PLAN AND AGREEMENT

In the event of any conflict between the terms of this Agreement and those of the Plan, the provisions of the Plan shall prevail.

The Committee shall have full authority and discretion, subject only to the terms of the Plan, to decide all matters relating to the administration or interpretation of the Plan and this Agreement, and all such action by the Committee shall be final, conclusive, and binding upon the Corporation and the Participant. The Committee shall have full authority and discretion to modify at any time the Restriction Period, the Restrictions, the other terms and conditions of this Agreement, the Legend and any other instrument evidencing this award, provided that no such

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modification shall increase the benefit under such award beyond that which the Committee could have originally granted at the time of the award, or shall impair the rights of the Participant under such award except in accordance with the Plan, any applicable agreement or applicable law or with consent of the Participant. The Corporation, the Committee and the members of the Board of Directors shall not be liable for any act, omission or determination taken or made in good faith with respect to this Agreement or the Restricted Stock granted hereunder.

This Restricted Stock Agreement is deemed to be issued in, the award evidenced hereby is deemed to be granted in, and both shall be governed by the laws of, the State of Delaware. There have been no representations to the Participant other than those contained herein.

9. DELIVERY

All certificates or book-entry notations for Restricted Stock awarded under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which Huttig Shares are then listed and any applicable federal or state securities law, and the Committee may cause a legend or legends, in addition to the Legend required under Section 4 of this Agreement, to be put on any such certificates or book-entry notations to make appropriate reference to such restrictions.

The stock certificates, if any, evidencing the Restricted Stock shall be held in custody by the Corporation or its designee until the Restrictions thereon shall have lapsed and the Committee may require, as a condition of any award, that the Participant shall have delivered a stock power endorsed in blank relating to the Restricted Stock covered by such award.

As soon as administratively practicable following the lapse of the Restrictions with respect to any of the Restricted Stock without a forfeiture, and upon the satisfaction of all other applicable conditions as to the Restricted Stock, including, but not limited to, the payment by the Participant of all applicable withholding taxes, the Corporation shall deliver or cause to be delivered to the Participant a certificate or certificates, or in the Committee’s sole discretion, make appropriate book-entry notation on the Company’s books, in each case for the applicable Restricted Stock which shall not bear the Legend required under Section 4 of this Agreement.

Nothing herein shall require the Corporation to issue any Huttig Shares with respect to an award if that issuance would, in the reasonable determination of the Corporation, constitute a violation of rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which Huttig Shares are then listed or any applicable federal or state securities law.

10. AMENDMENT

The terms of this Agreement shall be subject to the terms of the Plan as the Plan may be amended from time to time by the Board of Directors of the Corporation unless any such amendment by its terms or by its clear intent is inapplicable to this Agreement.

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11. NOTICE

Any notice to the Corporation provided for in this Agreement shall be in writing and addressed to it in care of the Secretary of the Corporation, and any notice to the Participant shall be in writing and addressed to the Participant at the address contained in payroll records at the time or to such other address designated in writing by the Participant.

[signatures on next page]

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IN WITNESS WHEREOF, the parties have executed this Restricted Stock Agreement effective the day and year first above written.

 

HUTTIG BUILDING PRODUCTS, INC.

 

By:

 

 

Name:

 

 

Title:

 

 

 

PARTICIPANT

 

 

Jon Vrabely

 

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Exhibit 10.4

NOTICE OF GRANT OF CASH-BASED PERFORMANCE AWARD

(CEO CASH LONG-TERM INCENTIVE AWARD)

HUTTIG BUILDING PRODUCTS, INC.

2005 EXECUTIVE INCENTIVE COMPENSATION PLAN

FOR GOOD AND VALUABLE CONSIDERATION, Huttig Building Products, Inc. (the “ Company ”) hereby grants this Cash-Based Performance Award (the “ Award ”) in the amount set forth in this Notice of Grant of Cash-Based Performance Award (the “ Notice ”) to the Participant designated in this Notice, pursuant to the provisions of the Company’s 2005 Executive Incentive Compensation Plan (the “ Plan ”) and subject to certain restrictions as outlined below in this Notice and the additional provisions set forth in the attached Terms and Conditions of Cash-Based Performance Award (the “ Terms ”).  Together, this Notice, the attached Terms and all Exhibits hereto constitute the “ Agreement .”  The terms and conditions of the Plan are incorporated by reference in their entirety into this Agreement.  When used in this Agreement, the terms which are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).

