SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) Annual report under Section 13 or 15 (d) of the Securities Exchange Act of
1934. For the fiscal year period ended December 31, 1999 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the Transition period from ________ to _______
Commission file number 0-19335.
BUILDING MATERIALS HOLDING CORPORATION
Incorporated in the State of Delaware I.R.S. Employer Number 91-1834269
BUILDING MATERIALS HOLDING CORPORATION
One Market Plaza, Steuart Tower, Ste 2650, San Francisco, CA 94105
Telephone: (415)227-1650
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
-----------------------------
Title of class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____X_____
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of the close of business on
March 20, 2000 was $68,249,141,.*
* Excludes 5,010,642 shares of Common Stock held by directors, officers, and
holders of more than 5% of the Company's shares outstanding at March 20,
2000. Exclusion of shares held by any person should not be construed to
indicate that such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the
Registrant, or that such person is controlled by or under common control
with the Registrant.
Shares Outstanding
Class as of March 20, 2000
----- --------------------
Common Stock
$.001 par value 12,700,686
Documents Incorporated by reference
-----------------------------------
Listed hereunder are the documents any portions of which are incorporated by
reference and the Parts of this Form 10-K into which such portions are
incorporated:
1. The registrant's annual report for the fiscal year ended December 31, 1999,
portions of which are incorporated by reference into Parts II and IV of
this Form 10-K, and
2. The registrant's definitive proxy statement dated April 1, 2000, for use in
connection with the annual meeting of shareholders to be held on May 4,
2000, portions of which are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
TABLE OF CONTENTS
PART I
Item Page
- ---- ----
1. Business 1
2. Properties 12
3. Legal Proceedings 14
4. Submission of Matters to a Vote of Security Holders 14
PART II
5. Market for Registrant's Common Stock and Related
Stockholder Matters 15
6. Selected Financial Data 16
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 18
PART III
10. Directors and Executive Officers of the Registrant 19
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners and
Management 19
13. Certain Relationships and Related Transactions 19
PART IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 28
<PAGE>
PART I.
ITEM 1. BUSINESS
INTRODUCTION
Statements contained in this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. We disclaim any obligation to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained in the Annual Report on Form 10-K.
BUSINESS
Building Materials Holding Corporation ("BMHC") is a holding company engaged,
through its wholly owned subsidiaries, BMC West Corporation ("BMC West") and
BMHC Framing, Inc. ("Framing") in the distribution of building materials and
services, selling primarily to professional contractors and builders as well as
to project-oriented consumers (including professional repair and remodel
contractors hired by them). BMHC was formed to centralize, at the holding
company, responsibilities for acquisitions, financial and administrative
functions - including strategic, financial and capital planning, corporate
governance and investor relations activities. In addition, the holding company
structure is intended to focus operational management on day-to-day activities,
to give local management more focused responsibility and enhance the opportunity
to recommend the introduction of new products or services appropriate for a
given market.
BMC West is a leading provider of building materials products and services,
selling primarily to professional contractors and builders through 53 centers in
California, Colorado, Idaho, Montana, Nevada, Oregon, Texas, Utah, Washington
and Wyoming. Framing holds a 49% equity interest in Knipp Brothers Industries,
LLC and KBI Distribution LLC, (collectively "KBI") a framing contractor and a
distribution operation, respectively, in the Phoenix and Tucson, Arizona and Las
Vegas, Nevada markets. In recent years we have increased our sales of higher
margin value-added products. As a result, our gross margins have increased each
year since 1992. We fabricate roof and floor trusses, purchase and pre-assemble
doors and millwork and select and distribute pre-assembled windows, each of
which we customize to, or select based on, customer specifications. Through our
interest in KBI we participate in the framing market and with our recent
acquisition of Royal Door we participate in the manufacture and installation of
pre-hung doors and millwork in multi-family and light commercial projects. Our
offering of value-added products and services both augments our ability to
supply contractors with a full range of their building materials needs and
reduces our sensitivity to commodity wood product prices.
BMC West targets primarily professional contractors and builders engaged in
residential construction and, to a lesser extent, light commercial and
industrial construction. We focus on developing and maintaining strong
relationships with regional and local contractors, developers, builders,
architects and engineers. Professional contractors and builders generally are
high-volume, repeat customers who require on-time job site delivery, volume
purchasing, trade credit
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and other specialized services typically not offered by large home center
retailers. We, therefore, do not compete directly against do-it-yourself
retailers, such as Home Depot and Lowe's, who do not offer the broad range of
services that we provide, and who generally sell in smaller quantities and are
focused on the retail consumer. We also target the repair and remodel market
which consists of consumers and contractors involved in major home improvement
projects.
Our 53 centers offer products and services that are designed to meet the needs
of professional contractors and builders. In addition, each of our centers
tailors its product and service mix to meet the demands of its local market. Our
products include the following:
- - lumber and panel - pre-assembled windows - engineered wood products
products
- - pre-hung doors and - roofing materials - paint
millwork
- - roof and floor trusses - cabinets - hardware
and wall panels
We believe that our focus on service is a key factor that distinguishes us from
many of our competitors. We have developed a variety of specialty services in
order to help our customers build high quality and cost effective projects. We
employ highly experienced, service-oriented sales people who advise contractors
at their job sites and offices or at our centers. As a result of our enhanced
product knowledge and training, our sales people are often sought out by our
customers for design and product recommendations, instruction and job site
assistance. Our high quality service, together with our contractor-focused
product offerings, have allowed our sales staff of approximately 700 employees
to develop long-term relationships with local professional contractors and
builders and to generate a large volume of repeat and referral business.
Our specialty services cater to professional contractors and builders and
typically are not offered at large home center retailers. These services
include:
o advice regarding project designs and materials specifications, such as
the use of pre-engineered wood products to reduce total building
costs;
o accurate estimates of materials costs on which contractors can base
bids;
o just-in-time delivery of complete home framing packages to job sites;
o provision of trade credit to pre-approved contractors;
o referral of customers to pre-qualified contractors;
o monitoring and evaluating innovations in product design in order to
provide customers with information and instruction;
o use of design and engineering software to ensure our products will fit
precisely into a constructed building; and
o installation of windows, doors and insulation in some local markets.
INDUSTRY OVERVIEW
Building materials distributors generally concentrate on serving either
professional contractors and builders or price-oriented retail consumers.
Contractor-oriented building materials distributors, like us, tend to focus on
contractors and project-oriented consumers and they compete principally on the
basis of:
o service
o product quality and availability
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o on-time delivery
o credit availability
o price
Home center retailers, on the other hand, target the mass consumer market, in
which competition is based principally on price, merchandising, location and
cooperative advertising. Typically, contractor-oriented distributors offer a
greater range of services and a range of high quality building products more
specifically targeted towards professional building contractors than home center
retailers. Customer loyalty is a key attribute of the contractor-oriented
building materials industry because professional contractors and builders
typically use the same building materials suppliers for most of their projects.
The contractor-oriented building materials distribution industry is
characterized by a large number of privately owned, small, regional distribution
companies and single-site enterprises. These businesses are typically family
run, relationship-based operations. Many of these businesses do not possess
sophisticated working capital management and control systems and generally lack
the purchasing expertise of a large entity, such as BMHC.
The building materials distribution industry is linked to the economic cycles
and seasonality associated with the home building industry. Construction
expenditures are largely a function of new residential, commercial and
industrial building demand and repair and remodeling projects undertaken.
Residential construction is closely linked to new job formation, household
formation, interest rates, housing affordability, availability of mortgage
financing, regional demographics and consumer confidence. Commercial
construction is significantly affected by vacancy and absorption rates, interest
rates, long-term regional economic outlooks and the availability of financing.
Industrial construction expenditures are linked to the industrial economic
outlook, corporate profitability, interest rates and capacity utilization. In
difficult economic environments, repair and remodeling expenditures generally
represent a greater percentage of housing construction expenditures as new
housing starts decline. BMHC centers target participants in all of these
sectors, although economic conditions frequently dictate which sector they may
emphasize at a given time.
GEOGRAPHIC MARKETS
We believe that we are well positioned in some of the most attractive markets
for building materials in the United States. Population and migration trends in
the Western markets served by us, as well as the relative strength of many of
the local economies we serve, have resulted in the growth of residential housing
in these markets.
OPERATING STRATEGY
We seek to maximize our sales per building permit by offering our customers a
full range of products they need to complete a project. A significant portion of
our sales to contractors and builders consists of complete home framing
packages, which typically include framing lumber, trim packages, pre-hung doors
and millwork, roof and floor trusses, pre-assembled windows and
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other products required to construct or improve a home. We will continue to
explore new products and services that we can add to our home framing packages
and to promote our existing products to additional customers. We believe we can
thereby leverage our existing customer base by increasing the number of products
we sell to them for each project.
Our strategic plan is to continue to increase sales of value-added products as a
percentage of total sales and reduce sales of commodity wood products as a
percentage of total sales. Our company-fabricated or pre-assembled value-added
products are currently available in approximately 87% of our centers. We plan to
continue to expand the availability of our company-fabricated or pre-assembled
products to every supply center in which market demand justifies the expansion.
We also continually evaluate the introduction of new value-added products, as
exemplified by our addition of building framing to our value-added product
offering through our equity interest in KBI. Local managers have introduced such
specialty services as window, door, wall panel and insulation installation to
meet local customers' needs. The installation of our products by our employees
tends to allow professional contractors or builders to reduce their on-site
labor costs. We will continue to expand these and other specialty services where
appropriate.
We grant our local managers substantial autonomy and responsibility to best
address customer needs in their markets. A distributor's reputation is often
determined at the local level, where product availability and knowledgeable
customer service are critical. Our local managers are responsible for optimizing
business activities in their markets, including managing local sales personnel,
configuring and maintaining local inventory levels, identifying potential
customers for targeted marketing efforts and developing local service and
product options. Our compensation system for location management has significant
incentive features based on local earnings and efficient working capital
management at the local level. We seek to expand our sales by capitalizing on
our reputation for quality and dependability with our existing customers, who
view us as the provider of choice in their respective markets, to attract new
customers and to increase our sales to existing customers.
Our total quality management program defines quality as providing the best
products and services at the right place at the right time. The program provides
an environment to encourage employees to identify cost reduction and margin
improvement opportunities, empowers employees to make significant contributions
and work together as a team, and measures our performance and follow-through on
improvement efforts. Quality teams at our facilities seek to make specific,
measurable improvements in our critical processes, including order processing,
inventory control, delivery and customer assistance. These teams include
employees from all functional areas and backgrounds. We support this program
through training and the sharing of ideas among locations.
We focus on improving efficiency and productivity at all facilities with special
attention and support to certain of the centers that we believe are
under-performing. We seek to anticipate changes in each local market by
adjusting the inventory product mix and services for the professional
contractors, builders and project-oriented consumers and the contractors hired
by them. Such adjustments may have some minor impact on margins as we adjust
inventories. We are also exploring alternatives for under-performing centers
including consolidation and liquidation of real property. We also are focusing
on building new facilities within markets where we have a presence.
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ACQUISITION STRATEGY
We use a disciplined approach towards acquiring leading contractor suppliers and
fabrication centers in both existing and new markets. We look for acquisitions
that will complement our existing markets, provide geographic diversification,
possibly outside of our current focus on the western U.S., or enhance our
value-added product capabilities. The acquisitions must also posses an
established customer base of professional contractors and builders and a quality
management team. We evaluate potential acquisitions based on their ability to
meet our prescribed return criteria and to provide operating efficiencies by
leveraging our existing infrastructure. We have found that our positive
reputation in our industry often leads business owners to approach us directly
when they are ready to sell. We intend to continue to pursue our consolidation
strategy and believe that the highly fragmented nature of the building materials
industry will provide us with a number of attractive acquisition opportunities.
While we evaluate each potential acquisition candidate on its individual merits,
our primary objective has been to acquire profitable centers that meet certain
general criteria. The typical targeted acquisition candidate is located on a 5
to 10 acre site that includes 8,000 to 15,000 square feet of indoor showroom and
contractor sales space and 20,000 to 50,000 square feet of covered storage area,
with reasonable access to the local road system and proximity to regional areas
of construction demand. Additional factors include the reputation of the center
among local contractors and the quality of the center's management and sales
organization.
Typically, after the acquisition of a center, the Company enhances the center's
sales and service capabilities and may expand its product offerings, including
value-added products, in order to increase sales. We also seek to implement our
accounting and management systems into each newly acquired center. These systems
assist in the effective management of inventories and accounts receivable and in
efforts to improve customer service. We have implemented centralized purchasing
to reduce costs.
In 1999, we completed three acquisitions, plus our investment in KBI. The
acquisitions involved six facilities located in California, Colorado, Montana,
Nevada and Texas. The following chart sets forth the number of centers acquired
and consolidated during each of the last two fiscal years.
Year Ended Year Ended
Dec. 31, 1999 Dec. 31, 1998
Beginning number of centers 58 55
Acquisitions 4 9
Consolidations and Closures (9) (6)
--- ---
Ending balance 53 58
=== ===
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We plan to continue to acquire complementary businesses. Although, we continue
to engage in discussions with potential acquisition candidates, we may not be
able to continue to identify and complete successful acquisitions in the future.
PRODUCTS
Our principal products mix varies by location and includes lumber, panel
products, engineered wood products, roofing materials, pre-hung doors and
millwork, roof and floor trusses, pre-assembled windows, cabinets, hardware,
paint and tools. In addition to distributing such products, we conduct
value-added activities, which include fabricating pre-hung doors, roof and floor
trusses, pre-assembled windows and pre-cutting lumber to meet customer
specifications.
The following table sets forth information regarding the percentage of net sales
represented by the specified categories of products sold at our centers during
each of the last two fiscal years. While we believe that the percentages
included in the table generally indicate the mix of our sales by category of
product, the specific percentages are affected year-to-year by changes in the
prices of commodity wood products, as well as changes in unit volumes sold.
CATEGORY OF PRODUCT 1999 1998
---- ----
Wood products (lumber and panel products) 44% 44%
Value-added (pre-hung doors and millwork,
roof and floor trusses, windows & moldings) 35 31
Building materials (roofing, siding, engineered
wood products, insulation and steel products) 14 16
Other (paint, hardware, tools, electrical and plumbing) 7 9
---- ----
100% 100%
==== ====
We fabricate roof and floor trusses and pre-hung door units and pre-assembled
window units for the residential and light commercial building markets. Door
units are purchased and pre-assembled to contractor specifications using a
variety of moldings. The door, truss and window product lines are particularly
attractive since they generally bring higher margins, have less price
volatility, and are not offered by many centers or home center retailers. We
believe that our ability to provide pre-hung doors, millwork, roof and floor
trusses and pre-assembled windows in a number of locations is a competitive
advantage when soliciting business from contractors. Inventories of door units,
roof and floor trusses and pre-assembled windows are usually built-to-order.
Our customers generally order products, including pre-hung doors, millwork, roof
and floor trusses, and pre-assembled windows on an as-needed basis. Therefore,
virtually all product shipments in a given fiscal quarter result from orders
received in that quarter. Consequently, order backlog represents only a very
small percentage of the product sales anticipated in a given fiscal quarter and
is not indicative of actual sales for any future fiscal period.
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As a provider of building materials and products, we regularly monitor
innovations in product design to meet our customers' needs. We test markets for
products that substitute for dimensional lumber and have for a number of years
distributed alternative products such as engineered wood products and steel
studs, and have provided our builder customers information and instruction on
the use of such products.
SALES AND MARKETING
Each of our 53 centers tailors their product and service mix to the local market
and operate as a separate profit center. We reach our professional contractor
customers mainly through field sales representatives, advertisements in trade
journals and local promotional events.
PROFESSIONAL CONTRACTOR AND BUILDER MARKET
The professional contractor and builder market is comprised of three major
customer groups: two groups are new housing contractors and builders, and
commercial and industrial contractors. In 1999, sales to these professional
contractors and builders accounted for approximately 82% of net sales (this
total includes 76% to new residential contractors and 6% to commercial and
industrial contractors). A significant amount of this business consisted of
sales of complete house packages, including framing lumber, panel products,
pre-hung doors and trim packages, roof and floor trusses, pre-assembled windows
and other products required to construct or improve a home.
We provide a wide range of customer services to contractors to meet their needs
for trade credit, delivery and expert assistance. While pricing is an important
purchasing criterion for these customers, we believe that other factors such as
coordinated, on-time deliveries, quality and availability of products,
relationships with salespeople, credit availability and technical support are
equally important. We believe that our skills in these areas are important
competitive advantages.
Our principal channel for reaching the professional contractor and builder
market is a sales force of approximately 360 field sales representatives
supported by approximately 350 inside salespeople. Field sales representatives
actively solicit business and work with the inside salespeople and managers to
develop bids for contractor projects. We provide sales training for all sales
representatives, and sales management training for all sales managers and center
managers. Sales representatives are compensated through a combination of salary
and commission based on individual sales volume and gross margin.
Our center managers ensure that building materials are delivered according to
contractor specifications and schedules. Technical personnel involved in
purchasing, dispatching, invoicing and credit, support both field sales force
and center managers to enhance customer satisfaction.
REPAIR AND REMODEL MARKET
The third major customer group is the repair and remodel market which consists
generally of project-oriented consumers (including professional repair and
remodel contractors hired by them). In 1999, sales to these customers accounted
for approximately 17% of net sales. Our sales to this
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market generally carry higher margins than sales to the professional contractor
market. The volume of sales to this market varies depending on location. We
actively pursue repair and remodel business in smaller markets.
CREDIT
Overall credit policy for sales to contractors is established by corporate
management, but each center has responsibility for overseeing local accounts.
The individual center managers and their staff are trained to have a thorough
understanding of state lien laws, which provide security for accounts
receivable. Our credit policies, together with daily monitoring of customer
balances, have resulted in average bad debt expense of approximately 0.16% of
net sales during the last five years, with no single year exceeding 0.21%. We
believe that our bad debt expense levels are among the lowest in the industry.
Approximately 92% of our sales in 1999 were made to customers to whom we had
extended credit for such sales.
MANAGEMENT INFORMATION SYSTEMS
Our financial information, operational data and other related statistical
information are processed and maintained at BMC West's headquarters on a network
of server computers and work stations. Our financial reporting and relational
database system was designed and customized for us by Oracle Corporation. The
flexible nature of our installed network allows for the accumulation, processing
and distribution of information using industry standard computing resources and
programs. The point-of-sale information systems we use operate on computers
located at each center, and are connected to the computers at headquarters via a
high-speed frame relay network. These on-line systems provide real-time pricing,
inventory availability and margin analysis. This allows each center's sales
staff to offer a high level of customer service, while giving management the
ability to access and use timely information to monitor operations. We believe
that these systems also have enabled us to enhance profit margins, improve
inventory turnover through identification and elimination of low-turnover items,
accelerate analysis of sales trends, and better monitor accounts receivable,
employee productivity, customer credit limits and lien protections.
PURCHASING
We purchase merchandise from a large number of manufacturers and suppliers. In
1999, our largest supplier accounted for approximately 8% of our total
purchases. We do not believe that the loss of any single supplier would have a
material adverse effect on our financial position, results of operations, or
cash flows.
We purchase some of our inventory on a centralized basis in order to capitalize
on economies of scale, although a limited amount of purchasing and all ordering
is controlled at individual centers in order to respond to local needs. Ordering
is controlled at the location level in order to maintain local product needs and
inventory turns. Although we seek to time purchases to take advantage of price
movements, we do not speculate in the commodity wood products market.
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Approximately 44% of our 1999 sales were attributable to commodity wood
products. Prices of commodity wood products are subject to significant
volatility and directly affect sales. We have established purchasing and pricing
procedures to reduce exposure to inventory write-downs. Our commodity buyers
monitor inventory and sales levels in each location on a regular basis. With
this supply and demand information, buyers generally can avoid overstocking
commodity wood products. As a result, we turn our commodity product inventory
approximately 10 to 12 times per year. Such rapid inventory turnover limits our
potential exposure to inventory loss from commodity price fluctuations. In
addition, our real-time computer network allows the locations to adjust sales
prices as purchase prices of commodity products change.
In July 1996, we entered into a merchandise supply agreement with TruServe for
hardline products, which include builders hardware, tools, paint and sub-floor
adhesives. Under the agreement, we terminated existing affiliations with other
distributors.
COMPETITION
We operate in a highly competitive environment. Due to the nature of the
industry, the competitive environment varies by location and by market.
Within the professional contractor and builder market, we compete primarily with
privately owned, single-site enterprises and local and regional building
materials chains. Professional contractors and builders generally select
building materials centers on the basis of availability of knowledgeable
personnel, on-time delivery, reliable inventory levels, availability of credit
and competitive pricing. We compete favorably on each of these bases. Our
relatively large size also permits us to attract experienced and professional
sales and service personnel and provides us the resources to offer Company-wide
product and service training programs. By working closely with our contractor
customers and utilizing our real-time management information system, our centers
maintain appropriate inventory levels and are well positioned to deliver
completed orders on time to individual job sites.
Within the repair and remodel market, we compete primarily with local
lumberyards and hardware stores and, in certain of its markets, with larger home
center chains such as Home Depot and Lowe's. We believe we meet the needs of
project-oriented consumers and repair and remodel contractors more effectively
than such competitors by (i) providing primarily higher quality products within
each category, (ii) offering consumers and contractors access to our
knowledgeable staff and (iii) developing contractor referral programs to address
the requirements of consumers on larger projects.
EMPLOYEES
Our success is highly dependent on the quality of our personnel at all levels.
We are facing increased competition in attracting and retaining qualified
employees. As a result, we maintain well rounded and competitive compensation
and fringe benefit programs to attract, motivate and retain top performing
individuals. In addition, we provide extensive product knowledge, customer
service, supervisory and managerial training programs to assure employee and
customer satisfaction.
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At December 31, 1999, we employed approximately 4,200 persons, of which
approximately 290 were represented by unions. We have not experienced any
strikes or other work interruptions and have maintained generally favorable
relations with our employees. The following table shows the approximate
breakdown by job function of our employees:
Officers, corporate and unit management, and
corporate and unit administrative 13%
Delivery (Truck Drivers, Load Builders, Yard) 34%
Manufacturing (Truss, Door and Window) 30%
Field sales force (Outside/Inside Sales) 17%
Retail operations (Cashiers/Receiving/Sales Support) 6%
Executive Officers as of December 31, 1999
- ------------------------------------------
<TABLE>
<CAPTION>
Date First
Elected as
Name Age Position or Office An Officer
- ---- --- ------------------ ----------
<S> <C> <C> <C>
George E. McCown 64 Chairman of the Board of 1987
Directors
Robert E. Mellor 56 President, Chief Executive 1997
Officer and Director
Robert L. Becci 59 Vice President and Controller 1990
Richard F. Blackwood 62 Senior Vice President 1987
President, Intermountain Division
Ellis C. Goebel 58 Senior Vice President- Finance 1987
and Treasurer
Steven H. Pearson 52 Vice President - Human 1987
Resources
William E. Smith 48 President, South Central Division 1997
Paul S. Street 51 Senior Vice President, General 1999
Counsel & Corporate Secretary
Stanley M. Wilson 55 President, Pacific Division 1997
</TABLE>
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Mr. McCown is Chairman of the Board of Directors of the Company and has been a
director since 1987. He was co-founder and has been a Managing General Partner
of the MDC Management Companies, the general partner of the McCown De Leeuw &
Co., since 1984, and was instrumental in financing and executing the leveraged
buy-out of BMC West Corporation in 1987. Mr. McCown currently serves as the
Vice-Chairman of the Board of Directors of Vans, Inc. and as a director of the
following publicly held companies: FiberMark, Inc. and Aurora Foods Inc. Mr.
McCown also serves as a director of several privately held companies.
Mr. Mellor serves as the President and Chief Executive Officer of BMHC. Mr.
Mellor was previously Of Counsel with the law firm of Gibson, Dunn & Crutcher
LLP from 1990 through February 15, 1997. Mr. Mellor also serves as a director of
Coeur d' Alene Mines Corporation and The Ryland Group, Inc.
Mr. Becci has served as the Company's Controller since its inception in 1987 and
was elected Vice President in 1990.
Mr. Blackwood is currently Senior Vice President and has served as Vice
President of Operations of the Company since 1987.
Mr. Goebel is Senior Vice President-Finance & Treasurer of Building Materials
Holding Corporation in August 1997. He served as Vice President and Treasurer of
the Company since its inception in November 1987.
Mr. Pearson has served as Vice President-Human Resources of the Company since
its inception in November 1987.
Mr. Smith has served as President of the SouthCentral Division since November
1997. Before joining BMC West, he held the position of President and Chief
Operating Officer of Lone Star Plywood & Door Corp., which was purchased by the
Company in November 1997.
Mr. Street joined the Company in January 1999 as Senior Vice President, General
Counsel, & Corporate Secretary. He previously served as outside General Counsel
& Secretary to the Company while employed by Moffatt, Thomas, Barrett, Rock &
Fields.
Mr. Wilson has served as President of the Pacific Division since November 1997.
He was previously district manager of the West Coast district from April 1993 to
1998.
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ITEM 2. PROPERTIES
BMHC is a holding company engaged, through its wholly owned subsidiaries, BMC
West and Framing in the distribution of building materials and services. BMHC's
headquarters is in San Francisco, California and BMC West's headquarters is in
Boise, Idaho. In addition to administrative buildings, we have four primary
types of centers: building materials supply centers, pre-hung door facilities,
truss facilities, and pre-assembled window distribution facilities. We believe
that our locations are well maintained and generally are adequate for our needs
for the foreseeable future. All of our material assets, including land and
centers, are owned or leased by the Company.
State and Date Owned Leased
City Acquired Acreage Acreage
- ---- -------- ------- -------
CALIFORNIA - 3
Atwater* 1990 -- 2.4
Fresno 1989 13.0 --
Merced 1987 2.9 1.0
Modesto 1989 14.0 --
San Francisco
Headquarters 1997 -- --
COLORADO -10
Aspen 1987 4.6 --
Boulder 1990 10.0 --
Colorado Springs 1994 3.3 --
Denver Door 1990 -- 1.6
Denver 1994 8.7 --
Evergreen 1990 3.7 --
Fort Collins 1990 12.0 .5
Fort Lupton* 1994 10.4 --
Grand Junction 1994 3.5 .5
Glenwood Springs* 1990 2.0 --
Greeley 1994 11.1 --
Pueblo 1994 10.7 --
Steamboat Springs 1987 1.4 2.8
IDAHO - 5
Boise 1987 15.8 --
Boise (office) 1988 -- --
Emmett* 1987 2.6 --
Idaho Falls 1987 10.8 1.0
12
<PAGE>
State and Date Owned Leased
City Acquired Acreage Acreage
- ---- -------- ------- -------
IDAHO
Lewiston 1990 3.7 --
Meridian* 1987 -- 3.8
Pocatello 1987 4.6 --
Rexburg 1987 1.9 --
MONTANA - 7
Great Falls 1993 9.2 --
Helena 1998 4.1 --
Helena Truss 1998 3.6 --
Kalispell 1998 5.4 --
Kalispell Door 1999 1.3 --
Missoula 1998 15.1 --
Missoula Door 1999 4.5 --
NEVADA - 2
Carson Valley 1998 10.3 --
Gardnerville* 1992 4.4 --
Sparks 1997 -- 10.1
OREGON - 3
Beaverton 1987 5.6 --
Salem 1998 6.1 --
Wilsonville 1997 -- 3.1
TEXAS - 12
Abilene 1995 16.1 --
Austin 1998 -- 4.3
Austin 1995 18.3 3.9
Coppell 1997 9.4 --
Dallas 1999 -- 1.0
El Paso 1991 7.0 --
Houston 1997 7.1 --
Houston 1998 -- 2.5
Hurst 1994 5.3 2.3
Killeen 1994 3.6 0.3
New Braunfels 1995 23.6 5.2
San Antonio 1998 -- 4.2
13
<PAGE>
State and Date Owned Leased
City Acquired Acreage Acreage
- ---- -------- ------- -------
UTAH - 3
Ogden* 1987 0.5 1.2
Orem 1987 9.5 6.8
Salt Lake 1990 16.8 --
Tooele* 1987 1.5 0.7
West Haven 1996 6.0 --
WASHINGTON - 7
Bothell 1997 -- 2.8
Everett 1994 29.3 --
Issaquah 1994 21.4 --
Kent 1994 4.5 --
Spokane 1990 9.2 --
Tacoma 1987 8.9 --
Vancouver 1994 -- 5.4
WYOMING - 1
Jackson 1996 -- 1.0
*These locations are satellites of existing locations.
The number of centers located in each state is listed next to their respective
state.
BMHC and BMC are tradenames. Other brand names or trademarks appearing in this
Form 10-K are the property of their respective holders.
ITEM 3. LEGAL PROCEEDINGS
We are involved in litigation and other legal matters arising in the normal
course of business. In the opinion of management, our recovery or liability, if
any, under any of these matters will not have a material adverse effect on our
financial position, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders for a vote during the fourth
quarter of the fiscal year.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of BMHC is traded on the Nasdaq National Market under the
symbol "BMHC". The following table sets forth the range of high and low closing
sales prices on the Nasdaq National Market for the Common Stock for the periods
indicated. Such quotations represent inter-dealer prices without retail markup,
markdown or commission and may not necessarily represent actual transactions.
Common Stock Prices:
Fiscal 1999 High Low
- ----------- ---- ---
Quarter ended March 31, 1999 $12.625 $ 9.375
Quarter ended June 30, 1999 12.750 9.750
Quarter ended September 30, 1999 13.313 10.000
Quarter ended December 31, 1999 11.750 7.500
Fiscal 1998 High Low
- ----------- ---- ---
Quarter ended March 31, 1998 $13.625 $10.625
Quarter ended June 30, 1998 14.875 11.500
Quarter ended September 30, 1998 14.438 10.500
Quarter ended December 31, 1998 13.063 9.313
We have not paid any dividends on our Common Stock and the Board of Directors
presently intends to continue this policy in order to retain earnings for use in
the business. The amount of dividend payments is restricted by our loan
agreements. At March 20, 2000, our Common Stock was held by approximately 4,855
shareholders of record or through nominee or street name accounts with brokers
(170 registered holders). The last sales price for our Common Stock, as reported
by Nasdaq on March 20, 2000, was $8.875.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data of BMHC
for the years indicated. It is derived from our audited consolidated financial
statements, and should be read in conjunction with the disclosures in Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below and the consolidated financial statements and notes thereto
presented on pages 9 through 23 of our 1999 Annual Report. (amounts in
thousands, except share data).
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 1,007,108 $ 877,280 $ 728,065 $ 718,024 $ 630,201
Gross profit 251,971 214,158 168,410 158,616 138,173
Income from operations 45,662 35,123 24,357 28,422 23,421
Equity in earnings of
unconsolidated companies 4,978 -- -- -- --
Income before extraordinary item 23,035 15,149 9,493 10,991 7,765
Extraordinary item, net of tax (3,352) -- -- (342) --
Net income $ 19,683 $ 15,149 $ 9,493 $ 10,649 $ 7,765
Income per diluted common
share before extraordinary item $ 1.80 $ 1.20 $ 0.78 $ 1.00 $ 0.79
Net income per common share:
Basic $ 1.55 $ 1.21 $ 0.80 $ 0.99 $ 0.81
Diluted $ 1.54 $ 1.20 $ 0.78 $ 0.97 $ 0.79
BALANCE SHEET DATA:
At Year End 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 139,283 $ 116,744 $ 118,612 $ 110,467 $ 100,196
Total assets 450,119 373,981 340,373 288,369 264,970
Long-term debt, net of current
maturities and redeemable
preferred stock 170,547 117,805 113,410 90,203 123,080
Shareholders' equity 200,110 180,250 160,951 145,088 95,927
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is presented under the caption "Financial Review" in BMHC's 1999
Annual Report to Shareholders ("Annual Report"). The information under this
caption is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BMHC's consolidated financial statements and related notes, together with the
report of the independent public accountants, are presented on pages 13 through
24 of our 1999 Annual Report to Shareholders and are incorporated herein by this
reference.
Report of Independent Public Accountants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Building Materials Holding Corporation:
We have audited the accompanying consolidated balance sheet of Building
Materials Holding Corporation (a Delaware corporation) and subsidiary as of
December 31, 1998, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Building Materials Holding
Corporation and subsidiary as of December 31, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boise, Idaho
January 25, 1999
17
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
(a)(1) Previous independent accountants
(i) On May 6, 1999 Building Materials Holding Corporation,
Registrant, advised Arthur Andersen LLP, as its independent
accountants, that they would be dismissed, effective May 14,
1999.
(ii) The reports of Arthur Andersen LLP on the financial statements
for the past two fiscal years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principle.
(iii) The Registrant's Audit Committee and Board of Directors
participated in and approved the decision to change independent
accountants.
(iv) In connection with its audits for the two most recent fiscal
years and through May 14, 1999, there have been no disagreements
with Arthur Andersen LLP on any matter of accounting principles
or practices, financial statement disclosures, or auditing scope
or procedure, which disagreements, if not resolved to the
satisfaction of Arthur Andersen LLP, would have caused them to
make reference thereto in their report on the financial
statements for such years.
(v) During the two most recent fiscal years and through May 14, 1999,
there have been no reportable events (as defined in Regulation
S-K Item 304(a)(1)(v)).
(a)(2) New independent accountants
(i) The Registrant engaged PricewaterhouseCoopers LLP as its new
independent accountants as of May 14, 1999. During the two most
recent fiscal years and through May 14, 1999, the Registrant has
not consulted with PricewaterhouseCoopers LLP regarding either
(i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's financial
statements, and either a written report was provided to the
Registrant or oral advice was provided that
PricewaterhouseCoopers LLP concluded was an important factor
considered by the Registrant in reaching a decision as to the
accounting, auditing or financial reporting issue; or (ii) any
matter that was either the subject of a disagreement, as that
term is defined in Item 304(a)(1)(iv) of Regulation S-K and the
related instructions to Item 304 of Regulation S-K, or a
reportable event, as that term is defined in Item 304(a)(1)(v) of
Regulation S-K.
(a)(3) The Registrant has requested that Arthur Andersen LLP furnish it
with a letter addressed to the SEC stating whether or not it
agrees with the above statements. A copy of such letter, dated
May 13, 1999, was filed as Exhibit 16 to this Form 8-K on May 13,
1999 and is incorporated herein by reference.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS
The nominees for directors of the Company are presented on pages 5 through 6 of
the Company's definitive Proxy Statement ("Proxy Statement"). This information
is incorporated herein by this reference.
The information required by this Item concerning the Company's executive
officers is set forth in Part I, Section Titled "Executive Officers", of this
report and is incorporated herein by this reference.
The information required by this Item concerning compliance with Section 16(a)
of the Exchange Act is presented under the caption entitled "Certain
Relationships and Other Transactions" of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item concerning compensation of the Company's
executive officers for the year ended December 31, 1999, is presented under the
captions entitled "Executive Compensation and Other Information" of the Proxy
Statement. This information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item concerning the security ownership of certain
beneficial owners, directors and executive officers, as of December 31, 1999, is
set forth under the caption "Security Ownership of Certain Beneficial Owners" of
the Proxy Statement and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item concerning certain relationships and related
transactions during 1999 is set forth under the caption "Certain Relationships
and Other Transactions" of the Proxy Statement and is incorporated herein by
this reference.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this annual report on
Form 10-K:
1. Financial Statements: incorporated herein by this reference
from pages 13 through 24 of the Annual Report to
Shareholders.
- Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997.
- Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998.
- Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1999, 1998 and 1997.
- Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.
- Notes to Consolidated Financial Statements.
- Report of Independent Accountants.
Page
----
2. Financial Statement Schedules:
Reports of Independent Public Accountants............... 21
I. Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997................... 25
Schedules other than those listed are omitted because they are not applicable or
because the required information is shown in the financial statements or notes.
3. Exhibits:
A list of the exhibits required to be filed as part of
this report is set forth in the Index to Exhibits, which
immediately precedes such exhibits, and is incorporated
herein by this reference.
(b) Reports on Form 8-K
No Form 8-Ks were filed during the fourth quarter of the
fiscal year.
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Building Materials Holding Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 17, 2000 appearing in the 1999 Annual Report to Shareholders of
Building Materials Holding Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule for the year ended
December 31, 1999 listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule for the year ended December 31, 1999 presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
February 17, 2000
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Building Materials Holding Corporation as
of December 31, 1998 and the two years then ended included in Building Materials
Holding Corporation's annual report to shareholders incorporated by reference in
the Form 10-K for the period ended December 31, 1999, and have issued our report
thereon dated January 25, 1999. Our audit was made for the purpose of forming an
opinion on those statements taken as a whole. The schedule listed in Part IV,
Item 14(a)(2) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. The schedule has
been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boise, Idaho
January 25, 1999
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BUILDING MATERIALS HOLDING CORPORATION
By /s/ ROBERT E. MELLOR
--------------------
Robert E. Mellor
President, Chief Executive Officer and Director
Dated: March 23, 2000
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert E. Mellor, Ellis C. Goebel, and Robert L.
Becci, and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming that
all said attorneys-in-fact and agents, or any of them or their or his
substitutes or substituted, may lawfully do or cause to be done by virtue
hereof. This Form 10-K may be executed in multiple counterparts, each of which
shall be an original, but which shall together constitute but one agreement.
23
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
(i) Principal Executive Officer: (iv) Directors:
/s/ Robert E. Mellor /s/ George E. McCown
- ------------------------- -------------------------
Robert E. Mellor George E. McCown
President, Chief Executive Chairman of the Board
Officer and Director of Directors
March 23, 2000 March 23, 2000
(ii) Principal Financial Officer: /s/ Robert E. Mellor
-------------------------
Robert E. Mellor
March 23, 2000
/s/ Ellis C. Goebel /s/ Alec F. Beck
- ------------------------- -------------------------
Ellis C. Goebel Alec F. Beck
Senior Vice President - Finance and Treasurer March 23, 2000
March 23, 2000
/s/ H. James Brown
-------------------------
(iii) Principal Accounting Officer: H. James Brown
March 23, 2000
/s/ Robert L. Becci /s/ Wilbur J. Fix
- ------------------------- -------------------------
Robert L. Becci Wilbur J. Fix
Vice President and Controller March 23, 2000
March 23, 2000
/s/ Robert V. Hansberger
-------------------------
Robert V. Hansberger
March 23, 2000
/s/ Donald S. Hendrickson
-------------------------
Donald S. Hendrickson
March 23, 2000
/s/ Guy O. Mabry
-------------------------
Guy O. Mabry
March 23, 2000
/s/ Peter S. O'Neill
-------------------------
Peter S. O'Neill
March 23, 2000
24
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions Additions
Balance at charged to charged to
beginning costs and other Balance at
Description of year expenses Accounts Deductions end of year
- ----------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
- -------------------------------
Year Ended
December 31, 1999 $2,062 $1,811 $ - $1,616(1) $2,257
Year Ended
December 31, 1998 1,617 2,279 $ - 1,834(1) 2,062
Year Ended
December 31, 1997 1,231 1,657 $ - 1,271(1) 1,617
</TABLE>
(1) Represents write-offs of uncollectible receivables, net of recoveries.
25
<PAGE>
BUILDING MATERIALS HOLDING CORPORATION
INDEX TO EXHIBITS
Filed with the Annual Report
on Form 10-K for the
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Exhibit Exhibit
Footnote Number Description Page
- -------- ------- ----------- ----
<S> <C> <C> <C>
(g) 3.5 Amended Certificate of Incorporation, filed with the office
of the Secretary of State of the State of Delaware on
September 23, 1997.
(g) 3.6.1 Amended and Restated By-laws of the Registrant.
(c) 4.2 Form of Note.
(g) 4.4 Agreement and Plan of Merger, dated September 23, 1997 by
and among the Registrant, BMC West Corporation and
BMC West Merger Corporation.
(g) 4.7 Rights Agreement, dated September 19, 1997, by and
between the Registrant and American Stock Transfer
and Trust Company.
(a) 10.4* 1990 Bonus Plan of the Company
(a) 10.5* Stock Option Plan (Senior Original Shareholders
Management Plan), effective January 1, 1991.
(a) 10.6* Stock Option Plan (Field Management Plan),
effective January 1, 1991.
(b) 10.7 Form of indemnity agreement between the
Company and its officers and directors.
(e) 10.13* Supplemental Retirement Plan dated January 1, 1993.
(f) 10.19* Amended and Restated 1992 Non-Qualified Stock
Plan.
(f) 10.20* Amended and Restated 1993 Employee Stock Option
Plan.
(f) 10.21* Amended and Restated 1993 Non-Employee Director
Stock Option Plan.
(g) 10.22 Agreement and Plan of Merger, dated September 23, 1997 by
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit
Footnote Number Description Page
- -------- ------- ----------- ----
<S> <C> <C> <C>
and among the Registrant, BMC West Corporation and
BMC West Merger Corporation.
(j) 10.27 Rights Agreement dated as of September 19, 1997 as amended
as of November 5, 1998 by and between Building Materials
Holding Corporation and American Stock Transfer and Trust
Company.
10.31** Securities Purchase Agreement dated as of March 23, 1999,
Between Knipp Brothers, Inc., Lawrence W. Knipp and
BMHC and BMHC Framing, Inc. ____
10.32** Amended and Restated Limited Liability Company
Agreement of Knipp Brothers Industries, LLC
Dated May 1, 1999. ____
10.33 Put Agreement dated April 30, 1999 between Knipp
Brothers, Inc., an Arizona Corporation, BMHC Framing, Inc.,
A Delaware Corporation, Building Materials Holding
Corporation, a Delaware Corporation and Knipp Brothers
Industries, LLC, a Delaware limited liability company. ____
10.34 Asset Purchase Agreement dated as of October 13, 1999, between
BMCW, LLC and Rowland Manufacturing Corporation dba
Royal Door Company, Inc. _____
10.35 Promissory Note between BMCW, LLC Rowland
Manufacturing Corporation dba Royal Door Company, Inc. _____
10.36 Credit Agreement among Bank of America, N.A., as Agent, _____
the Company, and Ten Other Financial Institutions Party Hereto
dated November 30, 1999.
10.37 Amended and Restated Severance Plan for Certain
Key Executive Officers, Senior Management and Key
Employees of the Company and its subsidiaries as
Adopted by the Board of Directors of the Company
on February 17, 2000. _____
11.1 Statement regarding computation of earnings per share. _____
13.1 Building Materials Holding Corporation's 1999 Annual Report.
Such report, except to the extent incorporated
herein by reference, is being furnished for the
information of the Securities and Exchange
Commission only and is not to be deemed
filed as part of this Annual Report on Form 10-K. _____
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit Exhibit
Footnote Number Description Page
- -------- ------- ----------- ----
<S> <C> <C> <C>
(l) 16.1 Letter of response to SEC from Arthur Andersen LLP
dated May 13, 1999.
23.1 Consent of PricewaterhouseCoopers LLP. Reference is
made to page 26.
23.2 Consent of Arthur Andersen LLP. Reference is
made to page 27.
24.1 Power of Attorney. Reference is made
to page 22.
27.1 Financial Data Schedule Fiscal year end 1999. _____
-------------------------------
(a) Filed as an exhibit to the Registration Statement on Form S-1
filed with the Commission on June 6, 1991 (Registration No.
33-41040) (the "Registration Statement") and incorporated
herein by reference.
(b) Filed as an exhibit to Amendment No. 2 to the Registration
Statement, filed with the Commission on August 2, 1991 and
incorporated herein by reference.
(c) Filed as an exhibit to Amendment No.1 to the Registration
Statement on Form S-1, filed with the Commission on October
20, 1992 (Registration No. 33-52432), and incorporated herein
by reference.
(d) Filed as an Exhibit to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, filed with the
Commission on March 28, 1994, and incorporated herin by
reference.
(e) Filed as an Exhibit to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, filed with the
Commission on March 30, 1995, and incorporated herein by
reference.
(f) Filed as an Exhibit to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, filed with the
Commission on March 28, 1997, and incorporated herein by
reference.
(g) Filed as an Exhibit to BMHC's Report on Form 8-K12G3, filed
with the Commission on September 23, 1997 and incorporated
herein by reference.
(h) Filed as an Exhibit to BMHC's Report on Form 8-K, filed with
the Commission on November 25, 1997 and incorporated herein by
reference.
</TABLE>
28
<PAGE>
(i) Filed as an Exhibit to Company's Form 10-Q for the quarter
ended September 30, 1998, filed with the Commission on
November 13, 1998, and incorporated herein by reference.
(j) Filed as an Exhibit to Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, filed with the
Commission on March 30, 1999, and incorporated herein by
reference.
(k) Filed as an Exhibit to Company's Form 10-Q for the quarter
ended March 31, 1999, filed with the Commission on May 12,
1999, and incorporated herein by reference.
(l) Filed as an Exhibit to BMHC's Report on Form 8-K, filed with
the Commission on May 6, 1999 and incorporated herein by
reference.
* Component of executive compensation.
** Portions of this exhibit have been redacted and are subject to a request for
confidential treatment.
29
SECURITIES PURCHASE AGREEMENT
AMONG
KNIPP BROTHERS, INC.,
LAWRENCE W. KNIPP,
BUILDING MATERIALS HOLDING CORPORATION,
AND
BMHC FRAMING, INC.