Participant:  

Grant Date:  

Target Amount:  

Performance Period:  

Vesting Schedule:   Subject to the terms of the Plan and this Agreement, the Award shall become earned and vested based on Company performance as provided in Exhibit A hereto.  

Impact of Termination of Employment: See Exhibit B

Impact of Change in Control:   See Exhibit B

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IN WITNESS WHEREOF, the parties have executed this Agreement effective the day and year first above written.

 

HUTTIG BUILDING PRODUCTS, INC.

 

By:

 

 

Name:

 

 

Title:

 

 

 

PARTICIPANT

 

 

 

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EXHIBIT A

Performance-Vesting Conditions

(a) [INSERT PERFORMANCE GOALS]

(b) Interim Goals and Final Payment .

(i) After completion of each year during the Performance Period, the Committee will assess progress towards the overall 3-year goal, with a payout of 1/3 of the target for a given metric to be made if the applicable milestone goal for that metric for that year has been achieved as identified in the table above.  

(ii) After the end of the Performance Period, overall performance against the 3-year goals will be determined as provided in the table above, with the payment for the final year based on overall results (maximum 200% of target) less any partial payments made for year one or year two based on milestone targets.

(iii) Payments for a year will be made in a single cash payment, less applicable taxes, no later than March 15 of the year following the end of the applicable performance year, subject to the conditions of paragraph (c).  For example, a milestone payment for 2016 would be made by no later than March 15, 2017 and the final payment for the Performance Period would be made by no later than March 15, 2019.

(c) Section 162(m) .  Notwithstanding any provision herein to the contrary, payment for a year during the Performance Period (i.e., an interim payment for achievement of a milestone goal or final payment at the end of the Performance Period) is conditioned on one of the goals under the Company’s Section 162(m) umbrella plan for the year (applicable to the annual incentive award for that year) being achieved.  Payment for a year may not be made until the Committee has certified in writing the achievement of at least one of the Section 162(m) umbrella plan goals.  If none of the Section 162(m) umbrella plan goals are achieved for a year, no payout will be made under the Award for that year.  In addition, payouts under the Award and all other outstanding cash-based performance awards to the Participant under the Plan for any given year may not exceed the maximum individual cash-based performance award approved by shareholders under the Plan (i.e., $5 million).

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EXHIBIT B

Termination of Employment and Change in Control

(a) Impact of Termination of Employment .  If the Participant’s employment with the Company terminates for any reason during the Performance Period:  

(i) the Committee shall determine the adjustment to the Award for performance measured through the date of termination of employment (or the most recently preceding date for which such performance is readily measurable), as if such date was the end of the Performance Period;

(ii) such performance-adjusted Award shall be prorated based on the number of days worked in the Performance Period through the date of termination of employment;

(iii) payment of such performance-adjusted Award shall remain conditioned on one of the goals under the Company’s Section 162(m) umbrella plan for the year in which such termination of employment occurs being achieved, consistent with the requirements of paragraph (c) of Exhibit A ; and

(iv) to the extent the prorated Award is earned, payment shall be made in a lump sum cash payment, less applicable taxes, after written certification by the Committee of any applicable Section 162(m) performance goals, but no later than March 15 of the year following the year of such termination of employment.

(b) Change in Control .  In the event of a Change in Control during the Performance Period:  

(i) the Committee shall determine the adjustment to the Award for performance measured through the day prior to the date of the Change in Control (the “Measurement Date”), as if such date was the end of the Performance Period;

(ii) such performance-adjusted Award shall be prorated based on the number of days worked in the Performance Period through the Measurement Date; and

(iii) payment shall be made in a lump sum cash payment, less applicable taxes, payable on the first regular payroll date on after the Measurement Date.

 

 

 

4


 

HUTTIG BUILDING PRODUCTS, INC.

2005 EXECUTIVE INCENTIVE COMPENSATION PLAN

TERMS AND CONDITIONS OF CASH-BASED PERFORMANCE AWARD

The Cash-Based Performance Award (the “ Award ”) granted by Huttig Building Products, Inc. (the “ Company ”) to the Participant specified in the Notice of Grant of Cash-Based Performance Award (the “ Notice ”) to which these Terms and Conditions of Cash-Based Performance Award (the “ Terms ”) are attached, is subject to the terms and conditions of the Plan, the Notice, and these Terms.  The terms and conditions of the Plan are incorporated by reference in their entirety into these Terms.  Together, the Notice, these Terms and all Exhibits to the Notice and these Terms constitute the “ Agreement .”  A prospectus describing the Plan has been delivered to the Participant.  The Plan itself is available upon request.  When used in this Agreement, the terms that are defined in the Plan shall have the meanings given to them in the Plan, as modified herein (if applicable).

1. Grant of Cash-Based Performance Award .

(a) The Agreement sets forth the grant of a cash-based Performance Award under the Plan to the Participant subject to the performance vesting conditions set forth in the Agreement.  

(b) The Award shall become earned and payable in such amounts, and subject to such terms and conditions, as set forth in the Notice.

2. Forfeiture .   The Participant’ rights to the Award will be forfeited, and the Participant will have no rights with respect to the Award to the extent the performance vesting conditions set forth in the Agreement are not achieved.

3. Withholding .   The Committee shall determine the amount of any withholding or other tax required by law to be withheld or paid by the Company with respect to any income recognized by the Participant with respect to the Award.  The Participant shall be required to meet any applicable tax withholding obligation in accordance with the provisions of the Plan.

4. Administration by Committee .   The Participant acknowledges that the Plan and the Award are administered by the Committee in accordance with Article 3 of the Plan, and in the regard all d ecisions of the Committee shall be final and binding on all parties and all decisions, determinations, selections and other actions permitted or required to be taken or made by the Committee with respect to the Plan shall be subject to the absolute discretion of the Committee.

5. Defined Terms .   Capitalized terms used but not defined in this Agreement shall have the meanings set forth in the Plan.  

6. Nonassignability .   Except as otherwise provided in the Plan, no right or benefit with respect to the Award will be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge such right or benefit will be void.  No such right or benefit will in any manner be liable for or subject to the debts, liabilities, or torts of the Participant.

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7. Participant Representations .   The Participant hereby represents to the Company that the Participant has read and fully understands the provisions of the Agreement and the Plan and the Participant’s decision to participate in the Plan is completely voluntary.  Further, the Participant acknowledges that the Participant is relying solely on his or her own advisors with respect to the tax consequences of this award.

8. Miscellaneous .

(a) Notices .  All notices, requests, deliveries, payments, demands and other communications which are required or permitted to be given under the Agreement shall be in writing and shall be either delivered personally or sent by registered or certified mail, or by private courier, return receipt requested, postage prepaid to the parties at their respective addresses set forth herein, or to such other address as either shall have specified by notice in writing to the other.  Notice shall be deemed duly given hereunder when delivered or mailed as provided herein.

(b) Waiver .  The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other or subsequent breach.

(c) Entire Agreement .  These Agreement and the Plan constitute the entire agreement between the parties with respect to the subject matter hereof.  

(d) Binding Effect; Successors .  This Agreement shall inure to the benefit of and be binding upon the parties hereto and to the extent not prohibited herein, their respective heirs, successors, assigns and representatives.  Nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto and as provided above, their respective heirs, successors, assigns and representatives any rights, remedies, obligations or liabilities.

(e) Governing Law .  This Agreement will be governed by and construed in accordance with the laws of the State of Missouri, without giving effect to the principles of conflict of laws thereof.

(f) Headings .  The headings contained herein are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions o the Agreement.

(g) Conflicts; Amendment .  The provisions of the Plan are incorporated in this Agreement in their entirety.  In the event of any conflict between the provisions of this Agreement and the Plan, the provisions of the Plan shall control.  The Agreement may be amended at any time by written agreement of the parties hereto.

(h) No Right to Continued Employment .  Nothing in this Agreement shall confer upon the Participant any right to continue in the employ or service of the Company or affect the right of the Company to terminate the Participant’s employment or service at any time.

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(i) Further Assurances .  The Participant agrees, upon demand of the Company or the Committee, to do all acts and execute, deliver and perform all additional documents, instruments and agreements which may be reasonably required by the Company or the Committee, as the case may be, to implement the provisions and purposes of the Agreement and the Plan.

3

 

Exhibit 10.5

FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this " Amendment "), dated as of March __, 2016, is by and among HUTTIG BUILDING PRODUCTS, INC., a Delaware corporation (" Parent "), HUTTIG, INC., a Delaware corporation (" Huttig ") (Parent and Huttig are sometimes collectively referred to herein as " Borrowers " and individually as a " Borrower "), the other Credit Parties signatory to the hereinafter defined Credit Agreement, WELLS FARGO CAPITAL FINANCE, LLC, for itself, as a Lender, and as Agent (successor agent to General Electric Company) for Lenders (" Agent ") and the other Lenders signatory to the hereinafter defined Credit Agreement.