DATED AS OF MARCH 23, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS..................................................... 2
1.1 BMHC ASSETS........................................................ 2
1.2 BMHC EQUIPMENT..................................................... 2
1.3 BMHC INVENTORY..................................................... 3
1.4 BMHC STOCK......................................................... 3
1.5 BUSINESS........................................................... 3
1.6 CLOSING............................................................ 3
1.7 CLOSING BALANCE SHEET.............................................. 3
1.8 CLOSING DATE....................................................... 3
1.9 CONFIDENTIALITY AGREEMENT.......................................... 3
1.10 CPA PROCEDURE................................................... 3
1.11 DUE DILIGENCE PERIOD............................................ 4
1.12 ENVIRONMENTAL COSTS............................................. 4
1.13 ENVIRONMENTAL LAWS.............................................. 4
1.14 ENVIRONMENTAL MATTER............................................ 4
1.15 EXCLUDED ASSETS AND EXCLUDED LIABILITIES........................ 5
1.16 FINANCIAL INFORMATION........................................... 5
1.17 HAZARDOUS SUBSTANCES............................................ 5
1.18 INTERESTS....................................................... 5
1.19 INVENTORY....................................................... 5
1.20 KNOWLEDGE....................................................... 5
1.21 LOCATIONS....................................................... 5
1.22 MATERIAL........................................................ 6
1.23 NET WORTH ADJUSTMENT............................................ 6
1.24 OPERATING AGREEMENT............................................. 6
1.25 PUT AGREEMENT................................................... 6
1.26 PRELIMINARY CLOSING BALANCE SHEET............................... 6
1.27 REFERENCE BALANCE SHEET......................................... 6
1.28 SELLER.......................................................... 6
1.29 TRADE ACCOUNTS PAYABLE.......................................... 7
1.30 TRADE ACCOUNTS RECEIVABLE....................................... 7
1.31 TRADE NAMES AND TRADEMARKS...................................... 7
ARTICLE II - DUE DILIGENCE.................................................. 7
2.1 DUE DILIGENCE...................................................... 7
2.2 DUE DILIGENCE ACTIVITIES........................................... 8
2.3 CONFIDENTIALITY DURING DUE DILIGENCE............................... 9
2.4 TERMINATION OF AGREEMENT........................................... 9
2.5 EXCLUSIVE DEALING.................................................. 9
ARTICLE III - PURCHASE AND SALE............................................. 10
3.1 Purchase and Sale.................................................. 10
ARTICLE IV - DETERMINATION OF PURCHASE PRICE................................ 10
4.1 DETERMINATION...................................................... 10
4.1.1 INVENTORY.................................................... 10
i
<PAGE>
4.1.1.1 VALUATION................................................. 10
4.1.1.2 VALUATION OF FINISHED PRODUCT............................. 10
4.1.1.3 VALUATION OF MISCELLANEOUS INVENTORY ITEMS................ 11
4.1.1.4 FINAL INVENTORY DETERMINATION............................. 11
4.1.1.5 INDEPENDENT ACCOUNTANT FEES............................... 11
4.2 ALLOCATION OF PURCHASE PRICE....................................... 11
ARTICLE V - TERMS OF PAYMENT................................................ 12
5.1 PAYMENT DUE AT CLOSING............................................. 12
5.2 POST CLOSING ADJUSTMENT............................................ 12
ARTICLE VI - CAPITAL CONTRIBUTIONS; BMHC EMPLOYEES.......................... 12
6.1 CAPITAL CONTRIBUTIONS AT CLOSING................................... 12
6.2 VALUATION OF BMHC CAPITAL CONTRIBUTION............................. 13
6.2.1 BMHC EQUIPMENT............................................... 13
6.2.2 THE BMHC INVENTORY........................................... 13
6.2.2.1 VALUATION OF FINISHED PRODUCT............................. 13
6.2.2.2 VALUATION OF MISCELLANEOUS INVENTORY ITEMS................ 13
6.2.2.3 FINAL INVENTORY DETERMINATION............................. 13
6.2.2.4 INVENTORY COSTS........................................... 14
6.3 EMPLOYEES OF BMHC.................................................. 14
6.3.1 DEFINITION................................................... 14
6.3.2 TERMINATION.................................................. 14
6.3.3 EMPLOYMENT................................................... 14
6.3.4 LIABILITIES.................................................. 14
ARTICLE VII - [INTENTIONALLY OMITTED]....................................... 14
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF THE SELLERS............... 14
8.1 ORGANIZATION AND CORPORATE POWER................................... 15
8.2 CONDUCT OF BUSINESS................................................ 15
8.3 CAPITAL ACCOUNTS AND RELATED MATTERS............................... 15
8.4 SUBSIDIARIES; AFFILIATES........................................... 15
8.5 CONDUCT OF BUSINESS; LIABILITIES................................... 15
8.6 FINANCIAL STATEMENTS............................................... 16
8.7 NO UNDISCLOSED LIABILITIES......................................... 16
8.8 ABSENCE OF CERTAIN CHANGES......................................... 16
8.9 TITLE AND RELATED MATTERS.......................................... 17
8.10 LITIGATION...................................................... 17
8.11 TAX MATTERS..................................................... 18
8.12 COMPLIANCE WITH LAWS............................................ 18
8.13 NO BROKERS...................................................... 18
8.14 INSURANCE....................................................... 18
8.15 EMPLOYEES AND LABOR RELATIONS MATTERS........................... 19
8.16 DISCLOSURE...................................................... 19
8.17 POWER OF ATTORNEY............................................... 20
8.18 TRADE ACCOUNTS RECEIVABLE AND TRADE ACCOUNTS PAYABLE............ 20
8.19 AGREEMENTS AND COMMITMENTS...................................... 20
8.20 PERSONAL PROPERTY............................................... 21
8.21 REAL PROPERTY................................................... 21
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8.22 PERSONNEL....................................................... 21
8.23 PATENTS, TRADEMARKS, TRADE NAMES, ETC........................... 22
8.24 ERISA AND RELATED MATTERS....................................... 22
8.25 ENVIRONMENTAL MATTERS........................................... 22
ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF BMHC AND BUYER............... 24
9.1 LEGAL STATUS....................................................... 24
9.2 AUTHORITY.......................................................... 24
9.3 TITLE AND RELATED MATTERS.......................................... 24
9.4 LITIGATION......................................................... 24
9.5 COMPLIANCE WITH LAWS............................................... 25
9.6 NO BROKERS......................................................... 25
9.7 EMPLOYEES AND LABOR RELATIONS MATTERS.............................. 25
9.8 DISCLOSURE......................................................... 26
9.9 AGREEMENTS AND COMMITMENTS......................................... 26
9.10 PERSONAL PROPERTY............................................... 26
9.11 REAL PROPERTY................................................... 27
9.12 PERSONNEL....................................................... 27
9.1 ERISA AND RELATED MATTERS.......................................... 28
9.14 ENVIRONMENTAL MATTERS........................................... 28
ARTICLE X - COLLECTION OF RECEIVABLES; CUSTOMER CLAIMS...................... 29
10.1 COLLECTION...................................................... 29
10.2 CUSTOMER CLAIMS AND RETURNS..................................... 30
ARTICLE XI - BMHC'S COVENANTS............................................... 30
ARTICLE XII - [RESERVED].................................................... 30
ARTICLE XIII - INDEMNITY.................................................... 30
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................... 30
13.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS................... 30
13.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BMHC AND BUYER........ 31
13.4 INDEMNIFICATION PROCEDURE....................................... 32
13.5 COOPERATION..................................................... 33
ARTICLE XIV - CONDUCT OF OPERATIONS PRIOR TO CLOSING/GOVERNMENT APPROVALS.. 34
14.1 CONDUCT OF OPERATIONS........................................... 34
14.2 REQUISITE GOVERNMENT APPROVALS.................................. 34
ARTICLE XV - CLOSING........................................................ 34
15.1 CLOSING......................................................... 34
15.2 TIME IS OF THE ESSENCE.......................................... 34
ARTICLE XVI - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE................. 34
16.1 CONTINUED TRUTH OF WARRANTIES................................... 34
16.2 SUPPLEMENTS TO SCHEDULES........................................ 35
16.3 PERFORMANCE OF OBLIGATIONS...................................... 35
16.4 DELIVERY OF CLOSING DOCUMENTS................................... 35
16.5 LITIGATION...................................................... 35
16.6 GOVERNMENT APPROVALS............................................ 35
16.7 DUE DILIGENCE PERIOD............................................ 35
16.8 APPROVAL BY BOARD OF DIRECTORS.................................. 36
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16.9 PRELIMINARY CLOSING BALANCE SHEET............................... 36
16.10 EMPLOYMENT, CONFIDENTIALITY, AND NONCOMPETITION AGREEMENTS...... 36
16.11 LEASES FOR LOCATIONS............................................ 36
16.12 OPERATING AGREEMENT............................................. 36
16.13 PUT AGREEMENT................................................... 36
16.14 BONUS PLAN...................................................... 36
16.15 MATERIAL ADVERSE CHANGE......................................... 36
16.15 LENDER APPROVALS................................................ 36
ARTICLE XVII - CONDITIONS PRECEDENT TO THE SELLERS'DUTY TO CLOSE............ 37
17.1 CONTINUED TRUTH OF WARRANTIES................................... 37
17.2 SUPPLEMENTS TO SCHEDULES........................................ 37
17.3 PERFORMANCE OF OBLIGATIONS...................................... 37
17.4 DELIVERY OF CLOSING DOCUMENTS................................... 37
17.5 LITIGATION...................................................... 37
17.6 LEASE FOR PHOENIX LOCATION...................................... 37
17.7 OPERATING AGREEMENT............................................. 37
17.8 PUT AGREEMENT................................................... 38
17.9 GOVERNMENT APPROVALS............................................ 38
17.10 MATERIAL ADVERSE CHANGE......................................... 38
ARTICLE XVIII - ITEMS TO BE DELIVERED AT CLOSING BY SELLERS................ 38
18.1 OPINION OF COUNSEL.............................................. 38
18.2 CERTIFICATE OF INCUMBENCY....................................... 38
18.3 CERTIFICATES OF GOOD STANDING................................... 38
18.4 REPRESENTATIONS AND WARRANTIES.................................. 38
18.5 AGREEMENTS...................................................... 38
ARTICLE XIX - ITEMS TO BE DELIVERED AT CLOSING BY BMHC AND BUYER............ 39
19.1 CERTIFIED RESOLUTION............................................ 39
19.2 REPRESENTATIONS AND WARRANTIES.................................. 39
19.3 OPINION OF COUNSEL.............................................. 39
19.4 INCUMBENCY CERTIFICATE.......................................... 39
19.5 PURCHASE PRICE.................................................. 39
19.6 CERTIFICATE OF GOOD STANDING.................................... 39
19.7 BILL OF SALE.................................................... 40
19.8 AGREEMENTS...................................................... 40
ARTICLE XX - MISCELLANEOUS.................................................. 40
20.1 EXPENSES........................................................ 40
20.2 FURTHER ASSURANCES; CONSENTS.................................... 40
20.3 NO OTHER AGREEMENTS............................................. 40
20.4 WAIVER.......................................................... 40
20.5 PUBLIC ANNOUNCEMENTS............................................ 40
20.6 NOTICES......................................................... 41
20.7 BOOKS AND RECORDS............................................... 41
20.8 BMHC TRADE ACCOUNTS RECEIVABLE.................................. 42
20.9 THIRD-PARTY BENEFICIARY......................................... 42
20.10 ASSIGNMENT...................................................... 42
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20.11 CHOICE OF LAW................................................... 42
20.12 PARAGRAPH HEADINGS.............................................. 42
20.13 TIME IS OF THE ESSENCE.......................................... 42
20.14 ATTORNEY FEES................................................... 42
20.15 RULES OF INTERPRETATION......................................... 42
20.16 COUNTERPARTS AND FACSIMILE SIGNATURES........................... 43
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EXHIBITS AND SCHEDULES
EXHIBIT 1.2 BMHC EQUIPMENT
EXHIBIT 1.21 LOCATIONS OWNED OR LEASED BY THE COMPANY IN THE
CONDUCT OF THE BUSINESS
EXHIBIT 1.23 NET WORTH ADJUSTMENT
EXHIBIT 18.1 OPINION OF COMPANY'S COUNSEL
EXHIBIT 19.3 OPINION OF BUYER'S COUNSEL
EXHIBIT A OPERATING AGREEMENT
EXHIBIT B PUT AGREEMENT
SCHEDULE 1.15 EXCLUDED ASSETS AND EXCLUDED LIABILITIES
SCHEDULE 6.3.3 EMPLOYMENT
SCHEDULE 8.8 ABSENCE OF CERTAIN CHANGES
SCHEDULE 8.9 TITLE AND RELATED MATTERS
SCHEDULE 8.10 LITIGATION
SCHEDULE 8.11 TAX MATTERS
SCHEDULE 8.14 INSURANCE
SCHEDULE 8.19 AGREEMENTS AND COMMITMENTS
SCHEDULE 8.20 PERSONAL PROPERTY
SCHEDULE 8.21 REAL PROPERTY
SCHEDULE 8.24 ERISA AND RELATED MATTERS
SCHEDULE 9.3 TITLE AND RELATED MATTERS
SCHEDULE 9.4 LITIGATION
SCHEDULE 9.6 BROKERS
SCHEDULE 9.7 EMPLOYEES AND LABOR RELATIONS MATTERS
SCHEDULE 9.9 AGREEMENTS AND COMMITMENTS
SCHEDULE 9.10 PERSONAL PROPERTY
SCHEDULE 9.11 REAL PROPERTY
SCHEDULE 9.12 PERSONNEL
SCHEDULE 9.13 ERISA AND RELATED MATTERS
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SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT dated as of March 23, 1999, is among KNIPP BROTHERS,
INC., an Arizona corporation ("KBI"), LAWRENCE W. KNIPP, an individual
("Knipp"), and BUILDING MATERIALS HOLDING CORPORATION, a Delaware corporation
("BMHC"), and BMHC FRAMING, INC., a Delaware corporation ("Buyer").
Sellers and Buyer agree as follows:
RECITALS
A. KBI and Knipp own, collectively, 100% of the Interests of Knipp
Brothers Industries, LLC, a Delaware limited liability company (the "Company").
B. On the Closing Date, (1) KBI will have contributed substantially
all of its assets to the Company and the Company and will have assumed
substantially all of the liabilities of KBI other than the Excluded Assets and
Excluded Liabilities; and (2) Buyer will contribute the BMHC Assets to the
Company.
C. On the Closing Date, (1) Knipp will sell, and Buyer will
purchase, all of Knipp's Interests in the Company; (2) KBI will sell, and Buyer
will purchase, a portion of KBI's Interests in the Company; and (3) the Company
will sell, and Buyer will purchase, Interests in the Company, such that Buyer
will have acquired from KBI, Knipp and the Company a total of forty-nine percent
(49%) of the Interests in the Company.
D. Simultaneously with the Closing, the Company will amend and
restate its Operating Agreement in substantially the form attached hereto as
Exhibit A.
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the terms identified in this Article
shall have the meanings assigned to them as follows:
1.1 BMHC ASSETS.
The term "BMHC Assets" shall mean the BMHC Inventory and BMHC Equipment
to be transferred to the Company at the Closing as an additional capital
contribution;
1.2 BMHC EQUIPMENT.
The term "BMHC Equipment" shall mean the personal property and
equipment described on EXHIBIT 1.2 attached hereto which is used by BMHC in the
conduct of its business in Phoenix, Arizona;
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1.3 BMHC INVENTORY.
The term "BMHC Inventory" shall mean all goods, raw materials, work in
progress, inventory in transit, and finished goods not yet sold which are owned
by BMHC as of the Closing Date at its Phoenix, Arizona location;
1.4 BMHC STOCK.
The term "BMHC Stock" shall mean the common stock of BMHC, which is
publicly traded;
1.5 BUSINESS.
The term "Business" shall mean the framing, roof truss and panel
manufacturing business conducted by KBI and transferred to the Company on the
Closing;
1.6 CLOSING.
The term "Closing" shall mean the exchange of Closing documents; the
conveyance by KBI, the Company and Knipp to Buyer of forty-nine percent (49%) of
the Interests in the Company, and the payment by Buyer to Sellers of the
purchase price due under the terms of this Agreement;
1.7 CLOSING BALANCE SHEET.
The term "Closing Balance Sheet" shall mean the balance sheet of the
Company as of the Closing Date prepared by Buyer and KBI during the Post Closing
Adjustment Period in accordance with generally acceptable accounting principles
consistently applied and depreciation accounted for on a tax basis and adjusted
for Excluded Assets and Excluded Liabilities;
1.8 CLOSING DATE.
The term "Closing Date" shall mean the date on which Closing occurs;
1.9 CONFIDENTIALITY AGREEMENT.
The term "Confidentiality Agreement" means the agreement executed by
Buyer and Sellers dated May 26, 1998;
1.10 CPA PROCEDURE.
The term "CPA Procedure" means the dispute resolution procedure set
forth in Section 4.1.1.4;
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1.11 DUE DILIGENCE PERIOD.
The term "Due Diligence Period" shall mean the period of time
commencing on the date of execution of this Agreement and expiring no later than
April 15, 1999, and any written extension thereof;
1.12 ENVIRONMENTAL COSTS.
"Environmental Costs" means any actual cleanup costs, remediation,
removal, or other response costs, losses, liabilities, or obligations, payments,
damages, civil or criminal fines or penalties, judgments, and amounts paid in
settlement arising out of or relating to or resulting from any Environmental
Matter (including, without limitation, reasonable fees and disbursements of
counsel, but excluding any loss, cost or expenses with respect to which the
Company actually receives proceeds of any liability or other insurance policy,
to the extent of the excess of such proceeds received over the costs, if any,
incurred in connection with the collection of such proceeds);
1.13 ENVIRONMENTAL LAWS.
"Environmental Laws" means and includes the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss.ss. 9601 ET SEQ., the
Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss.
11001 ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901
ET SEQ., the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 ET SEQ., the
Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136 ET
SEQ., the Clean Air Act, 42 U.S.C. ss.ss. 7401 ET SEQ., the Clean Water Act
(Federal Water Pollution Control Act), 33 U.S.C. ss.ss. 1251 ET SEQ., the Safe
Drinking Water Act, 42 U.S.C. ss.ss. 300f ET SEQ., the Occupational Safety and
Health Act, 29 U.S.C. ss.ss. 651 ET SEQ., the Hazardous Materials Transportation
Act, 49 U.S.C. ss.ss. 5101 ET SEQ., as in effect from time to time, all rules
and regulations promulgated pursuant to any of the above statutes, and any other
foreign, federal, state or local law, statute, ordinance, rule or regulation
governing Environmental Matters, as in effect from time to time, including any
common law cause of action providing any right or remedy relating to
Environmental Matters;
1.14 ENVIRONMENTAL MATTER.
"Environmental Matter" means any matter or condition arising out of,
relating to, or resulting from pollution, contamination, protection of the
environment, human health or safety, health or safety of employees, sanitation,
and any matters relating to emissions, discharges, disseminations, releases or
threatened releases, of Hazardous Substances into the air (indoor and outdoor),
surface water, groundwater, soil, land surface or subsurface, buildings,
facilities, real property or fixtures, or otherwise arising out of, relating to,
or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, handling, release or threatened release of
Hazardous Substances;
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1.15 EXCLUDED ASSETS AND EXCLUDED LIABILITIES.
The terms "Excluded Assets" and "Excluded Liabilities" shall mean those
items described in SCHEDULE 1.15 attached hereto;
1.16 FINANCIAL INFORMATION.
The term "Financial Information" means the audited financial statements
for the years ended 1994, 1995, 1996, and 1997 and all other financial
statements or schedules delivered by Seller to Buyer;
1.17 HAZARDOUS SUBSTANCES.
"Hazardous Substances" means any pollutants, contaminants, toxic or
hazardous or extremely hazardous substances, materials, wastes, constituents,
compounds, chemicals, natural or man-made elements or forces that are regulated
by, or form the basis of liability under, any Environmental Laws;
1.18 INTERESTS.
The term "Interests" shall mean the ownership Interests in the Company
as defined in the Operating Agreement;
1.19 INVENTORY.
The term "Inventory" shall mean all goods, raw materials, work in
process, inventory in transit, and finished goods not yet sold which are owned
by the Company as of the Closing Date at or for any of the Locations.
"Inventory" shall include goods not yet invoiced which the Company delivered or
caused to be delivered to contractor job sites in the ordinary course of the
Business but for which the customer has not paid;
1.20 KNOWLEDGE.
The term "Knowledge" shall mean that, with respect to KBI, [Redacted],
is actually aware of a fact or matter without independent investigation or
should have been aware of such fact or matter based on the standard of a
reasonably prudent business person with the same access to data and information;
1.21 LOCATIONS.
The term "Locations" shall mean the locations owned or leased by the
Company in the conduct of the Business described in EXHIBIT 1.21 attached
hereto;
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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1.22 MATERIAL.
The term "Material" or "Materially" shall mean an economic impact or
change of $50,000 or more;
1.23 NET WORTH ADJUSTMENT.
The term "Net Worth Adjustment" shall mean forty-nine percent (49%) of
any increase in the consolidated net worth of the Business calculated by
comparing the Reference Balance Sheet to the Preliminary Closing Balance Sheet
of the Business, as illustrated in EXHIBIT 1.23 attached hereto. In determining
the Net Worth Adjustment, Excluded Assets and Excluded Liabilities shall be
subtracted from both the Reference Balance Sheet and the Preliminary Closing
Balance Sheet;
1.24 OPERATING AGREEMENT.
The term "Operating Agreement" means the amended and restated operating
agreement adopted by the Company at the Closing, in substantially the form
attached as EXHIBIT A;
1.25 PUT AGREEMENT.
The term "Put Agreement" shall mean the agreement between KBI and BMHC,
a copy of which is attached as EXHIBIT B;
1.26 PRELIMINARY CLOSING BALANCE SHEET.
The term "Preliminary Closing Balance Sheet" shall mean the estimated
balance sheet of the Company as of the Closing Date prepared by Buyer and
Sellers as provided in Article IV hereof;
1.27 REFERENCE BALANCE SHEET.
The term "Reference Balance Sheet" shall mean the balance sheet of KBI
as of December 31, 1997, prepared in accordance with generally accepted
accounting principles consistently applied and with depreciation accounted for
on a tax basis and adjusted for Excluded Assets and Excluded Liabilities;
1.28 SELLER.
The term "Sellers " means KBI and Knipp, jointly and severally.
6
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1.29 TRADE ACCOUNTS PAYABLE.
The term "Trade Accounts Payable" shall mean the obligations arising
out of the Business to make payment to third parties for goods and services
furnished to the Company at the Locations in the ordinary course of the Business
incurred prior to Closing;
1.30 TRADE ACCOUNTS RECEIVABLE.
The term "Trade Accounts Receivable" shall mean the obligations arising
out of the Business to make payment to the Company, including obligations owed
but not yet due, as of Closing by all third-party purchasers of goods and
services from the Company at the Locations in the ordinary course of the
Business prior to Closing; and
1.31 TRADE NAMES AND TRADEMARKS.
The terms "Trade Names" and "Trademarks" shall mean the terms "KBI" and
"Knipp Brothers" which are not registered marks with either the States of
Arizona or Nevada or the United States Patent and Trademark Office.
ARTICLE II - DUE DILIGENCE
2.1 DUE DILIGENCE.
Buyer shall have the Due Diligence Period to perform such inspections,
environmental assessments, and other tests and surveys of the Business as Buyer,
in Buyer's discretion, shall require for the purpose of determining the
suitability of the Business for Buyer's investment. Buyer shall deliver to KBI
copies of all reports received by Buyer from third party consultants regarding
the Locations within five (5) days of Buyer's receipt of such information. If
the transactions provided for in this Agreement do not occur because this
Agreement is terminated under Section 2.4, Sellers shall reimburse Buyer for the
reasonable cost of all such reports and the cost of reasonable attorney and
reasonable accounting fees incurred in preparation of this Agreement excluding
the expenses of or consultant fees for any studies made or caused to be made by
Buyer or BMHC to determine the feasibility of the Business. If the transactions
provided for in this Agreement do not occur because of a breach of this
Agreement by Buyer or a failure to perform by Buyer as required by this
Agreement, then Buyer shall reimburse Sellers for any reasonable attorney and
reasonable accounting fees incurred in preparation of this Agreement and the
attached schedules. Notwithstanding any other provisions of this Agreement, if
the transactions provided for in this Agreement do not occur because of the
failure of a party to meet a condition precedent including, but not limited to,
delivery of a document, such party shall have no liability to reimburse the
other for any fees under this Section, so long as such party has used its best
efforts to consummate the transactions.
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2.2 DUE DILIGENCE ACTIVITIES.
Due Diligence shall include, but not be limited to:
2.2.1 Review the status of title to the Locations,
including obtaining preliminary title insurance reports from a title insurer
selected by Buyer.
2.2.2 Obtain and review the Phase I environmental audits of
the Locations conducted by TRC Environmental Company. The cost of the Phase I
environmental audits shall be paid by Buyer.
2.2.3 Review and conduct surveys of the Locations.
2.2.4 Review any appraisals previously obtained by KBI or
Sellers of the Locations.
2.2.5 Review of the books and records of the Business
including the financial records and tax records and customer records. Review
procedures and policies for billing customers for work in progress.
2.2.6 Review and conduct a review of the Reference Balance
Sheet, including the underlying working papers.
2.2.7 Review of KBI's employee compensation, benefits, and
bonus plans;
2.2.8 Review of employee records of the Business including
health, workers' compensation, and other benefit records and conduct interviews
of key personnel.
2.2.9 Review of Equipment, Inventory, Trade Accounts
Receivable and trade accounts payable of the Business.
2.2.10 Review and conduct an audit of the liabilities
of KBI.
2.2.11 Obtain estoppel certificates from any lessors of real
or personal property to the Company.
2.2.12 Review and obtain copies of all insurance policies.
2.2.13 Review and analyze KBI's accounting principles.
2.2.14 Review terms of leases for the Locations.
2.2.15 Buyer and Sellers shall jointly prepare the list of
Excluded Assets and Excluded Liabilities to be included in SCHEDULE 1.15. Unless
identified as an Excluded Asset, all assets used in connection with the Business
shall be assets of the Company.
8
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2.2.16 Contact key customers of the Company, in coordination
with the Company, regarding the status of contracts with KBI and impact, if any,
of KBI's assignment of contracts to the Company and Buyer's acquisition of
forty-nine percent (49%) of the Interest in the Company.
2.2.17 Sellers shall fully cooperate with Buyer and shall
promptly provide Buyer with all relevant information currently available that is
requested by Buyer during the Due Diligence Period. In the event this Agreement
is terminated for any reason, then all documents provided by Sellers to Buyer,
and all copies made thereof, shall be returned to Sellers pursuant to the terms
of the Confidentiality Agreement.
2.3 CONFIDENTIALITY DURING DUE DILIGENCE.
Buyer and Sellers acknowledge and agree that the parties desire to keep
this transaction confidential (except for disclosure to employees of Buyer or
Seller) until jointly announced or when required by law to be announced. Buyer
and Sellers agree to abide by the terms of the Confidentiality Agreement.
2.4 TERMINATION OF AGREEMENT.
If during the Due Diligence Period Buyer discovers any problem or
defect with respect thereto which constitutes a material impairment of the value
of the Business, then Buyer may advise Sellers in writing on or before the
expiration of the Due Diligence Period of the nature of each defect or problem
with respect to the Business with the request that Sellers remedy each problem
or defect prior to the Closing. Sellers may, within ten (10) days after receipt
of notice from Buyer, correct such problems or terminate the Agreement by
providing written notice to Buyer of termination.
Buyer's failure to give written notice of Buyer's exercise of Buyer's
right to cancel this Agreement in accordance with the foregoing provisions shall
constitute Buyer's acceptance of the Business subject to the warranties and
representations hereto and except for and limited to any problems or defects
specified in Buyer's notice.
2.5 EXCLUSIVE DEALING.
Sellers agree that upon execution of this Agreement and until the
Closing Date or termination of this Agreement, Sellers will not seek to sell the
Business to any other party nor will Sellers accept or entertain any offers to
acquire the Business from any other party.
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ARTICLE III - PURCHASE AND SALE
3.1 PURCHASE, SALE AND ISSUANCE.
At Closing: (1) Knipp shall sell and convey to Buyer all of his
Interest in the Company (2) KBI shall sell and convey to Buyer a portion of its
Interests in the Company; and (3) the Company shall issue Interests in the
Company to Buyer such that Buyer will acquire, in total, 49% of the Interests in
the Company.
ARTICLE IV - DETERMINATION OF PURCHASE PRICE
4.1 DETERMINATION.
The Purchase Price to be paid by Buyer to Sellers shall be the total of
the following: (1) $[Redacted] to Knipp (2) an amount to KBI equal to forty nine
percent (49%) of the total capital of the Company, less the $[Redacted] paid to
Knipp, and less the value of the BMHC Assets under Section 6.1. The total
capital of the Company shall be the sum of : (1) $[Redacted]; (2) the Net Worth
Adjustment divided by .49; and (3) the value of the BMHC Assets, using the
Preliminary Closing Balance Sheet. For purposes of calculating the Preliminary
Closing Balance Sheet, the Buyer and Sellers shall cause the preparation of and
agree to the Preliminary Closing Balance Sheet on the Closing Date (subject to
post closing adjustments provided for in Section 5.2) utilizing estimates when
necessary which shall include the following asset values:
4.1.1 INVENTORY.
The Inventory value for the Closing Balance Sheet shall be the
value determined as follows:
4.1.1.1 VALUATION.
A physical inventory count and valuation shall be
jointly conducted by Buyer and Sellers immediately preceding the Closing Date.
The value of the Inventory (except as otherwise provided herein) shall be the
lower of KBI's average or actual cost (the sum paid for the items net of any
discounts or rebates taken or to be taken plus freight costs incurred to deliver
the items to the Locations). Any Inventory items defined as damaged or obsolete
shall be valued at net realizable value.
4.1.1.2 VALUATION OF FINISHED PRODUCT.
Finished trusses not yet delivered shall be jointly
counted by Buyer and Sellers immediately preceding the Closing Date and valued
at 81% of the invoice price. Buyer and Sellers shall jointly inspect the
finished trusses and any such items that are obsolete, damaged, cull lumber,
misordered or otherwise unsaleable shall be valued at the net realizable value
of such items.
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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4.1.1.3 VALUATION OF MISCELLANEOUS INVENTORY ITEMS.
Miscellaneous items, including non-wood commodities
such as plates, nails, or fasteners shall be jointly counted by Sellers and
Buyer immediately preceding the Closing Date, and valued at KBI's actual cost
from normal sources of supply (the sum paid for the items net of any discounts
or rebates taken or to be taken plus freight costs incurred to deliver the items
to the Locations). Buyer and Sellers shall jointly inspect the miscellaneous
inventory items, and such items that are obsolete or damaged shall be valued at
net realizable value.
4.1.1.4 FINAL INVENTORY DETERMINATION.
Any and all disputes regarding any aspect of the
Inventory count and valuation process shall be negotiated between the parties.
If an agreement cannot be reached, the dispute will be submitted to Lawrence W.
Knipp and Richard F. Blackwood, or their designated agents and their decision
shall be binding and conclusive. In the event said individuals cannot agree on
the value of any item or items, they shall refer the matter to their respective
outside certified public accountants to resolve. If the accountants cannot agree
on the value, the accountants shall select a third accountant ("CPA") who shall
be instructed based solely on the evidence of market value presented by the
accountants, to determine which party's market value most closely approximates
market value. The market value so selected shall be binding and conclusive. The
foregoing dispute resolution procedure is referred to as the CPA Procedure.
4.1.1.5 INDEPENDENT ACCOUNTANT FEES.
The actual costs incurred for any services by CPA
pursuant to paragraph 4.1.1.5 shall be paid by the party whose estimated value
is furthest from the value determined by CPA. Sellers and Buyer shall each pay
for the costs incurred by each party for counting the Inventory including any
payroll, overtime or travel expenses and for their own outside certified public
accountant.
4.2 ALLOCATION OF PURCHASE PRICE.
The parties shall mutually agree to the allocation of the Purchase
Price among the assets pursuant to Sections 755 and 1060 of the Internal Revenue
Code. Such allocation shall be made on a tax basis, except for real estate to
which Purchase Price shall be allocated based on fair market value. Any amounts
of Purchase Price in excess of that allocated to assets on a tax basis and on
the basis of fair market value of real estate shall be allocated to goodwill.
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ARTICLE V - TERMS OF PAYMENT
5.1 PAYMENT DUE AT CLOSING.
At Closing, Buyer shall pay to the Sellers an amount estimated to equal
the Purchase Price as determined in Article IV. Such payment shall consist of
immediately available funds.
5.2 POST CLOSING ADJUSTMENT.
Buyer and Sellers agree that during a period of one hundred twenty
(120) days following the Closing Date ("Post Closing Adjustment Period"), Buyer
and Sellers will determine the adjustments to be made to the Preliminary Closing
Balance Sheet to arrive at the Closing Balance Sheet and final determinations of
the Net Worth Adjustment based on the Closing Balance Sheet. Adjustments shall
include but not be limited to: (1) uncollected Trade Accounts Receivable
provided for in Section 10.1; (2) rebates received by KBI after Closing for
goods purchased prior to Closing; (3) returns and allowances for goods sold or
delivered prior to Closing; (4) changes in the liabilities of the Business as of
the Closing Date; and (5) changes in the tax reserves or other reserves of the
Business as of the Closing Date. Within one hundred twenty (120) days after the
Closing Date, Buyer and Sellers shall submit to the other all adjustments
(together with supporting detail) they believe should be made to the Estimated
Purchase Price determined at Closing in order to arrive at the Closing Balance
Sheet. Sellers and Buyer shall have forty-five (45) days after receipt of such
list of adjustments to object to any of the adjustments in writing to each
other. Any adjustments that are not objected to during such forty-five (45) day
period shall be deemed to be agreed to by the other party. Buyer and Sellers
agree to negotiate and attempt to resolve in good faith any adjustments to which
objections have been raised during the period of ten (10) days following receipt
of objections. Any adjustments to the Estimated Purchase Price that either party
has objected to and has not been resolved during the ten (10) day period
following the objection shall be settled in accordance with the CPA Procedure.
At the end of the Post Closing Adjustment Period, Buyer and Sellers agree to pay
to each other, in immediately available funds, the amounts owed, if any, by
either party to the other party to the other as a result of any differences
between the Preliminary Closing Balance Sheet and the Closing Balance Sheet;
provided that if the Post Closing Adjustment is less than $50,000 no adjustment
shall be made. The Post Closing Adjustment shall not be considered an item of
Damages for purposes of Article XIII.
ARTICLE VI - CAPITAL CONTRIBUTIONS; BMHC EMPLOYEES;
6.1 CAPITAL CONTRIBUTIONS AT CLOSING.
At Closing, BMHC shall (1) contribute to the Company the BMHC Assets;
(2) assign to the Company the leases for BMHC assets; and (3) provide a bill of
sale for other assets to be transferred to the Company.
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6.2 VALUATION OF BMHC CAPITAL CONTRIBUTION.
The BMHC Assets to be contributed to the Company at Closing shall be
valued as follows:
6.2.1 BMHC EQUIPMENT.
The BMHC Equipment value shall be the net book value of the
Equipment as of the Closing Date.
6.2.2 THE BMHC INVENTORY.
The BMHC Inventory shall be the value as determined as
follows:
6.2.2.1 VALUATION OF FINISHED PRODUCT.
A physical inventory count and valuation shall be
jointly conducted by Buyer and Sellers immediately preceding the Closing Date.
The value of the BMHC Inventory (except as otherwise provided herein) shall be
the lower of BMHC's average or actual cost (the sum paid for the items net of
any discounts or rebates taken or to be taken plus freight costs incurred to
deliver the items to the Property). Any Inventory items defined as damaged or
obsolete shall be valued at net realizable value.
6.2.2.2 VALUATION OF MISCELLANEOUS INVENTORY ITEMS.
Miscellaneous items, including non-wood commodities
such as plates, nails, or fasteners shall be jointly counted by Sellers and
Buyer immediately preceding the Closing Date, and valued at BMHC's actual cost
from normal sources of supply (the sum paid for the items net of any discounts
or rebates taken or to be taken plus freight costs incurred to deliver the items
to the Property). Buyer and Sellers shall jointly inspect the miscellaneous
inventory items, and such items that are obsolete or damaged shall be valued at
net realizable value.
6.2.2.3 FINAL INVENTORY DETERMINATION.
Any and all disputes regarding any aspect of the
Inventory count and valuation process shall be negotiated between the parties.
If an agreement cannot be reached, the dispute will be submitted to Lawrence W.
Knipp and Richard L. Blackwood, or their designated agents and their decision
shall be binding and conclusive. In the event said individuals cannot agree on
the value of any item or items, they shall resolve the dispute in accordance
with the CPA Procedure.
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6.2.2.4 INVENTORY COSTS.
The actual costs incurred for any services by CPA
pursuant to paragraph 4.1.1.5 shall be paid by the party whose estimated value
is furthest from the value determined by CPA. Sellers and Buyer shall each pay
for the costs incurred by each party for counting the Inventory including any
payroll, overtime or travel expenses and for their own outside certified public
accountant.
6.3 EMPLOYEES OF BMHC.
6.3.1 DEFINITION .
BMHC has provided to Sellers a list of all persons employed by
BMHC's subsidiary at its location in Phoenix, Arizona ("Employees").
6.3.2 TERMINATION.
On the day immediately preceding the Closing Date, BMHC shall
cause all of the Employees to be terminated from employment. BMHC shall be
solely responsible for any liabilities arising out of termination of the
Employees.
6.3.3 EMPLOYMENT.
The Company shall offer employment to all of the terminated
Employees listed on SCHEDULE 6.3.3 at the same base rate of compensation which
said persons were paid by BMHC's subsidiary immediately prior to termination and
upon the same terms and conditions as the Company's current employees, including
immediate inclusion of the Employees in all of the Company's employment benefit
plans. The term "base rate of compensation" shall mean the hourly wage rate or
monthly salary paid to each employee and shall not include any bonus, profit
sharing, or supplemental pay. The Company shall credit each Employee who becomes
the Company's employee with the years of service recognized by BMHC for each
employee for purposes of the Company's employee policies.
6.3.4 LIABILITIES.
BMHC shall retain responsibility for all liabilities arising
out of the operation of the Phoenix location prior to the Closing.
ARTICLE VII - [INTENTIONALLY OMITTED]
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Sellers hereby represent and warrant to Buyer as follows, and the
warranties and representations contained in this Article or elsewhere in this
Agreement shall be deemed remade as of Closing that the following matters
regarding the business are true and correct:
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8.1 ORGANIZATION AND CORPORATE POWER.
The Company is a limited liability company duly formed and validly
existing under the laws of the state of Delaware and the Company is qualified to
do business in every jurisdiction in which its ownership of property or conduct
of business requires it to qualify. The Company has all requisite corporate
power and authority and all material licenses, permits, and authorizations
necessary to own and operate its properties and to carry on its business as now
conducted. The copies of the Company's charter documents and operating agreement
that have been furnished to Buyer reflect all amendments made thereto at any
time prior to the date of this Agreement and are correct and complete.
8.2 CONDUCT OF BUSINESS.
Prior to the Closing, the Company has not conducted any business nor
has it incurred any material liability.
8.3 CAPITAL ACCOUNTS AND RELATED MATTERS.
As of the Closing, the Interests in the Company which are issued and
outstanding are owned, beneficially and of record, by KBI and Knipp and no other
Interests in the Company are issued and outstanding as of the Closing. The
Company does not have outstanding and has not agreed, orally or in writing, to
issue any Interests or securities convertible or exchangeable for any Interests,
nor does it have outstanding nor has it agreed, orally or in writing, to issue
any Interests or rights to purchase or otherwise acquire its Interests except as
provided in the Operating Agreement. The Company is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any of its Interests. The Company has not violated any applicable
securities laws or regulations in connection with the offer or sale of its
Interests other than violations that have been, or will before the Closing have
been, corrected by post-issuance filings. All of the outstanding Interests are
validly issued, fully paid, and nonassessable except with respect to additional
capital contributions. Sellers have, and upon purchase thereof pursuant to the
terms of this Agreement Buyer will have, good and indefeasible title to the
Company's Interests as of the Closing Date, free and clear of all security
interests, liens, encumbrances, or other restrictions or claims, subject only to
restrictions as imposed by securities laws and the Operating Agreement.
8.4 SUBSIDIARIES; AFFILIATES
The Company does not own or hold any rights to acquire any shares of
stock or any other security or interest in any other company or entity.
8.5 CONDUCT OF BUSINESS; LIABILITIES.
The Business is not in default, no condition exists that with notice or
lapse of time would constitute a default under (1) any mortgage, loan agreement,
evidence of indebtedness, or other instrument evidencing borrowed money to which
the Business is a party or by which the Business or the properties of the
Business are bound or (2) any judgment, order, or injunction of
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any court, arbitrator, or governmental agency that would reasonably be expected
to affect materially and adversely the Business, financial condition, or results
of operations of the Business.
8.6 FINANCIAL STATEMENTS.
The Financial Statements fairly present the financial position of the
Business and the results of operations for the period then ended and have been
prepared in accordance with generally accepted accounting principles
consistently applied and depreciation is accounted for on a tax basis. Except as
contemplated by or permitted under this Agreement, there are no adjustments that
would be required on audit of the Financial Statements that would, individually
or in the aggregate, have a material adverse effect upon the Business's reported
financial condition or results of operations.
8.7 NO UNDISCLOSED LIABILITIES.
The Business does not have any material liabilities or obligations of
any nature (absolute, accrued, contingent, or otherwise) except (1) as set forth
or reflected on the Reference Balance Sheet (or described in the notes thereto),
(2) liabilities incurred in the ordinary course of the Business and consistent
with past practices since the date of the Reference Balance Sheet, or (iii) as
set forth in SCHEDULE 8.8.
8.8 ABSENCE OF CERTAIN CHANGES.
Except as contemplated or permitted by this Agreement or as described
in SCHEDULE 8.8, with respect to KBI and the Company, since the date of the
Reference Balance Sheet there has not been:
8.8.1 Any material adverse change in the Business,
prospects of the Business, financial condition, operations, or assets;
8.8.2 Any damage, destruction, or loss, whether covered by
insurance or not materially adversely affecting the Business or its properties;
8.8.3 Any sale or transfer of any tangible or intangible
asset other than in the ordinary course of the Business, any mortgage or pledge
or the creation of any security interest, lien, or encumbrance on any such asset
of the Business, or any lease of property, including equipment, other than tax
liens with respect to taxes not yet due and contract rights of customers in
inventory;
8.8.4 Any declaration, setting aside, or payment of a
distribution in respect of or the redemption or other repurchase by the Business
of any equity securities of the Business;
8.8.5 Any material transaction to which KBI or the Company
is a party not in the ordinary course of the Business;
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8.8.6 The lapse of any material trademark, assumed name,
trade name, service mark, copyright, or license or any application with respect
to the Business;
8.8.7 Without prior notice to Buyer and Buyer consenting
thereto, a grant of any increase in the compensation of officers or employees of
the Business (including any such increase pursuant to any bonus, pension,
profit-sharing, or other plan) other than customary increases on a periodic
basis or required by agreement or understanding in the ordinary course of the
Business and in accordance with past practice;
8.8.8 The discharge or satisfaction of any material lien or
encumbrance or the payment of any material liability other than current
liabilities in the ordinary course of the Business;
8.8.9 The making of any material loan, advance, or guaranty
to or for the benefit of any person except the creation of accounts receivable
in the ordinary course of the Business and the shareholder loans; or
8.8.10 An agreement to do any of the foregoing.
8.9 TITLE AND RELATED MATTERS.
Except as set forth in SCHEDULE 8.9, the Business will have on the
Closing Date good and indefeasible title to all of its property, real and
personal, and other assets included in the Reference Balance Sheet (except
properties and assets sold or otherwise disposed of subsequent to the date of
Reference Balance Sheet in the ordinary course of the Business or as
contemplated in this Agreement), free and clear of all security interests,
mortgages, liens, pledges, charges, claims, or encumbrances of any kind or
character, except (1) statutory liens for property taxes not yet delinquent or
payable subsequent to the date of this Agreement and statutory or common law
liens securing the payment or performance of any obligation of the Company, the
payment or performance of which is not delinquent, or that is payable without
interest or penalty subsequent to the date on which this representation is
given, or the validity of which is being contested in good faith by the Company;
(2) the rights of customers of the Business with respect to inventory under
orders or contracts entered into by the Business in the ordinary course of
business; and (3) claims, easements, liens, and other encumbrances of record
pursuant to filings under real property recording statutes.
8.10 LITIGATION.
Except as set forth in SCHEDULE 8.10, there are no material actions,
suits, proceedings, orders, investigations, or claims pending or overtly
threatened against the Business or the Company or any property of the Company,
at law or in equity, or before or by any governmental department, commission,
board, bureau, agency, or instrumentality; the Company
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is not subject to any arbitration proceedings under collective bargaining
agreements or otherwise or any governmental investigations or inquiries; and, to
the best knowledge of Sellers , there is no basis for any of the foregoing.
8.11 TAX MATTERS.
Except as set forth on SCHEDULE 8.11, (1) KBI has correctly prepared in
all material respects and has filed all federal, state, local, and foreign tax
returns and reports heretofore required to be filed with respect to KBI's
operations and activities and all taxes have been paid shown as due thereon; (2)
no taxing authority has asserted any deficiency in the payment of any tax or
informed the Company or KBI that it intends to assert any such deficiency or to
make any audit or other investigation of the Business for the purpose of
determining whether such a deficiency should be asserted against the Company;
(3) KBI has made provision in the Reference Balance Sheet for payment of all
federal, state and local taxes that have been incurred but are not currently
due; and (4) KBI has properly elected to be treated as a subchapter S
corporation for tax purposes and has complied with all requirements to be taxed
as a subchapter S corporation. "Taxes" means all taxes, charges, fees, levies,
or other assessments of any nature, including, but not limited to, income,
excise, gross receipts, property, sales, use, AD VALOREM, transfer, franchise,
profits, license, withholding, payroll, employment, severance, stamp,
occupation, windfall profits, social security, and unemployment or other taxes
imposed by the United States or any agency or instrumentality thereof, any
state, county, local or foreign government, or any agency or instrumentality
thereof, and any interest or fines, and any and all penalties or additions
relating to such taxes, charges, fees, levies, or other assessments.
8.12 COMPLIANCE WITH LAWS.
The conduct of the Business is in substantial compliance with all laws,
statutes, ordinances, regulations, orders, judgments, or decrees applicable to
it. Neither Sellers nor the Company has received any notice of any asserted
present or past failure by the Business to comply with such laws, statutes,
ordinances, regulations, orders, judgments, or decrees, including Environmental
Laws or ERISA.
8.13 NO BROKERS.
There are no claims for brokerage commissions, finders' fees, or
similar compensation in connection with the purchase based on any arrangement or
agreement binding upon any of the parties hereto.
8.14 INSURANCE.
SCHEDULE 8.14 contains a list of each insurance policy maintained on
the Business with respect to its properties and assets, and each such policy is
in full force and effect. The Business is not in material default with respect
to its obligations under any such policy maintained by it. The Business has not
been notified of the cancellation of any of the insurance policies listed on
SCHEDULE 8.14 or of any material increase in the premiums to be charged for such
insurance policies.
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8.15 EMPLOYEES AND LABOR RELATIONS MATTERS.
8.15.1 To Sellers' best knowledge, no executive or key
employee of the Business or any group of employees of the Business has any plans
to terminate employment with the Business;
8.15.2 The Business has complied in all material respects
with all labor and employment laws, including provisions thereof relating to
wages, hours, equal opportunity, collective bargaining, Americans With
Disabilities Act, and the payment of social security and other taxes;
8.15.3 There is no unfair labor practice charge, complaint,
or other action against the Business pending or, to Sellers' best knowledge,
threatened before the National Labor Relations Board and the Business is not
subject to any order to bargain by the National Labor Relations Board;
8.15.4 No questions concerning collective bargaining
representation have been raised or, to Sellers' best Knowledge, are threatened
with respect to employees of the Business;
8.15.5 No grievance that might have a material adverse
effect on the Business and no arbitration proceeding arising out of or under any
collective bargaining agreement is pending, and, to Sellers' best Knowledge, no
basis exists for any such grievance or arbitration proceeding; and
8.15.6 No employee of the Business is subject to any
noncompetition, nondisclosure, confidentiality, employment, consulting, or
similar agreements with persons other than the Company relating to the present
business activities of the Business.
8.15.7 All employees of the Business have provided
documentation required by the Immigration and Naturalization Act and regulations
and such documentation is on file with the Business.
8.16 DISCLOSURE.
Neither this Agreement nor any of the schedules, attachments, written
statements, documents, certificates, or other items prepared or supplied to
Buyer with respect to this Agreement contain any untrue statement of a material
fact or omit a material fact necessary to make each statement contained herein
or therein not misleading. Sellers have not intentionally concealed any fact
known by such person to have a material adverse effect upon the Business's
existing or expected financial condition, operating results, assets, customer
relations, employee relations, or business prospects taken as a whole.
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8.17 POWER OF ATTORNEY.
There are no powers of attorney except with respect to tax matters or
similar authorization given by the Company is presently in effect.
8.18 TRADE ACCOUNTS RECEIVABLE AND TRADE ACCOUNTS PAYABLE.
All Trade Accounts Receivable that are reflected on the Reference
Balance Sheet or the Preliminary Closing Balance Sheet represent valid and
collectible obligations arising from sales actually made or services actually
performed in the ordinary course of the Business. There is no material contest,
claim, or right of set-off, other than returns in the ordinary course of
Business with any obligor of a Trade Account Receivable relating to the amount
or validity of such Trade Account Receivable.
All Trade Accounts Payable that are reflected on the Reference Balance
Sheet or the Preliminary Closing Balance Sheet represent valid obligations of
the Business arising from the acquisition of goods and services by the Business
in the ordinary course of the Business. There is no material contest or claim
with respect to the amount or validity of such Trade Accounts Payable.
8.19 AGREEMENTS AND COMMITMENTS.
SCHEDULE 8.19 contains a complete list of each customer master contract
and each other contract to which the Business is a party that provides for
payments in excess of $5,000 per year or whose term is in excess of one year and
is not cancelable upon 30 or fewer days' notice without any liability, penalty,
or premium, other than a nominal cancellation fee or charge. Except as otherwise
set forth in SCHEDULE 8.19:
8.19.1 The Business has no collective bargaining or union
contracts agreement in effect or being negotiated;
8.19.2 There is no labor strike, dispute, request for
representation, slowdown, or stoppage pending or, to Sellers' best Knowledge,
threatened against the Business;
8.19.3 The Business is not in material default under any
such agreements, nor does there exist any event that, with notice or the passage
of time or both, would constitute a material default or event of default by the
Business under any such agreement.
8.19.4 The change of control of the Business will not be a
breach of or default under any such agreements.
8.19.5 No third party consents are required or needed in
order to make these representations after consummation of the transactions
provided for in this Agreement.
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8.20 PERSONAL PROPERTY.
Without material exception, SCHEDULE 8.20 contains lists of all
tangible personal property and assets used in the conduct of the Business.
Except as set forth in SCHEDULE 8.20, the Company on the Closing Date will own
and have good title to such properties and none of such properties is subject to
any security interest, mortgage, pledge, conditional sales agreement, or other
lien or encumbrance (except for liens for current taxes, assessments, charges,
or other governmental levies not yet due and payable). Sellers have delivered to
Buyer copies of all leases and other agreements relating to property described
in SCHEDULE 8.20 (including any and all amendments and other modifications to
such leases and other agreements) all of which are valid and binding, and the
Business is not in material default under any such leases or agreements in any
material respects, which are described on SCHEDULE 8.20. Except as set forth in
SCHEDULE 8.20, all material properties listed therein are generally in good
operating condition and repair (ordinary wear and tear excepted), are performing
satisfactorily, and are available for immediate use in the conduct of the
Business and operations of the Company. All such tangible personal property is
in compliance in all material respects with all applicable statutes, ordinances,
rules, and regulations. The properties listed in SCHEDULE 8.20 include
substantially all such properties necessary to conduct the Business.
8.21 REAL PROPERTY.
Without material exception, SCHEDULE 8.21 contains a list of all real
property currently owned or leased and used or useful in the conduct of the
Business other than Excluded Assets. Except as set forth in SCHEDULE 8.21, the
Company on the Closing Date will have good and marketable fee simple title to
all of the real property listed as owned in SCHEDULE 8.21, except liens for real
estate taxes, assessments, charges, or other governmental levies not yet due and
payable and except for easements, rights of way, and restrictions of record as
evidenced in title insurance policies to be issued on or prior to the Closing
Date. Sellers have delivered to Buyer copies of all leases listed in SCHEDULE
8.21 (including any and all amendments and other modifications of such leases),
which leases are valid and binding in all material respects. The Business is not
in material default under any such leases. All property listed in SCHEDULE 8.21
(including improvements thereon) is in satisfactory condition and repair
consistent with its present use and is available for immediate use in the
conduct of the Business. Except as set forth in SCHEDULE 8.21, none of the
property listed in SCHEDULE 8.21 or subject to leases listed in SCHEDULE 8.21
violates in any material respect any applicable building or zoning code or
regulation of any governmental authority having jurisdiction. The property and
leases described in SCHEDULE 8.21 include all such property or property
interests necessary to conduct the Business.
8.22 PERSONNEL.
Sellers have provided to Buyer a true and complete list of:
8.22.1 The names, title, and current salaries of all
officers of the Business as of the Closing Date;
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8.22.2 The wage rates (or ranges, if applicable) for each
class of exempt and nonexempt, salaried and hourly employees of the Business;
8.22.3 All scheduled or contemplated increases in
compensation or bonuses; and
8.22.4 All scheduled or contemplated employee promotions.
8.23 PATENTS, TRADEMARKS, TRADE NAMES, ETC.
Sellers have no patents, trademarks, trade names, service marks, and
copyrights, presently owned or held subject to license by the Company as of the
Closing Date. The Business has not been operated and is not operating in a
manner that materially infringes the proprietary rights of any other person in
any patents, trademarks, trade names, service marks, copyrights, or confidential
information. The Sellers have not received any written notice of any
infringement or unlawful use of such property.
8.24 ERISA AND RELATED MATTERS.
SCHEDULE 8.24 sets forth a description of all "Employee Welfare Benefit
Plans" and "Employee Pension Benefit Plans" (as defined in ss.ss. 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) existing on the date hereof that are or have been maintained or
contributed to by KBI. Except as listed on SCHEDULE 8.24, KBI does not maintain
any retirement or deferred compensation plan, savings, incentive, stock option
or stock purchase plan, unemployment compensation plan, vacation pay, severance
pay, bonus or benefit arrangement, insurance or hospitalization program or any
other fringe benefit arrangement for any employee, consultant or agent of the
Business, whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "Employee Benefit Plan" (as defined
in ss. 3(3) of ERISA), for which the Company may have any ongoing material
liability after Closing. KBI does not maintain nor has ever contributed to any
Multiemployer Plan as defined by ss. 3(37) of ERISA. KBI does not currently
maintain any Employee Pension Benefit Plan subject to Title IV of ERISA. There
have been no nonexempt "prohibited transactions" (as described in ss. 406 of
ERISA or ss. 4975 of the Code) with respect to any Employee Pension Benefit Plan
or Employee Welfare Benefit Plan maintained by KBI as to which KBI has been a
party. As to any employee pension benefit plan listed on SCHEDULE 8.24 and
subject to Title IV of ERISA, there have been no reportable events (as such term
is defined in ss. 4043 of ERISA).
8.25 ENVIRONMENTAL MATTERS.
8.25.1 KBI has at all times been operated, and is, in
compliance in all material respects, with all Environmental Laws, including all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in all applicable Environmental
Laws;
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8.25.2 KBI has obtained and will assign to the Company at
Closing, and is materially in compliance with, all permits required by all
Environmental Laws ("Environmental Permits"), including, without limitation,
those regulating emissions, discharges, or releases of Hazardous Substances, or
the use, storage, treatment, transportation, release, emission and disposal, of
raw materials, by-products, wastes, and other substances used or produced by the
Business, and the Business has made all appropriate material filings for
issuance or renewal of such Environmental Permits;
8.25.3 There are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries, or
proceedings pending or, to Sellers' best Knowledge, threatened against the
Business that are based on or related to any Environmental Matters or the
failure of the Business to have any required Environmental Permits;
8.25.4 There are no past or present conditions, events,
circumstances, facts, activities, practices, incidents, actions, omissions or
plans that may: (1) interfere with or prevent continued compliance by the
Company with Environmental Laws and the requirements of Environmental Permits;
(2) give rise to any liability or other obligation under any Environmental Laws
that may require the Business to incur any actual Environmental Costs; or (3)
form the basis of any claim, action, suit, proceeding, hearing, investigation or
inquiry against or involving the Company based on or related to any
Environmental Matter or which could require the Company to incur any
Environmental Costs;
8.25.5 KBI has not received any notice or other
communication that KBI is or may be a potentially responsible person or
otherwise liable in connection with any waste disposal site used or maintained
or that is otherwise related to the Business allegedly containing any Hazardous
Substances, or other location used for the disposal of any Hazardous Substances,
or notice of any failure of the Business to comply with any Environmental Law or
the requirements of any Environmental Permit;
8.25.6 KBI has not been at any time requested or required by
any governmental entity having jurisdiction under any Environmental Laws to
perform any investigative or remedial activity or other action in connection
with any Environmental Matter in respect of the Business;
8.25.7 To the best Knowledge of Sellers, KBI has not used
any waste disposal site, or otherwise disposed of or transported any Hazardous
Substances. KBI has not arranged for the transportation of any Hazardous
Substances to any place or location, in violation of any Environmental Laws;
8.25.8 There has been no release of any Hazardous Substances
at, on, about, under, or within any assets or properties currently or formerly
owned, leased, or controlled by the Business (other than pursuant to and in
accordance with Environmental Permits held by the Business) and all of the
assets and real property owned or leased by KBI are free of any Hazardous
Substances.
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ARTICLE IX - REPRESENTATIONS AND WARRANTIES OF BMHC AND BUYER
Buyer hereby represents and warrants to the Sellers as follows, and the
warranties and representations contained in this Article or elsewhere in this
Agreement shall be deemed remade as of Closing:
9.1 LEGAL STATUS.
Each of BMHC and Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware and prior
to Closing, it will be qualified or licensed to do business in all states in
which failure to do so would have a material adverse effect on BMHC.
9.2 AUTHORITY.
Each of BMHC and Buyer has full power and authority to execute and
perform this Agreement and all action necessary to confirm such authority has
been duly and lawfully taken. Upon execution hereof, this shall be a valid and
legally binding obligation of Buyer, enforceable against Buyer in accordance
with its terms. Neither the execution nor the performance of this Agreement will
violate the terms or any provision of BMHC's or Buyer's Certificate of
Incorporation, or any note, loan agreement, commitment agreement, lease or other
material contract or agreement to which BMHC or Buyer is a party, including any
loan agreement which it will become a party to as a result of or in connection
with this transaction.
9.3 TITLE AND RELATED MATTERS.
BMHC or its subsidiary, BMC West Corporation, will have on the Closing
Date good and indefeasible title to all of the BMHC Assets to be transferred to
the Company, free and clear of all security interests, mortgages, liens,
pledges, charges, claims, or encumbrances of any kind or character, except for
the rights of customers of the BMHC's business conducted in Phoenix, Arizona,
with respect to inventory under orders or contracts entered into by the BMHC's
business conducted in Phoenix, Arizona, in the ordinary course of business.
9.4 LITIGATION.
There are no material actions, suits, proceedings, orders,
investigations, or claims pending or overtly threatened against BMHC or the
Buyer involving BMHC's operation in Arizona or any of the BMHC Assets, at law or
in equity, or before or by any governmental department, commission, board,
bureau, agency, or instrumentality; BMHC and the Buyer are not subject to any
arbitration proceedings under collective bargaining agreements or otherwise or
any governmental investigations or inquiries; and, to the best knowledge of each
of them, there is no basis for any of the foregoing.
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9.5 COMPLIANCE WITH LAWS.
The conduct of BMHC's business at its location in Phoenix, Arizona is
in substantial compliance with all laws, statutes, ordinances, regulations,
orders, judgments, or decrees applicable to it. BMHC has not received any notice
of any asserted present or past failure by it to comply with such laws,
statutes, ordinances, regulations, orders, judgments, or decrees, including
Environmental Laws or ERISA.
9.6 NO BROKERS.
There are no claims for brokerage commissions, finders' fees, or
similar compensation in connection with this transaction based on any
arrangement or agreement binding upon any of the parties hereto.
9.7 EMPLOYEES AND LABOR RELATIONS MATTERS.
9.7.1 To BMHC's best Knowledge, no key employee of BMHC's
business operations in Phoenix, Arizona or any group of such employees has any
plans to terminate employment with the Business;
9.7.2 BMHC's business operation in Phoenix, Arizona has
complied in all material respects with all labor and employment laws, including
provisions thereof relating to wages, hours, equal opportunity, collective
bargaining, Americans With Disabilities Act, and the payment of social security
and other taxes;
9.7.3 There is no unfair labor practice charge, complaint,
or other action against BMHC's business operation in Phoenix, Arizona pending
or, to BMHC's best knowledge, threatened before the National Labor Relations
Board and BMHC's business operation in Phoenix, Arizona is not subject to any
order to bargain by the National Labor Relations Board;
9.7.4 No questions concerning representation have been
raised or, to BMHC's best Knowledge, are threatened with respect to employees of
BMHC's business operation in Phoenix, Arizona.
9.7.5 No grievance that might have a material adverse
effect on BMHC's business operation in Phoenix, Arizona and no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending, and, to BMHC's best Knowledge, no basis exists for any such grievance
or arbitration proceeding;
9.7.6 No employee of BMHC's business operation in Phoenix,
Arizona is subject to any noncompetition, nondisclosure, confidentiality,
employment, consulting, or similar agreements with persons other than BMHC and
its subsidiary; and
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9.7.7 All employees of BMHC's business operation in
Phoenix, Arizona have provided documentation on file with BMHC required by the
Immigration and Naturalization Act and regulations.
9.8 DISCLOSURE.
Neither this Agreement nor any of the schedules, attachments, written
statements, documents, certificates, or other items prepared or supplied to
Sellers with respect to this Agreement contain any untrue statement of a
material fact or omit a material fact necessary to make each statement contained
herein or therein not misleading. BMHC has not intentionally concealed any fact
known by such person to have a material adverse effect upon the Business's
existing or expected financial condition, operating results, assets, customer
relations, employee relations, or business prospects taken as a whole.
9.9 AGREEMENTS AND COMMITMENTS.
SCHEDULE 9.9 contains a complete and accurate list of each contract,
instrument, and commitment (including license agreements) to which BMHC's
business operation in Phoenix, Arizona is a party that provides for payments in
excess of $5,000 per year or whose term is in excess of one year and is not
cancelable upon 30 or fewer days' notice without any liability, penalty, or
premium, other than a nominal cancellation fee or charge. Except as otherwise
set forth in SCHEDULE 9.9.
9.9.1 BMHC's business operation in Phoenix, Arizona has no
collective bargaining or union contracts agreement in effect or being
negotiated;
9.9.2 There is no labor strike, dispute, request for
representation, slowdown, or stoppage pending or, to BMHC's best Knowledge,
threatened against the BMHC's business operation in Phoenix, Arizona;
9.9.3 BMHC's business operation in Phoenix, Arizona is not
in material default under any such agreements, nor does there exist any event
that, with notice or the passage of time or both, would constitute a material
default or event of default by BMHC's business operation in Phoenix, Arizona
under any such agreement.
9.9.4 The change of control of BMHC's business operation in
Phoenix, Arizona will not be a breach of or default under any such agreements.
9.9.5 No third party consents are required or needed in
order to make these representations after consummation of the transactions
provided for in this Agreement.
9.10 PERSONAL PROPERTY.
Without material exception, SCHEDULE 9.10 contains lists of all
tangible personal property and assets used in the conduct of BMHC's business
operation in Phoenix, Arizona. Except as set forth in SCHEDULE 9.10, BMHC or its
subsidiary, BMC West Corporation, on the
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Closing Date will own and have good title to such properties and none of such
properties is subject to any security interest, mortgage, pledge, conditional
sales agreement, or other lien or encumbrance (except for liens for current
taxes, assessments, charges, or other governmental levies not yet due and
payable). BMHC has delivered to Seller copies of all leases and other agreements
relating to property described in SCHEDULE 9.9 (including any and all amendments
and other modifications to such leases and other agreements) all of which are
valid and binding, and BMHC's business operation in Phoenix, Arizona is not in
material default under any such leases or agreements in any material respects,
which are described on SCHEDULE 9.10. Except as set forth in SCHEDULE 9.10, all
material properties listed therein are generally in good operating condition and
repair (ordinary wear and tear excepted), are performing satisfactorily, and are
available for immediate use in the conduct of BMHC's business operation in
Phoenix, Arizona. All such tangible personal property is in compliance in all
material respects with all applicable statutes, ordinances, rules, and
regulations. The properties listed in SCHEDULE 9.10 include substantially all
such properties necessary to conduct BMHC's business operation in Phoenix,
Arizona.
9.11 REAL PROPERTY.
Without material exception, SCHEDULE 9.11 contains a list of all real
property currently owned or leased and used or useful in the conduct of BMHC's
business operation in Phoenix, Arizona. BMHC has delivered to Sellers copies of
all leases listed in SCHEDULE 9.11 (including any and all amendments and other
modifications of such leases), which leases are valid and binding in all
material respects. BMHC's business operation in Phoenix, Arizona is not in
material default under any such leases. All property listed in SCHEDULE 9.11
(including improvements thereon) is in satisfactory condition and repair
consistent with its present use and is available for immediate use in the
conduct of BMHC's business operation in Phoenix, Arizona. Except as set forth in
SCHEDULE 9.11, none of the property listed in SCHEDULE 9.11 or subject to leases
listed in SCHEDULE 9.11 violates in any material respect any applicable building
or zoning code or regulation of any governmental authority having jurisdiction.
The property and leases described in SCHEDULE 9.11 include all such property or
property interests necessary to conduct BMHC's business operation in Phoenix,
Arizona.
9.12 PERSONNEL.
SCHEDULE 9.12 sets forth a true and complete list of:
9.12.1 The names, title, and current salaries of all
employees of BMHC's business operation in Phoenix, Arizona as of the Closing
Date;
9.12.2 The wage rates (or ranges, if applicable) for each
class of exempt and nonexempt, salaried and hourly employees of BMHC's business
operation in Phoenix, Arizona.
9.12.3 All scheduled or contemplated increases in
compensation or bonuses; and
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9.12.4 All scheduled or contemplated employee promotions.
9.13 ERISA AND RELATED MATTERS.
SCHEDULE 9.13 sets forth a description of all "Employee Welfare Benefit
Plans" and "Employee Pension Benefit Plans" (as defined in ss.ss. 3(1) and 3(2),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) existing on the date hereof that are or have been maintained or
contributed to by BMHC or its subsidiary. Except as listed on SCHEDULE 9.13,
BMHC or its subsidiary does not maintain any retirement or deferred compensation
plan, savings, incentive, stock option or stock purchase plan, unemployment
compensation plan, vacation pay, severance pay, bonus or benefit arrangement,
insurance or hospitalization program or any other fringe benefit arrangement for
any employee, consultant or agent of the business operated by BMHC in Phoenix,
Arizona, whether pursuant to contract, arrangement, custom or informal
understanding, which does not constitute an "Employee Benefit Plan" (as defined
in ss. 3(3) of ERISA), for which the business operated by BMHC in Phoenix,
Arizona may have any ongoing material liability after Closing. BMHC or its
subsidiary does not maintain nor has it ever contributed to any Multiemployer
Plan as defined by ss. 3(37) of ERISA. BMHC or its subsidiary does not currently
maintain any Employee Pension Benefit Plan subject to Title IV of ERISA. BMHC or
its subsidiary has no nonexempt "prohibited transactions" (as described in ss.
406 of ERISA or ss. 4975 of the Code) with respect to any Employee Pension
Benefit Plan or Employee Welfare Benefit Plan maintained by BMHC or its
subsidiary as to which BMHC or its subsidiary has been a party. As to any
employee pension benefit plan listed on SCHEDULE 9.13 and subject to Title IV of
ERISA, there have been no reportable events (as such term is defined in ss. 4043
of ERISA).
9.14 ENVIRONMENTAL MATTERS.
9.14.1 The business operated by BMHC in Phoenix, Arizona has
at all times been operated, and is, in compliance in all material respects, with
all Environmental Laws, including all limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in all applicable Environmental Laws;
9.14.2 The business operated by BMHC in Phoenix, Arizona has
obtained and will assign to the Company at Closing, and is materially in
compliance with, all permits required by all Environmental Laws ("Environmental
Permits"), including, without limitation, those regulating emissions,
discharges, or releases of Hazardous Substances, or the use, storage, treatment,
transportation, release, emission and disposal, of raw materials, by-products,
wastes, and other substances used or produced by the business operated by BMHC
in Phoenix, Arizona and it has made all appropriate material filings for
issuance or renewal of such Environmental Permits;
9.14.3 There are no claims, notices, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries, or
proceedings pending or, to BMHC's best Knowledge, threatened against the
business operated by BMHC in Phoenix, Arizona that are based on or related to
any Environmental Matters or the failure of it to have any required
Environmental Permits;
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9.14.4 There are no past or present conditions, events,
circumstances, facts, activities, practices, incidents, actions, omissions or
plans that may: (1) interfere with or prevent continued compliance by the
business operated by BMHC in Phoenix, Arizona with Environmental Laws and the
requirements of Environmental Permits; (2) give rise to any liability or other
obligation under any Environmental Laws that may require it to incur any actual
Environmental Costs; or (3) form the basis of any claim, action, suit,
proceeding, hearing, investigation or inquiry against or involving it based on
or related to any Environmental Matter or which could require it to incur any
Environmental Costs;
9.14.5 The business operated by BMHC in Phoenix, Arizona has
not received any notice or other communication that it is or may be a
potentially responsible person or otherwise liable in connection with any waste
disposal site used or maintained or that is otherwise related to it allegedly
containing any Hazardous Substances, or other location used for the disposal of
any Hazardous Substances, or notice of any failure of it to comply with any
Environmental Law or the requirements of any Environmental Permit;
9.14.6 The business operated by BMHC in Phoenix, Arizona has
not been at any time requested or required by any governmental entity having
jurisdiction under any Environmental Laws to perform any investigative or
remedial activity or other action in connection with any Environmental Matter in
respect of it.
9.14.7 To BMHC's best Knowledge, the business operated by
BMHC in Phoenix, Arizona has not used any waste disposal site, or otherwise
disposed of or transported, any Hazardous Substances. BMHC has not arranged for
the transportation of any Hazardous Substances to any place or location, in
violation of any Environmental Laws;
9.14.8 There has been no release of any Hazardous Substances
at, on, about, under, or within any assets or properties currently or formerly
owned, leased, or controlled by the business operated by BMHC in Phoenix,
Arizona(other than pursuant to and in accordance with Environmental Permits held
by the Business) and all of the assets and real property owned or leased by it
are free of any Hazardous Substances.
ARTICLE X - COLLECTION OF RECEIVABLES; CUSTOMER CLAIMS
10.1 COLLECTION.
KBI guarantees to Buyer the collectibility of all of the Trade Accounts
Receivable. During the Post Closing Adjustment Period, the Company shall use its
best efforts to collect the Trade Accounts Receivable. If any of the Trade
Accounts Receivable are determined to be uncollectible during the Post Closing
Adjustment Period , Sellers shall pay to Buyer the amount of such uncollected
Trade Accounts Receivable at the end of the Post Closing Adjustment Period.
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10.2 CUSTOMER CLAIMS AND RETURNS.
During the Post Closing Adjustment Period, the Company shall honor any
reasonable claims by customers of the Company for returns of goods relating to
invoices issued prior to the Closing Date. The Company shall report any such
returns to KBI and Buyer. Any returns of goods relating to invoices issued prior
to the Closing Date that are of a quality resalable in the ordinary course of
business shall result in a payment by KBI to Buyer in the amount of the gross
profit margin on the goods. KBI shall pay to the Company the total amount of
credits in excess of any reserves as of the Closing Date for returned goods.
ARTICLE XI - BMHC'S COVENANTS
BMHC covenants and agrees to take and shall take all actions necessary
to cause Buyer to comply with the terms of this Agreement and to cause Buyer to
carry out the obligations and transactions provided for in this Agreement.
ARTICLE XII - [RESERVED]
ARTICLE XIII - INDEMNITY
13.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Sellers contained in
Article VIII or made otherwise herein or in any documents delivered in
connection with the Closing shall survive the Closing and continue in full force
and effect for a period of two (2) years (the "Survival Period") provided that
the representations contained in Sections 8.1, 8.3, 8.11, and 8.24 shall survive
indefinitely. All representations and warranties of BMHC and Buyer contained in
this Agreement or in any documents delivered in connection with the Closing
shall continue in full force and effect for the Survival Period except the
representations in Sections 9.1 and 9.2 shall survive indefinitely.
13.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS.
Sellers will indemnify and hold harmless Buyer for, and will pay to
Buyer the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with the following provided that the aggregate
amount of Damages from all indemnification claims must exceed a threshold of
$100,000; provided that if Damages exceed $100,000, Seller shall be responsible
for all Damages:
13.2.1 any breach of any of the representations, warranties,
covenants or obligations in this Agreement by Sellers, or any other certificate
or document delivered by the Company or Sellers pursuant to this Agreement;
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13.2.2 any product shipped or manufactured by, or any
services provided by the Business prior to the Closing Date;
13.2.3 any claims by any person for a brokerage or finder's
fee or commission or similar payment based upon any alleged agreement with the
Company or Sellers.
To the extent any claim for indemnification is covered by applicable insurance,
Buyer agrees that the Company must first seek recovery from such insurance and
the indemnification claim shall be reduced to the extent of any such insurance
proceeds actually paid to Buyer.
The party seeking indemnification shall be paid the amount of the claim
within ninety (90) days after submission of the claim. If there is any
disagreement on the right of the Indemnified Party to payment of the claim or
the amount of the claim, the parties shall submit the dispute to non-binding
mediation with CPA. Mediation shall occur within sixty (60) days after the
expiration of the payment date. If mediation does not result in resolution of
the claim, the parties may pursue any legal remedies available to them.
Except with respect to Damages resulting from (1) the breach of
Sections 8.1 or 8.11 or (2) fraudulent or deliberate misrepresentations, Damages
payable by Sellers shall in no event exceed $5,000,000. Damages, other than
those arising under (1) and (2) above, shall be payable solely by reducing the
Redemption Price (in the case of a Redemption, as defined in the Operating
Agreement) or the Purchase Price (as defined in the Put Agreement, in the case
of the exercise of the Put); provided that any such Damages shall bear interest
from the time they would otherwise have been payable in cash by the Sellers
until the closing of the Redemption or Put (as applicable) at the prime rate of
interest published in THE WALL STREET JOURNAL, plus 1%, compounded monthly.
Notwithstanding the preceding, Sellers at their option may at any time pay to
Buyer all or a portion of the amount otherwise payable under this Section, in
which case the amount of the reduction in the Redemption Price or the Purchase
Price, shall be reduced by such payment.
13.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BMHC AND BUYER.
BMHC and Buyer will indemnify and hold harmless Sellers, and will pay
to Sellers the amount of any Damages arising, directly or indirectly, from or in
connection with (a) any breach of any representation or warranty made by BMHC or
Buyer in this Agreement or in any certificate delivered by Buyer pursuant to
this Agreement, or (b) any breach by BMHC or Buyer of any covenant or obligation
of Buyer in this Agreement provided that the aggregate amount of Damages from
all indemnification claims must exceed the aggregate threshold of $100,000;
provided that if Damages exceed $100,000, Sellers shall be responsible for all
Damages.
To the extent any claim for indemnification is covered by applicable
insurance, Sellers and the Company agree that the Company must first seek
recovery from such insurance, and the indemnification claim shall be reduced to
the extent of any such insurance proceeds paid to Sellers or the Company. The
party seeking indemnification shall be paid the amount of the claim within
ninety (90) days after submission of the claim. If there is any disagreement on
the
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right of the Indemnified Party to payment of the claim or the amount of the
claim, the parties shall submit the dispute to non-binding mediation with CPA.
Mediation shall occur within sixty (60) days after the expiration of the payment
date. If mediation does not result in resolution of the claim, the parties may
pursue any legal remedies available to them.
Except with respect to Damages resulting from (1) the breach of
Sections 9.1 or 9.11 or (2) fraudulent or deliberate misrepresentations, Damages
payable by Buyers shall in no event exceed $5,000,000. Damages, other than those
arising under (1) and (2) above, shall be payable solely by increasing the
Redemption Price (in the case of a Redemption, as defined in the Operating
Agreement) or the Purchase Price (as defined in the Put Agreement, in the case
of the exercise of the Put); provided that any such Damages shall bear interest
from the time they would otherwise have been payable in cash by the Buyer until
the closing of the Redemption or Put (as applicable) at the prime rate of
interest published in THE WALL STREET JOURNAL, plus 1%, compounded monthly.
Notwithstanding the preceding, Buyer at its option may at any time pay to
Sellers all or a portion of the amount otherwise payable under this Section, in
which case the amount of the increase in the Redemption Price or the Purchase
Price, shall be reduced by such payment.
13.4 INDEMNIFICATION PROCEDURE.
13.4.1 Any party seeking indemnification, damages, or any
other recovery whatsoever (the "Indemnified Party") from another party or
parties (individually or collectively, the "Indemnifying Party") with respect to
any claim, demand, action, proceeding or other matter pursuant to this Agreement
or arising out of the transactions contemplated hereby (the "Claim") shall
notify the Indemnifying party of the existence of the Claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto and the basis
for the Indemnified Party's right to indemnification (a "Notice of Claims"),
which Notice of Claim shall contain the following information to the extent it
is reasonably available to the Indemnified Party: (a) an estimate of the amount
then reasonably ascertainable of the alleged loss, expense or liability against
which the Indemnified Party is indemnified; (b) a description, in reasonable
detail, of the circumstances giving rise to the alleged loss, expense, or
liability; and (c) a statement identifying each party against whom a Claim is
asserted. In no event shall such notice be valid or enforceable if sent after
the Survival Period.
13.4.2 If any third party shall notify any Indemnified Party
with respect to any matter which may give rise to a Claim for indemnification
against the Indemnifying Party under this Agreement, then the Indemnified Party
shall notify the Indemnifying Party thereof, which notice shall set forth the
information required in Section 13.4.1 and be furnished within thirty (30) days
after the Indemnified Party's receipt of notice from the third party; provided,
however, that no delay on the part of the Indemnified Party in notifying any
Indemnifying Party shall relieve the Indemnifying Party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnifying
Party thereby is materially prejudiced by such failure to give notice. However,
in no event shall such notice be valid or enforceable if sent after the Survival
Period. If the Indemnifying Party notifies the Indemnified Party within thirty
(30) days that it will assume the defense thereof:
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(1) the Indemnifying Party shall defend the
Indemnified Party against the matter with counsel of its choice reasonably
satisfactory to the Indemnified Party;
(2) the Indemnified Party may retain separate
counsel at its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate counsel to the extent the
Indemnified Party concludes based upon advice of counsel that a conflict of
interest exists between the Indemnified Party and Indemnifying Party that there
may be one or more legal defenses available to the Indemnified Party which are
not available to the Indemnifying Party, or available to the Indemnifying Party,
but the assertion of which would be adverse to the interest of the Indemnified
Party);
(3) the Indemnified Party will not consent to
the entry of any judgment or enter into any settlement with respect to the
matter without the written consent of the Indemnifying Party (not to be withheld
unreasonably); and
(4) the Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all liability with respect thereto, without the written
consent of the Indemnified Party (not to be withheld unreasonably);
13.4.3 If the Indemnifying Party does not notify the
Indemnified Party within thirty (30) days that it will assume the defense
thereof, then the Indemnified Party may defend against, or enter into any
settlement with respect to, the matter in any manner it reasonably may deemed
appropriate, without prejudice to any of its rights hereunder;
13.4.4 The Indemnified Party shall be entitled to
reimbursement for reasonable expenses, included in damages with respect to any
Claim (including, without limitation, the cost of defense, preparation and
investigation relating to such Claim) as such expenses are incurred by the
Indemnified Party;
13.5 COOPERATION.
The Indemnified Party and the Indemnifying Party shall each use
commercially reasonable efforts to cooperate with the other such party in
connection with the defense of third-party Claims.
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ARTICLE XIV - CONDUCT OF OPERATIONS PRIOR TO CLOSING/GOVERNMENT APPROVALS
14.1 CONDUCT OF OPERATIONS.
From the date hereof until Closing, Sellers shall conduct the Business
in the ordinary course and consistent with its prior practices. KBI agrees not
to enter into any leases for personal or real property that cannot be canceled
without penalty upon thirty (30) days' notification. Sellers shall advise Buyer
of any material customer accounts that Sellers lose during the period between
January 11, 1999, and the Closing Date.
14.2 REQUISITE GOVERNMENT APPROVALS.
The parties shall make all other required filings and any requisite
notice to all government agencies and shall have received all required
government approvals for the transactions contemplated herein, including but not
limited to filings required by the Securities Act of 1933 and regulations
promulgated thereunder.
ARTICLE XV - CLOSING
15.1 CLOSING.
Closing shall occur on May 3, 1999, at the offices of Lewis and Roca
LLP in Phoenix, Arizona, effective as of the close of business on April 30,
1999, or at such other time or place as the parties may agree upon.
15.2 TIME IS OF THE ESSENCE.
Time is of the essence for the Closing of this transaction.
ARTICLE XVI - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE
Buyer shall have no duty to Close unless and until each and every one
of the following conditions precedent have been fully and completely satisfied:
16.1 CONTINUED TRUTH OF WARRANTIES.
All of the representations and warranties of the Sellers contained
herein shall continue to be true and correct at Closing in all material
respects;
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16.2 SUPPLEMENTS TO SCHEDULES.
From time to time prior to the Closing, Sellers will promptly
supplement or amend the Schedules with respect to any matter hereafter arising
that, if existing or occurring at the date of this Agreement, would have been
required to be set forth or described in any Schedule and will promptly notify
Buyer of any breach that Sellers discover of any representation, warranty, or
covenant contained in this Agreement. No supplement or amendment of any Schedule
made pursuant to this section will be deemed to cure any breach of any
representation of or warranty made in this Agreement unless Buyer specifically
agrees thereto in writing; provided, however, that if this purchase is closed,
Buyer will be deemed to have waived its rights with respect to any breach of a
representation, warranty, or covenant or any supplement to any Schedule of which
it shall have been notified pursuant to this Section 16.2;
16.3 PERFORMANCE OF OBLIGATIONS.
Sellers shall have substantially performed or tendered performance of
each and every one of their obligations hereunder which by its terms is capable
of performance before Closing, including providing evidence to Buyer of the
transfer by KBI of substantially all of its assets to the Company and the
Company's assumption of substantially all of the liabilities of KBI, except for
the Excluded Assets and Excluded Liabilities;
16.4 DELIVERY OF CLOSING DOCUMENTS.
The Company and Sellers shall have tendered delivery to Buyer of all
the documents required to be delivered to Buyer by the Company at Closing;
16.5 LITIGATION.
No lawsuit, administrative proceedings or other legal action shall be
pending or threatened which seeks to restrain or enjoin the transactions
contemplated hereby;
16.6 GOVERNMENT APPROVALS.
The parties shall have received all other government approvals and
shall have made all necessary filings with government agencies required by the
transactions contemplated herein;
16.7 DUE DILIGENCE PERIOD.
The due diligence period shall have expired without Buyer terminating
this Agreement and the Sellers shall have satisfactorily cured any problems
raised by Buyer in the due diligence period;
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16.8 APPROVAL BY BOARD OF DIRECTORS.
The Board of Directors of Business shall have approved the transactions
provided for in this Agreement;
16.9 PRELIMINARY CLOSING BALANCE SHEET.
Buyer shall have agreed to the terms of the Preliminary Closing Balance
Sheet;
16.10 EMPLOYMENT, CONFIDENTIALITY, AND NONCOMPETITION AGREEMENTS.
The Company shall have entered into Employment, Confidentiality, and
Noncompetition Agreements with [Redacted] in a form reasonably acceptable to
Buyer and Sellers.
16.11 LEASES FOR LOCATIONS.
Sellers shall have caused the Company simultaneously with Closing to
enter into or assign leases for each of the Locations, including Buyer's Phoenix
location, on terms and conditions satisfactory to Buyer.
16.12 OPERATING AGREEMENT.
Buyer and KBI shall have executed and delivered the Operating
Agreement.
16.13 PUT AGREEMENT.
Sellers shall have executed and delivered the Put Agreement with BMHC.
16.14 BONUS PLAN.
Sellers shall have prepared and adopted a bonus plan in a form
acceptable to Buyer providing for a payment to employees of the Company
designated by Knipp in the amount of $[Redacted] (including applicable payroll
and withholding taxes) upon transfer of KBI's remaining Interests in the
Company; provided that Knipp receives at least $[Redacted] in value for such
remaining Interests.
16.15 MATERIAL ADVERSE CHANGE.
There shall have been no material adverse change in the operations or
prospects of the Business.
16.16 LENDER APPROVALS.
BMHC shall have obtained approval of the transaction from its lenders.
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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ARTICLE XVII - CONDITIONS PRECEDENT TO THE SELLERS' DUTY TO CLOSE
Sellers shall have no duty to Close this transaction unless and until
each and every one of the following conditions precedent have been fully and
completely satisfied:
17.1 CONTINUED TRUTH OF WARRANTIES.
All of the representations and warranties of BMHC and Buyer contained
herein shall continue to be true and correct at Closing in all material
respects;
17.2 SUPPLEMENTS TO SCHEDULES.
From time to time prior to the Closing, Buyer will promptly supplement
or amend the Schedules with respect to any matter hereafter arising that, if
existing or occurring at the date of this Agreement, would have been required to
be set forth or described in any Schedule and will promptly notify Sellers of
any breach that Buyer discovers of any representation, warranty, or covenant
contained in this Agreement. No supplement or amendment of any Schedule made
pursuant to this section will be deemed to cure any breach of any representation
of or warranty made in this Agreement unless Sellers specifically agree thereto
in writing; provided, however, that if this purchase is closed, Sellers will be
deemed to have waived their rights with respect to any breach of a
representation, warranty, or covenant or any supplement to any Schedule of which
they shall have been notified pursuant to this Section 17.2;
17.3 PERFORMANCE OF OBLIGATIONS.
BMHC and Buyer shall have substantially performed or tendered
substantial performance of each and every one of their respective obligations
hereunder which by its terms is capable of performance before Closing;
17.4 DELIVERY OF CLOSING DOCUMENTS.
BMHC and Buyer shall have tendered delivery to the Company of all the
documents required to be delivered to Sellers or the Company by BMHC and Buyer
at Closing pursuant to this Agreement;
17.5 LITIGATION.
No lawsuit, administrative proceedings or other legal action shall be
pending or threatened which seeks to restrain or enjoin the transactions
contemplated hereby.
17.6 LEASE FOR PHOENIX LOCATION
Buyer shall have caused the Company simultaneously with Closing to
enter into or assign a lease for its Phoenix location on terms and conditions
satisfactory to Sellers.
17.7 OPERATING AGREEMENT.
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Buyer and Sellers shall have executed and delivered the Operating
Agreement.
17.8 PUT AGREEMENT.
Buyer and Sellers shall have executed and delivered the Put Agreement.
17.9 GOVERNMENT APPROVALS.
The parties shall have received all other government approvals and
shall have made all necessary filings with government agencies required by the
transactions contemplated herein.
17.10 MATERIAL ADVERSE CHANGE.
There shall have been no material adverse change in BMHC's or Buyer's
financial condition or prospects.
ARTICLE XVIII - ITEMS TO BE DELIVERED AT CLOSING BY SELLERS
At Closing, Sellers shall, unless waived by Buyer, deliver the
following items to Buyer:
18.1 OPINION OF COUNSEL.
The opinion of Lewis and Roca LLP in the form attached hereto as
EXHIBIT 18.1.
18.2 CERTIFICATE OF INCUMBENCY.
A copy of KBI's certificate of incumbency certified by the secretary of
the KBI;
18.3 CERTIFICATES OF GOOD STANDING.
Certificates of good standing or due qualification from the Secretary
of State of Delaware, dated within a reasonable period before Closing;
18.4 REPRESENTATIONS AND WARRANTIES.
A certificate signed by the Sellers to the effect that all of the
representations and warranties contained herein by the Sellers are true and
correct in all material respects as of Closing.
18.5 AGREEMENTS.
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Sellers shall have executed and delivered in a form acceptable to BMHC
and Buyer the documents provided for in Sections 16.9, 16.10, 16.11, 16.12,
16.13 and 16.14.
ARTICLE XIX - ITEMS TO BE DELIVERED AT CLOSING BY BMHC AND BUYER
At Closing, BMHC and Buyer shall, unless waived by the Company or
Sellers, deliver the following items to Sellers and the Company:
19.1 CERTIFIED RESOLUTION.
A copy of the resolutions of the Board of Directors of BMHC and Buyer
authorizing the execution and performance of this Agreement, certified by the
Secretary of BMHC;
19.2 REPRESENTATIONS AND WARRANTIES.
A certificate signed by an officer of BMHC and Buyer to the effect that
all the representations and warranties of Buyer contained herein are true and
correct in all material respects as of Closing;
19.3 OPINION OF COUNSEL.
An opinion of BMHC and Buyer's counsel in the form attached hereto as
EXHIBIT 19.3.
19.4 INCUMBENCY CERTIFICATE.
A certificate signed by an officer of BMHC and the Buyer to the effect
that all persons having signed or signing documents pursuant to this Agreement
were authorized to do so and identifying the officers and directors of BMHC and
the Buyer and containing exemplar signatures of each such officer who has signed
documents delivered pursuant to this Agreement;
19.5 PURCHASE PRICE.
The Purchase Price to be paid at Closing shall be paid in immediately
available funds by wire transfer to such of the Sellers' bank accounts as they
may designate; and
19.6 CERTIFICATE OF GOOD STANDING.
Certificate of good standing or due qualification from the secretary of
state of Delaware, dated within a reasonable period before Closing.
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19.7 BILL OF SALE.
A bill of sale for the tangible personal property to be transferred to
the Company.
19.8 AGREEMENTS.
Buyer and BMHC shall have executed and delivered in a form agreed to by
KBI and Knipp the documents provided for in Sections 16.12, 17.7 and 17.8.
ARTICLE XX - MISCELLANEOUS
20.1 EXPENSES.
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the contemplated
transactions, including all fees and expenses of agents, representatives,
counsel, and accountants.
20.2 FURTHER ASSURANCES; CONSENTS.
Each party shall, at any time after Closing, execute and deliver to the
other party all such additional instruments of conveyance and assignments,
certificates or similar documents as such other party may reasonably request.
The parties shall not unreasonably withhold consent for any actions or matters
necessary to carry out the terms of this Agreement.
20.3 NO OTHER AGREEMENTS.
This Agreement constitutes the entire agreement between the parties
with respect to its subject matter except for the Confidentiality Agreement. All
prior and contemporaneous negotiations, proposals and agreements between the
parties are included in this Agreement. Any changes to this Agreement must be
agreed to in writing by both parties.
20.4 WAIVER.
Either party may waive the performance of any obligation owed to it by
the other party hereunder for the satisfaction of any condition precedent to the
waiving party's duty to perform any of its covenants, including its obligations
to close. Any such waiver shall be valid only if contained in a writing signed
by the parties.
20.5 PUBLIC ANNOUNCEMENTS.
No public announcements of this Agreement shall be made unless BMHC and
the Sellers have mutually agreed on the timing, distribution, and contents of
such announcements, except as may be required by the security laws.
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20.6 NOTICES.
Any notices required or allowed in this Agreement shall be effectively
given if placed in a sealed envelope, postage prepaid, and deposited in the
United States mail, registered or certified, addressed as follows:
To Sellers: Lawrence W. Knipp
Knipp Brothers, Inc.
6840 West Frier Drive
Glendale, AZ 85303
Copy To: Lewis and Roca LLP
40 N. Central Ave.
Phoenix, AZ 85004-4429
Attn: David E. Manch, Esq.
To Buyer: Building Materials Holding Corporation
One Market Plaza
Steuart Street Tower
26th Floor, Suite 2650
San Francisco, California 94105-1475
Attention: Ellis C. Goebel, Senior Vice President -
Finance and Treasurer
Copy To: Building Materials Holding Corporation
720 Park Boulevard, Suite 200
Post Office Box 70006
Boise, Idaho 83707-0106
Attention: Paul S. Street, Senior Vice President,
General Counsel and Secretary
20.7 BOOKS AND RECORDS.
After execution of this Agreement, and for the records retention period
of the subject records, and at such time and place mutually agreed upon by the
parties, Sellers, at their sole cost and expense, shall have the right to review
the records which pertain exclusively to the Company for periods of time prior
to the Closing Date and at their cost make any copies of such records. Buyer
shall be provided access to any books and records in the Sellers' possession
relating to or necessary for filing tax returns on behalf of the Company.