W I T N E S S E T H :

WHEREAS, the Borrowers, the other Credit Parties, Agent and Lenders are party to that certain Amended and Restated Credit Agreement, dated as of September 3, 2010 (as heretofore or hereafter amended, restated, supplemented or otherwise modified, the " Credit Agreement ");

WHEREAS, on and subject to the terms and conditions hereof, the parties hereto wish to amend certain provisions of the Credit Agreement as set forth herein; and

WHEREAS, this Amendment shall constitute a Loan Document and these Recitals shall be construed as part of this Amendment; capitalized terms used herein without definition are so used as defined in Annex A to the Credit Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto hereby agree as follows:

1. Amendments .  Subject to the conditions set forth below, the Credit Agreement shall be amended as follows:

(a) Section 1.4 to the Credit Agreement is hereby amended and restated to read in its entirety as follows:

"1.4 Use of Proceeds .  Borrowers shall utilize the proceeds of the Loans solely to pay transaction expenses relating to the amendment and restatement of the Existing Credit Agreement and for the financing of Borrowers' ordinary working capital and general corporate needs.  Borrowers shall not, directly or indirectly, use any Letter of Credit or Loan proceeds, nor use, lend, contribute or otherwise make available any Letter of Credit or Loan proceeds to any Subsidiary, joint venture partner or other Person that (i) is subject to any Sanction on any specially designated nationals list maintained by OFAC or that is operating, organized or resident in a Sanctioned Country or (ii) is owned or controlled by any Person described in the foregoing clause (i).   Disclosure Schedule (1.4) contains a description of Borrowers' sources and uses of funds as of the Restatement Date, including Loans and Letter of Credit Obligations to be

 


 

made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. "

(b) Section 1.6 of the Credit Agreement is hereby amended by deleting the word "or" at the conclusion of subsection 1.6(r), replacing the "." at the conclusion of subsection 1.6(s) with "; or" and adding a new subsection 1.6(t) as follows:

"(t) that is the obligation of an Account Debtor that (i) is subject to any Sanction on any specially designated nationals list maintained by OFAC or that is operating, organized or resident in a Sanctioned Country or (ii) is owned or controlled by any Person described in the foregoing clause (i)."

(c) Section 1.7 of the Credit Agreement is hereby amended by deleting the word "or" at the conclusion of subsection 1.7(l), replacing the "." at the conclusion of subsection 1.7(m) with "; or" and adding a new subsection 1.7(n) as follows:

"(n) has been acquired from an entity that (i) is subject to any Sanction on any specially designated nationals list maintained by OFAC or that is operating, organized or resident in a Sanctioned Country or (ii) is owned or controlled by any Person described in the foregoing clause (i)."

(d) Section 1.9 of the Credit Agreement is hereby amended by deleting the reference to "first Business Day" in clause (b) therein, and substituting therefor a reference to "first day".

(e) Section 1.14 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

"1.14 Access .  Each Credit Party that is a party hereto shall, during normal business hours, from time to time upon two (2) Business Days’ prior notice as frequently as Agent reasonably determines to be appropriate (which with respect to field exams under clause (c) below, shall occur at least once in any 15 month period): (a) provide Agent and any of its officers, employees and agents access to its properties, facilities, advisors, officers and employees of each Credit Party and to the Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party's books and records, and (c) permit Agent, and its officers, employees and agents, to inspect, review and evaluate the Accounts, Inventory and other Collateral of any Credit Party and make test verifications, including without limitation, field examinations and collateral audits, and counts of the Accounts, Inventory and other Collateral of any Credit Party (other than, prior to the occurrence and continuation of an Event of Default, any verifications of Accounts requiring communications with the Account Debtors of any Credit Party).  If an Event of Default has occurred and is continuing, each such Credit Party shall provide such access to Agent and to each Lender at all times and without advance notice.  Furthermore, so long as any Event of Default has occurred and is continuing, Borrowers shall provide Agent and each Lender with access to their suppliers and customers.  Each Credit Party

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shall make available to Agent and its counsel reasonably promptly originals or copies of all books and records that Agent may reasonably request.  Each Credit Party shall deliver any document or instrument necessary for Agent, as it may from time to time request, to obtain records from any service bureau or other Person that maintains records for such Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Credit Party.  Agent will give Lenders at least five (5) days' prior written notice of regularly scheduled audits.  Representatives of other Lenders may accompany Agent's representatives on regularly scheduled audits at no charge to Borrowers. "

(f) Section 1.15 of the Credit Agreement is hereby amended by adding a new subsection 1.15(e) as follows:

"(e) For purposes of determining withholding Taxes imposed under FATCA, from and after the effective date of the Fourth Amendment, the Borrowers and Agent shall treat (and the Lenders hereby shall authorize Agent to treat) the Loans as not qualifying as a "grandfathered obligation" within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i)."