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20.8 BMHC TRADE ACCOUNTS RECEIVABLE.
The Company, at no expense to BMHC, shall collect the trade accounts
receivable of BMHC existing for the Phoenix operation of BMHC on the Closing
Date and remit the proceeds to BMHC. If the customer continues to purchase
products from the Company, payments received by the Company will first be
applied to the oldest invoice unless the customer specifically designates
otherwise. If it is necessary to retain legal counsel to collect any of the BMHC
trade accounts receivable, BMHC shall be responsible for all legal fees and
costs incurred.
20.9 THIRD-PARTY BENEFICIARY.
Nothing contained herein shall create or give rise to any third-party
beneficiary rights for any individual as a result of the terms and provisions of
this Agreement.
20.10 ASSIGNMENT.
Neither party shall assign this Agreement without the prior written
consent of the other party. Any attempt to assign this Agreement without prior
written consent shall be void.
20.11 CHOICE OF LAW.
This Agreement shall be governed by and interpreted in accordance with
the laws of the state of Arizona.
20.12 PARAGRAPH HEADINGS.
The Section and Article paragraph headings contained herein are for
convenience only and shall have no substantive bearing on the interpretation of
this Agreement.
20.13 TIME IS OF THE ESSENCE.
Time is of the essence in the performance and observance of all
obligations and duties under this Agreement.
20.14 ATTORNEY FEES.
In the event either party is required to file any action to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover its
reasonable costs and attorney fees.
20.15 RULES OF INTERPRETATION.
The following rules of interpretation shall apply to this Agreement,
the exhibits hereto and any certificates, reports or other documents or
instruments made or delivered pursuant to or in connection with this Agreement,
unless otherwise expressly provided herein or therein and unless the context
hereof or thereof clearly requires otherwise:
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A reference to any document or agreement shall include such document or
agreement as amended, modified or supplemented from time to time in accordance
with its terms, and if a term is said to have the meaning assigned to such term
in another document or agreement and the meaning of such term therein is
amended, modified or supplemented, then the meaning of such term herein shall be
deemed automatically amended, modified or supplemented in a like manner.
References to the plural include the singular, the singular the plural
and the part the whole.
The words "include," "includes" and "including" are not limiting.
A reference to any law includes any amendment or modification to such
law which is in effect on the relevant date.
A reference to any person or entity includes its successors, heirs and
permitted assigns.
Where the character or amount of any asset or liability or item of
income or expense is required to be determined or any consolidation or other
accounting computation is required to be made for purposes of this Agreement or
any exhibit hereto or certificate, report or other document or instrument made
or delivered pursuant to or in connection with this Agreement, such
determination or computation shall be done in accordance with generally accepted
accounting principles at the time in effect, to the extent applicable, except
where such principles are inconsistent with the express requirement hereof or of
such exhibit, certificate, report, document or instrument.
The words "hereof," "herein," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement.
All exhibits to this Agreement constitute material terms of this
Agreement and are incorporated fully into the terms of this Agreement.
20.16 COUNTERPARTS AND FACSIMILE SIGNATURES.
This Agreement may be executed in multiple counterparts, each of which
shall be an original, but which shall together constitute one agreement. The
parties agree that facsimile signatures attached to this Agreement shall be
valid and binding as an original signature.
[SIGNATURES FOLLOW ON NEXT PAGE]
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The parties have executed this Agreement on the day and year first
written above.
SELLERS:
KNIPP BROTHERS, INC.,
an Arizona corporation
By
-------------------------------------
LAWRENCE W. KNIPP
President
- ---------------------------------------
LAWRENCE W. KNIPP
BMHC:
BUILDING MATERIALS HOLDING
CORPORATION, a Delaware corporation
By
-------------------------------------
ROBERT E. MELLOR
President and Chief Executive Officer
BUYER:
BMHC FRAMING, INC.,
a Delaware corporation
By
-------------------------------------
ROBERT E. MELLOR
President and Chief Executive Officer
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
KNIPP BROTHERS INDUSTRIES, LLC
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT OF KNIPP
BROTHERS INDUSTRIES, LLC (the "Company") is made and entered into as of May 1,
1999, by and between the Members listed on Schedule 1 hereto, as an amendment
and restatement in its entirety of that certain Limited Liability Company
Agreement of Knipp Brothers Industries, LLC, entered into as of December 28,
1998 (the "Initial Agreement"), by and between Lawrence W. Knipp and KBI.
WHEREAS, for tax purposes it is intended that the Company shall
continue to be classified as a "partnership," and not an "association" taxable
as a "corporation," as those terms are defined in Section 7701 of the Code (as
defined below) and the applicable Treasury Regulations (as defined below)
promulgated thereunder.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein, intending to be legally bound, the parties to this Agreement hereby
agree that the Company shall be structured and operate as follows:
ARTICLE I.
DEFINITIONS
Unless the context otherwise requires, the terms defined in this
Article I shall, for the purposes of this Agreement, have the meanings herein
specified.
"ADDITIONAL CAPITAL CONTRIBUTIONS" shall mean for each Member, such
Member's additional capital contributions to the Company pursuant to Section 4.3
or Section 8.4.
"AFFILIATE" shall mean with respect to any Person, another Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with such Person.
"AGREEMENT" shall mean this Amended and Restated Limited Liability
Company Agreement of the Company, as amended, modified, supplemented or restated
from time to time in accordance with the terms hereof.
"BMHC" shall mean Building Materials Holding Corporation, a Delaware
corporation.
"BMHC FRAMING" shall mean BMHC Framing, Inc., a Delaware corporation
and a wholly-owned subsidiary of BMHC, and any person to whom BMHC Framing may
Transfer Interests in accordance with this Agreement.
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"BMHC FRAMING'S INITIAL CONTRIBUTION" shall mean a deemed contribution
to the Company in an amount equal to [$Redacted].
"BMHC MANAGER DESIGNATION" shall have the meaning set forth in Section
6.1.
"BMHC MEMBERS" shall mean BMHC Framing and any Person to whom BMHC
Framing may Transfer Interests in accordance with this Agreement.
"BMHC'S NET WORTH ADJUSTMENT" shall mean 49% of the Net Worth
Adjustment.
"CAPITAL ACCOUNT" shall mean, with respect to any Member, the account
maintained for such Member in accordance with the provisions of Article V
hereof.
"CAPITAL CONTRIBUTION" shall mean, with respect to any Member, the
aggregate amount of money and the initial Gross Asset Value of any property
(other than money) contributed to the Company pursuant to Sections 4.1 and 4.3
hereof (net of liabilities secured by such contributed property that the Company
is considered to assume or take subject to under Code Section 752) with respect
to such Member's Interest.
"CERTIFICATE" shall mean the Certificate of Formation of the Company
filed by an authorized Person on behalf of the Company with the office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act on
December 28, 1998, and any and all amendments thereto and restatements thereof
similarly filed.
"CHANGE OF CONTROL TRANSACTION" shall mean a transaction in which all
the business, Interests or assets of the Company are sold or otherwise
transferred to a party that is not an Affiliate of any Member or part of a group
(as defined in Section 13(d)(3) of the Exchange Act) including KBI or BMHC
Framing. A Change of Control Transaction may take the form of a sale of all of
the outstanding Interests of the Company, a merger or consolidation in which the
Members of the Company before the transaction do not own a majority of the
outstanding voting stock or other voting rights of the combined entity, a sale
of all or substantially all the assets of the Company, or the dissolution or
liquidation of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any corresponding federal tax statute enacted after the date of
this Agreement. A reference to a specific section of the Code refers not only to
such specific section but also to any corresponding provision of any federal tax
statute enacted after the date of this Agreement, as such specific section or
corresponding provision is in effect on the date of application of the
provisions of this Agreement containing such reference.
"CONSENT OF THE MEMBERS COMMITTEE" shall mean the unanimous approval,
authorization or ratification of the Members Committee, which approval,
authorization or ratification: (a) is duly given pursuant to the provisions of
Article VII of this Agreement, and (b) may be withheld for any reason in the
sole and absolute discretion of any Member participating on the Members
Committee.
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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"CONSENT OF THE MEMBERS" shall mean the vote or written consent of the
holders of a majority of the Interests eligible to vote upon a specific matter.
"CONTRIBUTION ACCOUNT" shall mean a single contribution account for
each Member. A Member's Contribution Account shall be equal to a Member's total
capital contributions and deemed capital contributions to the Company. With
respect to KBI, KBI's Contribution Account shall be equal to the sum of: (i)
KBI's Initial Contribution, (ii) KBI's Additional Capital Contributions
(excluding KBI's deemed capital contributions pursuant to Section 8.4, but
including 51% of the amount of BMHC Framing's contribution to the Company
pursuant to Section 6.1 of the Securities Purchase Agreement) and (iii) KBI's
Net Worth Adjustment. With respect to BMHC Framing, BMHC Framing's Contribution
Account shall be equal to the sum of (i) BMHC Framing's Initial Contribution,
(ii) BMHC Framing's Additional Capital Contributions (provided, however, BMHC
Framing's Contribution Account shall be increased by only 49% of the amount of
BMHC Framing's contribution to the Company pursuant to Section 6.1 of the
Securities Purchase Agreement.), and (iii) BMHC's Net Worth Adjustment. A
Member's unrecovered Contribution Account ("Unrecovered Contribution Account")
shall be equal to the Member's Contribution Account less the aggregate
distributions to such Member pursuant to Section 5.6A(a).
"DCP" shall have the meaning given such term in Section 8.4(b).
"DCP BONUSES" shall have the meaning given such term in Section 8.4(b).
"DELAWARE ACT" shall mean the Delaware Limited Liability Company Act, 6
Del. C. Section 18-101, ET SEQ., as amended from time to time.
"DISTRIBUTABLE CASH" shall mean all cash derived from the ordinary
business operations of the Company without reduction for any noncash charges,
but less cash needed to pay current operating expenses and to pay or establish
reasonable and prudent reserves for future expenses, debt payments, and capital
expenditures as determined by the Managing Member consistent with the annual
business plan of the Company. Distributable cash shall not include Net Cash From
Sales or Refinancings.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FISCAL YEAR" shall mean (a) the period commencing upon the formation
of the Company and ending on December 31, 1998, (b) any subsequent twelve (12)
month period commencing on January 1 and ending on December 31, or (c) any
portion of the period described in clause (b) of this sentence for which the
Company is required to allocate Net Profits, Net Losses and other items of
Company income, gain, loss or deduction pursuant to Article V hereof.
"GROSS ASSET VALUE" shall mean, with respect to any asset, such asset's
adjusted basis for federal income tax purposes, except as follows:
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(a) The initial Gross Asset Value of any asset
contributed by a Member to the Company shall be the gross fair market value of
such asset, as determined by the Managing Member in good faith and set forth in
a certificate signed by an officer thereof and delivered to each of the other
Members;
(b) The Gross Asset Value of all Company assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Managing Member in good faith and set forth in a certificate signed by an
officer thereof and delivered to each of the other Members, as of the following
times: (i) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company assets as consideration for the exchange or surrender of such
Member's Interest; (ii) the contribution to the Company by a Member of more than
a DE MINIMIS amount of assets in exchange for an Interest; and (iii) the
liquidation of the Company within the meaning of Treasury Regulation Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clause (i)
or (ii) of this sentence shall be made only if the Managing Member reasonably
determines that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members in the Company;
(c) The Gross Asset Value of any Company asset
distributed to any Member shall be the gross fair market value of such asset on
the date of distribution, as determined by the Managing Member in good faith and
set forth in a certificate signed by an officer thereof and delivered to each of
the other Members; and
(d) The Gross Asset Values of Company assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m).
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"INTEREST" of any Member shall mean a limited liability company
interest in the Company which represents such Member's rights and interests
under, and obligations to comply with the terms of, this Agreement, including
the Sharing Ratios attributable to such Interest and such Member's share of the
Net Profits and Net Losses of the Company and a Member's right to receive
distributions of the Company's assets in accordance with the provisions of this
Agreement and the Delaware Act.
"KBI" shall mean Knipp Brothers, Inc., an Arizona corporation;
"KBI'S INITIAL CONTRIBUTION" shall mean a deemed contribution to the
Company in an amount equal to [$Redacted].
"KBI MEMBERS" shall mean KBI and any Person to whom KBI may Transfer
Interests in accordance with this Agreement.
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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"KBI'S NET WORTH ADJUSTMENT" shall mean 51% of the Net Worth
Adjustment.
"LIQUIDATOR" shall have the meaning given to such term in Section 10.2.
"MANAGING MEMBER" shall have the meaning given to such term in Section
6.1.
"MEMBERS" shall mean all of the parties to this Agreement and any
Persons who may from time to time be admitted as such in accordance with the
provisions of this Agreement.
"MEMBER ACCEPTANCE" shall have the meaning given to such term in
Section 9.3(b).
"MEMBERS COMMITTEE" shall mean a committee consisting of one
representative selected by KBI and one representative selected by BMHC Framing.
"NET CASH FROM SALES OR REFINANCINGS" shall mean the net cash proceeds
from all sales, other dispositions and refinancings of Company assets other than
in the ordinary course of business, less any portion thereof used to establish
reasonable reserves, as determined by the Managing Member. "Net Cash From Sales
or Refinancings" shall include all principal and interest payments with respect
to any note or other obligation received by the Company in connection with the
sale or other disposition of Company assets other than in the ordinary course of
business.
"NET PROFITS" AND "NET LOSSES" shall mean, for each Fiscal Year or
other period, an amount equal to the Company's taxable income or loss for such
year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) Any income of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Net Profits or Net
Losses pursuant to this definition of "Net Profits" and "Net Losses" shall be
added to such taxable income or loss;
(b) Any expenditures of the Company described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise
taken into account in computing Net Profits or Net Losses pursuant to this
Section, shall be subtracted from such taxable income or added to such taxable
loss;
(c) In the event the Gross Asset Value of any Company
asset is adjusted pursuant to subsections (b), (c) or (d) of the definition
thereof, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Net Profits or
Net Losses;
(d) Gain or loss resulting from any disposition of
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by
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reference to the Gross Asset Value of the property disposed of, notwithstanding
that the adjusted tax basis of such property differs from its Gross Asset Value;
(e) In lieu of the depreciation, amortization and other
cost recovery deductions taken into account in computing such taxable income or
loss, the Company shall compute such deductions based on the Gross Asset Value
of a property; and
(f) Any items specially allocated pursuant to Section
5.10 and Section 8.4(d)(i) shall not be taken into account,
"NET WORTH ADJUSTMENT" shall mean an amount determined pursuant to
Section 1.23 and Section 5.2 of the Securities Purchase Agreement, divided by
.49.
"NOTICE OF OFFER" shall have the meaning given such term in Section
9.3(a).
"NOTICE RECEIPT DATE " shall have the meaning given such term in
Section 8.1.
"OFFERED INTERESTS" shall have the meaning given such term in Section
9.3(a).
"PARTICIPANTS" shall have the meaning given such term in Section
8.4(b).
"PARTICIPATING MEMBERS" shall have the meaning given to such term in
Section 9.8(a).
"PERSON" shall mean any individual, corporation, association,
partnership (general or limited), joint venture, trust, estate, limited
liability company, or other legal entity or organization.
"PRIME RATE" shall have the meaning set forth in Section 4.6.
"PURCHASE OFFER" shall have the meaning given to such term in Section
9.8(a).
"PUT" shall have the meaning given such term in Section 2 of the Put
Agreement.
"PUT AGREEMENT" shall mean the Put Agreement dated as of May 1, 1999,
by and among KBI, BMHC Framing, BMHC and the Company.
"PUT NOTICE" shall have the meaning given such term in Section 2 of the
Put Agreement..
"REDEMPTION" shall have the meaning set forth in Section 8.1.
"REDEMPTION NOTICE" shall have the meaning set forth in Section 8.1.
"REDEMPTION PRICE" shall mean an amount equal to: (x) the sum of: (i)
KBI's Unrecovered Contribution Account and (ii) 51% of the Undistributed Net
Profits, provided, however, in no event shall the portion of the Redemption
Price determined pursuant to clause
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(i) and (ii) be less than KBI's Initial Contribution reduced by all
distributions to KBI pursuant to Section 5.6A(a) prior to the Termination Date,
less (y) the amount by which the Redemption Price is to be reduced under Section
13.2 of the Securities Purchase Agreement, and plus (z) the amount by which the
Redemption Price is to be increased under Section 13.3 of the Securities
Purchase Agreement plus (aa) 51% of the Workers' Compensation Insurance Refund
provided, however, such refund amount(s) shall be paid to KBI within five
business days of the Company's receipt of same.
"SCHEDULE 1" shall mean the schedule of Members, Sharing Ratios and
Capital Contributions and deemed contributions attached to this Agreement as
Schedule 1, as such schedule may be amended by the Managing Member from time to
time, in accordance with the provisions of this Agreement.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SECURITIES PURCHASE AGREEMENT" shall mean the Securities Purchase
Agreement, dated as of March 22, 1999, by and among KBI, Lawrence W. Knipp, the
Company, BMHC Framing and BMHC.
"SELLING MEMBER" shall have the meaning set forth in Section 9.3(a).
"SHARING RATIO" shall mean with respect to each Member the percentage
set forth in the "Sharing Ratio" column on Schedule 1.
"SPECIAL LOAN" shall have the meaning set forth in Section 4.6.
"SUBSTITUTE MANAGERS" shall have the meaning set forth in Section 6.1.
"TERMINATION DATE " shall mean the Notice Receipt Date, or the date of
the BMHC Manager Designation (for purposes of Section 8.1), or the date of the
Put Notice, as applicable.
"TRANSFER" shall include any sale, assignment, mortgage, hypothecation,
gift, grant or transfer of any kind of an Interest or a portion thereof, whether
voluntary or involuntary, by bankruptcy or operation of law or otherwise, or the
creation of any agreement pursuant to which any Person shall have any interest
in the Company or in the distributions with respect to such interest. In the
case of a Member that is an entity, a Transfer shall include any transfer
(whether by sale of stock, merger, operation of law or otherwise) of 50% or more
of the outstanding voting power of such Member.
"TREASURY REGULATIONS" shall mean the income tax regulations, including
temporary regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"UNDISTRIBUTED NET PROFITS" shall mean the positive or negative number
equal to the aggregate Net Profits and Net Losses of the Company from the date
of this Agreement to the
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Termination Date less the aggregate distributions to the Members pursuant to
Section 5.6 prior to the Termination Date provided, however, that for purposes
of this definition of Undistributed Net Profits:
(i) Net Profits and Net Losses shall be computed on a
federal income tax basis without taking into account any adjustment to the tax
basis of the Company's assets pursuant to Sections 734 or 743 of the Code.
(ii) Net Profits and Net Losses shall be calculated
without taking into account any deduction for DCP Bonuses.
"WORKERS' COMPENSATION INSURANCE REFUND" shall mean an amount equal to
the Company's workers' compensation insurance refund(s) received after the
Termination Date that is attributable to periods ending on or before the
Termination Date, based on the ratio of the number of months prior to the
Termination Date to which such refund relates to the total number of months to
which such refund relates.
ARTICLE II.
FORMATION
---------
2.1 NAME. The name of the Company is "KNIPP BROTHERS INDUSTRIES,
LLC", and all business of the Company shall be conducted under that name or any
fictitious name or names selected by the Managing Member from time to time,
provided that any such name reflects the Company's status as a limited liability
company and is otherwise permitted by applicable law.
2.2 PLACE OF BUSINESS AND REGISTERED AGENT. The Company's initial
principal place of business shall be 6840 West Frier Avenue, Glendale, Arizona
85303, or such other place or places as the Managing Member may from time to
time determine. The registered agent for the service of process and the
registered office shall be that Person and location reflected in the
Certificate.
2.3 BUSINESS AND AUTHORITY. The Company may engage in any lawful
act or activity approved by the Members Committee for which a limited liability
company may be organized under the Delaware Act; including but not limited to
the lease or purchase of real or personal property, entry into joint ventures
and partnerships and such other activities related or incidental to the
foregoing as may necessary or advisable to further the Company's business.
2.4 COMPANY TERM. The term of the Company commenced on the filing
of the Certificate by an authorized Person with the office of the Secretary of
State of Delaware on December 28, 1998, and shall continue until the Company's
dissolution in accordance with the provisions of Article X of this Agreement.
2.5 EFFECT OF INCONSISTENCIES WITH THE DELAWARE ACT. It is the
express intention of the Members that this Agreement shall be the sole source of
agreement of the parties as to
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the subject matter hereof, and, except to the extent a provision of this
Agreement expressly incorporates federal income tax rules by reference to
sections of the Code or Treasury Regulations or is expressly prohibited or
ineffective under the Delaware Act, this Agreement shall govern, even when
inconsistent with, or different than, the provisions of the Delaware Act or any
other law or rule. To the extent that any provision of this Agreement is
prohibited or ineffective under the Delaware Act, this Agreement shall be deemed
to be amended to the smallest degree possible in order to make this Agreement
effective under the Delaware Act in accordance with the intent of the parties.
In the event the Delaware Act is subsequently amended or interpreted in such a
way to make any provision of this Agreement that was formerly invalid valid,
such provision shall be considered to be valid from the effective date of such
interpretation or amendment. The Members hereby agree that each Member shall be
entitled to rely on the provisions of this Agreement, and no Member shall be
liable to the Company or to any Member for any action or refusal to act taken in
good faith reliance on the terms of this Agreement. The Members hereby agree
that the duties and obligations imposed on the Members as such shall be those
set forth in this Agreement, which is intended to govern the relationship among
and between the Company and the Members, notwithstanding any provision of the
Delaware Act or common law to the contrary.
ARTICLE III.
MEMBERS AND INTERESTS
3.1 MEMBERS. There shall be one class of Members of the Company
with the rights, preferences and privileges set forth herein.
3.2 NAMES, ADDRESSES AND SHARING RATIOS OF THE MEMBERS. The
respective names, addresses, Sharing Ratios and required Capital Contributions,
if any, of the Members of the Company are set forth in Schedule 1.
3.3 REPRESENTATIONS AND WARRANTIES. Each Member hereby represents
and warrants to the Company and to the other Members that:
(a) Such Member understands and acknowledges that such
Member's respective Interests have not been registered under the Securities Act
or any state securities laws;
(b) Such Member understands and acknowledges that
Interests, or any portion thereof, may not be Transferred, except as provided in
Article IX hereof;
(c) The limitations on Transfer contained in this Section
3.3 and in Article IX of this Agreement create an economic risk that such Member
is capable of bearing;
(d) Such Member is acquiring its Interests for investment
and not with a view to the resale or distribution thereof in violation of the
Securities Act without prejudice, however, to its rights at all times to sell or
otherwise dispose of all or any part of said Interests pursuant to a
registration statement under the Securities Act, or pursuant to an exemption
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from the registration requirements thereof and subject, nevertheless, to the
disposition of its property being at all times within its control; and
(e) All property contributed to the Company as part of
such Member's Capital Contribution has been or will be contributed free and
clear of all liens, pledges, claims, security interests, encumbrances and
similar interests of any kind whatsoever, except as permitted hereunder.
ARTICLE IV.
CAPITAL CONTRIBUTIONS AND LOANS
4.1 CAPITAL CONTRIBUTIONS. Promptly upon the execution of the
Agreement, each Member who has not previously done so shall deliver to the
Company payment of such Member's Capital Contribution, in the form and amount
set forth on Schedule 1. The assets initially being contributed shall have the
values for income tax purposes set forth on Schedule 1, and the Members shall
file their tax returns consistent with such values.
4.2 INTEREST ON CAPITAL CONTRIBUTIONS. No Member shall be entitled
to receive any interest on such Member's Capital Contribution.
4.3 ADDITIONAL CAPITAL CONTRIBUTIONS. No Member shall be required
or permitted (a) to make any additional contribution to the capital of the
Company over and above that required by Sections 4.1 or 9.5 without the Consent
of the Members Committee; or (b) to restore a deficit Capital Account balance
upon the liquidation of the Company or such Member's Interest in the Company.
Additional contributions to the capital of the Company may be accepted on behalf
of the Company only with the Consent of the Members Committee. Such additional
contributions shall be in the ratio of 51% by the KBI Members and 49% by the
BMHC Members unless otherwise agreed by the Consent of the Members Committee. No
Member shall have any rights of first offer or preemptive rights with respect to
such contributions to the capital of the Company. Upon the acceptance of any
additional Capital Contributions, the Managing Member shall amend Schedule 1 to
reflect such Capital Contributions.
4.4 WITHDRAWAL OF CAPITAL. Except as set forth in this Agreement,
no Member may withdraw any portion of such Member's Capital Contributions from
the Company without the prior Consent of the Members Committee.
4.5 LOANS. Any Member may, at any time, make or cause loans to be
made to the Company in any amount and on such terms as may be approved by the
Consent of the Members Committee.
4.6 SPECIAL LOANS. It is the intent of the Members that the
Company obtain a commercial line of credit for funding its business operations.
If the Managing Member believes that the Company needs additional funding to
carry out its business operations in accordance with the approved annual
business plan of the Company and the Members
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Committee does not approve of the Members making Additional Capital
Contributions to provide such additional funding and financing is not available
from third parties on commercially reasonable terms, then the Managing Member
may, but shall not be obligated to, make a loan (a "Special Loan") to the
Company to provide such funding. A Special Loan shall not be considered a
Capital Contribution of the Managing Member or entitle it to any increase in its
share of the distributions of the Company. Each Special Loan made by the
Managing Member to the Company shall be an obligation of the Company, provided
that (i) no Member shall be personally obligated to repay the Special Loan and
(ii) the Special Loan shall be payable or collectible only out of the assets of
the Company. All Special Loans shall bear interest at the rate of 1% per annum
above the prime rate published in THE WALL STREET JOURNAL (the "Prime Rate")
from time to time, compounded monthly, while such Special Loans are outstanding.
If THE WALL STREET JOURNAL ceases to publish the Prime Rate, the Members
Committee shall reasonably determine a substitute method for determining the
Prime Rate. In no event shall the rate of interest on a Special Loan exceed the
highest rate permitted by law for the lender which, if exceeded, could subject
the Managing Member to penalties or forfeiture of all or any part of the
interest or principal; such rate of interest on a Special Loan shall
automatically be reduced to the highest level permitted without violating any
such law. All Distributable Cash and Net Cash From Sales or Refinancings (but
without deduction for payment of interest or principal on Special Loans) shall,
to the extent of available cash, be applied and paid monthly, first to the
payment of accrued interest on any Special Loans, then to the payment of
principal of any Special Loans, before any distribution is made to a Member as
stipulated in Section 5.6 or Section 5.6A.
ARTICLE V.
CAPITAL ACCOUNTS, DISTRIBUTIONS AND TAX MATTERS
5.1 CAPITAL ACCOUNTS. A separate Capital Account shall be
maintained for each Member.
5.2 INCREASES IN CAPITAL ACCOUNTS. Each Member's Capital Account
shall be increased by:
(a) The amount of cash contributed by the Member to the
Company (including the amount of any Company liabilities that are assumed by
such Member other than in connection with the distribution of Company property
as described in Treasury Regulation Section 1.704-1(b)(2)(iv)(b) and (c));
(b) The Gross Asset Value of real, personal, tangible and
intangible property contributed by the Member to the Company pursuant to
Sections 4.1 and 4.3 (net of liabilities secured by such contributed property
that the Company is considered to assume or take subject to under Code Section
752); and
(c) Allocations to the Member of Net Profits and any
items of income or gain that are specially allocated pursuant to Section 5.10.
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5.3 DECREASES IN CAPITAL ACCOUNTS. Each Member's Capital Account
shall be decreased by:
(a) The amount of cash distributed to the Member by the
Company (including the amount of such Member's individual liabilities that are
assumed by the Company other than in connection with contributions of property
to the Company as described in Treasury Regulation Section 1.704-1(b)(2)(iv)(b)
and (c));
(b) The Gross Asset Value of property distributed to the
Member by the Company (net of liabilities secured by such distributed property
that such Member is considered to assume or take subject to under Code Section
752); and
(c) Allocations to the Member of items of Net Losses and
any items of deduction or loss specially allocated pursuant to Section 5.10.
5.4 TRANSFER OF CAPITAL ACCOUNT AND SHARING RATIOS. In the event
of a Transfer of a Member's Interest, the Capital Account and Sharing Ratios of
the transferor shall become the Capital Account and Sharing Ratios of the
transferee to the extent it relates to the transferred Interest in accordance
with Treasury Regulation Section 1.704-1(b)(2)(iv).
5.5 COMPLIANCE WITH CODE SECTION 704(B). The manner in which
Capital Accounts are to be maintained pursuant to this Article V is intended to
comply with the requirements of Code Section 704(b) and the Treasury Regulations
promulgated thereunder (including the requirements for a qualified income
offset, minimum gain chargeback and chargeback of partner nonrecourse debt
minimum gain). If in the opinion of the Company's independent accountants the
manner in which Capital Accounts are to be maintained pursuant to the preceding
provisions of this Article V should be modified to comply with Code Section
704(b) and the Treasury Regulations thereunder, then, notwithstanding anything
to the contrary contained in the preceding provisions of this Article V, the
method in which Capital Accounts are maintained shall be so modified; provided,
however, that any change in the manner of maintaining Capital Accounts shall not
materially alter the economic agreement between or among the Members without the
Consent of the Members Committee.
5.6 DISTRIBUTIONS OF DISTRIBUTABLE CASH. After adjusting the
Capital Accounts of the Members to take into account allocations under Sections
5.7 through 5.10 hereof, the Managing Member shall make distributions of
Distributable Cash as follows:
(a) First, to the Members in an amount equal to 45% of
the allocations of Net Profits to such Members pursuant to Section 5.8 for such
Fiscal Year. The distributions to the Members pursuant to the immediately
preceding sentence shall be made quarterly based on an estimate of Net Profits
for each quarter (taking into account any Net Losses for any prior quarter
during such Fiscal Year); with the first quarter beginning on January 1, and
ending on March 31, of each Fiscal Year; the second quarter beginning on April
1, and ending on June 30, of each Fiscal Year; the third quarter beginning on
July 1, and ending on September 30, of each Fiscal Year; and the fourth quarter
beginning on October 1, and ending on December 31, of each Fiscal Year. The
distributions to the Members pursuant to
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immediately preceding sentence shall be made as soon as possible after the end
of each quarter, but no later than 45 days after the end of each quarter. As
soon as practicable after the actual Net Profits for a Fiscal Year are
determined, the Company shall make a distribution to each Member of the excess,
if any, of (i) 45% of the Net Profits allocated to such Member with respect to
such Fiscal Year over (ii) the aggregate quarterly distributions previously made
to such Member with respect to such Fiscal Year. For purposes of this Section
5.6(a), Net Profits and Net Losses shall be computed with the adjustments set
forth in clause (i) and (ii) in the definition of "Undistributed Net Profits;"
and
(b) Second, the Managing Member, with the Consent of the
Members Committee, may, but shall not be required to, make additional
distributions to the Members in accordance with their Sharing Ratios.
5.6A NET CASH FROM SALES OR REFINANCINGS. The Managing Member shall
distribute Net Cash From Sales or Refinancings during the term of the Company
within 30 days after the Company's receipt thereof to the Members in the
following order of priority:
(a) First, to the Members, to the extent of, and in
proportion to the respective excess (if any), for each Member of (i) such
Member's Contribution Account over (ii) the aggregate amounts previously
distributed to such Member pursuant to this Section 5.6A(a); and
(b) Second, to the Members in accordance with their
Sharing Ratios.
5.7 ALLOCATIONS OF NET LOSSES. After taking into account the
allocations made pursuant to Section 5.10 and Section 8.4(d)(i), Net Losses of
the Company shall be allocated to the Members in accordance with their Sharing
Ratios.
5.8 ALLOCATIONS OF NET PROFITS. After taking into account the
allocations made pursuant to Section 5.10 and Section 8.4(d)(i), Net Profits of
the Company shall be allocated to the Members in accordance with their Sharing
Ratios.
5.9. BONUSES. Subject to Section 8.4, the Company shall pay bonuses
to its employees and consultants in accordance with the approved annual business
plan of the Company, or as otherwise determined with the Consent of the Members
Committee.
5.10. REGULATORY ALLOCATIONS. Prior to any other allocations under
the foregoing provisions of this Article V, the following special allocations
shall be made in the following order:
(a) If there is a net decrease in Partnership Minimum
Gain (as defined below) during a taxable year, each Member shall be allocated
items of income and gain for such year in accordance with Section 1.704-2(f) of
the Treasury Regulations.
(b) If there is a net decrease in Partner Nonrecourse
Debt Minimum Gain (as defined below) during a taxable year, each Member who has
a share of such Partner
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Nonrecourse Debt Minimum Gain, determined in accordance with Section
1.704-2(i)(5) of the Treasury Regulations, shall be specifically allocated items
of income and gain for such year (and, if necessary, subsequent years) in
accordance with Section 1.704-2(i)(4) of the Treasury Regulations.
(c) In the event any Member unexpectedly receives any
adjustments, allocations or distributions described in paragraphs
(b)(2)(ii)(d)(4), (5), or (6) of Section 1.704-1 of the Treasury Regulations,
there shall be specially allocated to such Member such items of income
(including items of gross income) and gain, at such times and in such amounts as
will eliminate as quickly as possible that portion of its deficit (if any) in
its Capital Account (as increased for this purpose by the amount which such
Member is obligated to restore (pursuant to the terms of this Agreement or
otherwise) or deemed obligated to restore pursuant to Section
1.704-1(b)(2)(ii)(c) of the Treasury Regulations and the penultimate sentences
in Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations--the
Capital Account balance so adjusted being the "Adjusted Capital Account
Balance") caused or increased by such adjustments, allocations or distributions.
(d) No allocation under this Article V shall be made to a
Member which would cause or increase a deficit balance in such Member's
"Projected Capital Account" (as hereinafter defined) which exceeds the amount of
the Member's Share of Partnership Minimum Gain and Partner Nonrecourse Debt
Minimum Gain. For purposes of the foregoing rule, the determination as to
whether an allocation would create or increase a deficit balance in a Member's
Projected Capital Account shall be made as of the end of the Fiscal Year to
which such allocation relates. As used herein, the term "Projected Capital
Account" means, with respect to any Member, such Member's Adjusted Capital
Account Balance as of the last day of any applicable Fiscal Year but reduced by
any applicable projected adjustments, allocations or distributions in accordance
with the provisions of paragraphs (4), (5) and (6) of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d). The foregoing definition of Projected Capital
Account is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Treasury Regulations and shall be interpreted and
applied consistently therewith.
(e) For each taxable year or other period of the Company for
which allocations are made, all Nonrecourse Deductions shall be allocated to the
Members in accordance with their Sharing Ratios.
(f) Any and all Partner Nonrecourse Deductions shall be
allocated to the Member who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable, as determined in accordance with Section 1.704-2(i) of the
Treasury Regulations.
(g) For purposes of Section 752 of the Code and the Treasury
Regulations thereunder, excess nonrecourse liabilities (within the meaning of
Treasury Regulations Section 1.752-3(a)(3)) shall be allocated to the Members in
accordance with their Sharing Ratios.
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(h) The allocations set forth in this Section 5.10
(collectively, the "Regulatory Allocations") are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the Members that,
to the extent possible, all Regulatory Allocations shall be offset either with
other Regulatory Allocations or with special allocations of other items of
income, gain, loss, or deduction pursuant to this subparagraph (h). Therefore,
notwithstanding any other provision of Article V (other than the Regulatory
Allocations) offsetting special allocations of income, gain, loss or deduction
shall be made such that each Member's Capital Account balance is, to the maximum
extent possible, equal to the Capital Account balance such Member would have had
if the Regulatory Allocations were not part of this Agreement and all items were
allocated pursuant to Article V (other than Section 5.10).
(i) For purposes of this Agreement (i) "Partner
Nonrecourse Debt Minimum Gain," (ii) "Nonrecourse Deductions," (iii) "Partner
Nonrecourse Deductions," (iv) "Partner Nonrecourse Debt," and (v) "Partnership
Minimum Gain" shall have the respective meanings set forth in Section 1.704-2 of
the Treasury Regulations.
5.11 TAX MATTERS MEMBER.
(a) KBI is hereby designated as "Tax Matters Partner" of
the Company for purposes of Section 6231(a)(7) of the Code and is authorized and
required to represent the Company in connection with any administrative
proceeding at the Company level with the Internal Revenue Service relating to
the determination of any item of Company income, gain, loss, deduction or credit
for federal income tax purposes.
(b) The Tax Matters Partner shall arrange for the
preparation and timely filing of all returns relating to Company income, gains,
net losses, deductions and credits, as necessary for federal, state and local
income tax purposes.
5.12 SECTION 754 ELECTION. The Company shall make the election
under Section 754 of the Code, so as to adjust the basis of Company property in
the case of a distribution of property within the meaning of Section 734 of the
Code, and in the case of a Transfer of a Company Interest within the meaning of
Section 743 of the Code. Each Member shall, upon request of the Tax Matters
Partner, supply the information necessary to give effect to such an election.
Any Member or transferee first requesting an election hereunder shall reimburse
to the Company the reasonable out-of-pocket expenses incurred by the Company in
respect of such election, including any legal or accountants' fees to the extent
that such out-of-pocket expenses exceed [$Redacted]; thereafter, each transferee
shall reimburse such expenses with respect to adjustments under Section 743 of
the Code in the proportion which the interest of each transferee appears to the
sum of the interests of all transferees; the Company shall bear the expenses of
any adjustments under Section 734 of the Code.
5.13 ALLOCATIONS FOR TAX PURPOSES.
(a) Except as otherwise provided in Section 5.13(b), as
of the end of each Fiscal Year, items of Company income, gain, loss, deduction
and expense shall be allocated
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for federal, state and local income tax purposes among the Members in the same
manner as the income, gain, loss, deduction and expense of which such items are
components were allocated pursuant to Sections 5.7, 5.8, 5.10 and 8.4(d)(i).
(b) In accordance with Section 704(c) of the Code and the
Treasury Regulations thereunder, income, gain, loss and deduction with respect
to any property (other than cash) contributed or deemed contributed to the
capital of the Company shall, solely for federal, state and local income tax
purposes, be allocated among the Members so as to take account of any variation
between the adjusted basis of such property to the Company for federal, state
and local income tax purposes and its Gross Asset Value at the time of such
contribution. If the Gross Asset Value of any Company asset is adjusted pursuant
to the definition of Gross Asset Value hereunder, subsequent allocations of
income, gain, loss and deduction with respect to such asset for tax purposes
shall take account of any variation between the adjusted tax basis of such asset
for income tax purposes and its Gross Asset Value in the same manner as under
Code Section 704(c) and the Treasury Regulations thereunder. Such allocations
shall be made in such manner and utilizing such permissible tax elections as
determined in the reasonable discretion of the Managing Member.
(c) Allocations pursuant to this Section 5.13 are solely
for federal, state and local tax purposes and shall not affect, or in any way be
taken into account in computing, any Member's Capital Account or allocable share
of Net Profits or Net Losses or distributions pursuant to any provision of this
Agreement.
(d) The Members are aware of the tax consequences of the
allocations made by this Section 5.13 and hereby agree to be bound by the
provisions of this Section 5.13 in reporting their allocable shares of items of
Company income, gain, loss, deduction and expense.
5.14 WITHHOLDING. Notwithstanding anything expressed or implied to
the contrary in this Agreement, the Managing Member is authorized to take any
action that it reasonably determines to be necessary or appropriate to cause the
Company to comply with any foreign or United States federal, state or local
withholding requirement with respect to any allocation, payment or distribution
by the Company to any Member or other Person. All amounts so withheld, and in
the manner determined by the Managing Member, in its reasonable discretion,
amounts withheld with respect to any allocation, payment or distribution by any
Person to the Company, shall be treated as distributions to the applicable
Members under the applicable provisions of this Agreement. If any such
withholding requirement with respect to any Member exceeds the amount
distributable to such Member under this Agreement, or if any such withholding
requirement was not satisfied with respect to any amount previously allocated,
paid or distributed to such Member, such Member and any successor or assignee
with respect to such Member's Interest each hereby jointly and severally
indemnifies and agrees to hold harmless the other Members and the Company for
such excess amount or such withholding requirement (including any interest,
additions or penalties with respect thereto), as the case may be.
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ARTICLE VI.
MANAGEMENT
6.1 THE MANAGING MEMBER. The ordinary and usual decisions
concerning the business affairs of the Company shall be made by a managing
member (the "Managing Member"), who shall be a Member of the Company. The
Managing Member of the Company initially shall be KBI. KBI shall cease to be the
Managing Member upon the death or permanent disability of Lawrence W. Knipp.
Upon the death or permanent disability of Lawrence W. Knipp and until such time
as KBI Members have no Interests in the Company, the duties of the Managing
Member shall be assumed by two managers (the "Substitute Managers"), who shall
be [Redacted] and [Redacted]. Upon each anniversary date of this Agreement, the
Members shall review the Substitute Managers designated in the immediately
preceding sentence and KBI, in its sole and absolute discretion, shall determine
whether to designate one or more persons to replace the persons currently
designated as Substitute Managers. Upon the death or permanent disability of
Lawrence W. Knipp, BMHC Members may name one or more persons to replace the then
designated Substitute Managers provided, however, if BMHC Members exercise such
right (the "BMHC Manager Designation"), the KBI Interests shall be redeemed in
accordance with Section 8.1.
6.2 TERM OF MANAGING MEMBER. Subject to Section 6.1, the Managing
Member shall serve until the earliest of: (a) the date on which the Managing
Member ceases to be a Member of the Company; or (b) the resignation of the
Managing Member for any reason. Any vacancy in the office of the Managing Member
shall be filled by the Consent of the Members Committee.
6.3 POWERS OF MANAGING MEMBER. Subject to the limitations imposed
pursuant to the terms of this Agreement or by operation of law, the Managing
Member is individually authorized and empowered to carry out the purposes of the
Company and to act on behalf of the Company in taking any of the actions
described in this Section 6.3 or otherwise contemplated by the Delaware Act or
this Agreement; provided, however, that the Managing Member shall not approve or
take any action with respect to the following matters without the Consent of the
Members Committee: (i) effect a Change of Control Transaction; (ii) approval of
the annual business plan of the Company; (iii) enter into new lines of business;
(iv) enter into material transactions not contemplated by the annual business
plan; (v) make distributions of Distributable Cash in excess of the amounts set
forth in Section 5.6(a) or pay bonuses that are not in accordance with the
approved annual business plan of the Company as set forth in Section 5.9 or are
not pursuant to the DCP; (vi) effect a sale of the Company (regardless of the
form of such sale by merger, sale of assets, sale of Interests or otherwise);
(vii) except as otherwise provided in Section 8.1, effect a sale of the
Interests owned by the KBI Members on or before May 1, 2004; and (viii) amend
the DCP to increase or decrease the total expense to the Company of awards under
the DCP (including the Company's share of withholding taxes) to an amount
different than the amount under the DCP as originally adopted by the Company.
Subject to the limitations of this Agreement, the powers of the Managing Member
shall include, but not be limited to, the following:
Pursuant to a request for confidential treatment, selected information in this
document has been omitted and separately filed with the Securities and Exchange
Commission.
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(a) To engage personnel, independent attorneys,
accountants or such other Persons as may be deemed necessary or advisable;
(b) To implement all actions with respect to
distributions by the Company, dispositions of the assets of the Company,
borrowing of funds, execution of leases, contracts, bonds, guarantees, notes,
mortgages and other instruments on behalf of the Company;
(c) To open, maintain and close bank accounts and to draw
checks and other orders for the payment of money;
(d) To make, on behalf of the Company, all filings with
the Delaware Secretary of State as may be required or deemed desirable by the
Managing Member, including without limitation, filings to change the registered
agent and/or registered office of the Company;
(e) To take such other actions and to incur such expenses
on behalf of the Company as may be necessary or advisable in connection with the
conduct of the business of the Company;
(f) To bring and defend on behalf of the Company actions
and proceedings at law or in equity before any court or governmental,
administrative or other regulatory agency, body or commission or otherwise;
(g) To execute all documents or instruments, to perform
all duties and powers and do all things for and on behalf of the Company in all
matters necessary, desirable, convenient or incidental to the purposes of the
Company;
(h) To appoint and remove individuals as officers of the
Company, with such titles and such responsibilities as the Managing Member may
elect, including the offices of President, Vice President, Chief Operations
Officer, Chief Financial Officer and Secretary, to act on behalf of the Company
with such power and authority as the Managing Member may delegate; and
(i) To make distributions to Members pursuant to the
terms of Article V and Article X.
6.4 DUTIES OF MANAGING MEMBER. The Managing Member shall manage,
or cause to be managed, the affairs of the Company in a prudent and businesslike
manner and shall devote such time to the Company affairs as the Managing Member
determines to be reasonably necessary for the conduct of such affairs. The
Managing Member, in consultation with the BMHC Members, shall cause the Company
to employ certain persons designated by the BMHC Members and to work with such
persons so that they can learn the policies and practices of the Company's
business. In addition, the Managing Member shall cause the Company to establish
a lumber operation which will supply all the lumber requirements for the
Company's facilities in Phoenix and Tucson, Arizona and Las Vegas, Nevada. In
addition, the Managing Member shall cause the Company to lease from BMHC or its
subsidiary, BMC
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West Corporation, its facilities in Phoenix, Arizona and to lease from KBI its
facilities in Las Vegas, Nevada on terms mutually agreed upon by the Members
Committee.
6.5 LIABILITY OF MANAGING MEMBER. In carrying out its duties, the
Managing Member shall not be liable to the Company or to any of the Members for
any actions taken in good faith and reasonably believed to be in the best
interests of the Company, or for errors of judgment.
6.6 APPARENT AUTHORITY OF MANAGING MEMBER. All third parties
dealing with the Managing Member may rely conclusively upon any action taken in
the name of the Company by the Managing Member as having been taken on behalf of
the Company.
6.7 REIMBURSEMENT FOR EXPENSES. The Managing Member shall be
entitled to reimbursement from the Company for (or to cause the Company to pay
directly) all reasonable expenses, costs and fees incurred in connection with
the operation of the Company.
6.8 INDEMNIFICATION OF MANAGING MEMBER. The Company shall
indemnify and hold harmless the Managing Member against any loss, claim, damage,
or expense (including reasonable attorneys' fees and costs) arising out of any
claim, demand, suit, or action related to the performance or non-performance of
any act concerning the business or the activities of the Company, unless, as a
result of its performance or non-performance of such act, the Managing Member is
judged guilty in a final judgment by a court of competent jurisdiction of gross
negligence, gross misconduct, or willful malfeasance in connection therewith.
The Company shall reimburse the Managing Member for all costs and expenses
(including reasonable attorney's fees and expenses) incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not the Managing
Member is a party, as such costs and expenses are expended or incurred, subject
to the Managing Member's obligation to repay all such amounts if the Managing
Member is ultimately determined not to be entitled to indemnification pursuant
to this Section 6.8.
6.9 SPECIAL POWER OF ATTORNEY.
(a) Each Member hereby makes, constitutes and appoints
the Managing Member and any successor or substitute Managing Member(s), jointly
and severally, with full power of substitution and resubstitution, such Member's
true and lawful attorney for it in its name, place, and stead and for its use
and benefit to certify, acknowledge, swear to, file and record this Agreement,
and to certify, acknowledge, swear to, file and record all instruments amending
this Agreement, as now or hereafter amended in accordance with this Agreement,
and to sign, execute, certify, acknowledge, swear to, file and record all such
other documents that are necessary or appropriate: (i) to reflect the exercise
by the Managing Member of any of the powers granted to the Managing Member under
this Agreement; (ii) to reflect any amendments made to Schedule 1 by the
Managing Member pursuant to, and in accordance with, this Agreement; and (iii)
to reflect actions which may be required of the Company or the Managing Member
by the applicable laws of any jurisdiction. Each Member authorizes the
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attorney-in-fact to take any further action which such attorney-in-fact shall
consider necessary or advisable in connection with any of the foregoing, hereby
giving such attorney-in-fact full power and authority to do and perform each and
every act or thing whatsoever requisite or advisable to be done in and about the
foregoing as fully as the Member might or could do if personally present, and
hereby ratifying and confirming all that such attorney-in-fact shall lawfully do
or cause to be done by virtue hereof. Notwithstanding the foregoing, the
Managing Member may not, without the Consent of the Members Committee, take any
action pursuant to the powers granted in this Section 6.9 if, as a result of
such action, the rights or obligations of one or more Members would be changed
(unless the rights and obligations of all Members would be so changed).
(b) The special power granted in Section 6.9(a): (i) is
irrevocable; (ii) is coupled with an interest; and (iii) shall survive a
Member's death, incapacity or dissolution.
(c) The Managing Member may exercise the special power of
attorney granted in Section 6.9(a) by signature of a duly authorized officer of
the Managing Member.
6.10 INTERESTED PARTY TRANSACTIONS. No transaction between a Member
or Managing Member and the Company shall be voidable solely because such Member
or Managing Member has a direct or indirect interest in the transaction if (i)
either the transaction is fair to the Company or (ii) the Members Committee,
knowing the material facts of the transaction and such Member's or Managing
Member's interest, consents to the transaction.
ARTICLE VII.
MEMBERS
7.1 NO PARTICIPATION BY MEMBERS. Except as expressly set forth in
this Agreement, the Members shall not have any vote or take any part in the
control or management of the business of the Company, nor have any authority or
power to act for or on behalf of the Company in any manner whatsoever, other
than as specifically required by the Delaware Act. No Member who is not a
Managing Member or otherwise authorized by the Managing Member as an agent shall
take any action to bind the Company, and each Member taking unauthorized action
shall indemnify and hold harmless the Company for any costs or damages incurred
by the Company as a result of the unauthorized action of such Member.
7.2 LIMITED LIABILITY. Neither the Managing Member nor any Member
shall be obligated or liable to the Company, any creditor of the Company or any
other Person for any losses, debts, obligations or liabilities of the Company,
except as otherwise agreed in writing. Neither the Managing Member nor any
Member shall be liable to the Company, the other Members or the Managing Member,
creditors of the Company or any other Person for the repayment of amounts
received from the Company, except for such distributions received by the
Managing Member or Members from the Company in violation of this Agreement and
as otherwise required by law. The failure of the Company to observe any
formalities or requirements relating to the exercise of its powers or management
of its business or affairs
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under this Agreement or the Delaware Act shall not be grounds for imposing
direct liability on the Members or the Managing Member for liabilities of the
Company.
7.3 WITHDRAWAL. No Member shall have the right to withdraw as a
Member or take any voluntary action that would result in a dissolution of the
Company pursuant to Section 10.1 hereof.
7.4 MEETINGS. Meetings of the Members, for any purpose or
purposes, unless otherwise prescribed by statute, shall be held from time to
time and may be called by the Managing Member or BMHC Framing.
7.5 PLACE OF MEETINGS. The Managing Member may designate any
place, either within or outside the State of Delaware, as the place of meeting
for any meeting of the Members. Members or their authorized representatives may
participate in any meeting by telephone provided that all participants in the
meeting are able to speak and hear each other.
7.6 NOTICE OF MEETINGS. Except as provided in Section 7.7, written
notice stating the place, day and hour of a meeting and the purpose or purposes
for which the meeting is called shall be delivered not less than five nor more
than fifty days before the date of a meeting, either personally or by mail, by
or at the direction of the Member calling the meeting, to each Member.
7.7 MEETING OF ALL MEMBERS. If all of the Members shall meet at
any time and place, either within or outside of the State of Delaware, and
unanimously agree to the holding of a meeting at such time and place, such
meeting shall be valid without call or notice, and at such meeting lawful action
may be taken.
7.8 MANNER OF ACTING. Except for matters requiring the Consent of
the Members Committee, or as provided in Section 7.12, the Consent of the
Members shall be required for any collective action or approval of the Members,
unless the vote of a greater proportion or number is otherwise required by the
Delaware Act, by the Certificate, or by this Agreement.
7.9 PROXIES. At all meetings of Members, a Member may vote in
person or by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Managing Member of the
Company before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
7.10 ACTION BY MEMBERS WITHOUT A MEETING. Action required or
permitted to be taken at a meeting of Members may be taken without a meeting if
the action is evidenced by one or more written consents describing the action
taken, signed by all of the Members required to take such action (except for
matters requiring the Consent of the Members Committee), delivered to the
Company for inclusion in the minutes or for filing with the Company records, and
notice of such action is delivered to the Members not signing the written
consent(s) within five days. Action taken under this Section 7.10 is effective
when all of the Members required to take such action have signed the consent,
unless the consent
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specifies a different effective date. The record date for determining Members
entitled to take action without a meeting shall be the date the first Member
signs a written consent.
7.11 WAIVER OF NOTICE. When any notice is required to be given to
any Member, a waiver thereof in writing signed by or on behalf of the Member
entitled to such notice, whether before, at, or after the time stated therein,
shall be equivalent to the giving of such notice.
7.12 CHANGE OF CONTROL TRANSACTIONS. The Consent of the Members
Committee and the Consent of the Members shall be required for the Company to
enter into a Change of Control Transaction.
ARTICLE VIII.
REDEMPTION OF KBI INTERESTS; SALE OF THE COMPANY
8.1 REDEMPTION. Subject to the limitations set forth in this
Section 8.1, and subject to the provisions of Section 8.4, at any time, upon
written request by BMHC Framing, or upon BMHC Members exercising the BMHC
Manager Designation pursuant to Section 6.1, the Company shall directly, or
indirectly through BMHC Framing, redeem KBI's Interests (the "Redemption") for
an amount, in the aggregate, equal to the Redemption Price. The Redemption shall
take place not earlier than 60 days and not later than 180 days following, as
applicable, the date of the BMHC Manager Designation or the date (the "Notice
Receipt Date") that the Company and KBI receive from BMHC Framing a notice (the
"Redemption Notice") setting forth the request for redemption and whether the
Redemption Price will be paid in cash or BMHC Common Stock, or a combination of
cash and BMHC Common Stock. KBI agrees that it will surrender its Interest to
the Company or BMHC Framing upon payment of the Redemption Price free and clear
of any lien or encumbrance. The Redemption Price, or a portion thereof, may be
paid in Common Stock of BMHC at its then fair market value based upon the
average of the closing prices of the Common Stock of BMHC for the five most
recent trading days prior to the date of the BMHC Manager Designation or the
Notice Receipt Date, as applicable; provided, however, that KBI shall not be
required to accept Common Stock of BMHC in payment of the Redemption Price
unless such stock may be sold immediately in the public market at the closing of
the Redemption and BMHC agrees to arrangements, including a guaranty of the
aggregate amount KBI is entitled to receive if the Redemption Price were paid in
cash at the closing of the Redemption, reasonably acceptable to KBI to
effectively eliminate the risk of a reduction in the price of the Common Stock
of BMHC during a reasonable sale period of not to exceed six months beginning on
the closing of the Redemption. The Redemption Price shall be allocated for
income tax purposes among the assets of the Company pursuant to Code Sections
755 and 1060. Such allocation shall be on a tax basis, except for real property
which shall be based on fair market value. Any excess above the tax basis and
fair market value of real property shall be allocated to goodwill. The Members
agree to file their tax returns and the Company's tax returns on a basis
consistent with such allocations. BMHC Framing shall have no right to deliver
the Redemption Notice in order to effect a Redemption if KBI has previously
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delivered to BMHC the Put Notice, except to the extent that the Redemption
Notice permits BMHC Framing to pay all or a portion of the Redemption Price in
BMHC Common Stock.
If there shall be any outstanding loans, including, without limitation,
Special Loans, by KBI to the Company, such loans, including interest thereon
accrued and unpaid, shall be purchased by the Company or BMHC Framing, as
applicable, for the principal amount thereof and accrued and unpaid interest
thereon as a condition precedent to the Redemption. The purchase price for such
loans shall be paid, at KBI's option, by certified check drawn to the order of
KBI, or by wire transfer of immediately available funds to an account designated
by KBI. At the closing, KBI shall deliver to the Company or BMHC Framing, as
applicable, each note evidencing such loans.
8.2 DISTRIBUTIONS UPON A SALE OF THE COMPANY. Subject to Section
8.4, in the event of a Change of Control Transaction (other than with respect to
a sale or transfer of Interests in which event the consideration shall be paid
directly to the Members) the net proceeds shall be distributed to the Members in
accordance with the priorities set forth in Section 5.6A.
8.3 HSR FILINGS. The parties acknowledge that redemption of the
Members' Interests may require filings under the HSR Act. The Company and the
Members agree to cooperate with any Members and use reasonable efforts to comply
with any applicable requirements of the HSR Act; provided, however, that the
Company shall not be under any obligation to comply with any request that it
reasonably determines is unduly burdensome. Filing fees under the HSR Act shall
be paid by the Company. Any time periods specified with respect to the closing
of a Redemption in this Article VIII shall be extended if required to comply
with filing and waiting period requirements under the HSR Act. 8.4 PAYMENT OF
EMPLOYEE BONUSES.
(A) GENERAL. The provisions of this Section 8.4 shall
apply in connection with any transaction described in Sections 8.1, 8.2, 9.8 and
10.2 of this Agreement, and this Section 8.4 shall also apply to the
transactions contemplated by the Put Agreement.
(B) DEFERRED COMPENSATION PLAN. In connection with the
execution of this Agreement, the Company is adopting a Deferred Compensation
Plan (the "DCP") that will provide for the payment of bonuses to certain
employees of the Company (collectively the "Participants" and each a
"Participant") as set forth in the DCP. Subject to the terms and conditions of
the DCP, it is intended that the Participant bonuses provided for in the DCP
(the "DCP Bonuses") be paid by the Company to the Participants in connection
with any transaction described in Section 8.4(a) above.
(C) APPLICABILITY. In connection with a Redemption
described in Section 8.1 or KBI Members' sale of its Interests pursuant to the
Put Agreement, the Redemption Price (in the case of a Redemption) or the
Purchase Price, as defined in the Put Agreement (in the case of the Put), shall
be paid in cash, and not BMHC Common Stock, at
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least to the extent of the DCP Bonuses, it being the intent of the parties that
the DCP Bonuses be paid in cash and not BMHC Common Stock.
(i) In connection with a Redemption pursuant to
Section 8.1 initiated by the written request of BMHC Framing, a portion of the
Redemption Price, in the amount of the DCP Bonuses, shall be paid directly by
the Company in cash to the Participants upon the closing of the Redemption.
(ii) In connection with a Redemption pursuant to
Section 8.1 resulting from BMHC Members exercising the BMHC Manager Designation,
the Redemption Price otherwise payable to KBI at the closing of the Redemption
shall be reduced by the DCP Bonuses. In the case of a Redemption described n
this Section 8.4c)(ii), the Company shall pay the DCP Bonuses to the
Participants no later than the date that is five years after the date of this
Agreement, as set forth in the DCP.
(iii) In connection with a Change of Control
Transaction described in Section 8.2, the net proceeds received by KBI, whether
directly from a third party (in connection with a sale or transfer of KBI's
Interests), or pursuant to Section 5.6A, shall be, subject to the terms and
conditions of the DCP, used by KBI to pay the DCP Bonuses at the closing of such
transactions. If any proceeds to be received by KBI pursuant to a Change of
Control Transaction are deferred pursuant to an installment sale, KBI's payment
of the DCP Bonuses shall be deferred in a proportionate manner, and KBI's
payment of the deferred DCP Bonuses shall be made at the time of and in
proportion to KBI's receipt of the installment sale proceeds.
(iv) In connection with a dissolution and
termination of the Company, upon KBI's receipt of distributions pursuant to
Section 10.2(c), KBI shall pay, subject to the terms and conditions of the DCP,
the DCP Bonuses to the Participants. If any proceeds to be received by KBI
pursuant to Section 10.2(c) are deferred for any reason, KBI's payment of the
DCP Bonuses shall be deferred in a proportionate manner, and KBI's payment of
the deferred DCP Bonuses shall be made at the time of and in proportion to KBI's
receipt of the deferred proceeds.
(v) Any sale by KBI of a portion of its
Interests pursuant to Section 9.8, shall not require the payment by KBI of the
DCP Bonuses unless after such sale KBI has no further Interests in the Company.
(vi) In connection with KBI's sale of its
Interests pursuant to the Put Agreement, upon KBI's receipt of the Purchase
Price (as defined in the Put Agreement), KBI shall pay the DCP Bonuses.
(D) TAX TREATMENT. In connection with the transactions
described in Section 8.4(c), the Members agree that the following tax treatment
shall apply:
(i) In connection with the transactions
described in Sections 8.4(c)(i), 8.4(c)(iii), 8.4(c)(iv), 8.4(c)(v) and
8.4(c)(vi), KBI shall be treated as making an
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Additional Capital Contribution to the Company in the amount of the DCP Bonuses,
and the Company shall specially allocate to KBI, the tax deduction related to
the DCP Bonuses. (ii) In connection with the transaction described in Section
8.4(c)(ii), KBI shall be treated as receiving redemption proceeds equal to the
Redemption Price less the DCP Bonuses. There shall be no special allocation to
KBI of the tax deduction related to the DCP Bonuses.
(iii) It is the intent of the Members that the
transactions described in Section 8.4(c) (except for the transaction described
in Section 8.4(c)(ii)) be structured so that any gain or loss recognized by KBI
with respect to such transactions occurs in the same Fiscal Year of the Company
within which KBI is specially allocated the tax deductions related to the DCP
Bonuses and that KBI be a Member of the Company at the time the DCP Bonuses are
paid, and the Members agree to reasonably cooperate to effect such intent of the
Members.
(iv) In connection with the payment of the DCP
Bonuses to the Participants, the Company shall be considered the employer and
shall be responsible for and shall withhold all applicable payroll and
withholding taxes with respect to the DCP Bonuses.
ARTICLE IX.
ASSIGNMENT OF INTERESTS AND ADMISSION OF NEW MEMBERS
9.1 ASSIGNMENT OF A MEMBER'S INTEREST. Interests in the Company
may not be Transferred except as set forth in this Article IX. As a condition to
the proposed Transfer of any Interest by a Member, the Member proposing to
Transfer such Interest shall first have complied with the provisions of this
Article IX. Any attempted Transfer of any such Interest without compliance with
this Article IX shall be void and of no effect, and the Company shall not
recognize any such attempted Transfer for any purpose.
9.2 RESTRICTIONS ON TRANSFER.
(A) RESTRICTIONS ON TRANSFERABILITY. The Interests shall
not be Transferred except upon compliance with the provisions of the Securities
Act and this Agreement, and any attempted Transfer in violation of the terms
hereof is void AB INITIO and transfers no right, title or interest in or to any
Interests or any interest therein, whether now owned or hereafter acquired, to
the purported transferee, buyer, donee, assignee or encumbrance holder. Each
party to this Agreement will cause any proposed transferee of the Interests to
agree in writing to take and hold such Interests subject to the provisions and
upon the conditions specified in this Agreement.
(B) NOTICE OF PROPOSED TRANSFERS; SECURITIES LAW
COMPLIANCE. Prior to any proposed Transfer permitted hereunder, the Member shall
give written notice to the Company of such Member's intention to effect such
Transfer. Each such notice shall describe
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the manner and circumstances of the proposed Transfer in sufficient detail, and,
if requested by the Company, shall be accompanied by either (i) a written
opinion of legal counsel (who may be internal counsel) who shall be reasonably
satisfactory to the Company addressed to the Company and reasonably satisfactory
in form and substance to the Company's counsel, to the effect that the proposed
Transfer of the Interests may be effected without registration under the
Securities Act, (ii) a "no action" letter from the staff of the Securities and
Exchange Commission (the "Commission") to the effect that the Transfer of such
Interests without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, or (iii) such other
showing that may be reasonably satisfactory to legal counsel to the Company,
whereupon, subject to the other requirements of this Article IX, the Member
shall be entitled to Transfer such Interests only in accordance with the terms
of this Article IX. Notwithstanding the foregoing, the requirements of clauses
(i), (ii), or (iii) above need not be satisfied with respect to the following
transactions: (A) transactions in compliance with Rule 144 under the Securities
Act so long as the Company is furnished with satisfactory evidence of compliance
with such Rule; (B) Transfers by a Member which is a partnership or limited
liability company on a pro rata basis in accordance with the terms of the
partnership or limited liability company operating agreement to a general
partner, limited partner or member of such partnership or limited liability
company or a retired partner of such partnership or member of such limited
liability company who retires after the date hereof, or to the estate of any
such partner, member or retired partner or member; (C) Transfers by a Member
which is a corporation to any wholly-owned subsidiary or parent of such
corporation that wholly owns such corporation, or, on a pro rata basis in
accordance with ownership interests.
(C) PERMITTED TRANSFERS. Subject to compliance with the
applicable provisions of the Securities Act and with Section 9.2 (a) and (b), if
applicable, the following Transfers may be made without compliance with Section
9.3 or 9.8, subject to the transferee agreeing in writing to be bound by the
terms of this Agreement to the same extent as if such transferee were a party
hereto and subject to any conditions set forth below: (i) Transfers described in
clauses (A), (B) and (C) of Section 9.2(b) hereof; (ii) Transfers by an
individual Member by gift to his or her spouse or to the siblings, lineal
descendants, or ancestors of such individual or his or her spouse or to any
trust, partnership, limited liability company or other entity of which such
person or persons are beneficiaries, if, in the case of a Transfer to such an
entity, the transferor retains voting rights with respect to the Interests being
Transferred, and Transfers by any such entity to its beneficiaries; (iii)
Transfers contemplated by Section 9.8 hereof; (iv) pledges by BMHC Framing of
its Interests to a financial institution to secure indebtedness for money
borrowed; (v) Transfers pursuant to an effective registration statement under
the Securities Act or (vi) Transfers excluded from Section 9.3.
(D) TRANSFERS OF INTERESTS. Except as permitted by
Section 9.2(c), KBI shall not Transfer any Interests until May 1, 2004.
Thereafter, KBI may Transfer its Interests upon compliance with the other
provisions of Article IX. BMHC Framing may, prior to May 1, 2005, Transfer its
Interests upon compliance with Sections 9.2 and 9.3 and, after May 1, 2005, may
Transfer its Interests upon compliance with Sections 9.2, 9.3 and 9.8.
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9.3 RIGHTS OF FIRST REFUSAL.
(A) FIRST OFFER RIGHTS. A Member desiring to transfer its
Interests or any portion thereof (a "SELLING MEMBER") when permitted to do so
pursuant to Section 9.2 shall first give written notice to the Company of such
proposed Transfer (the "NOTICE OF OFFER"), specifying in reasonable detail all
of the material terms thereof, including the amount of the Interests proposed to
be transferred (the "OFFERED INTERESTS") and the identity of the proposed
transferee, if any, and the proposed purchase price for the Offered Interests
(the "OFFER PRICE"). The consideration for any such transfer must consist of
cash. The Company shall promptly deliver a copy of the Notice of Offer and the
related documents to all other Members. The Notice of Offer shall constitute an
irrevocable offer by the Selling Member to sell to the other Members the Offered
Interests at the Offer Price under the same terms and conditions contained in
the Notice of Offer. For 60 days after receipt by the other Members of such
notice, the other Members shall have the right (and may elect to assign such
right, in whole or in part) to purchase the Offered Interests on the same terms
as are indicated in the Notice of Offer.
(B) MEMBER NOTICE. Within 60 days following the receipt
by the other Members from the Company of the Notice of Offer, each other Member
desiring to purchase any of the Offered Interests shall notify the Selling
Member and the Company in writing as to the percentage of Offered Interests, if
any, that it is electing to purchase (such notification shall be referred to
hereinafter as the "MEMBER ACCEPTANCE"). The Member Acceptance shall be deemed
to be an irrevocable commitment to purchase from the Selling Member the
percentage of Offered Interests set forth in such Member Acceptance (or such
lesser amount as a result of any reduction required). It is the agreement of the
parties that the other Members as a group shall purchase all or none of the
Offered Interests unless the Selling Member elects to permit the other Members
to purchase less than all of the Offered Interests. If the Offered Interests are
less than the total number committed to be purchased in the Member Acceptances,
then the Offered Interests shall be allocated as nearly as practicable among
each Member who elected to purchase Offered Interests in the proportion that the
Sharing Ratio of such Member bears to the sum of Sharing Ratios of all other
Members electing to purchase Offered Interests. Each Member shall have a right
of over-subscription such that if any Member having a similar right fails to
exercise such right to purchase its pro rata portion of the Offered Interests,
the Company shall promptly notify the other Members and such Members may elect
in writing to purchase the non-purchasing Member's portion on a pro rata basis
(based on their Sharing Ratios), within five days of the date of the Company's
notice.
(C) SALE BY SELLING MEMBER. If the other Members do not
deliver sufficient Member Acceptances within 60 days following their receipt
from the Company of the Notice of Offer providing for the purchase by such
Members of all of the Offered Interests, the Selling Member (i) shall be under
no obligation to sell any of the Offered Interests to the other Members, unless
the Selling Member so elects, and (ii) may, within a period of 90 days from the
expiration of the 60-day period referred to above, sell all, but not less than
all, of the Offered Interests to one or more third parties (each a "THIRD PARTY
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TRANSFEREE"), for cash at a price per unit not less than 95% of the Offer Price
and on such other terms and conditions as are no more favorable to the proposed
Third Party Transferee than those specified in the Notice of Offer; provided,
however, that if there is more than one Third Party Transferee, the Selling
Member in good faith must obtain binding and definitive commitments to purchase
all the Offered Interests within such 90-day period before any sale to a Third
Party Transferee of the Offered Interests may take place. Upon any such sale,
the Third Party Transferee of such Offered Interests shall execute an agreement
in form and substance satisfactory to the Company and pursuant to which such
Third Party Transferee agrees that the Offered Interests it acquired from the
Selling Member are subject to the provisions of this Agreement. If the Selling
Member does not complete the sale of the Offered Interests at an Offer Price of
at least 95% of the Offer Price (and on such other terms and conditions as are
no more favorable to the proposed Third Party Transferee than those specified in
the Notice of Offer) within such 90-day period, the provisions of this Section
9.3 shall again apply, and no sale of Offered Interests held by the Selling
Member shall be made otherwise than in accordance with the terms of this
Agreement. If a proposed Transfer is initiated but not completed, the Member
initiating such Transfer shall only be entitled to initiate another Transfer of
Offered Interests subject to this Section 9.3 after the expiration of the
applicable 90-day period.
(D) CLOSING. The closing of purchases of Offered
Interests pursuant to this Section 9.3 shall take place within 90 days after the
date of the Notice of Offer at 11:00 A.M. local time at the principal offices of
the Company, or at such other date, time or place as the parties to the sale may
agree. At such closing, the Selling Member(s) shall sell, transfer and deliver
to the purchasing Members full right, title and interest in and to the Offered
Interests so purchased, free and clear of all liens, security interests or
adverse claims of any kind and nature (except as otherwise set forth in this
Agreement). At the closing, the purchasing Members shall deliver to the Selling
Member(s), by wire transfer of immediately available funds to such bank and
account as the Selling Member(s) shall designate, a cash amount equal to the
purchase price of the Offered Interests, if any, being acquired by such
purchaser, in full payment of the purchase price of the Offered Interests being
purchased. If any of the purchasing Members fail to close the purchase within 90
days after the date of the Notice of Offer (other than due to the Selling
Member's inability to timely close), then the Selling Member shall be free to
Transfer, to any person at any time and upon the same or different terms, all or
any portion of the Offered Interests proposed to be Transferred and not so
purchased, without compliance with any of the provisions of this Section 9.3;
provided that the eventual transferee executes an agreement in form and
substance satisfactory to the Company and pursuant to which such transferee
agrees that the Offered Interests it acquired from the Selling Member are
subject to the provisions of this Agreement. The parties acknowledge that the
acquisition of Interests pursuant to the provisions of Article IX may require
filings under the HSR Act. The Company and each Member agree to cooperate with
any other Member and use reasonable efforts to comply with any applicable
requirements of the HSR Act; provided, however, that the Company shall not be
under any obligation to comply with any request that it reasonably determines is
unduly burdensome. Filing fees under the HSR Act shall be paid by the Company.
Any time periods specified with respect to
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a closing contemplated by this Article IX shall be extended if required to
comply with filing and waiting period requirements under the HSR Act.
(E) DESIGNATED PURCHASERS. In exercising their rights
under this Section 9.3, each of the Members and the Company may also designate
one or more nominees to purchase some or all of the Offered Interests instead of
purchasing all of the Offered Interests itself.
(F) LIMITS AND TERMINATION. The provisions of this
Section 9.3 shall not pertain or apply to sales in which the rights provided in
Section 9.8 are exercised.
9.4 ADMISSION AND SUBSTITUTION OF ADDITIONAL MEMBERS.
(a) Additional Members may be admitted only with the
Consent of the Members Committee. Except as provided in the preceding sentence,
notwithstanding any other provision of this Agreement, no Person shall have any
right as a Member of this Company unless and until such Person is admitted as a
Member after such approval as is required by, and compliance with the other
conditions set forth in, this Section 9.4. Any transferee of an Interest who is
not admitted as a Member shall have only the right to receive such
distributions, when, as and if directed by the Managing Member or as otherwise
provided in this Agreement, and to receive such allocations, with respect to the
Interest transferred to such transferee, as are provided for in this Agreement,
and no voting, consent, inspection or other rights whatsoever, except as
otherwise required by the Delaware Act.
(b) Any Person may be admitted as a new Member only if
such Person shall have executed a counterpart of this Agreement or an
appropriate supplement to it, in which such Person agrees to be bound by the
terms and provisions of this Agreement as they may be modified by that
supplement. Any Person so admitted shall have all the rights and obligations of
a Member hereunder effective on and after the date of admission as a Member of
this Company.
9.5 INTEREST OF A NEW MEMBER. Upon receipt of any required Capital
Contribution from any newly admitted Member, the Managing Member shall provide
to each Member an amended Schedule 1 setting forth such new Member's Capital
Contribution and Sharing Ratio and the revised Sharing Ratios of the continuing
Members.
9.6 [INTENTIONALLY OMITTED]
9.7 [INTENTIONALLY OMITTED]
9.8 TAG-ALONG RIGHTS.
(A) THE TAG-ALONG RIGHTS NOTICE. If any Selling Member,
when otherwise permitted to sell its Interests hereunder, negotiates or receives
and elects to accept one or more bona fide offers to purchase or otherwise
acquire for value any of its Interests (a "PURCHASE OFFER"), such Selling
Member, subject to other restrictions contained herein, shall promptly notify in
writing the other Members (the "PARTICIPATING MEMBERS") and the
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<PAGE>
Company of the terms and conditions of such Purchase Offer (the "TAG-ALONG
RIGHTS NOTICE") and must include therewith a copy of drafts of all materials
relating to the Purchase Offer.
(B) THE RIGHTS. The Participating Members shall have the
right, exercisable upon written notice to the Selling Member within 20 days
after the date of receipt of the Tag-Along Rights Notice, to participate in
accordance with the terms and conditions set forth below in the Selling Member's
sale of its Interests pursuant to the specified terms and conditions of such
Purchase Offer. To the extent the Participating Members exercise such right of
participation, the Interests that the Selling Member may sell pursuant to such
Purchase Offer shall be correspondingly reduced. The rights of participation
shall be subject to the following terms and conditions:
(i) Each Participating Member may sell all or
any part of its Interests that is not in excess of its prorata share (based on
its Sharing Ratio in proportion to the Sharing Ratios of all Members) of the
Selling Member's Interest covered by the Purchase Offer.
(ii) Nothing herein shall prevent any Member from
waiving its rights under this Section 9.8.
(C) PROCEDURES.
(i) Each Participating Member may effect his,
her or its participation in the sale by delivering to the Selling Member, with a
copy to the Company, within the 20-day period specified under Section 9.8(b)
above, a written election to participate in the sale with respect to a specified
portion of its Interests.
(ii) The Interests elected to be sold by the
Participating Member shall be transferred by the Participating Member to the
maker(s) of the Purchase Offer in consummation of the sale of the applicable
Interests pursuant to the terms and conditions specified in the Tag-Along Rights
Notice to the Participating Member, and the maker(s) of the Purchase Offer shall
directly pay to such Participating Member that portion of the sale proceeds to
which such Member is entitled by reason of its participation in such sale;
provided however, that if there is any material change in the terms and
conditions of the transaction described in the Tag-Along Rights Notice
(including, without limitation, any decrease in the purchase price) after a
Participating Member makes the election set forth above, then such Participating
Member has the right to withdraw from or reduce its participation in such
transaction any or all of its Interests.
(D) FUTURE RIGHTS. The exercise or non-exercise of the
rights of the Participating Members to participate in one or more sales of
Interests made by a Selling Member shall not adversely affect the rights of the
Participating Member to participate in subsequent sales by a Selling Member
pursuant to this Section 9.8.
(E) LIMITS AND TERMINATION. The provisions of this
Section 9.8 shall not pertain or apply to: (i) Transfers made in accordance with
the provisions of Section 9.2(c) and,
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in the case of Participating Members, Section 9.8 hereof; and (ii) sales
pursuant to an effective registration statement under the Securities Act.
ARTICLE X.
DISSOLUTION AND TERMINATION OF THE COMPANY
10.1 EVENTS CAUSING DISSOLUTION. Notwithstanding any other
provision of this Agreement, the Company shall be dissolved and its properties
and other assets liquidated and the proceeds therefrom distributed in the manner
and order provided for in Section 10.2 upon the first to occur of any one of the
following:
(a) The Consent of the Members Committee and the Consent
of the Members;
(b) The sale of all or substantially all the assets of
the Company;
(c) The bankruptcy or dissolution of a Member, unless the
business of the Company is continued by the affirmative vote of remaining
Members owning more than fifty percent (50%) of the remaining Sharing Ratios in
the Company within 90 days after such bankruptcy or dissolution, at which time
the remaining Members may agree to the appointment of one or more additional
Members, Managing Members, or both; otherwise, the death, insanity, purported
withdrawal, retirement or resignation from the Company or expulsion of any
Member shall not cause a dissolution of the Company; or
(d) The entry of a decree of judicial dissolution under
the Delaware Act.
10.2 DISTRIBUTION ON TERMINATION. Upon a dissolution and
termination of the Company, the Person (who may be the Managing Member)
appointed for such purpose by the Managing Member (the "LIQUIDATOR") shall
collect and marshal the Company's assets; sell such assets as such Liquidator
shall deem appropriate; provide for the payment of all of the legally
enforceable obligations of the Company that are not then due; and distribute the
proceeds and all other assets of the Company in the following order:
(a) First, in payment of debts and liabilities of the
Company which are then due (including loans by Members and Special Loans);
(b) Second, at the discretion of the Liquidator, to the
setting up of any reserves which the Liquidator may deem necessary, appropriate
or desirable for any contingent or unforeseen liabilities or obligations or for
debts or liabilities of the Company (and, at the expiration of such period as
the Liquidator shall deem necessary, advisable or desirable to accomplish
payment of any such obligations, the Liquidator shall distribute the remaining
reserves in the manner hereinafter provided); and
(c) Third, to the Members in accordance with the
priorities set forth in Section 5.6A.
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10.3 AUTHORITY OF THE LIQUIDATOR. In carrying out the liquidation
proceedings the Liquidator shall have all of the powers and authority provided
to the Managing Member and the Members acting by Consent, and shall be entitled
to the benefits of limitation of liability and indemnification provided to the
Managing Member and Members in this Agreement.
10.4 LIQUIDATION STATEMENT. Each of the Managing Member and Members
shall be furnished with a statement prepared by the Liquidator, which shall set
forth the assets and liabilities of the Company as of the date of complete
liquidation. Upon the Company complying with the foregoing distribution plan,
the Members, if any, shall cease to be such, and the Liquidator shall execute,
acknowledge and cause to be filed such appropriate documents evidencing the
dissolution and winding up.
10.5 NO RESTORATION OF DEFICIT CAPITAL ACCOUNT. At no time during
or after the term of the Company shall a Member with a deficit balance in its
Capital Account have any obligation to the Company or to another Member or to
any other person to restore such deficit balance.
ARTICLE XI.
GENERAL PROVISIONS
11.1 DISPUTE RESOLUTION. The Members, the Managing Member and the
Company agree to negotiate in good faith to resolve any dispute between them
regarding this Agreement. If the negotiations do not resolve the dispute to the
reasonable satisfaction of all parties, then each party shall nominate one
senior manager of the functional rank of Vice President, general partner or
higher as its representative. These representatives shall, within 30 days of a
written request by any party to call such a meeting, meet in person and alone
(except for one assistant for each participant) and shall attempt in good faith
to resolve the dispute. If the disputes cannot be resolved by such senior
managers in such meeting, the parties agree that they shall, if requested in
writing by either party, meet within 30 days after such written notification for
one day with an impartial mediator and consider dispute resolution alternatives
other than litigation. If an alternative method of dispute resolution is not
agreed upon within 30 days after the one-day mediation, any party may begin
litigation proceedings. This procedure shall be a prerequisite before taking any
additional action hereunder.
11.2 FURTHER ASSURANCES. The Members agree to execute and deliver
to the Company, upon request, any and all additional certificates, instruments
and advice necessary to be filed, recorded or delivered in order to perfect the
formation, operation, termination and dissolution of the Company in accordance
with this Agreement, and to amend, supplement and cancel the Company's
Certificate as required, in the judgment of such Managing Member, to carry out
any of the foregoing.
11.3 AMENDMENTS. This Agreement may be amended at any time only by
the Consent of the Members Committee and the Consent of the Members.
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<PAGE>
11.4 NOTICES. Except as may be otherwise provided herein, all
notices and other communications required or permitted hereunder shall be in
writing and shall be conclusively deemed to have been duly given to the Members
or the Managing Member (a) when hand delivered; (b) when received when sent by
facsimile at the address and number set forth on Schedule 1 (provided, however,
that notices given by facsimile shall not be effective unless either (i) a
duplicate copy of such facsimile notice is promptly given by one of the other
methods described in this Section 11.4, or (ii) the receiving party delivers a
written confirmation of receipt for such notice either by facsimile or any other
method described in this Section 11.4); (c) three business days after deposit in
the U.S. mail with first class or certified mail receipt requested postage
prepaid as set forth on Schedule 1; or (d) the next business day after timely
deposit with a national overnight delivery service, postage prepaid, addressed
to the parties as set forth below with next business day delivery guaranteed,
provided that the sending party receives a confirmation of delivery from the
delivery service provider. A Member may change or supplement the addresses given
above, or designate additional addresses, for purposes of this Section 11.4 by
giving the Company and the other Members written notice of the new address in
the manner set forth above. Notices to the Company shall be given in the same
manner and shall be addressed to it at its principal place of business.
11.5 INCORPORATION BY REFERENCE. The recitals and Schedules to this
Agreement are hereby incorporated herein by this reference as if set forth here
in full.
11.6 SEVERABILITY. Subject to Section 2.5, if any term, provision,
agreement or condition of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, then such term, provision,
agreement or condition shall be deemed to be amended to the smallest degree
possible in order to make such term, provision, agreement or condition of this
Agreement valid or enforceable in accordance with the intent of the parties, and
the rest of this Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
11.7 COUNTERPARTS. The Members may execute this Agreement in one or
more counterparts, which shall, in the aggregate, constitute one instrument.
11.8 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would call for the
application of the substantive laws of any jurisdiction other than the State of
Delaware.
11.9 SUCCESSORS. This Agreement shall be binding on and inure to
the benefit of the respective successors, assigns, and personal representatives
of the parties.
11.10 THIRD PARTY BENEFICIARIES. This Agreement is not intended to
create any rights or remedies in favor of any Person who is not a signatory to
this Agreement or in any way create any third-party beneficiary rights or
remedies, including (except as specifically provided to the contrary herein) on
behalf of any transferee not admitted as a Member.
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<PAGE>
11.11 COMPLETE AGREEMENT. This Agreement and the Certificate
constitute the complete and exclusive statement of agreement among the Members
and the Managing Member with respect to the subject matter herein and therein
and replace and supersede all prior written and oral agreements or statements.
No representation, statement, condition or warranty not contained in this
Agreement or the Certificate will be binding on the Members or Managing Member
or have any force or effect whatsoever.
11.12 PRONOUNS: STATUTORY REFERENCES. All pronouns and all
variations thereof shall be deemed to refer to the masculine, feminine, or
neuter, singular or plural, as the context in which they are used may require.
Any reference to the Code, the Treasury Regulations, the Delaware Act, or other
statutes or laws will include all amendments, modifications, or replacements of
the specific sections and provisions concerned.
11.13 HEADINGS. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
11.14 INTERPRETATION. In the event any claim is made by any Member
relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied by virtue of the
fact that this Agreement was prepared by or at the request of a particular
Member.
11.15 ENTITY CLASSIFICATION. It is the intention of the Members that
the Company be treated as a partnership for income tax purposes. The Managing
Member shall, for and on behalf of the Company, take all steps as may be
required to maintain the Company's classification as a partnership for federal
and state tax purposes, including affirmatively (if required under Treasury
Regulation Section 301.7701-3) or protectively filing Form 8832 no later than 75
days after the effective date of this Agreement. By executing this Agreement,
each of the parties hereto consents to the authority of the Managing Member to
make any such election and shall cooperate in the making of such election
(including providing consents and other authorizations that may be required).
11.16 SPECIFIC PERFORMANCE. The parties recognize that irreparable
injury will result from a breach of any provision of this Agreement and that
money damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to seek preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach of this Agreement or (ii) compelling the performance of any obligation
which, if not performed, would constitute a breach of this Agreement.
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, this Amended and Restated Limited Liability Company
Agreement has been duly executed by each of the parties hereto.
KNIPP BROTHERS, INC. (AS MANAGING MEMBER)
By: /s/ LAWRENCE W. KNIPP
-----------------------------------
Name: Lawrence W. Knipp
Title: President
MEMBERS:
BMHC FRAMING, INC.
By: /s/ ELLIS C. GOEBEL
-----------------------------------
Name: Ellis C. Goebel
Title: Senior Vice-President of Finance
and Treasurer
KNIPP BROTHERS, INC.
By: /s/ LAWRENCE W. KNIPP
-----------------------------------
Name: Lawrence W. Knipp
Title: President
35
<PAGE>
MANAGING MEMBER'S ACKNOWLEDGMENT
IN WITNESS WHEREOF, the undersigned, by the signature of its authorized
representative below, hereby acknowledges and accepts its designation by the
Members as the Managing Member of the Company.
KNIPP BROTHERS, INC.
By: /s/ LAWRENCE W. KNIPP
-----------------------------------
Name: Lawrence W. Knipp
Title: President
36
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SCHEDULE 1
MEMBERS, SHARING RATIOS, CAPITAL CONTRIBUTIONS
AND DEEMED CONTRIBUTIONS
CAPITAL
CONTRIBUTIONS AND
DEEMED
MEMBERS' NAMES AND ADDRESSES SHARING RATIO CONTRIBUTIONS
- ---------------------------- ------------- -------------
MEMBERS:
Knipp Brothers, Inc. 51%
1624 Hidden Springs
Las Vegas, NV 89117
Attention: Lawrence W. Knipp
Fax: __________________
BMHC Framing, Inc. 49%
One Market Plaza
Steuart Tower, Suite 2650
San Francisco, CA 94105
Attention: Robert E. Mellor
Fax: __________________
TOTAL: 100%
37
PUT AGREEMENT
This PUT AGREEMENT (the "AGREEMENT") is made and entered into as of the
30th day of April, 1999, by and between Knipp Brothers, Inc., an Arizona
corporation ("KBI"), BMHC Framing, Inc., a Delaware corporation ("FRAMING"),
Building Materials Holding Corporation, a Delaware corporation ("BMHC") and
Knipp Brothers Industries, LLC, a Delaware limited liability company (the
"LLC").
RECITALS
WHEREAS, KBI and Knipp formed the LLC in December 1998;
WHEREAS, in connection with the transactions contemplated hereby, KBI and
Framing have entered into an Amended and Restated Limited Liability Company
Agreement for the LLC (the "Operating Agreement");
WHEREAS, KBI, Lawrence W. Knipp ("Knipp"), BMHC and Framing have entered
into a Securities Purchase Agreement, dated as of March 23, 1999 (the "Purchase
Agreement"), pursuant to which Framing has acquired a 49% interest in the LLC;
and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement that the parties enter into this
Agreement.
NOW THEREFORE, in consideration of the mutual covenants, promises and
representations set forth herein, and for other good and valuable consideration
the receipt of which is hereby acknowledged, the parties agree as follows.
AGREEMENT
1. CERTAIN DEFINITIONS. Capitalized terms used but not defined in this
Agreement shall have the meanings ascribed to such terms in the Operating
Agreement.
2. GRANT OF PUT. Upon the terms and subject to the conditions set forth
in this Agreement, BMHC hereby grants to the KBI Members the right to require
BMHC to purchase (the "Put") all of the Interests held by the KBI Members in the
LLC. The Put may be exercised during the period commencing on April 30, 2004 and
terminating at 5:00 p.m. California time on April 30, 2005 (the "Term") by KBI
Members providing written notice (the "Put Notice") to BMHC during the Term of
the election to exercise the Put. The Put shall terminate upon the earlier of
(i) the expiration of the Term; (ii) the closing of a Redemption in accordance
with the terms of Article VIII of the Operating Agreement; or (iii) the closing
of a Change of Control Transaction of the LLC. The Put may be exercised only in
whole and not in part. If during the stated Term set forth in this Section 2,
and prior to KBI Members providing the Put Notice to BMHC, Framing delivers a
Redemption Notice pursuant to Section 8.1 of the Operating Agreement or BMHC
Members exercise the BMHC Manager Designation, or the Members are
38
<PAGE>
undertaking a Change of Control Transaction, the stated Term shall be extended
by a period of time equal to the period of time that the Redemption or Change of
Control Transaction is pending in the event that the Redemption or Change of
Control Transaction does not close.
3. PURCHASE PRICE AND LOANS.
(a) The purchase price (the "Purchase Price") for the KBI Members'
Interests shall be equal to the Redemption Price, determined as of the date of
the Put Notice.
(b) The Purchase Price may be paid in cash or Common Stock of BMHC or
a combination of cash and BMHC Common Stock with any BMHC Common Stock valued at
its then fair market value based upon the average of the closing prices of the
Common Stock of BMHC for the five most recent trading days prior to the date of
the Put Notice; provided, however, that KBI Members shall not be required to
accept Common Stock of BMHC in payment of all or a portion of the Purchase Price
unless such stock may be sold immediately in the public market at the Closing
and BMHC agrees to arrangements, including a guaranty of the aggregate amount
KBI Members are entitled to receive if the Purchase Price were paid in cash at
the Closing, reasonably acceptable to KBI Members, to effectively eliminate the
risk of a reduction in the market price of the Common Stock of BMHC during a
reasonable sale period of not to exceed six months beginning on the Closing.
(c) If there shall be any outstanding loans, including, without
limitation, Special Loans, by KBI Members to the LLC, such loans, including
interest thereon accrued and unpaid, shall be purchased by BMHC for the
principal amount thereof and accrued and unpaid interest thereon at the Closing.
The purchase price for such loans shall be paid, at KBI Members' option, by
certified check drawn to the order of KBI Members, or by wire transfer of
immediately available funds to an account designated by KBI Members. At the
Closing, KBI Members shall deliver to BMHC each note evidencing such loans.
(d) The provisions of Section 8.4 of the Operating Agreement
pertaining to this Agreement are specifically incorporated herein and made
applicable to this Agreement.
4. CLOSING OF PUT.
(a) The closing of the transactions contemplated hereby shall take
place at the offices of BMHC, One Market Plaza, Steuart Street Tower, San
Francisco, California 94105 , at 10:00 a.m. California time, not earlier than 60
days nor later than 180 days after receipt of the Put Notice or at such other
time and place as BMHC and KBI Members mutually agree upon (which time and place
are referred to in this Agreement as the "Closing"). At the Closing, the KBI
Members will deliver to BMHC instruments evidencing the transfer of its
Interests in the LLC and its withdrawal from the LLC, all against delivery by
BMHC to the KBI Members of the Purchase Price and the payment for the purchase
of loans and Special Loans, if any, in accordance with Section 3(c).