(g) Section 1.16(a) of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

"(a) If any law, treaty, governmental (or quasi‑governmental) rule, regulation, guideline or order regarding capital adequacy, liquidity, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, liquidity, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Restatement Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, liquidity, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender's capital as a consequence of its obligations hereunder, then Borrowers shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction.  A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower Representative and to Agent shall be presumptive evidence of the matters set forth therein."

(h) Section 3 of the Credit Agreement is hereby amended by adding new Sections 3.25 and 3.26 as follows:

"3.25 OFAC .  No Credit Party or director, officer, employee, agent, affiliate or representative thereof, is or is owned or controlled by an individual or entity that is currently the subject or target of any Sanction or is located, organized, operating or resident in a country, territory or jurisdiction that is the subject of a Sanction."

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"3.26 Anti-Corruption Laws .  Each Credit Party has conducted its business in accordance with applicable anti-corruption laws and Sanctions and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws."

(i) Section 5 of the Credit Agreement is hereby amended by adding a new Section 5.14 as follows:

"5.14 Anti-Corruption Laws .  Each Credit Party shall conduct its business in compliance with applicable anti-corruption laws and Sanctions and maintain policies and procedures designed to promote and achieve compliance with such laws."

(j) Annex A to the Credit Agreement is hereby amended as follows:

(i) By amending the definition of " Interest Payment Date " thereof by deleting the reference to "first Business Day" in clause (a) therein, and substituting therefor a reference to "first day".

(ii) By amending the definition of "LIBOR Rate" thereof in its entirety as follows:

" LIBOR Rate " means, for each LIBOR Period, a rate of interest (in no event less than zero) determined by Agent equal to the offered rate per annum for deposits of Dollars for the applicable LIBOR Period that appears on Reuters Screen LIBOR 01 Page as of 11:00 a.m. (London, England time) two (2) Business Days prior to the first day in such LIBOR Period.  If no such offered rate exists, such rate will be the rate of interest (in no event less than zero) per annum, as determined by Agent at which deposits of Dollars in immediately available funds are offered at 11:00 a.m. (London, England time) two (2) Business Days prior to the first day in such LIBOR Period by major financial institutions reasonably satisfactory to Agent in the London interbank market for such LIBOR Period for the applicable principal amount on such date of determination.

(iii) By amending the definition of "Real Estate Borrowing Base" thereof in its entirety as follows:

" Real Estate Borrowing Base " means, as of any date determined by Agent, from time to time, an amount equal to the lesser of (a) 50% of the appraised fair market value of Borrowers' owned Real Estate (based on the appraisals delivered to Agent pursuant to the Fourth Amendment) and (b) $30,000,000; provided that the Real Estate listed as item #14 on Schedule A to the Fourth Amendment shall not be included in the Real Estate Borrowing Base until such time as Agent and Lenders shall have received the information and documentation with respect thereto required pursuant to Section 5.9 within 90 days of the Fourth Amendment Effective Date (or such later period agreed to by Agent in its sole discretion)

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including without limitation a current appraisal of such Real Estate, prepared by an appraiser acceptable to Agent, and in form and substance satisfactory to Agent and Lenders; provided , further , that the amount of the Real Estate Borrowing Base shall amortize monthly on a twelve and a half-year straight-line basis, beginning on the first day of the calendar month following the Fourth Amendment Effective Date.

(iv) By inserting the following new definitions therein in appropriate alphabetical order:

" Fourth Amendment " means that certain Fourth Amendment to Amended and Restated Credit Agreement dated as of March __, 2016 by and among the Borrowers, the other Credit Parties, Agent and the Lenders.

" Fourth Amendment Effective Date " has the meaning ascribed to it in Section 3 of the Fourth Amendment.

" OFAC " means the Office of Foreign Assets Control of the U.S. Treasury Department.

" Sanction " means any sanction administered or enforced by the U.S. Government (including OFAC), the United Nations Security Council, the European Union, Her Majesty's Treasury or other sanctions authority.