2
<PAGE>
(b) The parties acknowledge that exercise of the Put and purchase by
BMHC of the KBI Members' Interests may require filings under the HSR Act. Each
of the parties hereto agree to cooperate with each other and use reasonable
efforts to comply with any applicable requirements of the HSR Act; provided,
however, that no party shall be under any obligation to comply with any request
that it reasonably determines is unduly burdensome. Filing fees under the HSR
Act shall be paid by the LLC. Any time periods specified with respect to the
closing of the Put in this Section 4 shall be extended if required to comply
with filing and waiting period requirements under the HSR Act.
(c) Upon exercise of the Put, the Purchase Price shall be allocated
for income tax purposes among the assets of the LLC pursuant to Section 755 and
1060 of the Internal Revenue Code. Such allocation shall be on a tax basis,
except for real property, which shall be allocated based on fair market value.
Any excess above the tax basis and fair market value of real property shall be
allocated to goodwill. BMHC and KBI Members agree that they will file their tax
returns on a basis consistent wth such allocations.
5. BMHC OBLIGATION. BMHC may assign its rights under this Agreement to an
Affiliate, but such assignment shall not relieve BMHC of any of its obligations
under this Agreement.
6. MISCELLANEOUS.
(a) Successors and Assigns. The terms and conditions of this
Agreement will inure to the benefit of and be binding upon the respective
successors of the parties. The Put is not transferable by KBI or the KBI Members
without the written consent of BMHC, which consent may be withheld in BMHC's
absolute discretion.
(b) Governing Law. This Agreement will be governed by and construed
under the internal laws of the State of Delaware, without reference to
principles of conflict of laws or choice of laws.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(d) Headings. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules will, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
(e) Notices. Any notice required or permitted under this Agreement
shall be given in accordance with the provisions of Section 20.6 of the Purchase
Agreement.
3
<PAGE>
(f) Amendments and Waivers. This Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of Framing and BMHC on the one hand and KBI Members and Knipp on
the other hand. Any amendment or waiver effected in accordance herewith will be
binding upon each of the parties hereto and their respective successors and
assigns.
(g) Severability. If any provision of this Agreement is held to be
unenforceable under applicable law, such provision will be excluded from this
Agreement and the balance of the Agreement will be interpreted as if such
provision were so excluded and will be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties with respect to the
subject matter hereof.
(i) Further Assurances. From and after the date of this Agreement
upon the request of BMHC or KBI Members, the parties hereto will execute and
deliver such instruments, documents or other writings as may be reasonably
necessary or desirable to confirm and carry out and to effectuate fully the
intent and purposes of this Agreement.
(j) Fees, Costs and Expenses. All fees, costs and expenses (including
attorney's' fees and expenses) incurred by any party hereto in connection with
the preparation, negotiation and execution of this Agreement the consummation of
the transactions contemplated hereby (including the costs associated with any
filings with, or compliance with any of the requirements of, any governmental
authorities), shall be the sole and exclusive responsibility of such party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
BUILDING MATERIALS HOLDING CORPORATION KNIPP BROTHERS, INC.
By: /s/ Ellis C. Goebel By: /s/ Lawrence W. Knipp
Title: Senior VP Finance & Treasurer Title: President
BMHC FRAMING, INC. KNIPP BROTHERS INDUSTRIES, LLC
By: /s/ Ellis C. Goebel By: Knipp Brothers, Inc.,
Title: Senior VP Finance & Treasurer Managing Member
By: /s/ Lawrence W. Knipp
Lawrence W. Knipp, President
4
<PAGE>
FA990360.022/4+
5
ASSET PURCHASE AGREEMENT
among
ROWLAND MANUFACTURING CORPORATION
a Texas corporation,
d/b/a ROYAL DOOR COMPANY, INC.
JAMES ROWLAND and JOHN ROWLAND
and
BMCW, LLC
a Delaware limited liability company
dated as of October 13, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS......................................................1
1.1 Business...........................................................1
1.2 Closing............................................................1
1.3 Closing Date.......................................................1
1.4 Contracts..........................................................1
1.5 Due Diligence Period...............................................1
1.6 Environmental Laws.................................................2
1.7 Equipment..........................................................2
1.8 Excluded Assets....................................................2
1.9 Financial Statements...............................................2
1.10 Hazardous Material.................................................2
1.11 Inventory..........................................................2
1.12 Leased Locations...................................................3
1.13 Leases.............................................................3
1.14 Noncompete Agreement...............................................3
1.15 Purchased Assets...................................................3
1.16 Purchase Price.....................................................3
1.17 Reserve............................................................3
1.18 Seller's Liabilities...............................................3
1.19 Subcontractor Accounts.............................................3
1.20 Termination Date...................................................4
1.21 Trade Accounts Receivable..........................................4
1.22 Trade Names and Trademarks.........................................4
ARTICLE II - DUE DILIGENCE...................................................4
2.1 Due Diligence......................................................4
2.2 Due Diligence Activities...........................................4
2.3 Confidentiality During Due Diligence...............................5
2.4 Termination of Agreement...........................................5
2.5 Exclusive Dealing..................................................6
ARTICLE III - PURCHASE AND SALE..............................................6
3.1 Purchase and Sale..................................................6
ARTICLE IV - DETERMINATION OF PURCHASE PRICE.................................6
4.1 Determination......................................................6
4.1.1 Inventory.....................................................6
4.1.2 Equipment.....................................................8
4.1.3 Trade Accounts Receivable.....................................8
4.1.4 Premium/Noncompete Agreement..................................8
4.2 Allocation of Value................................................8
4.3 Assumption of Liabilities..........................................8
4.3.1 Customer Deposits.............................................8
4.3.2 Sales Commissions.............................................8
4.3.3 Nonassumption of the Seller's Liabilities.....................8
ARTICLE V - TERMS OF PAYMENT.................................................9
5.1 Payment Due at Closing.............................................9
5.2 Reserve............................................................9
5.3 Returns and Allowances............................................10
5.4 Post Closing Adjustments..........................................10
-i-
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ARTICLE VI - BUILDING MATERIALS HOLDING CORPORATION COMMON STOCK............10
6.1 Stock Delivered at Closing........................................10
6.2 Registration of Stock.............................................11
6.3 Stock Transfer Restrictions.......................................11
6.4 Access to Data....................................................11
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF SELLER......................12
7.1 Authorization.....................................................12
7.2 Tax Matters.......................................................12
7.3 Compliance with Laws, Licenses, and Permits.......................12
7.4 Financial Statements; Undisclosed Liabilities.....................12
7.5 Legal Proceedings.................................................13
7.6 Contracts and Leases..............................................13
7.7 Trade Accounts Receivable.........................................13
7.8 Equipment.........................................................13
7.9 Labor Matters.....................................................13
7.10 Brokers and Finders...............................................14
7.11 Environmental Laws................................................14
7.12 Operating Restrictions............................................14
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF BUYER......................14
8.1 Corporate Status..................................................14
8.2 Corporate Authority...............................................14
8.3 Legal Proceedings.................................................15
8.4 Brokers and Finders...............................................15
ARTICLE IX - COLLECTION OF RECEIVABLES......................................15
9.1 Guaranty of Collectibility........................................15
9.2 Guaranty of Collectibility of Subcontractor Accounts..............15
ARTICLE X - LEASED LOCATIONS................................................15
10.1 Warranty of Leased Locations......................................15
10.2 Landlord's Consent................................................16
ARTICLE XI - EMPLOYEES......................................................16
11.1 Definition........................................................16
11.2 Termination.......................................................16
11.3 Buyer's Offer of Employment.......................................16
11.4 Labor Contracts...................................................16
11.5 Pension Plans.....................................................16
11.6 Employee Claims...................................................17
11.7 Nonassumption of Obligations Owed Employees.......................17
ARTICLE XII - NONCOMPETE AGREEMENT..........................................17
12.1 Noncompete........................................................17
ARTICLE XIII - INDEMNITIES..................................................17
13.1 Seller............................................................17
13.2 Rowlands..........................................................17
13.3 Buyer.............................................................18
ARTICLE XIV - TAXES AND UTILITIES...........................................18
14.1 Transfer Taxes....................................................18
14.2 Utilities, Personal Property or Real Estate Taxes.................18
ARTICLE XV - CONDUCT OF OPERATIONS PRIOR TO CLOSING.........................18
15.1 Conduct of Operations.............................................18
15.2 Cooperation.......................................................18
ARTICLE XVI - CLOSING.......................................................19
16.1 Closing...........................................................19
16.2 Time is of the Essence............................................19
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ARTICLE XVII - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE................19
17.1 Continued Truth of Warranties.....................................19
17.2 Performance of Obligations........................................19
17.3 Delivery of Closing Documents.....................................19
17.4 Litigation........................................................19
17.5 Government Approvals..............................................20
17.6 Material Adverse Change...........................................20
17.7 Assignment of Leases..............................................20
17.8 Customers of Business.............................................20
17.9 Consent of Buyer's Lenders........................................20
17.10 Approval of Board.................................................20
17.11 Subcontractor Accounts............................................20
ARTICLE XVIII - CONDITIONS PRECEDENT TO SELLER'S AND SELLING
SHAREHOLDERS' DUTY TO CLOSE ..............................................20
18.1 Continued Truth of Warranties.....................................21
18.2 Performance of Obligations........................................21
18.3 Delivery of Closing Documents.....................................21
18.4 Litigation........................................................21
ARTICLE XIX - ITEMS TO BE DELIVERED AT CLOSING BY SELLER....................21
19.1 Bill of Sale......................................................21
19.2 Assignment and Assumption Agreements..............................21
19.3 Assignment and Assumption of Leases...............................21
19.4 Landlord Consents; Lessor Estoppel................................21
19.5 Title Certificates................................................22
19.6 Certified Resolution..............................................22
19.7 Representations and Warranties....................................22
19.8 Incumbency Certificate............................................22
19.9 UCC Termination Statements........................................22
19.10 Noncompete Agreement...........................................22
ARTICLE XX - ITEMS TO BE DELIVERED AT CLOSING BY BUYER......................22
20.1 Certified Resolution..............................................22
20.2 Representations and Warranties....................................23
20.3 Purchase Price....................................................23
20.4 Assignment and Assumption Agreements..............................23
20.5 Assignment and Assumption of Leases...............................23
20.6 Compensation Agreements for Rowlands..............................23
ARTICLE XXI - MISCELLANEOUS.................................................23
21.1 Change of Name....................................................23
21.2 Further Assurances................................................23
21.3 No Other Agreements...............................................23
21.4 Waiver............................................................24
21.5 Public Announcements..............................................24
21.6 Notices...........................................................24
21.7 Third-Party Beneficiary...........................................25
21.8 Confidential Information..........................................25
21.9 Assignment........................................................25
21.10 Choice of Law..................................................25
21.11 Paragraph Headings.............................................25
21.12 Rules of Interpretation........................................25
21.13 Counterparts...................................................26
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EXHIBITS
Exhibit 1.7 Equipment
Exhibit 1.8 Excluded Assets
Exhibit 1.12 Leased Location
Exhibit 1.13 Leases
Exhibit 1.14 Noncompete Agreement
Exhibit 4.1 Pro Forma Purchase Price
Exhibit 5.1.1 Form of Note
Exhibit 7.5 Litigation and Claims
Exhibit 20.6 Compensation Agreements for Selling Shareholders
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated as of October ____, 1999, is among
ROWLAND MANUFACTURING CORPORATION d/b/a ROYAL DOOR COMPANY, INC., a Texas
corporation (the "Seller"), JAMES ROWLAND and JOHN ROWLAND (collectively
"Rowlands"), and BMCW, LLC, a Delaware limited liability company ("Buyer").
Seller, Rowlands and Buyer agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the terms identified in this
Article shall have the meanings assigned to them as follows:
1.1 BUSINESS.
The term "Business" means the Seller's business operations of
assembly, sale, and installation of doors, millwork, hardware and other building
materials to customers primarily in multi-family projects and in some light
commercial projects:
1.2 CLOSING.
The term "Closing" means the exchange of closing documents and
the payment of the Purchase Price to the Seller by Buyer;
1.3 CLOSING DATE.
The term "Closing Date" means the date on which Closing
occurs;
1.4 CONTRACTS.
The term "Contracts" means all contracts and agreements of any
form or nature Seller entered into prior to Closing in the ordinary course of
the Business and which relate exclusively to the Business, including, but not
limited to, contracts to supply and/or install doors, leases of real and
personal property used in the Business, credit agreements, guaranties of
payment, performance and payment bonds, software license agreements for software
licensed to be used specifically on computer hardware at the Leased Locations,
contracts for the lease of equipment and motor vehicles and contracts for the
purchase or sale of Inventory;
1.5 DUE DILIGENCE PERIOD.
The term "Due Diligence Period" means the period of time
commencing on the date of this Agreement, and expiring 45 days later and any
written extension thereof;
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1.6 ENVIRONMENTAL LAWS.
"Environmental Laws" means federal or state laws or
regulations relating to pollution, or the protection of human health or the
environment, including, but not limited to, the Clean Air Act, the Federal Water
Pollution Control Act (as amended by the Clean Water Act of 1977 and the Water
Quality Act of 1987), the Resource Conservation and Recovery Act of 1976 (as
amended by the Hazardous and Solid Waste Amendments of 1984), the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (as amended by
the Superfund Amendments and Reauthorization Act of 1986), the Hazardous
Materials Transportation Act, the Toxic Substances Control Act, and the Federal
Insecticide Fungicide & Rodenticide Act, all as in effect on the Closing Date
or, with respect to the representations and warranties, in effect on the date
hereof;
1.7 EQUIPMENT.
The term "Equipment" means all tools, equipment, supplies,
spare parts, motor vehicles, rolling stock, office furniture, and equipment and
other pieces of tangible personal property owned by the Seller and used
exclusively by it in the Business at the Leased Locations, including but not
limited to those items described on the depreciation schedule set forth on
EXHIBIT 1.7;
1.8 EXCLUDED ASSETS.
The term "Excluded Assets" means those items listed on EXHIBIT
1.8 attached hereto;
1.9 FINANCIAL STATEMENTS.
The term "Financial Statements" means the financial statements
of the Business as of ___________;
1.10 HAZARDOUS MATERIAL.
"Hazardous Material" means any hazardous or toxic substance
regulated or subject to cleanup authority under any Environmental Laws;
1.11 INVENTORY.
The term "Inventory" means all finished goods, raw materials
and work in process which are owned by Seller and held for sale in the Business
as of Closing;
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1.12 LEASED LOCATIONS.
The term "Leased Locations" means the real property on which
the Business is carried out located at 4634 Nall Road, Dallas, Texas, 3230
Polaris Avenue, Unit 41, Las Vegas, Nevada, and 885 Stillwater, #300, W.
Sacramento, California;
1.13 LEASES.
The term "Leases" means those leases of real and/or personal
property involving the Business, as identified in the attached EXHIBIT 1.13;
1.14 NONCOMPETE AGREEMENT.
The term "Noncompete Agreement" means the agreement by each of
the Rowlands to not compete with the Business following the Closing Date, the
form of which is attached hereto as EXHIBIT 1.14;
1.15 PURCHASED ASSETS.
The term "Purchased Assets" means the Equipment, Contracts,
Inventory, Trade Accounts Receivable, Trademarks and Tradenames, Leases and all
intangible assets of the Business including customer lists, manuals, procedures
and proprietary know-how;
1.16 PURCHASE PRICE.
The term "Purchase Price" means the total consideration to be
paid in cash and in a note from Buyer for the Purchased Assets to be calculated
pursuant to Section 4.1 herein;
1.17 RESERVE.
The term "Reserve" shall mean $200,000 set aside from the
Purchase Price for Post Closing Adjustments as provided for in Section 5.2;
1.18 SELLER'S LIABILITIES.
The term "Seller's Liabilities" means the obligations of the
Business to make payment to third parties owed, including those owed but not yet
due, as of Closing for goods or services sold to the Business in the ordinary
course of the Business prior to Closing and the obligations owed to employees of
the Business for services rendered up to the Closing Date;
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1.19 SUBCONTRACTOR ACCOUNTS.
The term "Subcontractor Accounts" means the accounts
maintained by Seller on its books and records which reflect offsets by Seller
against sales commissions to sales representatives and amounts owed to Seller by
subcontractors for cost over-runs;
1.20 TERMINATION DATE.
The term "Termination Date" means the last business day
immediately preceding the Closing Date;
1.21 TRADE ACCOUNTS RECEIVABLE.
The term "Trade Accounts Receivable" means the Seller's right
to receive payment on obligations, including those owed but not yet due, as of
Closing, of all customers and other third-party purchasers of goods and services
from the Business in the ordinary course of the Business prior to Closing,
including any and all past due accounts and notes receivable taken in collection
of routine receivables, together with all deeds of trust, mortgages, mechanics'
liens, materialmen's liens and other security interests securing such
obligations and which are assignable as permitted by law, but excluding any such
obligations which have been written off the books prior to Closing. At Closing,
a complete list of the Trade Accounts Receivable shall be delivered by the
Seller to the Buyer; and
1.22 TRADE NAMES AND TRADEMARKS.
The term "Trade Names" and "Trademarks" mean the terms "Royal
Door," "Royal Door Corporation" and any derivatives thereof.
ARTICLE II - DUE DILIGENCE
2.1 DUE DILIGENCE.
Buyer shall have the Due Diligence Period to perform such
inspections, environmental assessments, and other tests and surveys of the
Business and the Purchased Assets as Buyer, in Buyer's discretion, shall require
for the purpose of determining the suitability of the Business and the Purchased
Assets for Buyer's acquisition.
2.2 DUE DILIGENCE ACTIVITIES.
Due Diligence shall include, but not be limited to:
2.2.1 Review the status of the Leases including
obtaining an estoppel certificate from each lessor confirming the lease terms
and that there are no defaults or facts that constitute a default under the
terms of the Leases.
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2.2.2 Obtain and review the Phase I environmental
audit of the Leased Locations conducted by TRC Environmental Corporation. This
audit is for the benefit of the Buyer. The cost of the Phase I environmental
audit shall be paid by Buyer.
2.2.3 Review of the books and records of the
Business including the financial records and customer records.
2.2.4 Completion and attachment of any amendments
to the Exhibits to this Agreement.
2.2.5 Review of the Business's employee and
outside sales representatives compensation, benefits, and bonus plans.
2.2.6 Review of employee records including health,
workers' compensation, and other benefit records of employees or representatives
of the Business and conduct interviews of key personnel in coordination with
Seller so as to not disrupt the Business.
2.2.7 Review and audit of the Purchased Assets.
2.2.8 Review of the Seller's Liabilities and
review of all of Seller's labor subcontracts and insurance coverage for same.
2.2.9 In concert with Seller, interview key
customers of and suppliers to the Business.
2.2.10 Seller and Rowlands shall provide to Buyer
and Buyer's representatives access to and copies of all existing studies,
reports, and records, including financial, customer and employee records,
relating to the Business and the Purchased Assets. Seller and Rowlands shall
fully cooperate with Buyer and shall promptly provide Buyer with all relevant
information currently available to Seller and requested by Buyer during the Due
Diligence Period.
2.3 CONFIDENTIALITY DURING DUE DILIGENCE.
Buyer, Seller, and Rowlands acknowledge and agree that the
parties desire to keep this potential transaction and the negotiations regarding
it confidential until jointly announced or when required by law to be announced.
2.4 TERMINATION OF AGREEMENT.
During the Due Diligence Period, Seller and Rowlands shall be
provided access to Buyer's public financial statements and Buyer will make other
managers available to Seller and Rowlands to discuss Buyer's business practices.
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If during the Due Diligence Period Buyer, in Buyer's sole
discretion, shall determine that for any reason whatsoever the Purchased Assets
are not suitable for Buyer's acquisition, then Buyer may cancel this Agreement
by giving written notice to the Seller not later than the expiration of the Due
Diligence Period.
If the Business and the Purchased Assets are otherwise
suitable for Buyer's intended use but Buyer discovers any problem or defect with
respect thereto which constitutes a material impairment of the value of the
Business, then Buyer may advise Seller in writing on or before the expiration of
the Due Diligence Period of the nature of each defect or problem with respect to
the Purchased Assets with the request that Seller remedy each problem or defect
prior to the Closing. Seller may correct such problems or cancel the Agreement
by providing written notice to Buyer of cancellation.
Buyer's failure to give written notice of Buyer's exercise of
Buyer's right to cancel this Agreement in accordance with the foregoing
provisions shall constitute Buyer's approval of the suitability and condition of
the Business and the Purchased Assets, except for and limited to any problems or
defects specified in Buyer's notice.
Seller may, upon notice to Buyer cancel this Agreement during
the Due Diligence Period. If Seller fails to cancel this Agreement during the
Due Diligence Period but fails to deliver the documents required by Article XIX
and the preconditions to Closing set forth in Article XVIII have been satisfied,
then Seller should be liable to Buyer for all costs and expenses incurred by
Buyer during the Due Diligence Period and up to Seller's failure to perform.
2.5 EXCLUSIVE DEALING.
Seller and Rowlands agree that upon execution of this
Agreement and until the Closing Date or termination of this Agreement, Seller
and Rowlands will not seek to sell the Business to any other party nor will
Seller or Rowlands accept any offers to acquire the Business from any other
party.
ARTICLE III - PURCHASE AND SALE
3.1 PURCHASE AND SALE.
At Closing, the Seller agrees to sell and convey to Buyer, and
Buyer agrees to purchase and accept from Seller, the Purchased Assets for the
Purchase Price on the terms and conditions contained herein.
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ARTICLE IV - DETERMINATION OF PURCHASE PRICE
4.1 DETERMINATION.
The Purchase Price shall be calculated on the Closing Date as
follows and summarized as set forth on EXHIBIT 4.1 attached hereto. EXHIBIT 4.1
will be updated on the Closing Date with the then current values of the
Purchased Assets and attached to this Agreement at Closing:
4.1.1 INVENTORY.
The Inventory shall be valued as follows:
4.1.1.1 GENERAL INVENTORY VALUATION.
A joint physical inventory count and
valuation shall be conducted by Buyer and Seller immediately preceding Closing.
The value of the Inventory (except as otherwise provided herein) shall be the
lower of the Seller's actual cost (the sum paid for the items) less 1% which the
parties hereby agree is a reasonable estimate of the value of discounts and
rebates which have been earned or taken by Seller (and which remain the property
of Seller as an Excluded Asset) or market. Any Inventory items identified as
damaged or obsolete shall remain the property of Seller and shall be removed
from the Leased Locations within 30 days following Closing.
4.1.1.2 VALUATION OF WINDOWS.
Wood, aluminum and vinyl windows ("windows")
shall be jointly counted by Seller and Buyer on the weekend immediately
preceding Closing, and valued at Seller's actual cost from normal sources of
supply (the sum paid for the items net of any discounts less 1% plus freight
costs incurred to deliver the items to the Leased Location). Only windows for
which there is a written purchase order from a customer will be purchased by
Buyer. Buyer and Seller shall jointly inspect the windows and any such items
that are obsolete or damaged shall remain the property of Seller and shall be
removed from the Leased Locations within 30 days following Closing.
4.1.1.3 FINAL INVENTORY DETERMINATION.
Any and all disputes regarding any aspect of
the inventory count and valuation process including determination of cost shall
be negotiated between the parties. In the event the parties cannot agree on the
cost of any item or items, then each party shall promptly submit such evidence
of market values as such party deems appropriate to a mutually agreed upon
accounting firm ("CPA"), who shall be instructed based solely on the evidence
presented by the parties, to determine which party's value most closely
approximates the Cost of the disputed items. The value determined by the CPA
shall be binding and conclusive.
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4.1.1.4 INVENTORY COSTS.
The actual costs, if any, incurred for the
services of the CPA, pursuant to Section 4.1.1.3 shall be borne by the party
whose proposed value is furthest from the value determined by the CPA. In
conducting the inventory count, Buyer shall bear its own costs including wages
and overtime of its employees, lodging, meals, and transportation of its
employees and any other expenses incurred by Buyer. In conducting the inventory
count, Seller shall bear its own costs including wages and overtime of its
employees, lodging, meals, and transportation of its employees and any other
expenses incurred by Seller.
4.1.2 EQUIPMENT.
For the Equipment, Buyer shall pay to Seller the net
book value of the Equipment as of the Closing Date.
4.1.3 TRADE ACCOUNTS RECEIVABLE AND SUBCONTRACTOR
ACCOUNTS.
All Trade Accounts Receivable that are not older than
ninety (90) days past the due date as of the Closing Date shall be valued at
face value. All Trade Accounts Receivable that are older than ninety (90) days
from due date may, at the option of Buyer, be acquired by Buyer at face value
or, if not acquired, shall be retained by Seller. All Subcontractor Accounts
shall be valued at face value.
4.1.4 PREMIUM/NONCOMPETE AGREEMENT.
As a premium for the Purchased Assets and as
consideration for the Noncompete Agreement Buyer shall pay to Seller $6 million
of which $250,000 is allocated to the Noncompete Agreement for each of the
Rowlands and shall be paid over a five year period at a rate of $25,000 to each
of the Rowlands each year.
4.2 ALLOCATION OF VALUE.
Buyer shall not be liable to Seller for any tax ramifications
to Seller or Rowlands arising out of the purchase price allocation by Buyer.
4.3 ASSUMPTION OF LIABILITIES.
4.3.1 CUSTOMER DEPOSITS.
Buyer agrees to assume liability for customer
deposits as reflected on the books and records of Seller. The amount of the
customer deposits assumed shall be a reduction in the Purchase Price.
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4.3.2 SALES COMMISSIONS.
Seller shall pay any commissions owed to sales
representatives of Seller based upon its normal commission policies for sales of
products for which Seller receives the profit which occur prior to Closing. Any
unpaid commissions arising from sales prior to Closing for which Seller received
the profit which are paid by Buyer after Closing will be treated as Post Closing
Adjustments to be paid by Seller. Commissions for any sales for which Buyer
receives the profit shall be paid by Buyer.
4.3.3 NONASSUMPTION OF THE SELLER'S LIABILITIES.
Except as otherwise provided herein, the Seller's
Liabilities shall be retained by Seller and not assumed by Buyer. In the event
Buyer becomes liable for or has to pay any of the Seller's Liabilities, then
such liabilities, including any costs or expenses reasonably associated with
such liabilities (excluding consequential damages), shall be deducted from the
Reserve during the Post Closing Adjustment Period provided for in Article V or
shall be paid to Buyer under Article XIII.
ARTICLE V - TERMS OF PAYMENT
5.1 PAYMENT DUE AT CLOSING.
At Closing, Buyer shall pay to Seller an amount equal to the
estimated Purchase Price as determined in Article IV ("Estimated Purchase
Price") less the Reserve as follows:
5.1.1 A note in the form attached hereto as
EXHIBIT 5.1.1 in the face amount of $5 million;
5.1.2 At Buyer's discretion, common stock of
Building Materials Holding Corporation in an amount up to $1.5 million as
provided for in Article VI of this Agreement, and
5.1.3 The balance of the Estimated Purchase Price
less the Reserve in immediately available funds and less the amount allocated to
the Noncompete Agreement of $200,000 for years two through five.
5.2 RESERVE.
Seller agrees that Buyer shall withhold $200,000 from the cash
portion of the Purchase Price on the Closing Date (the "Reserve"), for a period
of one hundred and twenty (120) days following Closing ("Post Closing Adjustment
Period") as a reserve to be applied to the post closing adjustments, including
but not limited to satisfaction of: (i) any unpaid taxes, (ii) uncollected Trade
Accounts Receivable or discounts taken (including prompt payment discounts or
any other discounts the customer is entitled to take) on Trade Accounts
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Receivable, (iii) any Subcontractor Accounts which Buyer is unable to offset or
receive payment on during the Post Closing Adjustment Period; (iv) unpaid Trade
Accounts Payable, (v) customer claims for returns and allowances, (vi) payment
of any amounts owing by Seller to Buyer at the end of the Post Closing
Adjustment Period (vii) honoring any customer reserve in excess of the amount of
reserve assumed, and (viii) paying any commissions reserved for in Section 4.3.2
in excess of the amount of the reserve. After deducting all amounts owed to
Buyer by Seller from the Reserve, Buyer shall release to Seller the net amount
of the Reserve within twenty (20) days from the end of the Post Closing
Adjustment Period. If Seller owes Buyer more than the amount of the Reserve,
such additional amount shall be paid to Buyer simultaneously with release of the
Reserve to Buyer or at the request of Seller, such additional amount shall be
credited to the principal amount of the note.
5.3 RETURNS AND ALLOWANCES.
During the Post Closing Adjustment Period, Buyer shall honor
any reasonable claims by customers of the Company for returns of goods relating
to invoices issued prior to the Closing Date. Buyer shall report any such
returns to Rowlands. Any returns of goods relating to invoices issued prior to
the Closing Date that are not of a quality resalable in the ordinary course of
business shall result in a reduction of the Purchase Price in the amount the
customer was credited for the return. Any returns of goods relating to invoices
issued prior to the Closing Date that are of a quality resalable in the ordinary
course of business shall result in adjustments to the Purchase Price as follows:
If the returned resalable items are the subject of an unpaid
Trade Account Receivable, then the Trade Account Receivable corresponding to the
returned items shall be deemed collected in the amount of 75% of the invoiced
price of such items.
5.3.1 If the returned resalable item was paid for
prior to the Closing Date, the Buyer is entitled to a payment from the Rowlands
in the amount of 25% of the invoice amount for the item.
5.4 POST CLOSING ADJUSTMENTS.
During the Post Closing Adjustment Period, Buyer and Seller
shall jointly prepare an analysis of adjustments to be made to the payment made
at Closing, to reflect the actual Purchase Price.
If Buyer and Seller do not agree on the amount of the
adjusting payment required, then the dispute shall be resolved by the CPA, whose
responsibility shall be limited solely to an audit of the accuracy and
appropriateness of the adjusting entries. The decision of the CPA shall be
final, and its charges shall be borne equally by the parties.
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ARTICLE VI - BUILDING MATERIALS HOLDING CORPORATION
COMMON STOCK
6.1 STOCK DELIVERED AT CLOSING.
Buyer, at its election to be made prior to the Closing Date,
may pay up to $1,500,000 of the Purchase Price by issuing shares of common stock
of Building Materials Holding Corporation ("Issued Stock") to the Seller and
Rowlands. The number of shares of Issued Stock to be delivered shall be
calculated by dividing the portion of the Purchase Price to be paid in Issued
Stock by the Transaction Price Per Share. The term "Transaction Price Per Share"
shall mean the average market price per share for five (5) trading days
immediately preceding the Closing Date. The term "market price per share" shall
mean the closing price of the Issued Stock on the market on which the Issued
Stock is traded as published in the Wall Street Journal.
6.2 REGISTRATION OF STOCK.
Seller and Rowlands each acknowledge receipt of the Prospectus
dated August 12, 1998, as supplemented from Building Materials Holding
Corporation (the "Prospectus"). Upon expiration of the Issued Stock transfer
restrictions (Section 6.3), it is the intent of the parties that the Issued
Stock delivered to Seller and Rowlands hereunder shall not be subject to any
restrictions on trading other than general restrictions applicable to publicly
held stock under the Securities Act of 1933, as amended (the "Securities Act")
and the Securities Exchange Act of 1934. Immediately following the Closing Date,
Building Materials Holding Corporation ("BMHC") shall cause a supplement to the
Prospectus to be filed. Seller agrees to provide Buyer with information as to
its proposed distribution of the Issued Stock prior to commencing sale of the
Issued Stock.
6.3 STOCK TRANSFER RESTRICTIONS.
Seller and Rowlands jointly agree, for a period of twenty-one
(21) trading days following the receipt of the Issued Stock from Buyer
("Restricted Stock Transfer Period"), to not sell, transfer, assign, or in any
way dispose of the Issued Stock in a total collective amount in excess of 5,000
shares in any one trading day and Seller and Rowlands further agree for a period
of thirty (30) calendar days following the Restricted Stock Transfer Period to
not sell, transfer, assign, or in any way dispose of the Issued Stock in a total
collective amount in excess of 14,000 shares in any one day. Buyer reserves the
right, during the Restrictive Stock Transfer Period, to increase the number of
shares of Issued Stock that can be sold on any trading day and to proportionally
reduce the number of days in the Restricted Stock Transfer Period.
6.4 ACCESS TO DATA.
6.4.1 Buyer has furnished to Seller and Rowlands
copies of BMHC's latest annual and quarterly reports to the Securities and
Exchange Commission, acknowledges that Seller and Rowlands have relied on such
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reports in entering into this transaction, and represents to Seller and Rowlands
that (i) the financial statements contained or incorporated by reference therein
have been prepared in accordance with generally accepted accounting principles,
(ii) the balance sheets contained or incorporated therein fairly represent the
financial condition of BMHC at the dates thereof, and (iii) the statements of
profit and loss contained or incorporated therein present fairly the results of
BMHC's operations for the periods covered by such statements.
6.4.2 Seller and Rowlands have had an opportunity
to discuss BMHC's business, management, and financial affairs with Buyer's
management. Seller and Rowlands understand that such discussion, as well as any
written information issued by BMHC, was intended to describe the aspects of
BMHC's business and prospects which it believes to be material, but were not
necessarily a thorough or exhaustive description. Without limiting the
foregoing, Seller and Rowlands acknowledge that they have reviewed BMHC's annual
report for the year ended December 31, 1998, and quarterly financial statements
and reports through December 31, 1998. SELLER AND ROWLANDS ACKNOWLEDGE THAT THEY
ARE NOT RELYING ON TAX INFORMATION OR ADVICE WITH RESPECT TO TAXES RECEIVED FROM
BUYER. SELLER AND ROWLANDS HAVE SOUGHT THEIR OWN TAX AND OTHER COUNSEL IN
EVALUATING THIS TRANSACTION.
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Rowlands hereby, jointly and severally, represent
and warrant to Buyer as follows, and the warranties and representations
contained in this Article or elsewhere in this Agreement shall be deemed remade
as of Closing and shall survive and continue after Closing:
7.1 AUTHORIZATION.
The Seller and Rowlands have all requisite power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Seller and,
assuming the due authorization and execution of this Agreement by Buyer, is the
valid, binding obligation of Seller and Rowlands enforceable against Seller and
Rowlands in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium, or other similar
laws now or hereafter in effect relating to creditors' rights, and (ii) the
remedies of specific performance and injunctive and other equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceedings thereafter may be brought.
7.2 TAX MATTERS.
7.2.1 Seller has timely filed all tax returns
required to be filed by the date of this Agreement with respect to taxes imposed
on the Business, and the Seller has paid all taxes shown to be due on such
returns.
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7.2.2 There are no liens for taxes upon the
Purchased Assets, except liens for current taxes not yet due.
7.2.3 Seller has withheld for its employees
applicable taxes for all pertinent periods in compliance with the tax
withholding provisions of all applicable laws.
7.3 COMPLIANCE WITH LAWS, LICENSES, AND PERMITS.
Seller is not in violation of (i) any applicable order,
judgment, injunction, award, or decree, or (ii) any ordinance, regulation, or
other requirement of any governmental entity, in either case that is material to
the Business. Seller has received all currently required permits that are
material to the Business.
7.4 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
Seller has previously delivered to Buyer copies of the
following financial statements of Seller for the period ending __________. The
Financial Statements present fairly the financial condition and results of the
operations of the Business as of the respective date and periods thereof and
have been prepared in accordance with generally acceptable accounting principles
consistently applied.
7.5 LEGAL PROCEEDINGS.
There are no outstanding lawsuits or, to Seller's knowledge,
any assertion of claims against or involving the Business or the Purchased
Assets, except as set forth in EXHIBIT 7.5 attached hereto.
7.6 CONTRACTS AND LEASES.
The Contracts and Leases are valid and in full force and
effect. Copies of all Contracts for acquisition of products or services from the
Seller have been provided to Buyer prior to Closing.
All the agreements with installers have been disclosed to
Buyer; there are no other agreements with installers not set forth in the
written agreements, and the installers all have workers compensation insurance
and policies of liability insurance.
7.7 TRADE ACCOUNTS RECEIVABLE.
All Trade Accounts Receivables reflected on the books of the
Seller as of the Closing Date, represent bona fide transactions made in the
ordinary course of the Business and, in the aggregate, are collectible in the
ordinary course of the Business.
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7.8 EQUIPMENT.
The Equipment listed in EXHIBIT 1.7 is a complete and accurate
list of the material Equipment utilized by the Business and all the Equipment
used in connection with the operation and conduct of the Business is being
transferred to Buyer.
7.9 LABOR MATTERS.
There are no material disputes, employee grievances, or other
disciplinary actions pending or threatened involving any of the present or
former employees of the Business. There is no labor strike, dispute, slowdown,
or stoppage pending or threatened against or affecting the Business, and the
Business has not experienced any work stoppage or labor difficulty within the
past twelve (12) months. Seller has no agreement, arrangement, or commitment to
create any additional plan or arrangement or to modify or amend any existing
employee benefit plan of the Business.
7.10 BROKERS AND FINDERS.
Neither Seller nor Rowlands have taken any action that will
result in any third party becoming obligated to pay or entitled to receive any
investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
7.11 ENVIRONMENTAL LAWS.
The Business to the knowledge of Seller and Rowlands is in
material compliance with all Environmental Laws. To the knowledge of Seller and
Rowlands no notice has been received from any governmental entity alleging that
the Business is not in compliance with Environmental Laws, and there are no
circumstances known to Seller and Rowlands that may prevent or interfere with
material compliance in the future.
7.12 OPERATING RESTRICTIONS.
To the knowledge of Seller and Rowlands, there are no state or
local restrictions on operating hours of the Business, and there are no
agreements with or threats by neighbors or neighborhood associations of the
Leased Locations concerning operating hours.
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows, and
the warranties and representations contained in this Article or elsewhere in
this Agreement shall be deemed remade as of Closing:
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8.1 CORPORATE STATUS.
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware and, prior to Closing, is
qualified or licensed to do business in the states of Texas, California and
Nevada and all other states in which Seller is doing business.
8.2 CORPORATE AUTHORITY.
Buyer has full power and authority to execute and perform this
Agreement and, all corporate action necessary to authorize the execution,
delivery and performance of this Agreement by Buyer has been duly and lawfully
taken. Upon execution hereof, this Agreement shall be a valid and legally
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Neither the execution nor the performance of this Agreement will violate
the terms or any provision of Buyer's Certificate of Incorporation, Bylaws or
any standing resolution of its Board of Directors, or any note, loan agreement,
lease or other material contract or agreement to which Buyer is a party.
8.3 LEGAL PROCEEDINGS.
To Buyer's knowledge, there are no pending or threatened
lawsuits, actions or claims challenging the validity of this Agreement or the
consummation of the transactions contemplated hereby.
8.4 BROKERS AND FINDERS.
Buyer has not agreed to pay, nor has taken any action that
will result in any third party becoming obligated to pay or entitled to receive
any investment banking, brokerage, finder's or similar fee or commission in
connection with this Agreement or the transactions contemplated hereby.
ARTICLE IX - COLLECTION OF RECEIVABLES
9.1 GUARANTY OF COLLECTIBILITY OF TRADE ACCOUNTS
RECEIVABLE.
The Seller guarantees to Buyer the collectibility of all of
the Trade Accounts Receivable that Buyer acquires at Closing. During the Post
Closing Adjustment Period, Buyer shall collect such Trade Accounts Receivable.
Buyer shall consult with and obtain Seller's approval before accepting any
discounts from the face amount of the Trade Accounts Receivable as full payment.
Payments received shall be applied first to the oldest Trade Account Receivables
unless the customer specifically specifies otherwise. Buyer shall notify Seller
of any requests by customers to pay invoices other than the oldest first. Buyer
shall provide aging reports of the Trade Accounts Receivable to Seller. If any
of such Trade Accounts Receivable have not been collected by Buyer during the
Post Closing Adjustment Period, Buyer may assign those uncollected Trade
Accounts Receivable to Seller and deduct the amount of such uncollected Trade
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Accounts Receivable from the Reserve under Article V hereof. Any discounts taken
by customers (including prompt payment discounts) shall be taken into account
and the Purchase Price adjusted to reflect the actual collected value of the
Trade Accounts Receivable. Any payments received on invoices not acquired by
Buyer shall be transferred to Seller.
9.2 GUARANTY OF COLLECTIBILITY OF SUBCONTRACTOR ACCOUNTS.
The Seller guarantees to Buyer the collectibility or ability
to satisfy all of the Subcontractor Accounts the Buyer acquires at Closing.
Buyer shall, during the Post Closing Adjustment Period, attempt to resolve or
collect all Subcontractor Accounts. To the extent any Subcontractor Accounts are
not collected in full, Buyer may assign the uncollected portion of any
Subcontractor Accounts to Seller and deduct the amount of such uncollected
Subcontractor Accounts from the Reserve.
ARTICLE X - LEASED LOCATIONS
10.1 WARRANTY OF LEASED LOCATIONS.
Seller and Rowlands represent and warrant to Buyer that the
Lease for each of the Leased Locations is currently paid in full and there are
no defaults or facts that would constitute a default by either Seller or the
lessor under the terms of the Lease.
10.2 LANDLORD'S CONSENT.
Seller will obtain in cooperation with Buyer consent from each
of the lessors of the Leased Locations to assign the leases to Buyer, with no
change in lease terms and lessors' estoppels warranting that the rent due under
the Leases is paid in full as of the Closing Date and that there are no defaults
or facts which would constitute a default under the terms of the Leases.
ARTICLE XI - EMPLOYEES
11.1 DEFINITION.
Seller agrees on execution of this Agreement to furnish to
Buyer a list of all persons currently employed on either a part-time or
full-time basis by Seller in connection with the Business including their
current wage and salary rates. For purposes of this Article, the term
"Employees" shall mean all persons included on such list, including employees on
leave of absence, as well as those persons who become regularly employed by
Seller between the date of the list and the date immediately preceding the
Termination Date. Seller shall also provide to Buyer a list of all sales
representatives of Seller currently representing Seller.
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11.2 TERMINATION.
On the Termination Date, Seller shall terminate the employment
of all Employees and Seller shall pay and shall be responsible for: notice of
termination prior to Closing, payment of all accrued salary, wages, bonus or
vacation benefits, COBRA benefits, and other obligations, if any, owed to
Employees as of the Termination Date.
11.3 BUYER'S OFFER OF EMPLOYMENT.
Buyer may offer employment to the terminated Employees at
their current wage and salary rates of compensation (exclusive of bonus or other
incentive pay programs) as offered by Seller. All offers of employment shall be
"at will."
11.4 LABOR CONTRACTS.
Seller is not a party to any organized labor contracts with
respect to the Business.
11.5 PENSION PLANS.
Seller has no defined benefit or defined contribution plans
for its Employees. The only benefit provided to Employees is group health
insurance.
11.6 EMPLOYEE CLAIMS.
Seller agrees that all responsibility for liability arising
from claims by Employees, both medical and disability and workers' compensation
claims which have been filed at or prior to the time of Closing or which arise
out of incidents that occur prior to Closing shall remain claims against Seller.
Buyer shall be responsible for all claims by Employees which arise out of, or
are based upon, incidents which occur subsequent to Closing.
11.7 NONASSUMPTION OF OBLIGATIONS OWED EMPLOYEES.
Except as specified in this Article XI, Buyer assumes no
responsibility whatsoever for obligations and/or benefits owed by Seller to its
Employees, nor in any way adopts existing employment or benefit programs
currently offered by Seller.
ARTICLE XII - NONCOMPETE AGREEMENT
12.1 NONCOMPETE.
Rowlands agree for a period of five (5) years following the
Closing Date as set forth in the Noncompete Agreements executed and delivered to
the Rowlands not to engage in the manufacture or sale of millwork to retail
customers, dealers, professional builders and building contractors in
competition with Buyer. A separate noncompete agreement shall be executed at
Closing by Rowlands substantially in the form attached hereto as EXHIBIT 1.14.
The terms of the attached Noncompete Agreement shall control over this
Agreement.
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ARTICLE XIII - INDEMNITIES
13.1 SELLER.
Seller shall indemnify and hold Buyer harmless against losses,
damages, taxes, penalties, costs and expenses (including accounting and legal
fees) incurred by Buyer arising out of or involving (i) any liability, cost or
expense that arises out of or involves the actions or operations of the Business
or actions or nonactions by Seller's officers, directors, shareholders or
employees with respect to the Business prior to the Closing Date; (ii) a breach
of any of the representations or warranties made by Seller in this Agreement,
(iii) the nonperformance of any covenant or agreement made in this Agreement by
Seller, or (iv) any claims or actions arising out of the Business filed or made
following the Closing Date but based on facts or occurrences prior to the
Closing Date. Buyer's remedies for indemnification include the right of set-off
provided in the note delivered at Closing.
13.2 ROWLANDS.
Rowlands shall, jointly and severally, indemnify and hold
Buyer harmless from against any losses, damages, tax penalties, costs and
expenses (including reasonable accounting and legal fees) incurred by Buyer
arising out of or involving any liability, loss or expense arising out of the
breach of any of the representations or warranties made by Rowlands in this
Agreement.
13.3 BUYER.
Buyer agrees to hold harmless, indemnify and defend Seller and
Rowlands (by counsel reasonably satisfactory to Seller) from and against any and
all loss, claim, damage, liability or expense arising out of or occurring in
connection with any breach by Buyer of any of its covenants, representations or
warranties hereunder. Such indemnification shall include any claims pertaining
to any services or products shipped or sold after the Closing, including,
without limitation, any products liability, personal injury or property damage
claims pertaining to products shipped or sold after the Closing.
ARTICLE XIV - TAXES AND UTILITIES
14.1 TRANSFER TAXES.
All sales taxes, real estate transfer taxes, real estate
recording taxes and fees, excise taxes, use taxes and other taxes or fees of any
form or nature levied upon either party by any governmental entity by reason of
the transfer of the Purchased Assets or recording of such transfers, but
excluding any tax based on the income of either party, shall be shared equally
between Buyer and Seller.
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14.2 UTILITIES, PERSONAL PROPERTY OR REAL ESTATE TAXES.
All utilities, personal property taxes, or real property taxes
shall be prorated as of the Closing Date. Buyer and Seller agree that in the
event the actual utility or tax payments vary from the Closing estimates, the
parties will make any adjustments in accordance with Article V.
ARTICLE XV - CONDUCT OF OPERATIONS PRIOR TO CLOSING
15.1 CONDUCT OF OPERATIONS.
From the date hereof until Closing, Seller shall conduct its
operation of the Business in the ordinary course and consistent with its prior
practices. Seller agrees not to buy or sell any assets connected with the
Business, with a sales price in excess of $5,000, other than Inventory, without
the written consent of Buyer during the period from execution of this Agreement
until Closing.
15.2 COOPERATION.
Immediately after execution of this Agreement, Seller shall
provide Buyer and Buyer's representatives with reasonable access to all existing
studies, reports, and records, including financial, customer and employee
records and customer credit files, in each case, relating exclusively to the
Business and the Purchased Assets. Seller shall cooperate with Buyer and shall
promptly provide Buyer with all relevant information currently available to
Seller and reasonably requested by Buyer prior to the Closing.
ARTICLE XVI - CLOSING
16.1 CLOSING.
Closing shall occur on _________________, 1999, at the offices
of BMCW, LLC located at 425 Airline Drive in Coppell, Texas, or at such other
time or place or on such other date as the parties may agree upon.
16.2 TIME IS OF THE ESSENCE.
Time is of the essence for the Closing of this transaction.
ARTICLE XVII - CONDITIONS PRECEDENT TO BUYER'S DUTY TO CLOSE
Buyer shall have no duty to close unless and until each and
every one of the following conditions precedent have been fully and completely
satisfied:
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17.1 CONTINUED TRUTH OF WARRANTIES.
All of the representations and warranties of Seller and
Rowlands contained herein shall continue to be true and correct at Closing in
all material respects and Seller and Rowlands shall deliver a certificate to
that effect;
17.2 PERFORMANCE OF OBLIGATIONS.
Seller and Rowlands shall have substantially performed or
tendered performance of each and every one of its obligations hereunder which by
its terms is to be performed before Closing;
17.3 DELIVERY OF CLOSING DOCUMENTS.
Seller and Rowlands shall have tendered delivery to Buyer of
all the documents, other than the bill of sale, required to be delivered to
Buyer by Seller and Rowlands at Closing;
17.4 LITIGATION.
No lawsuit, administrative proceedings or other legal action
shall have been filed which seeks to restrain or enjoin the acquisition of the
Purchased Assets or the operation of such Purchased Assets in any material
respect. Buyer shall be satisfied, in its discretion, that the claims set forth
in EXHIBIT 7.5 will not have a material adverse affect on the Business or the
Purchased Assets;
17.5 GOVERNMENT APPROVALS.
The parties shall have received all other government approvals
and shall have made all necessary filings with government agencies required by
the transactions contemplated herein;
17.6 MATERIAL ADVERSE CHANGE.
There shall have occurred no material adverse change regarding
the Business or the Purchased Assets, taken as a whole; and
17.7 ASSIGNMENT OF LEASES.
Buyer shall have obtained a satisfactory assignment of the
Leases for the Leased Locations which meets Buyer's environmental requirements.
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17.8 CUSTOMERS OF BUSINESS.
Buyer shall have determined that the transfer of the Purchased
Assets and Business to Buyer will not adversely affect the on-going relationship
with the customers of the Business.
17.9 CONSENT OF BUYER'S LENDERS.
Buyer shall have obtained consent from Buyer's lenders to
completion of the transactions provided for in this Agreement.
17.10 APPROVAL OF BOARD.
Buyer shall have obtained approval of the transactions
provided for in this Agreement by the board of directors of Building Materials
Holding Corporation.
17.11 SUBCONTRACTOR ACCOUNTS; RETAINAGE ACCOUNTS.
Buyer must be satisfied that the Subcontractor Accounts and
the Retainage Accounts represent amounts due and owing to Seller that are
reasonably likely to be collected during the Post Closing Adjustment Period.
ARTICLE XVIII - CONDITIONS PRECEDENT TO SELLER'S AND
SELLING SHAREHOLDERS' DUTY TO CLOSE
Seller and Rowlands shall have no duty to close this
transaction unless and until each and every one of the following conditions
precedent have been fully and completely satisfied:
18.1 CONTINUED TRUTH OF WARRANTIES.
All of the representations and warranties of Buyer contained
herein shall continue to be true and correct at Closing in all material
respects, and Buyer shall deliver a certificate to that effect;
18.2 PERFORMANCE OF OBLIGATIONS.
Buyer shall have substantially performed or tendered
substantial performance of each and every one of its obligations hereunder which
by its terms is to be performed before Closing;
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18.3 DELIVERY OF CLOSING DOCUMENTS.
Buyer shall have tendered delivery to Seller and Rowlands of
all the documents required to be delivered to Seller and Rowlands by Buyer at
Closing pursuant to this Agreement;
18.4 LITIGATION.
No lawsuit, administrative proceedings or other legal action
shall be pending or threatened against Seller which seeks to restrain or enjoin
Seller or Rowlands' sale of the Purchased Assets; and
ARTICLE XIX - ITEMS TO BE DELIVERED AT CLOSING BY SELLER
At Closing, Seller and Rowlands shall, unless waived by Buyer,
deliver the following items to Buyer:
19.1 BILL OF SALE.
A duly executed bill of sale conveying the Purchased Assets to
Buyer;
19.2 ASSIGNMENT AND ASSUMPTION AGREEMENTS.
An assignment and assumption agreement duly executed by Seller
under which Seller assigns and Buyer assumes and agrees to fully and faithfully
perform the Contracts and Leases;
19.3 ASSIGNMENT AND ASSUMPTION OF LEASES.
An assignment and assumption agreement duly executed by Seller
under which Seller assigns the Leases to Buyer and Buyer agrees to all
obligations under the Leases;
19.4 LANDLORD CONSENTS; LESSOR ESTOPPEL.
A written consent from the lessor for the Leased Locations,
agreeing to the assignment of the Leases to Buyer and fully executed Landlord
Estoppel certificates confirming that all rents due under the terms of the
Leases are paid in full and that there are no defaults or existing facts which
would constitute a default under the terms of the Leases as of the Closing Date;
19.5 TITLE CERTIFICATES.
A certificate of title for each registered motor vehicle to be
purchased hereunder which has been duly executed;
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19.6 CERTIFIED RESOLUTION.
A copy of the resolution of the Board of Directors of Seller
authorizing the execution and performance of this Agreement certified by the
secretary of Seller;
19.7 REPRESENTATIONS AND WARRANTIES.
A certificate signed by Rowlands and the President of Seller
to the effect that all of the representations and warranties of Seller and
Rowlands contained herein are true and correct in all material respects as of
Closing;
19.8 INCUMBENCY CERTIFICATE.
A certificate signed by an officer of Seller to the effect
that all persons having signed or signing documents pursuant to this Agreement
were authorized to do so and identifying the officers of Seller and containing
exemplar signatures of each such officer having signed documents delivered
pursuant to this Agreement;
19.9 UCC TERMINATION STATEMENTS.
All Uniform Commercial Code termination or release statements
necessary to transfer the Purchased Assets free and clear of all security
interests, liens or encumbrances;
19.10 NONCOMPETE AGREEMENT.
A fully executed noncompete agreement as required by this
Agreement.
ARTICLE XX - ITEMS TO BE DELIVERED AT CLOSING BY BUYER
At Closing, Buyer shall, unless waived by Seller, deliver the
following items to Seller:
20.1 CERTIFIED RESOLUTION.
A copy of the resolution of Buyer's Board of Directors
authorizing the execution and performance of this Agreement certified by the
secretary of Buyer;
20.2 REPRESENTATIONS AND WARRANTIES.
A certificate signed by an officer of Buyer to the effect that
all the representations and warranties of Buyer contained herein are true and
correct in all material respects as of Closing;
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20.3 PURCHASE PRICE.
The Estimated Purchase Price to be paid at Closing in the form
of immediately available funds, the Note and the Issued Stock as provided in
Section 4.1;
20.4 ASSIGNMENT AND ASSUMPTION AGREEMENTS.
An assignment and assumption agreement duly executed by Buyer;
20.5 ASSIGNMENT AND ASSUMPTION OF LEASES.
An assignment and assumption agreement duly executed by Buyer
under which Buyer agrees to all obligations under the Lease for the Leased
Locations, and
20.6 COMPENSATION AGREEMENTS FOR ROWLANDS.
Compensation Agreements for each of the Rowlands in the form
attached hereto as EXHIBIT 20.6.
ARTICLE XXI - MISCELLANEOUS
21.1 CHANGE OF NAME.
Seller agrees to change its name within thirty (30) days
following the Closing Date by filing articles of amendment with its state of
incorporation.
21.2 FURTHER ASSURANCES.
Each party shall, at any time after Closing, execute and
deliver to the other party all such additional instruments of conveyance and
assignments, certificates or similar documents as such other party may
reasonably request to carry out the purposes of this Agreement.
21.3 NO OTHER AGREEMENTS.
This Agreement together with all attached agreements
constitutes the entire agreement between the parties. All prior and
contemporaneous negotiations, proposals and agreements between the parties are
included in this Agreement. Any changes to this Agreement must be agreed to in
writing by both parties.
21.4 WAIVER.
Either party may waive the performance of any obligation owed
to it by the other party hereunder for the satisfaction of any condition
precedent to the waiving party's duty to perform any of its covenants, including
its obligations to close. Any such waiver shall be valid only if contained in a
writing signed by the party to be charged.
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21.5 PUBLIC ANNOUNCEMENTS.
No public announcements of this Agreement shall be made unless
Buyer and Seller have mutually agreed on the timing, distribution, and contents
of such announcements, except as may be required by applicable security laws.
21.6 NOTICES.
Any notices required or allowed in this Agreement shall be
effectively given if placed in a sealed envelope, postage prepaid, and deposited
in the United States mail, registered or certified, addressed as follows:
To Seller: Royal Door Corporation
c/o James E. Rowland
6526 Riverview Lane
Dallas, Texas 75083
Copy To: John C. Rowland
6405 Bermuda Dunes Dr.
Plano, Texas 75093
Copy To: C. Wesley Jeanes
P.O. Box 831178
Richardson, Texas 75083
To Buyer: Building Materials Holding Corporation
One Market Plaza
Steuart Street Tower
Suite 2650
San Francisco, California 94105-1475
Attn: Ellis C. Goebel,
Senior V.P., Finance and Treasurer
Copy To: SouthCentral Division
BMC West Corporation
427 Airline Drive, Suite 200
Coppell, Texas 75019-4608
Attn: William E. Smith, President
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Copy To: Building Materials Holding Corporation
720 Park Blvd., Suite 200
P.O. Box 70008 (83707-0106)
Boise, Idaho 83712-7714
Attn: Paul S. Street,
Senior Vice President,
General Counsel and Secretary
Any such notice shall be deemed delivered three days after deposited in the
United States mail.
21.7 THIRD-PARTY BENEFICIARY.
Nothing contained herein shall create or give rise to any
third-party beneficiary rights for any individual or entity as a result of the
terms and provisions of this Agreement.
21.8 CONFIDENTIAL INFORMATION.
The parties agree that all information acquired from the other
in connection with the negotiation, execution and consummation of this Agreement
is confidential and shall not be disclosed to any other party (other than
attorneys, accountants, lenders and agents of the party) without the written
consent of the other.
21.9 ASSIGNMENT.
No party shall assign this Agreement without the prior written
consent of the other party provided that Buyer may assign this Agreement to any
affiliate of Buyer. Any attempt to assign this Agreement without such prior
written consent shall be void.
21.10 CHOICE OF LAW.
This Agreement shall be governed by and interpreted in
accordance with the laws of the state of Texas.
21.11 PARAGRAPH HEADINGS.
The section and article paragraph headings contained herein
are for convenience only and shall have no substantive bearing on the
interpretation of this Agreement.
21.12 RULES OF INTERPRETATION.
The following rules of interpretation shall apply to this
Agreement, the exhibits hereto and any certificates, reports or other documents
or instruments made or delivered pursuant to or in connection with this
Agreement, unless otherwise expressly provided herein or therein and unless the
context hereof or thereof clearly requires otherwise:
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A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms, and if a term is said to have the meaning assigned to
such term in another document or agreement and the meaning of such terms therein
is amended, modified or supplemented, then the meaning of such term herein shall
be deemed automatically amended, modified or supplemented in a like manner.
References to the plural include the singular, the singular
the plural, and the part the whole.
The words "include," "includes," and "including" are not
limiting.
A reference to any law includes any amendment or modification
to such law which is in effect on the relevant date.
A reference to any person or entity includes its successors,
heirs and permitted assigns.
Where the character or amount of any asset or liability or
item of income or expense is required to be determined or any consolidation or
other accounting computation is required to be made for purposes of this
Agreement or any exhibit hereto or certificate, report or other document or
instrument made or delivered pursuant to or in connection with this Agreement,
such determination or computation shall be done in accordance with generally
accepted accounting principles at the time in effect, to the extent applicable,
except where such principles are inconsistent with the express requirements
hereof or of such exhibit, certificate, report, document or instrument.
The words "hereof," "herein," "hereunder," and similar terms
in this Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement.
All exhibits to this Agreement constitute material terms of
this Agreement and are incorporated fully into the terms of this Agreement.
21.13 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each
of which shall be an original, but which shall together constitute but one
agreement.
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The parties have executed this Agreement on the day and year
first written above.
SELLER:
ROWLAND MANUFACTURING CORPORATION
d/b/a ROYAL DOOR COMPANY, INC.
By: /s/ JAMES E. ROWLAND
--------------------
President
ROWLANDS:
/s/ JAMES E. ROWLAND
--------------------
James Rowland
/s/ JOHN ROWLAND
--------------------
John Rowland
BUYER:
BMCW, LLC,
a Delaware limited liability company,
by its Member,
BMC WEST CORPORATION,
a Delaware corporation
By: /s/ ELLIS C. GOEBEL
---------------------------------------
Ellis C. Goebel, Senior Vice President,
Finance and Treasurer
28
PROMISSORY NOTE
$5,000,000 October 13, 1999
FOR VALUE RECEIVED, BMCW, LLC ("SouthCentral") or its assign
promises to pay Rowland Manufacturing Corporation d/b/a Royal Door ("Royal
Door"), or its assigns, the principal sum of $5,000,000 on the following terms
and conditions:
1. The principal amount shall be non-interest bearing, except
in the event of default as provided herein.
2. The first minimum principal payment of $500,000 shall be
due and payable four years from the date of this note, with three additional
minimum installments of $500,000 each due and payable each anniversary date
thereafter. The final payment of the remaining balance of the note shall be due
and payable seven years from the date of this note.
3. On each anniversary of the date of this note, accelerated
payments of principal shall be made by SouthCentral in an amount equal to forty
percent (40%) of the earnings before interest (including working capital
charges) and taxes of the Royal Door business unit of SouthCentral for the
preceding twelve (12) months calculated in accordance with generally accepted
accounting principles consistent with Buyer's other business units utilizing the
accounts set forth in SCHEDULE 1 attached hereto. Notwithstanding the foregoing,
any allocation of expenses from SouthCentral to the Royal Door business unit in
excess of $5,000 per month must be agreed to by James E. Rowland or his assign
for purposes of calculating earnings of the business unit. The accelerated
principal payment shall be paid no later than thirty (30) days following the
anniversary date of this note. Any minimum annual principal payment for such
year under Section 2 above shall constitute a credit against any accelerated
principal payment for such year.
4. SouthCentral has entered into Compensation Agreements with
James Rowland and John Rowland as part of the transaction with Royal Door for
which this note is consideration. The Compensation Agreements provide that in
the event SouthCentral terminates, without cause, the employment of James
Rowland or John Rowland, payments of principal of $250,000 in addition to
principal payments provided for in sections 2 and 3 of this note shall be made
annually for each Compensation Agreement terminated. The first additional
payment of principal shall occur six months after termination of employment and
annually thereafter.
5. SouthCentral paid a premium for the assets of Royal Door
based on the commitment of James Rowland and John Rowland to be employees of
SouthCentral and to assist SouthCentral in operation of the business conducted
by Royal Door. If James Rowland voluntarily leaves the employment of
SouthCentral during the first two years of operation after the acquisition,
SouthCentral will not receive the benefit of its bargain. As liquidated damages,
and not as a penalty, the parties agree that the principal amount of the note
may be reduced by the following amounts upon James Rowland voluntarily leaving
1
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the employment of SouthCentral, provided that the job descriptions, place of
employment, hours, duties or salary are not adversely changed from the date of
the Compensation Agreement.
The principal balance of the note shall be reduced by $2
million if voluntary termination of employment occurs within one year of the
date of this note, and the principal balance shall be reduced by $1 million if
termination of employment during the second year of employment by SouthCentral.
If John Rowland voluntarily leaves the employment of
SouthCentral during the first year of operation after the acquisition,
SouthCentral will not receive the benefit of its bargain. As liquidated damages,
and not as a penalty, the parties agree that the principal amount of the note
may be reduced by the following amounts upon John Rowland voluntarily leaving
the employment of SouthCentral, provided that the job descriptions, place of
employment, hours, duties or salary are not adversely changed from the date of
the Compensation Agreement.
The principal balance of the note shall be reduced by $1
million if voluntary termination of employment occurs within one year of the
date of this note.
Voluntary termination of employment of either James Rowland or
John Rowland shall not include death or disability of the employee.
6. SouthCentral may prepay the remaining outstanding
principal at any time without any additional cost.
7. SouthCentral and Royal Door are parties to an Asset
Purchase Agreement dated _______________, as amended (the "Agreement"). For a
period of two years following the date of this note, Royal Door agrees that
SouthCentral may set off against any principal payments under this note any
amounts owed by Royal Door to SouthCentral under the Agreement. Prior to any
such set-off, SouthCentral shall provide Royal Door 30 days written notice of
the basis for the set-off. If Royal Door objects to the set-off in writing prior
to the expiration of the 30-day notice period, the parties shall attempt to
negotiate a resolution of Royal Door's objection and SouthCentral's claim of
set-off. If the parties cannot reach agreement within 30 days, SouthCentral
shall commence an interpleader action to resolve the dispute and pay the amount
of set-off into the court in which the interpleader action is pending.
8. Royal Door may not assign the right to receive proceeds of
this note without the consent of SouthCentral.
9. If SouthCentral defaults in payment of principal under the
terms of this note or is in default in any other manner under the terms of this
note, the outstanding principal amount shall, upon 10 days notice of default by
Royal Door and SouthCentral's failure to pay, shall become immediately due and
payable in full. The outstanding principal amount shall bear interest at the
rate of 12% per annum commencing on the date of notice of default. SouthCentral
shall pay all reasonable costs and expenses, incurred by Royal Door in
connection with any failure to pay by SouthCentral including reasonable attorney
fees, collection costs, court costs, and costs on appeal, whether incurred
before or after judgment.
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<PAGE>
10. The makers, sureties, guarantors and endorsers hereof
severally waive presentment for payment, protest, notice of protest and of
nonpayment of this note and consent that this note and any payment due or to
become due hereunder, may be extended or renewed without previous demand or
notice.
11. This note is to be governed by and construed in accordance
with the laws of the state of Texas.
BMCW, LLC
By: /s/ ELLIS C. GOEBEL
----------------------
Its: SENIOR VICE PRESIDENT
- FINANCE AND TREASURER
GUARANTY
Building Materials Holding Corporation, a Delaware corporation
("BMHC"), as the parent of SouthCentral, hereby guarantees payment of this note.
Upon any default by SouthCentral in payment of the note, BMHC agrees, upon
demand, to make all payments due under the note.
BUILDING MATERIALS HOLDING CORPORATION
By: /s/ ELLIS C. GOEBEL
-------------------
Its: SENIOR VICE PRESIDENT
- FINANCE AND TREASURER
3
================================================================================
CREDIT AGREEMENT
Dated as of November 30, 1999
among
BUILDING MATERIALS HOLDING CORPORATION
and
BMC WEST CORPORATION
AND OTHER SUBSIDIARY GUARANTORS,
BANK OF AMERICA, N.A.,
as Administrative Agent
and
Letter of Credit Issuing Bank
and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
---------------------------------------------
Banc of America Securities LLC,
Sole Lead Arranger
and Sole Book Manager
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I DEFINITIONS 1
1.01 Certain Defined Terms...................................1
1.02 Other Interpretive Provisions..........................25
1.03 Accounting Principles..................................26
ARTICLE II THE CREDITS.......................................................26
2.01 Amounts and Terms of Commitments.......................26
2.02 Loan Accounts..........................................27
2.03 Procedure for Borrowing................................28
2.04 Conversion and Continuation Elections..................28
2.05 Voluntary Termination or Reduction of Commitments......30
2.06 Swingline Loans........................................30
2.07 Optional Prepayments...................................32
2.08 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions ..........................................33
2.09 Repayment..............................................34
2.10 Interest...............................................34
2.11 Fees...................................................35
2.12 Computation of Fees and Interest.......................36
2.13 Payments by Holdings...................................36
2.14 Payments by the Banks to the Agent.....................36
2.15 Sharing of Payments, Etc...............................37
2.16 Security and Guaranty..................................38
ARTICLE III THE LETTERS OF CREDIT............................................38
3.01 The Letter of Credit Subfacility.......................38
3.02 Issuance, Amendment and Renewal of Letters of Credit...39
3.03 Risk Participations, Drawings and Reimbursements.......41
3.04 Repayment of Participations............................43
3.05 Role of the Issuing Bank...............................43
3.06 Obligations Absolute...................................44
3.07 Cash Collateral Pledge.................................45
3.08 Letter of Credit Fees..................................45
3.09 Applicability of Uniform Customs and Practice
and ISP 98 ..........................................46
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY............................47
4.01 Taxes..................................................47
4.02 Illegality.............................................48
4.03 Increased Costs and Reduction of Return................48
4.04 Funding Losses.........................................49
4.05 Inability to Determine Rates...........................50
4.06 Certificates of Banks..................................50
4.07 Substitution of Banks..................................50
4.08 Survival...............................................50
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ARTICLE V CONDITIONS PRECEDENT...............................................51
5.01 Conditions of Initial Credit Extensions................51
5.02 Conditions to All Credit Extensions....................54
ARTICLE VI REPRESENTATIONS AND WARRANTIES....................................55
6.01 Corporate Existence and Power..........................55
6.02 Corporate Authorization; No Contravention..............56
6.03 Governmental Authorization.............................56
6.04 Binding Effect.........................................56
6.05 Litigation.............................................56
6.06 No Defaults............................................57
6.07 ERISA Compliance.......................................57
6.08 Use of Proceeds; Margin Regulations....................58
6.09 Title to Properties; Liens.............................58
6.10 Taxes..................................................58
6.11 Financial Condition....................................58
6.12 Environmental Matters..................................59
6.13 Collateral Documents...................................60
6.14 Regulated Entities.....................................60
6.15 No Burdensome Restrictions.............................60
6.16 Copyrights, Patents, Trademarks and Licenses, Etc......60
6.17 Subsidiaries...........................................61
6.18 Insurance..............................................61
6.19 Swap Obligations.......................................61
6.20 Year 2000..............................................61
6.21 Real Property..........................................62
6.22 Full Disclosure........................................62
ARTICLE VII AFFIRMATIVE COVENANTS............................................62
7.01 Financial Statements...................................62
7.02 Certificates; Other Information........................63
7.03 Notices................................................64
7.04 Preservation of Corporate Existence, Etc...............66
7.05 Maintenance of Property................................66
7.06 Insurance..............................................66
7.07 Payment of Obligations.................................67
7.08 Compliance with Laws...................................67
7.09 Compliance with ERISA..................................67
7.10 Inspection of Property and Books and Records...........67
7.11 Environmental Laws.....................................68
7.12 Use of Proceeds........................................68
7.13 Additional Guarantors..................................68
7.14 Additional Subsidiaries................................69
7.15 Environmental Review...................................69
7.16 Further Assurances.....................................70
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<PAGE>
ARTICLE VIII NEGATIVE COVENANTS..............................................71
8.01 Limitation on Liens....................................71
8.02 Disposition of Assets..................................73
8.03 Consolidations and Mergers.............................74
8.04 Loans and Investments..................................74
8.05 Limitation on Indebtedness.............................75
8.06 Transactions with Affiliates...........................76
8.07 Use of Proceeds........................................76
8.08 Contingent Obligations.................................76
8.09 Subsidiaries...........................................77
8.10 Lease Obligations......................................77
8.11 Restricted Payments....................................77
8.12 ERISA..................................................77
8.13 Capital Expenditures...................................78
8.14 Sales and Leasebacks...................................78
8.15 Certain Payments.......................................78
8.16 Modification of Subordinated Debt Documents............78
8.17 Change in Business.....................................78
8.18 Accounting Changes.....................................79
8.19 Financial Covenants....................................79
8.20 No Restrictions on Subsidiary Dividends................79
ARTICLE IX EVENTS OF DEFAULT.................................................79
9.01 Event of Default.......................................79
9.02 Remedies...............................................82
9.03 Specified Swap Contract Remedies.......................83
ARTICLE X THE AGENT 83
10.01 Appointment and Authorization; "Agent".................83
10.02 Delegation of Duties...................................84
10.03 Liability of Agent.....................................84
10.04 Reliance by Agent......................................84
10.05 Notice of Default......................................85
10.06 Credit Decision........................................85
10.07 Indemnification of Agent...............................85
10.08 Agent in Individual Capacity...........................86
10.09 Successor Agent........................................86
10.10 Withholding Tax........................................87
10.11 Collateral Matters.....................................88
10.12 Senior Managing Agents; Co-Agents......................89
ARTICLE XI MISCELLANEOUS.....................................................89
11.01 Amendments and Waivers.................................89
11.02 Notices................................................90
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<PAGE>
11.03 No Waiver; Cumulative Remedies.........................91
11.04 Costs and Expenses.....................................91
11.05 Indemnification........................................92
11.06 Marshalling; Payments Set Aside........................93
11.07 Successors and Assigns.................................93
11.08 Assignments, Participations, Etc.......................93
11.09 Confidentiality........................................95
11.10 Set-off................................................96
11.11 [Intentionally omitted.]...............................96
11.12 Guaranty...............................................96
11.13 Notification of Addresses, Lending Offices, Etc.......102
11.14 Counterparts..........................................103
11.15 Severability..........................................103
11.16 No Third Parties Benefited............................103
11.17 Governing Law and Jurisdiction........................103
11.18 Waiver of Jury Trial..................................103
11.19 Entire Agreement......................................104
iv
<PAGE>
ANNEXES
Annex I Pricing Grid
SCHEDULES
Schedule 2.01 Commitments and Pro Rata Shares
Schedule 2.09 Term Loan Amortization Schedule
Schedule 6.05 Litigation
Schedule 6.07 ERISA
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.17 Subsidiaries and Minority Interests
Schedule 6.18 Insurance Matters
Schedule 8.01 Permitted Liens
Schedule 8.05 Permitted Indebtedness
Schedule 8.08 Contingent Obligations
Schedule 11.02 Payment Offices; Addresses for Notices; Lending Offices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Counsel to Loan Parties
Exhibit E Form of Assignment and Acceptance
Exhibit F-1 Form of Revolving Note
Exhibit F-2 Form of Term Note
Exhibit G Form of Additional Guarantor Assumption Agreement
Exhibit H Form of Legal Opinion of Additional Guarantor's Counsel
Exhibit I Form of Borrowing Base Certificate
Exhibit J Form of Security Agreement
Exhibit K Form of Update Certificate
v
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of November 30, 1999, among
BUILDING MATERIALS HOLDING CORPORATION, a Delaware corporation ("HOLDINGS"), as
borrower, BMC WEST CORPORATION, a Delaware corporation (the "COMPANY"), and
certain other affiliates of Holdings, as guarantors, the several financial
institutions from time to time party to this Agreement (individually, a "BANK"
and, collectively, the "BANKS"), First Union National Bank, KeyBank National
Association, South Trust Bank, N.A., U.S. Bank National Association and Wells
Fargo Bank, N.A., as senior managing agents, Union Bank of California, N.A., and
First Security Bank, N.A., as co-agents, and BANK OF AMERICA, N.A., as letter of
credit issuing bank and swingline bank and as administrative agent for the
Banks.
WHEREAS, the Banks have agreed to make available to Holdings a secured
revolving credit facility with letter of credit subfacility and swingline
subfacility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 CERTAIN DEFINED TERMS. The following terms have the following
meanings when used herein (including in the recitals hereof):
"ACCOUNT" means for purposes of this Agreement and the
Borrowing Base Certificate any right of payment of Holdings or any of
its Subsidiaries for goods sold or leased or for services rendered in
the ordinary course of business which is not evidenced by an instrument
(except as part of chattel paper), whether or not it has been earned by
performance.
"ACCOUNT DEBTOR" means the Person obligated on an Account.
"ACQUISITION" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly,
in (a) the acquisition of all or substantially all of the assets of a
Person, or of any business or division of a Person, (b) the acquisition
of in excess of 50% of the capital stock, partnership interests,
membership interests or equity of any Person, or otherwise causing any
Person to become a Subsidiary, or (c) a merger or consolidation or any
other combination with another Person (other than a Person that is a
Subsidiary), PROVIDED that Holdings or the Company, as the case may be,
or the Subsidiary, is the surviving Person.
"ADDITIONAL GUARANTOR ACCESSION DATE" has the meaning
specified in Section 7.13.
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<PAGE>
"ADDITIONAL GUARANTOR ASSUMPTION AGREEMENT" has the meaning
specified in Section 7.13.
"AFFILIATE" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under
common control with, such Person. A Person shall be deemed to control
another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the
ownership of voting securities, membership interests, by contract, or
otherwise.
"AGENT" means BofA in its capacity as administrative agent for
the Banks hereunder, and any successor agent arising under Section
10.09.
"AGENT-RELATED PERSONS" means BofA and any successor agent
arising under Section 10.09 and any successor letter of credit issuing
bank hereunder, together with their respective Affiliates (including,
in the case of BofA, the Lead Arranger), and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"AGENT'S PAYMENT OFFICE" means the address for payments set
forth on SCHEDULE 11.02 or such other address as the Agent may from
time to time specify.
"AGGREGATE COMMITMENT" means the combined Commitments of the
Banks.
"AGREEMENT" means this Credit Agreement.
"APPLICABLE FEE AMOUNT" means with respect to the commitment
fees and Standby Letter of Credit fees payable hereunder, the amount
set forth opposite the indicated Level below the heading "Commitment
Fee" or "Letter of Credit Fee," as applicable, in the pricing grid set
forth on ANNEX I in accordance with the parameters for calculations of
such amount also set forth on ANNEX I.
"APPLICABLE MARGIN" means, with respect to Base Rate Loans and
Offshore Rate Loans, the amount set forth opposite the indicated Level
below the heading "Base Rate Spread or "Offshore Rate Spread" in the
pricing grid set forth on ANNEX I in accordance with the parameters for
calculations of such amounts also set forth on ANNEX I.
"ASSIGNEE" has the meaning specified in subsection 11.08(a).
"ATTORNEY COSTS" means and includes all fees and disbursements
of any law firm or other external counsel, the allocated cost of
internal legal services and all disbursements of internal counsel.
"AVAILABLE COMMITMENT" has the meaning specific in Section
2.11(b).
"BANK" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BofA, including in its
capacity as Issuing Bank and Swingline Bank; for purposes of
2
<PAGE>
clarification only, to the extent that BofA may have any rights or
obligations in addition to those of the Banks due to its status as
Issuing Bank or Swingline Bank, its status as such will be specifically
referenced. Unless the context otherwise clearly requires, "BANK"
includes any such institution in its capacity as Swap Provider. Unless
the context otherwise clearly requires, references to any such
institution as a "BANK" shall also include any of such institution's
Affiliates that may at any time of determination be Swap Providers.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C.ss.101, et seq.).
"BASE RATE" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest
in effect for such day as publicly announced from time to time by BofA
as its prime rate. (The prime rate is a rate set by BofA based upon
various factors including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point
for pricing some loans, which may be priced at, above, or below such
announced rate.) Any change in the prime rate announced by BofA shall
take effect at the opening of business on the day specified in the
public announcement of such change.
"BASE RATE LOAN" means a Loan that bears interest based on the
Base Rate.
"BOFA" means Bank of America, N.A., a national banking
association, or any successor by merger thereto.
"BORROWING" means a borrowing hereunder consisting of (i)
Loans of the same Type made to Holdings on the same day by the Banks
under Article II, and, in the case of Offshore Rate Loans, having the
same Interest Period, or (ii) a Swingline Loan (or Swingline Loans)
made to Holdings on the same day by the Swingline Banks, (iii) an L/C
Borrowing.
"BORROWING BASE" means, at any time, an amount equal to the
sum of: (i) 80% of the value of the Accounts; PLUS (ii) 60% of the
value of the Inventory. As used in this definition, "VALUE" as applied
to Inventory shall mean the lower of cost and market, or if there at
any time exist any other matters, events, conditions or contingencies
which the Majority Banks reasonably believe may cause a material
portion of the Accounts to be unpaid, the Majority Banks, in their sole
discretion, may exclude any of the Accounts or Inventory from the
Borrowing Base if the Majority Banks reasonably determine that the
inclusion of such Account or Inventory in the Borrowing Base would have
a Material Adverse Effect.
"BORROWING BASE CERTIFICATE" means a certificate substantially
in the form of Exhibit I.
"BORROWING DATE" means any date on which a Borrowing occurs
under Section 2.03.
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"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco
are authorized or required by law to close and, if the applicable
Business Day relates to any Offshore Rate Loan, means such a day on
which dealings are carried on in the London or other applicable
offshore Dollar interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Governmental Authority, or any
other law, rule or regulation, whether or not having the force of law,
in each case, regarding capital adequacy of any bank or of any
corporation controlling a bank.
"CAPITALIZATION" means, as at any date, for Holdings and its
Subsidiaries on a consolidated basis in accordance with GAAP, the sum
of Funded Debt PLUS Stockholder's Equity.
"CAPITAL EXPENDITURE ANNUAL LIMIT" means, for any fiscal year,
the sum of (a) $30,000,000 PLUS (b) 3.0% of the aggregate sales
reported by all Persons acquired by Holdings or its Subsidiaries in
such fiscal year pursuant to a Permitted Acquisition, as reported by
each such acquired Person in its financial statements for such Person's
then most recent fiscal year-end, PLUS (c) the amount of proceeds of
any Disposition or Event of Loss which are reinvested as Capital
Expenditures within six (6) months of Holdings' or any Subsidiary's
receipt of such proceeds.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of
all expenditures (including the current portion of Capital Leases)
which are required to be capitalized on the consolidated balance sheet
of Holdings and its Subsidiaries during that period, in accordance with
GAAP, excluding Acquisitions permitted by subsection 8.04(d).
"CAPITAL LEASE" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP,
would, at the time a determination is made, be required to be recorded
as a capital lease in respect of which such Person is liable as lessee.
"CASH COLLATERALIZE" means to pledge and deposit with or
deliver to the Agent, for the benefit of the Agent, the Issuing Bank
and the Banks, as additional collateral for the L/C Obligations, cash
or deposit account balances pursuant to the Security Agreement.
Derivatives of such term shall have corresponding meaning.
"CHANGE OF CONTROL" means any person or group of persons
(within the meaning of Section 13 or 14 of the Exchange Act) shall have
acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the SEC under said Act) of 20% or more of the
outstanding shares of common stock of Holdings; or, during any period
of twelve consecutive calendar months, individuals who were directors
of Holdings on the first day of such period shall cease to constitute a
majority of the board of directors of Holdings.
4
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"CLOSING DATE" means the date on which all conditions
precedent set forth in Section 5.01 are satisfied or waived by all
Banks (or, in the case of subsection 5.01(e), waived by the Person
entitled to receive such payment).
"CODE" means the Internal Revenue Code of 1986.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by Holdings and its
Subsidiaries in or upon which a Lien now or hereafter exists in favor
of the Banks, or the Agent on behalf of the Banks, whether under this
Agreement or under any other Collateral Documents.
"COLLATERAL DOCUMENTS" means, collectively, (i) the Security
Agreement, the Intellectual Property Security Agreements, the Mortgages
and all other security agreements mortgages, deeds of trust, patent and
trademark assignments, lease assignments and other similar agreements
between Holdings or any Subsidiary and the Banks, or the Agent for the
benefit of the Banks, now or hereafter delivered to the Banks or the
Agent pursuant to or in connection with the transactions contemplated
hereby, and all financing statements (or comparable documents now or
hereafter filed in accordance with the Uniform Commercial Code or
comparable law) against Holdings or any Subsidiary as debtor in favor
of the Banks, or the Agent for the benefit of the Banks, as secured
party, and (ii) any amendments, supplements, modifications, renewals,
replacements, consolidations, substitutions and extensions of any of
the foregoing.
"COMMERCIAL LETTER OF CREDIT" means a commercial Letter of
Credit Issued for the account of Holdings in respect of the purchase of
Inventory or other goods and services by Holdings or any of its
Subsidiaries in the ordinary course of business.
"COMMITMENT," as to each Bank, means the sum of its Revolving
Commitment and Term Commitment.
"COMPANY" means BMC West Corporation, a Delaware corporation.
"COMPLIANCE CERTIFICATE" means a certificate substantially in
the form of EXHIBIT C.
"CONSOLIDATED NET WORTH" means, as of the date of
determination, the consolidated shareholders' equity of Holdings and
its Subsidiaries, as determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, as of the date of
determination, the consolidated net income of Holdings and its
Subsidiaries, as determined in accordance with GAAP.
"CONSOLIDATED TOTAL ASSETS" means, as of the date of
determination, the consolidated total assets of Holdings and its
Subsidiaries, as determined in accordance with GAAP.
5
<PAGE>
"CONTINGENT OBLIGATION" means (without duplication), as to any
Person, any direct or indirect liability of that Person, whether or not
contingent, with or without recourse, (a) with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation
(the "PRIMARY OBLIGATIONS") of another Person (the "PRIMARY OBLIGOR"),
including any obligation of that Person (i) to purchase, repurchase or
otherwise acquire such primary obligations or any security therefor,
(ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth
or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner
of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation, (iv) in connection with any
synthetic lease or other similar off balance sheet lease transaction,
or (v) otherwise to assure or hold harmless the holder of any such
primary obligation against loss in respect thereof (each a "GUARANTY
OBLIGATION"); (b) with respect to any Surety Instrument issued for the
account of that Person or as to which that Person is otherwise liable
for reimbursement of drawings or payments; (c) to purchase any
materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document
or obligation requires that payment for such materials, supplies or
other property, or for such services, shall be made regardless of
whether delivery of such materials, supplies or other property is ever
made or tendered, or such services are ever performed or tendered; (d)
in respect of Earn-Out Obligations; (e) in respect of any Swap
Contract; and (f) in respect of Stock Price Guaranties. The amount of
any Contingent Obligation shall, in the case of Guaranty Obligations,
be deemed equal to the stated or determinable amount of the primary
obligation in respect of which such Guaranty Obligation is made or, if
not stated or if indeterminable, the maximum reasonably anticipated
liability in respect thereof, and in the case of other Contingent
Obligations other than in respect of Swap Contracts, shall be equal to
the maximum reasonably anticipated liability in respect thereof and, in
the case of Contingent Obligations in respect of Swap Contracts, shall
be equal to the Swap Termination Value.
"CONTRACTUAL OBLIGATION" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other
instrument, document or agreement to which such Person is a party or by
which it or any of its property is bound.
"CONVERSION/CONTINUATION DATE" means any date on which, under
Section 2.04, Holdings (a) converts Loans of one Type to another Type,
or (b) continues as Loans of the same Type, but with a new Interest
Period, Loans having Interest Periods expiring on such date.
"CREDIT EXPOSURE" has the meaning specified in the definition
of Majority Banks.
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"CREDIT EXTENSION" means and includes (a) the making of any
Revolving Loans, Term Loans or Swingline Loans hereunder, and (b) the
Issuance of any Letters of Credit hereunder.
"DEFAULT" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or
otherwise remedied during such time) constitute an Event of Default.
"DISPOSITION" means the sale, lease, conveyance or other
disposition of property, other than sales or other dispositions
expressly permitted under subsections 8.02(a) through 8.02(g).
"DISPOSITION VALUE" means the aggregate net book value of all
assets sold, transferred, leased or disposed of in any transaction
determined as of the date of such transfer or proposed transfer
thereof.
"DOLLARS," "DOLLARS" and "$" each mean lawful money of the
United States.
"EARN-OUT OBLIGATIONS" means any obligations, whether
contingent or matured, to pay additional consideration in connection
with the Acquisition by Holdings or any Subsidiary of any capital stock
or assets of any Person.
"EBITA" means, for any period, for Holdings and its
Subsidiaries, the sum of consolidated net income (exclusive of
extraordinary gains and losses and exclusive of earnings from Minority
Investments) of Holdings and its Subsidiaries for such period PLUS (to
the extent deducted in determining consolidated net income) (i)
Interest Expense for such period, (ii) income tax expense for such
period, (iii) amortization expense and other non-cash expenses for such
period (other than depreciation expense) and (iv) cash dividends in
respect of Minority Investments, in each case, measured in accordance
with GAAP.
"EBITDA" means, for any period, for Holdings and its
Subsidiaries, the sum of consolidated net income (exclusive of
extraordinary gains and losses and exclusive of earnings from Minority
Investments) of Holdings and its Subsidiaries for such period PLUS (to
the extent deducted in determining consolidated net income) (i)
Interest Expense for such period, (ii) income tax expense for such
period, (iii) depreciation expense, amortization expense and other
non-cash expenses for such period and (iv) cash dividends in respect of
Minority Investments, in each case, measured in accordance with GAAP.
For purposes of determining the consolidated EBITDA of Holdings and its
Subsidiaries hereunder for purposes of calculating the EBITDA Ratio
hereunder, EBITDA shall be adjusted upon the Permitted Acquisition of
any acquired Subsidiary (the "ACQUIREE") (A) to include the historical
financial results of such Acquiree for the four fiscal quarter period
("CALCULATION PERIOD") for which Holdings' consolidated EBITDA is
calculated hereunder, until such time as the first day of any
Calculation Period falls on or after the date on which the Acquisition
of such Acquiree is consummated; and (B) to exclude any specific,
identifiable expense items which are eliminated as a result of the
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Permitted Acquisition of such Acquiree at the closing thereof, provided
that audited financial statements accompanied by an unqualified opinion
of an Independent Auditor are delivered to the Agent and the Banks in
respect of such Acquiree for the then most recent fiscal year of such
Acquiree, and PROVIDED FURTHER that Holdings shall have delivered a
certificate of a Responsible Officer clearly setting forth such pro
forma additions to consolidated EBITDA resulting from the Permitted
Acquisition of such Acquiree.
"EBITDA RATIO" means, as of the end of any fiscal quarter,
measured on a consolidated basis for Holdings and its Subsidiaries as
of such date, the ratio of (i) Funded Debt existing on such date to
(ii) EBITDA for the period of four fiscal quarters ending on such date.
"EFFECTIVE AMOUNT" means (i) with respect to any Revolving
Loans, Term Loans and Swingline Loans on any date, the aggregate
outstanding principal amount thereof after giving effect to any
Borrowings and prepayments or repayments of Revolving Loans, Term Loans
and Swingline Loans occurring on such date; and (ii) with respect to
any outstanding L/C Obligations on any date, the amount of such L/C
Obligations on such date after giving effect to any Issuances of
Letters of Credit occurring on such date and any other changes in the
aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any
Letters of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date; PROVIDED
that for purposes of Section 2.08, the Effective Amount shall be
determined without giving effect to any mandatory prepayments to be
made under Section 2.08.
"ELIGIBLE ASSIGNEE" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $100,000,000; (b) a commercial
bank organized under the laws of any other country which is a member of
the Organization for Economic Cooperation and Development (the "OECD"),
or a political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, PROVIDED that such bank
is acting through a branch or agency located in the United States; and
(c) a Person that is primarily engaged in the business of commercial
banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a
Person of which a Bank is a Subsidiary, or (iii) a Person of which a
Bank is a Subsidiary.
"ENVIRONMENTAL CLAIMS" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability
or responsibility for violation of any Environmental Law, or for
release or injury to the environment or threat to public health,
personal injury (including sickness, disease or death), property
damage, natural resources damage, or otherwise alleging liability or
responsibility for damages (punitive or otherwise), cleanup, removal,
remedial or response costs, restitution, civil or criminal penalties,
injunctive relief, or other type of relief, resulting from or based
upon the presence, placement, discharge, emission or release (including
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intentional and unintentional, negligent and non-negligent, sudden or
non-sudden, accidental or non-accidental, placement, spills, leaks,
discharges, emissions or releases) of any Hazardous Material at, in, or
from any property, whether or not owned by Holdings or any Subsidiary.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental,
health, safety and land use matters; including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Clean Air Act, the Federal Water Pollution Control Act
of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California
Hazardous Waste Control Law, the California Solid Waste Management,
Resource, Recovery and Recycling Act, the California Water Code and the
California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of
1974.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with Holdings or the Company within
the meaning of Section 414(b) or (c) of the Code (and Sections 414(m)
and (o) of the Code for purposes of provisions relating to Section 412
of the Code).
"ERISA EVENT" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by Holdings, the Company or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section
4001(a)(2) of ERISA) or a cessation of operations which is treated as
such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by Holdings, the Company or any ERISA Affiliate from
a Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or
4041A of ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan or Multiemployer Plan; or
(f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon
Holdings, the Company or any ERISA Affiliate.
"ESTIMATED REMEDIATION COSTS" means all costs associated with
performing work to remediate contamination of real property or
groundwater, including engineering and other professional fees and
expenses, costs to remove, transport and dispose of contaminated soil,
costs to "cap" or otherwise contain contaminated soil, and costs to
pump and treat water and monitor water quality.