" Sanctioned Country " means a country, region or territory which is itself the target of any Sanctions.

(k) Annex G to the Credit Agreement is hereby deleted in its entirety and replaced with Annex I attached hereto.

(l) Annex H to the Credit Agreement is hereby deleted in its entirety and replaced with Annex II attached hereto.

(m) Annex I to the Credit Agreement is hereby deleted in its entirety and replaced with Annex III attached hereto.

2. Representations and Warranties of Credit Parties .  In order to induce Agent and Lenders to enter into this Amendment, each Credit Party hereby jointly and severally represents and warrants to Agent and Lenders that:

(a) Representations and Warranties .  After giving effect to this Amendment, no representation or warranty by any Credit Party contained in the Credit Agreement or any of the other Loan Documents, including this Amendment, shall be untrue or incorrect in any material respect as of the date hereof, except to the extent that such representation or warranty expressly relates to an earlier date.

(b) Authorization, etc .  Each Credit Party has the power and authority to execute, deliver and perform this Amendment.  Each Credit Party has taken all necessary action

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(including, without limitation, obtaining approval of its stockholders, if necessary) to authorize its execution, delivery and performance of this Amendment.  No consent, approval or authorization of, or declaration or filing with, any Governmental Authority, and no consent of any other Person, is required in connection with any Credit Party's execution, delivery and performance of this Amendment, except for those already duly obtained.  This Amendment has been duly executed and delivered by each Credit Party and constitutes the legal, valid and binding obligation of each Credit Party, enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors' rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law).  No Credit Party's execution, delivery or performance of this Amendment conflicts with, or constitutes a violation or breach of, or constitutes a default under, or results in the creation or imposition of any Lien upon any material property of any Credit Party by reason of the terms of (i) any mortgage, deed of trust, material lease, material agreement, indenture, material contract or other material instrument to which any Credit Party is a party or which is binding upon it, (ii) any law or regulation or order or decree of any court or Governmental Authority applicable to any Credit Party, or (iii) the charter, bylaws, partnership or operating agreement, as applicable, of any Credit Party.

(c) No Default .  No Default or Event of Default has occurred and is continuing, or would result after giving effect hereto.

3. Conditions to Effectiveness .  The effectiveness of this Amendment is expressly conditioned upon the satisfaction, and delivery to Agent (on behalf of itself and Lenders), of each condition set forth in this Section 3 on or prior to the date hereof (the " Fourth Amendment Effective Date "):

(a) Amendment .  Duly executed originals of this Amendment from each Credit Party, the Agent and the Required Lenders.

(b) Revolving Notes .  Duly executed originals of Revolving Notes, or amended and restated Revolving Notes, as applicable, for each Lender requesting such a Revolving Note, executed by the Borrowers.

(c) Appraisals .  Recent appraisals for all of the owned Real Estate of the Credit Parties listed on Schedule A hereto (other than item #14 listed therein), conducted by appraiser(s) chosen by or otherwise acceptable to Agent, and in each case in form and substance (including, without limitation, in compliance with FIRREA appraisal requirements) reasonably satisfactory to Agent and Lenders.

(d) Assignment Agreements .  (i) A duly executed Assignment Agreement dated March __, 2016, by and among Wells Fargo Capital Finance, LLC, Bank of America, N.A. and Agent and (ii) a duly executed Assignment Agreement dated March __, 2016, by and among Wells Fargo Capital Finance, LLC, JPMorgan Chase Bank, N.A. and Agent.

(e) Other Documents .  All other agreements, certificates and other documents as Agent may reasonably request to accomplish the purposes of this Amendment.

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4. Reference to and Effect on Loan Documents .

(a) Ratification .  Except as specifically provided in this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and each Credit Party hereby ratifies and confirms each such Loan Document.

(b) No Waiver .  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver or forbearance of any right, power or remedy of Agent or any Lender under the Credit Agreement or any of the other Loan Documents, or constitute a consent, waiver or modification (except as expressly set forth in Section 1 hereof) with respect to any provision of the Credit Agreement or any of the other Loan Documents.  Upon the effectiveness of this Amendment each reference in (a) the Credit Agreement to "this Agreement," "hereunder," "hereof," or words of similar import and (b) any other Loan Document to "the Agreement" shall, in each case and except as otherwise specifically stated therein, mean and be a reference to the Credit Agreement as amended hereby.

5. Miscellaneous .

(a) Successors and Assigns .  This Amendment shall be binding on and shall inure to the benefit of the Credit Parties, Agent and Lenders and their respective successors and assigns, except as otherwise provided herein.  No Credit Party may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder without the prior express written consent of Agent and Lenders.  The terms and provisions of this Amendment are for the purpose of defining the relative rights and obligations of the Credit Parties, Agent and Lenders with respect to the transactions contemplated hereby and there shall be no third party beneficiaries of any of the terms and provisions of this Amendment.

(b) Entire Agreement .  This Amendment, including all schedules and other documents attached hereto or incorporated by reference herein or delivered in connection herewith, constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all other understandings, oral or written, with respect to the subject matter hereof.

(c) Fees and Expenses .  As provided in Section 11.3 of the Credit Agreement, the Borrowers agree to pay on demand all fees, costs and expenses incurred by Agent in connection with the preparation, execution and delivery of this Amendment.  

(d) Headings .  Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

(e) Severability .  Wherever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Amendment.

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(f) Conflict of Terms .  Except as otherwise provided in this Amendment, if any provision contained in this Amendment is in conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Amendment shall govern and control.

(g) Counterparts .  This Amendment may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.  Delivery of an executed signature page to this Amendment by telecopy shall be effective as delivery of a manually executed signature page to this Amendment.

(h) Incorporation of Credit Agreement .  The provisions contained in Sections 11.9 and 11.13 of the Credit Agreement are incorporated herein by reference to the same extent as if reproduced herein in their entirety, except with reference to this Amendment rather than the Credit Agreement.

(i) Acknowledgment .  Each Credit Party hereby acknowledges its status as a Credit Party and affirms its obligations under the Credit Agreement and represents and warrants that there are no liabilities, claims, suits, debts, liens, losses, causes of action, demands, rights, damages or costs, or expenses of any kind, character or nature whatsoever, known or unknown, fixed or contingent (collectively, the " Claims "), which any Credit Party may have or claim to have against Agent or any Lender, or any of their respective affiliates, agents, employees, officers, directors, representatives, attorneys, successors and assigns (collectively, the " Lender Released Parties "), which might arise out of or be connected with any act of commission or omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents.  In furtherance of the foregoing, each Credit Party hereby releases, acquits and forever discharges the Lender Released Parties from any and all Claims that any Credit Party may have or claim to have, relating to or arising out of or in connection with the Obligations or any Loan Documents or any other agreement or transaction contemplated thereby or any action taken in connection therewith from the beginning of time up to and including the date of the execution and delivery of this Amendment.  Each Credit Party further agrees forever to refrain from commencing, instituting or prosecuting any lawsuit, action or other proceeding against any Lender Released Parties with respect to any and all Claims which might arise out of or be connected with any act of commission or omission of the Lender Released Parties existing or occurring on or prior to the date of this Amendment, including, without limitation, any Claims arising with respect to the Obligations or any Loan Documents.

[signature pages follow]

 

 

 

-8-


 

IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the day and year first above written.

 

HUTTIG BUILDING PRODUCTS, INC. , as a

Borrower

 

By:

 

/s/ Donald E. Hake

Name:

 

Donald E. Hake

Title:

 

Corporate Controller / Treasurer

 

HUTTIG, INC. , as a Borrower

 

By:

 

/s/ Donald E. Hake

Name:

 

Donald E. Hake

Title:

 

Corporate Controller / Treasurer

 

[Signature Page to Fourth Amendment]


 

 

WELLS FARGO CAPITAL FINANCE, LLC,  as a

Lender and as Agent

 

By:

 

/s/ Kai Sorenson

Name:

 

Kai Sorenson

Title:

 

Vice President

 

[Signature Page to Fourth Amendment]


 

 

BANK OF AMERICA, N.A., as a Lender

 

By:

 

/s/ Thomas H. Herron

Name:

 

Thomas H. Herron

Title:

 

Senior Vice President

 

[Signature Page to Fourth Amendment]


 

 

JPMORGAN CHASE BANK, N.A., as a Lender

 

By:

 

/s/ Pamela Eskin

Name:

 

Pamela Eskin

Title:

 

Authorized Officer

 

 

 

[Signature Page to Fourth Amendment]


 

SCHEDULE A

Owned Real Estate at the following 14 locations:

 

1.

3601 N 34th Ave, Phoenix, AZ 85017-4402

 

2.

25 John Hancock Rd, Taunton, MA 02780-1096

 

3.

4072 Nash Rd, Cape Girardeau, MO 63701

 

4.

370 Creble Rd, Selkirk, NY 12158-2121

 

5.

8100 SW Hunziker St, Tigard, OR 97223-8259

 

6.

525 C St NW, Auburn, WA 98001-3909

 

7.

7 Gaywalk St, Augusta, ME 04330-8000

 

8.

30244 Country Road 12, Elkhart, IN 46514-8938

 

9.

36 Lenhardt Rd, Greenville, SC 29611-2412

 

10.

2194 Sage Rd, Medford, OR 97501-1345

 

11.

3375 N Wesleyan Blvd, Rocky Mount, NC 27804-8676

 

12.

350 Lasley Ave, Hanover Township, PA 18706-1429

 

13.

240 NW Industrial Pkwy, Jackson, MS 39213-8301

 

14.

123 BenBilt Pl, Greensburg, PA 15601-7658

 

 

 

 


 

ANNEX I

ANNEX G (Section 9.9(a))

to

CREDIT AGREEMENT

 

LENDERS' WIRE TRANSFER INFORMATION

 

Name:

 

Wells Fargo Capital Finance, LLC

Bank:

 

Wells Fargo Bank, N.A.

 

 

420 Montgomery Street, San Francisco, CA

ABA #:

 

121-000-248

Account #:

 

4124923723

Credit to:

 

Wells Fargo Bank, N.A.

Regarding:

 

Hutting Building Products, Inc.

 

 

 

 

G-1


 

ANNEX II

ANNEX H (Section 11.10)

to

CREDIT AGREEMENT

NOTICE ADDRESSES

(A)

If to Agent, at

Wells Fargo Capital Finance, LLC

10 South Wacker Dr., 13th Floor

Chicago, IL  60606

Attention: Kai Sorenson, Vice President, Relationship Manager

Telecopier No.:  312-332-0424

Telephone No.:  312-739-2245

with copies to:

Winston & Strawn LLP

35 West Wacker Drive

Chicago, Illinois  60601

Attention:  Kevin M. Ryan

Telecopier No.:  (312) 558-5700

Telephone No.:  (312) 558-5600

(B)

If to any Credit Party, at

Huttig Building Products, Inc.

555 Maryville University Drive

St. Louis, Missouri  63141

Attention:  Donald E. Hake

Telecopier No.:  (314) 216-2875

Telephone No.:  (314) 216-8793

With copies to:

Bryan Cave LLP

One Metropolitan Square

211 N. Broadway, Suite 3600

St. Louis, Missouri  63102

Attention:  Harold R. Burroughs

Telecopier No.:  (314) 552-8706

Telephone No.:  (314) 259-2706

 

 

 

H-1


 

ANNEX III

ANNEX I (from Annex A - Revolving Loan Commitments definition)

to

CREDIT AGREEMENT

Lender(s):

 

Bank of America, N.A,

 

$40,000,000

JPMorgan Chase Bank, N.A.

 

$40,000,000

Wells Fargo Capital Finance, LLC

 

$80,000,000

Total:

 

$160,000,000

 

 

Exhibit 31.1

Huttig Building Products, Inc. and Subsidiaries

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Jon P. Vrabely, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Huttig Building Products, Inc.;

 

2.

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

 

3.

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

 

4.

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

 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

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

 

5.

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

 

(a)

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

 

(b)

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

 

Date: May 3, 2016

/s/ Jon P. Vrabely

 

Jon P. Vrabely

 

President, Chief Executive Officer and Interim Chief Financial Officer

 

Exhibit 31.2

Huttig Building Products, Inc. and Subsidiaries

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Oscar A. Martinez, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of Huttig Building Products, Inc.;

 

2.

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

 

3.

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

 

4.

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

 

(a)

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

 

(b)

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

 

(c)

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

 

(d)

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

 

5.

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

 

(a)

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

 

(b)

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

 

Date: May 3, 2016

/s/ Oscar A.Martinez

 

Oscar A. Martinez

 

Vice President and Chief Financial Officer

 

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Huttig Building Products, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jon P. Vrabely, President and Chief Executive Officer of the Company, and I, Oscar A. Martinez, Vice President and Chief Financial Officer of the Company, certify, to our knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.

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

 

/s/ Jon P. Vrabely

Jon P. Vrabely

President and Chief Executive Officer

May 3, 2016

 

/s/ Oscar A. Martinez

Oscar A. Martinez

Vice President and Chief Financial Officer

May 3, 2016