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"EURODOLLAR RESERVE PERCENTAGE" has the meaning specified in
the definition of "Offshore Rate."
"EVENT OF DEFAULT" means any of the events or circumstances
specified in Section 9.01.
"EVENT OF LOSS" means, with respect to any property, any of
the following: (a) any loss, destruction or damage of such property;
(b) any pending or threatened institution of any proceedings for the
condemnation or seizure of such property or for the exercise of any
right of eminent domain; or (c) any actual condemnation, seizure or
taking, by exercise of the power of eminent domain or otherwise, of
such property, or confiscation of such property or the requisition of
the use of such property.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXISTING CREDIT FACILITY" means the Third Amended and
Restated Credit Agreement, dated as of September 30, 1998, as amended,
among the Company, the Banks named therein and BofA, as successor agent
to Wells Fargo Bank, National Association.
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New
York with respect to the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is
not so published with respect to any such preceding Business Day, the
rate for such day will be the arithmetic mean as determined by the
Agent of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by each of
three leading brokers of Federal funds transactions in New York City
selected by the Agent.
"FEE LETTER" has the meaning specified in subsection 2.11(a).
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"FUNDED DEBT" means , as of any date of determination, all
Indebtedness of Holdings and its Subsidiaries on such date, on a
consolidated basis in accordance with GAAP, which by its terms matures
more than one year after the date of calculation, and any such
Indebtedness maturing within one year from such date which is renewable
or extendable at the option of the obligor to a date more than one year
from such date and including, in any event, all Revolving Loans and all
L/C Obligations.
"FURTHER TAXES" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or
similar charges (including net income taxes and franchise taxes), and
all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts payable or paid pursuant to Section 4.01.
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"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions of
comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date
of determination, subject to Section 1.03.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"GUARANTOR" means the Company and each other direct or
indirect Subsidiary of Holdings party to a Guaranty in its capacity as
a guarantor hereunder.
"GUARANTY" means the guaranty of each Guarantor made pursuant
to Section 11.12 and any other guaranty under any separate agreement
executed by any Guarantor pursuant to which it guarantees the
Obligations.
"GUARANTY OBLIGATION" has the meaning specified in the
definition of "Contingent Obligation."
"HAZARDOUS MATERIALS" means all those substances that are
regulated by, or which may form the basis of liability under, any
Environmental Law, including any substance identified under any
Environmental Law as a pollutant, contaminant, hazardous waste,
hazardous constituent, special waste, hazardous substance, hazardous
material, or toxic substance, or petroleum or petroleum derived
substance or waste.
"HOLDINGS" means Building Materials Holding Corporation, a
Delaware corporation.
"HONOR DATE" has the meaning specified in subsection 3.03(b).
"INDEBTEDNESS" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued,
undertaken or assumed as the deferred purchase price of property or
services (other than trade payables entered into in the ordinary course
of business on ordinary terms but including all non-contingent Earn-Out
Obligations); (c) all reimbursement or payment obligations with respect
to Surety Instruments (contingent or otherwise); (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising
under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to property acquired
by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to
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repossession or sale of such property); (f) all obligations with
respect to Capital Leases; (g) all indebtedness referred to in clauses
(a) through (f) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; (h) all
Guaranty Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above; and
(i) all Stock Price Guaranties having a tenor of six (6) months or more
or exceeding $2,000,000 in the aggregate for all Stock Price Guaranties
then outstanding. For all purposes of this Agreement, the Indebtedness
of any Person shall include all recourse Indebtedness of any
partnership or joint venture or limited liability company in which such
Person is a general partner or a joint venturer or a member.
"INDEMNIFIED LIABILITIES" has the meaning specified in Section
11.05.
"INDEMNIFIED PERSON" has the meaning specified in Section
11.05.
"INDEPENDENT AUDITOR" has the meaning specified in subsection
7.01(a).
"INSOLVENCY PROCEEDING" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any
court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors,
or other, similar arrangement in respect of its creditors generally or
any substantial portion of its creditors; in either case undertaken
under U.S. Federal, state or foreign law, including the Bankruptcy
Code.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" has the meaning
specified in the Security Agreement.
"INTEREST EXPENSE" means, for any period, for Holdings and its
Subsidiaries in accordance with GAAP, all interest in respect of
Indebtedness accrued or capitalized during such period (whether or not
actually paid during such period).
"INTEREST PAYMENT DATE" means, (i) as to any Offshore Rate
Loan, the last day of each Interest Period applicable to such Loan,
(ii) as to any Base Rate Loan, the last Business Day of each calendar
quarter and the Revolving Termination Date (in the case of Revolving
Loans) and the Term Maturity Date (in the case of Term Loans) and (iii)
as to any Swingline Loan, the Business Day on which the principal of
such Swingline Loan is repaid or such other date provided for in
Section 2.06(e); PROVIDED, HOWEVER, that if any Interest Period for an
Offshore Rate Loan exceeds three months, the date that falls three
months after the beginning of such Interest Period and after each
Interest Payment Date thereafter is also an Interest Payment Date.
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"INTEREST PERIOD" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two,
three or six months thereafter, as selected by Holdings in its Notice
of Borrowing or Notice of Conversion/ Continuation; PROVIDED that:
(i) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, in the case of
an Offshore Rate Loan, the result of such extension would be
to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the preceding
Business Day;
(ii) any Interest Period pertaining to an Offshore
Rate Loan that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(iii) no Interest Period for any Term Loan shall
extend beyond the Term Maturity Date and no Interest Period
for any Revolving Loan shall extend beyond the Revolving
Termination Date; and
(iv) no Interest Period applicable to a Term Loan or
portion thereof shall extend beyond any date upon which is due
any scheduled principal payment in respect of the Term Loans
unless the aggregate principal amount of Term Loans
represented by Base Rate Loans or Offshore Rate Loans having
Interest Periods that will expire on or before such date,
equals or exceeds the amount of such principal payment.
"INVENTORY" shall mean for purposes of this Agreement and the
Borrowing Base Certificate all goods of Holdings or any of its
Subsidiaries held for sale or lease in the ordinary course of business,
work in progress and any and all raw materials used in connection with
the foregoing.
"INVESTMENT" has the meaning specified in Section 8.04.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"ISSUANCE DATE" has the meaning specified in subsection
3.01(a).
"ISSUE" means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of or
otherwise amend, such Letter of Credit; and the terms "ISSUED,"
"ISSUING" and "ISSUANCE" have corresponding meanings.
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"ISSUING BANK" means BofA in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter
of credit issuer arising under subsection 10.01(b) or Section 10.09.
"KNIPP PURCHASE OPTION" means the right of BMHC Framing, Inc.,
a Wholly Owned Subsidiary of Holdings, to acquire the remaining 51%
interest in Knipp Brothers Industries, LLC, from Knipp Brothers, Inc.,
as set forth in that certain Amended and Restated Limited Liability
Company Agreement of Knipp Brothers Industries, LLC, dated as of May 1,
1999, and/or the obligation of Holdings or BMHC Framing, Inc. (or any
of their Affiliates, to the extent such obligation is assigned to any
such Affiliate), to acquire the remaining 51% interest in Knipp
Brothers Industries, LLC, under that certain Put Agreement dated as of
April 30, 1999, by and among Knipp Brothers, Inc., BMHC Framing, Inc.,
Holdings and Knipp Brothers Industries, LLC.
"L/C ADVANCE" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C AMENDMENT APPLICATION" means an application form for
amendment of outstanding Standby or Commercial Letters of Credit as
shall at any time be in use at the Issuing Bank, as the Issuing Bank
shall request.
"L/C APPLICATION" means an application form for issuances of
Standby or Commercial Letters of Credit as shall at any time be in use
at the Issuing Bank, as the Issuing Bank shall request.
"L/C BORROWING" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans
under subsection 3.03(c).
"L/C COMMITMENT" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate in,
Letters of Credit from time to time Issued or outstanding under Article
III, in an aggregate amount not to exceed on any date the amount of
$15,000,000, as the same shall be reduced as a result of a reduction in
the L/C Commitment pursuant to Section 2.05 or 2.08; PROVIDED that the
L/C Commitment is a part of the combined Revolving Commitments of the
Banks rather than a separate, independent commitment; and PROVIDED
FURTHER that if as a result of any Commitment reductions hereunder the
L/C Commitment shall exceed the combined Revolving Commitments of the
Banks, the L/C Commitment shall automatically reduce by the amount of
such excess.
"L/C OBLIGATIONS" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding,
PLUS (b) the amount of all unreimbursed drawings under all Letters of
Credit, including all outstanding L/C Borrowings.
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"L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Bank's
standard form documents for letter of credit issuances.
"LEAD ARRANGER" means Banc of America Securities LLC, a
Delaware limited liability company, in its capacity as Sole Lead
Arranger and Sole Book Manager.
"LENDING OFFICE" means, as to any Bank, the office or offices
of such Bank specified as its "Lending Office" or "Domestic Lending
Office" or "Offshore Lending Office," as the case may be, on SCHEDULE
11.02, or such other office or offices as such Bank may from time to
time notify to Holdings and the Agent.
"LETTERS OF CREDIT" means any letters of credit Issued by the
Issuing Bank pursuant to Article III (which may be Commercial Letters
of Credit or Standby Letters of Credit).
"LIEN" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential arrangement of
any kind or nature whatsoever in respect of any property (including
those created by, arising under or evidenced by any conditional sale or
other title retention agreement, the interest of a lessor under a
Capital Lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as
debtor, under the Uniform Commercial Code or any comparable law) and
any contingent or other agreement to provide any of the foregoing, but
not including the interest of a lessor under an Operating Lease.
"LOAN" means an extension of credit by a Bank to Holdings
under Article II, which may be a Base Rate Loan, an Offshore Rate Loan
or a Swingline Loan (each a "TYPE" of Loan), and includes a Revolving
Loan or Term Loan, or Article III in the form of an L/C Advance.
"LOAN DOCUMENTS" means this Agreement, any Notes, any
Guaranty, the Collateral Documents, the Fee Letter, the L/C-Related
Documents, any documents evidencing or relating to Specified Swap
Contracts and all other documents delivered to the Agent or any Bank in
connection herewith.
"LOAN PARTY" means the Company, Holdings and each other
Subsidiary of Holdings party hereto as a Guarantor.
"MAJORITY BANKS" means at any time Banks then holding in
excess of 50% of the then aggregate Credit Exposure of all the Banks,
or, if no Credit Exposure exists, Banks then having in excess of 50% of
the Aggregate Commitment. As used in this definition, the "CREDIT
EXPOSURE" of any Bank means (i) with respect to any outstanding
Revolving Loans, the aggregate outstanding principal amount of the
Revolving Loans made by such Bank, (ii) with respect to any outstanding
Term Loans, the aggregate outstanding principal amount of the Term
Loans made by such Bank, and (iii) with respect to any outstanding
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Swingline Loans and L/C Obligations, the participating interest therein
equal to such Bank's Pro Rata Share thereof.
"MARGIN STOCK" means "margin stock" as such term is defined in
Regulation T, U or X of the FRB.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business,
properties, condition (financial or otherwise) or prospects of Holdings
or Holdings and its Subsidiaries taken as a whole; (b) a material
impairment of the ability of any Loan Party to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse
effect upon (i) the legality, validity, binding effect or
enforceability against any Loan Party of any Loan Document or (ii) the
perfection or priority of any Lien granted under the Collateral
Documents.
"MINIMUM AMOUNT" means (i) in respect of any Borrowing,
conversion or continuation of Loans, (a) in the case of Base Rate
Loans, an aggregate minimum amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof, (b) in the case of Offshore
Rate Loans, an aggregate minimum amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof and (c) in the case of
Swingline Loans, an aggregate minimum amount of $100,000 or any
integral multiple of $100,000 in excess thereof (or such other amount
as shall be acceptable to the Swingline Bank), (ii) in the case of any
reduction of the Commitments under Section 2.05, $5,000,000 or any
multiple of $1,000,000 in excess thereof, and (iii) in the case of any
optional prepayment of Loans under Section 2.07, $1,000,000 or any
multiple of $1,000,000 in excess thereof.
"MINORITY INVESTMENT" means the direct or indirect Investment
by Holdings in any Person, PROVIDED in each case that such Person is
not a Subsidiary at the time of such Investment and after giving effect
thereto.
"MORTGAGE" means any deed of trust, mortgage, leasehold
mortgage, assignment of rents or other document creating a Lien on real
property or any interest in real property.
"MORTGAGED PROPERTY" means all property subject to a Lien
pursuant to a Mortgage.
"MULTIEMPLOYER PLAN" means a "multiemployer plan," within the
meaning of Section 4001(a)(3) of ERISA, to which Holdings, the Company
or any ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has made,
or been obligated to make, contributions.
"NET ISSUANCE PROCEEDS" means, as to any issuance of debt or
equity by any Person, cash proceeds received or receivable by such
Person in connection therewith, net of out-of-pocket costs and expenses
paid or incurred in connection therewith in favor of any Person not an
Affiliate of such Person.
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"NET PROCEEDS" means, as to any Disposition by a Person,
proceeds in cash, checks or other cash equivalent financial instruments
as and when received by such Person, net of: (i) the direct costs
relating to such Disposition excluding amounts payable to such Person
or any Affiliate of such Person, (ii) sale, use or other transaction
taxes and capital gains taxes paid or payable by such Person as a
direct result thereof, and (iii) amounts required to be applied to
repay principal, interest and prepayment premiums and penalties on
Indebtedness secured by a purchase money security interest on any asset
which is the subject of such Disposition. "NET PROCEEDS" shall also
include proceeds paid on account of any Event of Loss, net of (i) all
money actually applied to repair or reconstruct the damaged property or
property affected by the condemnation or taking, (ii) all of the costs
and expenses incurred in connection with the collection of such
proceeds, award or other payments, and (iii) any amounts retained by or
paid to parties having superior rights to such proceeds, awards or
other payments. For purposes of determining the amount of Net Proceeds
in respect of any Disposition or Event of Loss, however, the amount of
proceeds calculated as provided above shall be reduced by the amount of
such proceeds that such Person has used (or intends to use within six
months of the date of receipt of such proceeds) to pay the purchase
price in connection with any Permitted Acquisition, Minority Investment
or any Capital Expenditures (to the extent permitted hereunder), it
being understood that any portion of such proceeds that has not been so
used within such six month period shall be deemed to be Net Proceeds
received on the last day of such six month period and that all such
proceeds shall be deemed to be Net Proceeds at any time that an Event
of Default exists hereunder.
"NOTES" means the Revolving Notes and the Term Notes.
"NOTICE OF BORROWING" means a notice in substantially the form
of EXHIBIT A.
"NOTICE OF CONVERSION/CONTINUATION" means a notice in
substantially the form of EXHIBIT B.
"OBLIGATIONS" means the Revolving Loans, Term Loans Swingline
Loans, L/C Obligations and other Indebtedness arising under any Loan
Document owing by Holdings to any Bank, the Agent, the Issuing Bank,
the Swingline Bank or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising.
"OFFSHORE RATE" means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the rate
of interest per annum (rounded upward to the next 1/16th of 1%)
determined by the Agent as follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
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Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect
on such day (whether or not applicable to any Bank) under
regulations issued from time to time by the FRB for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement)
with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means: (i) the rate of interest per annum determined
by the Agent to be the rate of interest per annum (rounded
upward to the nearest 1/100th of 1%) appearing on Dow Jones
Page 3750 (as defined below) for Dollar deposits having a
maturity comparable to such Interest Period, at approximately
11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period, subject to clause (ii)
below; or (ii) if for any reason the rate is not available as
provided in the preceding clause (i) of this definition,
"LIBOR" instead means the rate of interest per annum
determined by the Agent to be the arithmetic mean (rounded
upward to the nearest 1/16th of 1%) of the rates of interest
per annum notified to the Agent by BofA as the rate of
interest at which Dollar deposits in the approximate amount of
the Offshore Rate Loan to be made, continued or converted by
BofA, and having a maturity comparable to such Interest
Period, would be offered to major banks in the London
interbank market at their request at approximately 11:00 a.m.
(London time) two Business Days prior to the commencement of
such Interest Period. As used in this definition, "DOW JONES
PAGE 3750" means the display designated as "3750" on the Dow
Jones Market Service (formerly known as the Telerate Service)
or any replacement page thereof or successor thereto.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"OFFSHORE RATE LOAN" means a Loan that bears interest based on
the Offshore Rate.
"OPERATING LEASE" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP,
would, at the time a determination is made, be required to be recorded
as an operating lease in respect of which such Person is liable as
lessee.
"ORGANIZATION DOCUMENTS" means, for any Person, the
certificate or articles of incorporation, the bylaws, any certificate
of determination or instrument relating to the rights of preferred
shareholders of such corporation, any shareholder rights agreement, any
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other applicable organizational or constitutional documents and all
applicable resolutions of the board of directors (or any committee
thereof) of such Person
"OTHER TAXES" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or
similar levies which arise from any payment made hereunder or from the
execution, delivery, performance, enforcement or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"PARTICIPANT" has the meaning specified in subsection
11.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions
under ERISA.
"PENSION PLAN" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which Holdings or the
Company sponsors, maintains, or to which it makes, is making, or is
obligated to make contributions, or in the case of a multiple employer
plan (as described in Section 4064(a) of ERISA) has made contributions
at any time during the immediately preceding five (5) plan years.
"PERFECTION CERTIFICATE" means a certificate, in form and
substance satisfactory to the Agent, providing certain information
relating to the Loan Parties and the Collateral.
"PERMITTED ACQUISITION" means (a) the Acquisition of Knipp
Brothers Industries, LLC pursuant to the Knipp Purchase Option,
PROVIDED that the consideration given therefor (including the
incurrence of Indebtedness) shall not exceed $40,000,000; and (b) any
other Acquisition that conforms to the following requirements: (i) the
assets, Person, division or line of business to be acquired is in a
substantially similar or ancillary line of business as the Company,
(ii) the Agent and the Banks shall have received promptly, and in any
event no less than ten (10) Business Days prior to the consummation of
such Acquisition, (A) financial information regarding the assets,
Person or business to be acquired, including the most recent audited
financial statements, if available, but in any case the most recently
prepared balance sheet, statement of income and statement of cash flows
for the assets, Person or business to be acquired and pro forma
projected financial statements showing the effect of the Acquisition of
the assets, Person or business on Holdings, including a balance sheet
for Holdings and its Subsidiaries as of the time of the Acquisition and
projected statements of income and cash flows for Holdings and its
Subsidiaries through at least the Revolving Termination Date, and (B) a
completed worksheet in substantially the form of Schedule 1 to the
Compliance Certificate demonstrating Holdings' pro forma compliance
with the financial covenants set forth in Section 8.19, measured as of
the last day of the fiscal quarter then most recently ended, after
giving effect to such Acquisition, (iii) all transactions related to
such Acquisition shall be consummated in accordance with applicable
Requirements of Law, (iv) such Acquisition shall be non-hostile in
nature, (v) the prior, effective written consent or approval to such
Acquisition of the board of directors or equivalent governing body of
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the acquiree is obtained, (vi) immediately after giving effect to such
Acquisition: (A) no Default or Event of Default shall have occurred and
be continuing or would result therefrom, (B) 100% of the capital stock
of any acquired or newly formed corporation, partnership, limited
liability company or other business entity is owned directly by
Holdings or a U.S. Wholly-Owned Subsidiary of Holdings, and (C) all
actions required to be taken with respect to such acquired or newly
formed Subsidiary under Section 7.13 or as otherwise required under
Section 7.14 shall have been taken, and (vii) in the case of any
Significant Acquisition, the Majority Banks shall have consented in
writing to the consummation of such Acquisition.
"PERMITTED ADDITIONAL SUBORDINATED DEBT" has the meaning
specified in Section 8.05(i).
"PERMITTED CAPITAL EXPENDITURE CARRY-FORWARD" means, for any
fiscal year, the Dollar amount equal to (a) the maximum Dollar amount
of Capital Expenditures permitted to be incurred by Holdings and its
Subsidiaries in such fiscal year under Section 8.13 MINUS (b) the
Dollar amount of Capital Expenditures actually incurred by Holdings and
its Subsidiaries in such fiscal year.
"PERMITTED LIENS" has the meaning specified in Section 8.01.
"PERMITTED SWAP OBLIGATIONS" means all obligations (contingent
or otherwise) of Holdings or any Subsidiary existing or arising under
Swap Contracts, PROVIDED that each of the following criteria is
satisfied: (a) such obligations are (or were) entered into by such
Person in the ordinary course of business for the purpose of directly
mitigating risks associated with liabilities, commitments or assets
held or reasonably anticipated by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities
repurchase program not otherwise prohibited hereunder, and not for
purposes of speculation or taking a "market view;" (b) such Swap
Contracts do not contain (i) any provision ("walk-away" provision)
exonerating the non-defaulting party from its obligation to make
payments on outstanding transactions to the defaulting party, or (ii)
any provision creating or permitting the declaration of an event of
default, termination event or similar event upon the occurrence of an
Event of Default hereunder (other than an Event of Default under
subsection 9.01(a)).
"PERSON" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
any other entity of whatever nature.
"PLAN" means an employee benefit plan (as defined in Section
3(3) of ERISA) which Holdings or the Company sponsors or maintains or
to which Holdings or the Company makes, is making, or is obligated to
make contributions and includes any Pension Plan.
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"PLEDGED COLLATERAL" means the "Pledged Collateral" as defined
in the Security Agreement and shall include all products and Proceeds
(as defined in the Security Agreement) of the Pledged Collateral.
"PRO RATA SHARE" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth
decimal place) at such time of (a) in the case of the Revolving
Commitments or the Revolving Loans, such Bank's Revolving Commitment
divided by the combined Revolving Commitments of all Banks (or, if all
Revolving Commitments have been terminated, the aggregate principal
amount of such Bank's Revolving Loans divided by the aggregate
principal amount of the Revolving Loans then held by all Banks), and
(b) in the case of the Term Commitments or the Term Loans, such Bank's
Term Commitment divided by the combined Term Commitments of all Banks
(or, if all Term Commitments have been terminated, the aggregate
principal amount of such Bank's Term Loans divided by the aggregate
principal amount of Term Loans then held by all Banks). The initial Pro
Rata Shares of each Bank are set forth opposite such Bank's name in
SCHEDULE 2.01 under the heading "Pro Rata Share (Revolving
Commitments)" and "Pro Rata Share (Term Commitments)."
"REIMBURSEMENT DATE" has the meaning specified in Section
3.03.
"REPLACEMENT BANK" has the meaning specified in Section 4.07.
"REPORTABLE EVENT" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"REQUIREMENT OF LAW" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of
an arbitrator or of a Governmental Authority, in each case applicable
to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"RESPONSIBLE OFFICER" means as to any Person, the chief
executive officer or the president of such Person, or any other officer
having substantially the same authority and responsibility; or, with
respect to compliance with financial covenants, the chief financial
officer or the treasurer of such Person, or any other officer having
substantially the same authority and responsibility.
"REVOLVING COMMITMENT," as to each Bank, has the meaning
specified in subsection 2.01(b).
"REVOLVING LOAN" has the meaning specified in Section 2.01.
"REVOLVING NOTE" means a promissory note executed by Holdings
in favor of a Bank pursuant to subsection 2.02(b), in substantially the
form of EXHIBIT F-1
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"REVOLVING TERMINATION DATE" means the earlier to occur of:
(a) December 7, 2004; and (b) the date on which the Revolving
Commitments terminate in accordance with the provisions of this
Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SECURITY AGREEMENT" means a Security Agreement in
substantially the form of EXHIBIT J.
"SENIOR FUNDED DEBT" means, as of any date of determination,
all Funded Debt of Holdings and its Subsidiaries on such date which is
not subordinated in right of payment to the Obligations, on a
consolidated basis in accordance with GAAP.
"SENIOR SECURED NOTES" means the 8.10% Senior Secured Notes
due October 31, 2000 issued by the Company and the 9.18% Senior Secured
Notes due October 31, 2006 issued by the Company.
"SENIOR SUBORDINATED NOTES" has the meaning specified in
subsection 2.16(b).
"SIGNIFICANT ACQUISITION" means (a) any Acquisition by
Holdings or any Subsidiary in respect of which cash or cash equivalents
and/or assumption and/or incurrence of Indebtedness exceeding
$25,000,000 in the aggregate constitutes all or a portion of the
consideration therefor, and (b) any Acquisition by Holdings or any
Subsidiary at any time that cash or cash equivalents and/or assumption
and/or incurrence of Indebtedness exceeding $25,000,000 in the
aggregate has constituted (or, immediately after giving effect to such
Acquisition, shall have constituted) all or a portion of the
consideration for all Acquisitions by Holdings and its Subsidiaries
consummated in the then current fiscal year, in each case, excluding
any Permitted Acquisition of Knipp Brothers Industries, LLC.
"SPECIFIED SWAP CONTRACT" means any Swap Contract made or
entered into at any time, or in effect at any time (whether heretofore
or hereafter), whether directly or indirectly, and whether as a result
of assignment or transfer or otherwise, between Holdings and any Swap
Provider which Swap Contract is or was intended by Holdings to have
been entered into for purposes of mitigating interest rate or currency
exchange risk relating to any Loan (which intent shall conclusively be
deemed to exist if Holdings so represents to the Swap Provider in
writing), and as to which the final scheduled payment by Holdings is
not later than the Revolving Termination Date.
"STANDBY LETTER OF CREDIT" means a standby Letter of Credit
Issued for the account of Holdings to support obligations of Holdings
or any Subsidiary, contingent or otherwise.
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"STOCKHOLDER'S EQUITY" shall mean, at any date, as applied to
Holdings, the aggregate sum of Holdings' stock, capital surplus and
retained earnings (or minus accumulated deficit), determined on a
consolidated basis in accordance with GAAP.
"STOCK PRICE GUARANTY" means a guaranty that (i) is issued by
Holdings or an Affiliate of Holdings in connection with the Acquisition
of another Person, and (ii) is for the payment of cash or issuance of
Holdings' common stock if the common stock issued by Holdings in
connection with such an Acquisition is sold for less than the price
provided for in the guaranty during its term, PROVIDED that for
purposes of determining the amount of any Stock Price Guaranty, the
amount of such guaranty shall be equal to (a) the guaranteed stock
price multiplied by the number of shares covered by the guaranty, MINUS
(b) the current fair market value of one share of Holdings' common
stock (which fair market value shall be equal to the five day trailing
average closing price for Holdings' common stock as reported by the
Nasdaq National Stock Market) multiplied by the number of shares
covered by the guaranty, PROVIDED FURTHER, that for purposes of
determining the amount of any Stock Price Guaranty which is payable
solely in common stock of Holdings, the amount of such Stock Price
Guaranty shall equal zero.
"SUBORDINATED DEBT" means (i) the Senior Subordinated Notes;
and (ii) any Permitted Additional Subordinated Debt.
"SUBORDINATED DEBT DOCUMENTS" means any documents and
instruments evidencing any Subordinated Debt.
"SUBSIDIARY" of a Person means any corporation , association,
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock, membership interests
or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the
Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires,
references herein to a "Subsidiary" refer to a Subsidiary of Holdings.
"SURETY INSTRUMENTS" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties,
shipside bonds, surety bonds and similar instruments.
"SWAP CONTRACT" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond, note or bill option, interest rate
option, forward foreign exchange transaction, cap, collar or floor
transaction, currency swap, cross-currency rate swap, swaption,
currency option or any other, similar transaction (including any option
to enter into any of the foregoing) or any combination of the
foregoing, and, unless the context otherwise clearly requires, any
master agreement relating to or governing any or all of the foregoing.
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"SWAP PROVIDER" means any Bank, or any Affiliate of any Bank,
that is at the time of determination party to a Swap Contract with
Holdings.
"SWAP TERMINATION VALUE" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally
enforceable netting agreement relating to such Swap Contracts, (a) for
any date on or after the date such Swap Contracts have been closed out
and termination value(s) determined in accordance therewith, such
termination value(s), and (b) for any date prior to the date referenced
in clause (a) the amount(s) determined as the mark-to-market value(s)
for such Swap Contracts, as determined by Holdings based upon one or
more mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any Bank).
"SWINGLINE BANK" means BofA, in its capacity as maker of
Swingline Loans hereunder. Specific reference to the Swingline Bank
shall exclude the Swingline Bank in its capacity as a Bank hereunder.
"SWINGLINE COMMITMENT" has the meaning specified in subsection
2.06(a).
"SWINGLINE LOAN" has the meaning specified in subsection
2.06(a).
"TAXES" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the
case of each Bank and the Agent, respectively, taxes imposed on or
measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as
the case may be, is organized or maintains a Lending Office.
"TERM COMMITMENT," as to each Bank, has the meaning specified
in subsection 2.01(a).
"TERM LOAN" has the meaning specified in subsection 2.01(a).
"TERM MATURITY DATE" means December 7, 2004.
"TERM NOTE" means a promissory note executed by Holdings in
favor of a Bank pursuant to subsection 2.02(b), in substantially the
form of EXHIBIT F-2.
"TYPE" has the meaning specified in the definition of "Loan."
"TOTAL ASSETS" means for any date the net book value of the
consolidated assets of Holdings and its Subsidiaries as of the end of
the fiscal quarter ended on or most recently prior to such date.
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"TOTAL FUNDED DEBT" means, as of any date of determination,
all Funded Debt of Holdings and its Subsidiaries on such date, on a
consolidated basis in accordance with GAAP.
"UCC" means the Uniform Commercial Code as in effect in the
State of California.
"UNFUNDED PENSION LIABILITY" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance with the
assumptions used for funding the Pension Plan pursuant to Section 412
of the Code for the applicable plan year.
"UNITED STATES" and "U.S." each means the United States of
America.
"UPDATE CERTIFICATE" means a certificate in substantially the
form of EXHIBIT K.
"U.S. SUBSIDIARY" and "U.S. WHOLLY-OWNED SUBSIDIARY" means a
Subsidiary or Wholly-Owned Subsidiary, as the case may be, that is
located in and a resident of the United States.
"WHOLLY-OWNED SUBSIDIARY" means any corporation in which
(other than directors' qualifying shares required by law) 100% of the
capital stock of each class having ordinary voting power, and 100% of
the capital stock of every other class, in each case, at the time as of
which any determination is being made, is owned, beneficially and of
record, by Holdings, or by one or more of the other Wholly-Owned
Subsidiaries, or both.
1.02 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof," "herein," "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(d) The term "including" is not limiting and means "including
without limitation."
(e) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding," and the word "through"
means "to and including."
(f) Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments shall
be deemed to include all subsequent amendments and other modifications thereto,
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but only to the extent such amendments and other modifications are not
prohibited by the terms of any Loan Document (unless any such prohibitive term
has been waived), and (ii) references to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
(g) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(h) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(i) This Agreement and the other Loan Documents are the result
of negotiations among the Agent, Holdings, the Company and the other parties,
have been reviewed by counsel to the Agent, Holdings, the Company and such other
parties, and are the products of all parties. Accordingly, they shall not be
construed against the Banks or the Agent merely because of the Agent's or Banks'
involvement in their preparation.
1.03 ACCOUNTING PRINCIPLES. (a) Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall be
made, in accordance with GAAP, consistently applied; PROVIDED, HOWEVER, that if
GAAP shall have been modified after the Closing Date and the application of such
modified GAAP shall have a material effect on such financial computations
(including the computations required for the purpose of determining compliance
with the covenants set forth in Article VIII), then such computations shall be
made and such financial statements, certificates and reports shall be prepared,
and all accounting terms not otherwise defined herein shall be construed, in
accordance with GAAP as in effect prior to such modification, unless and until
the Majority Banks and Holdings shall have agreed upon the terms of the
application of such modified GAAP.
(b) References herein to "fiscal year" and "fiscal quarter"
refer to such fiscal periods of Holdings.
ARTICLE II
THE CREDITS
2.01 AMOUNTS AND TERMS OF COMMITMENTS.
(a) THE TERM CREDIT. Each Bank severally agrees, on the terms
and conditions set forth herein, to make a single loan denominated in Dollars to
Holdings (each such loan, a "TERM LOAN") on the Closing Date in an amount not to
exceed the amount set forth opposite such Bank's name on SCHEDULE 2.01 under the
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heading "Term Commitment" (such amount, such Bank's "TERM COMMITMENT");
PROVIDED, HOWEVER, that after giving effect to any Borrowing of Term Loans, the
Effective Amount of all outstanding Revolving Loans PLUS the Effective Amount of
all Swingline Loans PLUS the Effective Amount of all L/C Obligations PLUS the
Effective Amount of all outstanding Term Loans shall not exceed the Aggregate
Commitment. Amounts borrowed as Term Loans which are repaid or prepaid by
Holdings may not be reborrowed.
(b) THE REVOLVING CREDIT. Each Bank severally agrees, on the
terms and conditions set forth herein, to make loans denominated in Dollars to
Holdings (each such loan, a "REVOLVING LOAN") from time to time on any Business
Day during the period from the Closing Date to the Revolving Termination Date,
in an aggregate amount not to exceed at any time the amount set forth opposite
such Bank's name on SCHEDULE 2.01 under the heading "Revolving Commitment" (such
amount, as the same may be reduced under Section 2.05 or Section 2.08 or reduced
or increased as a result of one or more assignments under Section 11.08, such
Bank's "REVOLVING COMMITMENT"); PROVIDED, HOWEVER, that after giving effect to
any Borrowing of Revolving Loans, (i) the Effective Amount of all outstanding
Revolving Loans and Swingline Loans and the Effective Amount of all L/C
Obligations shall not exceed an amount equal to the lesser of (1) the combined
Revolving Commitments of the Banks and (2) the Borrowing Base; and (ii) the
Effective Amount of the Revolving Loans of any Bank PLUS the participation of
such Bank in the Effective Amount of all L/C Obligations and the Effective
Amount of all Swingline Loans shall not at any time exceed such Bank's Revolving
Commitment. Within the limits of each Bank's Revolving Commitment, and subject
to the other terms and conditions hereof, Holdings may borrow under this Section
2.01, prepay under Section 2.07 and reborrow under this Section 2.01.
2.02 LOAN ACCOUNTS. (a) The Loans made by each Bank and the Letters
of Credit Issued by the Issuing Bank shall be evidenced by one or more accounts
or records maintained by such Bank or Issuing Bank, as the case may be, in the
ordinary course of business. The accounts or records maintained by the Agent,
the Issuing Bank and each Bank shall be conclusive absent manifest error of the
amount of the Loans made by the Banks to Holdings and the Letters of Credit
Issued for the account of Holdings, and the interest and payments thereon. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of Holdings hereunder to pay any amount owing
with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the
Loans made by such Bank may be evidenced by one or more Notes, instead of or in
addition to loan accounts. Each such Bank shall endorse on the schedules annexed
to its Note(s) the date, amount and maturity of each Loan made by it and the
amount of each payment of principal made by Holdings with respect thereto. Each
such Bank is irrevocably authorized by Holdings to endorse its Note(s) and each
Bank's record shall be conclusive absent manifest error; PROVIDED, HOWEVER, that
the failure of a Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of
Holdings hereunder or under any such Note to such Bank.
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2.03 PROCEDURE FOR BORROWING. (a) Each Borrowing of Loans shall
be made upon Holdings' irrevocable written notice delivered to the Agent in the
form of a Notice of Borrowing (which notice must be received by the Agent (i)
prior to 9:00 a.m. (San Francisco time) at least three Business Days prior to
the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) prior
to 9:00 a.m. (San Francisco time) on the requested Borrowing Date, in the case
of Base Rate Loans, specifying:
(i) the amount of the Borrowing, which shall be in a Minimum
Amount, and whether such Borrowing shall be of Term Loans or Revolving Loans;
(ii) the requested Borrowing Date, which shall be a Business
Day;
(iii) the Type of Loans comprising the Borrowing; and
(iv) if applicable, the duration of the Interest Period
applicable to such Loans included in such notice, subject to the provisions of
the definition of "Interest Period" herein. If the Notice of Borrowing fails to
specify the duration of the Interest Period for any Borrowing comprised of
Offshore Rate Loans, such Interest Period shall be one month;
PROVIDED, HOWEVER, that with respect to the Borrowing to be made on the Closing
Date, the Notice of Borrowing shall be delivered to the Agent not later than
10:00 a.m. (San Francisco time) one Business Day before the Closing Date and
such Borrowing will consist of Base Rate Loans only; and FURTHER PROVIDED that
if so requested by the Agent, all Borrowings during the first 60 days following
the Closing Date shall have the same Interest Period and shall be Base Rate
Loans or Offshore Rate Loans for Interest Periods no longer than one month.
(b) The Agent will promptly notify each Bank of its receipt of
any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of
each Borrowing available to the Agent for the account of Holdings at the Agent's
Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date
requested by Holdings in funds immediately available to the Agent. The proceeds
of each such Borrowing will then be made available to Holdings by the Agent at
such office by crediting the account of Holdings on the books of BofA with the
aggregate of the amounts made available to the Agent by the Banks and in like
funds as received by the Agent, or if requested by Holdings, by wire transfer in
accordance with written instructions provided to the Agent by Holdings of such
funds as received by the Agent, unless on the date of the Borrowing all or any
portion of the proceeds thereof shall then be required to be applied to the
repayment of any outstanding Loans, in which case such proceeds or portion
thereof shall be applied to the payment of such Loans.
(d) After giving effect to any Borrowing, unless the Agent
shall otherwise consent, there may not be more than eight different Interest
Periods in effect.
2.04 CONVERSION AND CONTINUATION ELECTIONS. (a) Holdings may, upon
irrevocable written notice to the Agent in accordance with subsection 2.04(b):
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(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case of
any Offshore Rate Loans, to convert any such Loans (or any part thereof in a
Minimum Amount) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Revolving Loans or Term Loans having Interest Periods
expiring on such day (or any part thereof in a Minimum Amount);
PROVIDED that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $5,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of Holdings to continue such Loans as, and convert such Loans into, Offshore
Rate Loans, shall terminate.
(b) Holdings shall deliver a Notice of Conversion/Continuation
to be received by the Agent (i) not later than 9:00 a.m. (San Francisco time) at
least three Business Days in advance of the Conversion/ Continuation Date, if
the Loans are to be converted into or continued as Offshore Rate Loans; and (ii)
prior to 9:00 a.m. (San Francisco time) on the Conversion/Continuation Date, if
the Loans are to be converted into Base Rate Loans, specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or
continued;
(iii) the Type of Loans resulting from the proposed conversion
or continuation; and
(iv) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period, subject to the provisions
of the definition of "Interest Period" herein.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans, Holdings has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, as the case may be, or if
any Default or Event of Default then exists, Holdings shall be deemed to have
elected to convert such Offshore Rate Loans into Base Rate Loans effective as of
the expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of
a Notice of Conversion/Continuation, or, if no timely notice is provided by
Holdings, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
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(e) Unless the Majority Banks otherwise consent, during the
existence of a Default or Event of Default, Holdings may not elect to have a
Loan converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than
eight different Interest Periods in effect.
2.05 VOLUNTARY TERMINATION OR REDUCTION OF COMMITMENTS. (a)
Holdings may, upon not less than three Business Days' prior notice to the Agent,
terminate the Revolving Commitments, or permanently reduce the Revolving
Commitments, PROVIDED that the aggregate amount of any partial reduction is in a
Minimum Amount; unless, after giving effect thereto and to any prepayments of
any Loans made on the effective date thereof, (i) the Effective Amount of all
Revolving Loans, Swingline Loans and L/C Obligations together would exceed the
amount of the combined Revolving Commitments of the Banks then in effect, or
(ii) the Effective Amount of all L/C Obligations then outstanding would exceed
the L/C Commitment. Once reduced in accordance with this Section 2.05, the
Revolving Commitments may not be increased. Any reduction of the Revolving
Commitments shall be applied to each Bank according to its Pro Rata Share. If
and to the extent specified by Holdings in the notice to the Agent, some or all
of the reduction in the Revolving Commitments shall be applied to reduce the L/C
Commitment. All accrued commitment and letter of credit fees to, but not
including, the effective date of any reduction or termination of Revolving
Commitments, shall be paid on the effective date of such reduction or
termination.
(b) At no time shall the Swingline Commitment exceed the
combined Revolving Commitments of the Banks, and any reduction of the Revolving
Commitments which reduces combined Revolving Commitments of the Banks below the
then-current amount of the Swingline Commitment shall result in an automatic
corresponding reduction of the Swingline Commitment to the amount of the
combined Revolving Commitments of the Banks, as so reduced, without any action
on the part of the Swingline Bank.
2.06 SWINGLINE LOANS. Subject to the terms and conditions hereof,
the Swingline Bank agrees to make a portion of the Revolving Commitment
available to Holdings by making swingline loans denominated in Dollars
(individually, a "SWINGLINE LOAN", and, collectively, the "SWINGLINE LOANS") to
Holdings on any Business Day during the period from the Closing Date to the
Revolving Termination Date in accordance with the procedures set forth in this
Section 2.06 in an aggregate principal amount at any one time outstanding not to
exceed Five Million Dollars ($5,000,000), notwithstanding the fact that such
Swingline Loans, when aggregated with any other Credit Extensions made by or
participated in by the Swingline Bank, may exceed the Swingline Bank's Revolving
Commitment (the amount of such commitment of the Swingline Bank to make
Swingline Loans to Holdings pursuant to this subsection 2.06(a), as the same
shall be reduced pursuant to Section 2.05 or 2.08 or as a result of any
assignment pursuant to Section 11.08, the Swingline Bank's "SWINGLINE
COMMITMENT"); PROVIDED that at no time shall (i) the sum of the Effective Amount
of all Swingline Loans PLUS the Effective Amount of all Revolving Loans PLUS the
Effective Amount of all L/C Obligations exceed the combined Revolving
Commitments of the Banks, or (ii) the Effective Amount of all Swingline Loans
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exceed the Swingline Commitment. Additionally, no more than three Swingline
Loans may be outstanding at any one time, and all Swingline Loans shall at all
times accrue interest at the Base Rate or at such other rate as may be agreed to
by the Swingline Bank and Holdings. Within the foregoing limits, and subject to
the other terms and conditions hereof, Holdings may borrow under this subsection
2.06(a), prepay pursuant to Section 2.07 and reborrow pursuant to this
subsection 2.06(a).
(b) Holdings shall provide the Agent irrevocable written
notice (including notice via facsimile confirmed immediately by a telephone
call) in the form of a Notice of Borrowing of any Swingline Loan requested
hereunder (which notice must be received by the Agent prior to 9:00 a.m. (San
Francisco time) on the requested Borrowing Date) specifying (i) the amount to be
borrowed, which shall be in a Minimum Amount, and (ii) the requested Borrowing
Date, which shall be a Business Day. Unless the Swingline Bank has received
notice prior to 9:00 a.m. (San Francisco time) on such Borrowing Date from the
Agent (including at the request of any Bank) (A) directing the Swingline Bank
not to make the requested Swingline Loan as a result of the limitations set
forth in the PROVISO set forth in the first sentence of subsection 2.06(a); or
(B) that one or more conditions specified in Article V are not then satisfied;
THEN, subject to the terms and conditions hereof, the Swingline Bank will, not
later than 12:00 noon (San Francisco time) on the Borrowing Date specified in
such Notice of Borrowing, make the amount of its Swingline Loan available to
Holdings by crediting the account of Holdings on the books of BofA or if
requested by Holdings, by wire transfer in accordance with written instructions
provided to the Agent by Holdings. The Agent will notify the Banks on a
quarterly basis if any Swingline Loan Borrowings occurred during such quarter.
(c) Holdings shall repay to the Swingline Bank in full on the
Revolving Termination Date the aggregate principal amount of the Swingline Loans
outstanding on the Revolving Termination Date.
(d) For one Business Day during each successive seven Business
Day period the aggregate principal amount of Swingline Loans shall be $0 (a
"CLEAN-UP DAY"). Holdings shall prepay the outstanding principal amount of the
Swingline Loans in whole to the extent required so that a Clean-Up Day may occur
in each such seven Business Day period as provided in this subsection 2.06(d)
(which Swingline Loans may not be reborrowed until such Clean-Up Day has ended).
(e) If:
(i) any Swingline Loans shall remain outstanding at 4:00 p.m.
(San Francisco time) on the Business Day immediately prior to a Clean-Up Day and
by such time on such Business Day the Agent shall have received neither: (A) a
Notice of Borrowing delivered pursuant to Section 2.03 requesting that Revolving
Loans be made pursuant to subsection 2.01 on the Clean-Up Day in an amount at
least equal to the aggregate principal amount of such Swingline Loans; nor (B)
any other notice indicating Holdings' intent to repay such Swingline Loans with
funds obtained from other sources; or
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(ii) any Swingline Loans shall remain outstanding during the
existence of an Event of Default and the Swingline Bank shall in its sole
discretion notify the Agent that the Swingline Bank desires that such Swingline
Loans be converted into Revolving Loans;
THEN the Agent shall be deemed to have received a Notice of Borrowing from
Holdings pursuant to Section 2.03 requesting that Base Rate Loans be made
pursuant to subsection 2.01 on such Clean-Up Day (in the case of the
circumstances described in clause (i) above) or on the first Business Day
subsequent to the date of such notice from the Swingline Bank (in the case of
the circumstances described in clause (ii) above) in an amount equal to the
aggregate amount of such Swingline Loans, and the procedures set forth in
subsections 2.03(b) and 2.03(c) shall be followed in making such Base Rate
Loans; PROVIDED, that such Base Rate Loans shall be made notwithstanding
Holdings' failure to comply with Section 5.02; and PROVIDED, FURTHER, that if a
Borrowing of Revolving Loans becomes legally impracticable and if so required by
the Swingline Bank at the time such Revolving Loans are required to be made by
the Banks in accordance with this subsection 2.06(e), each Bank agrees that in
lieu of making Revolving Loans as described in this subsection 2.06(e), such
Bank shall purchase a participation from the Swingline Bank in the applicable
Swingline Loans in an amount equal to such Bank's Pro Rata Share of such
Swingline Loans, and the procedures set forth in subsections 2.03(b) and 2.03(c)
shall be followed in connection with the purchases of such participations. Upon
such purchases of participations the prepayment requirements of subsection
2.06(d) shall be deemed waived with respect to such Swingline Loans. If any
Swingline Loan shall remain outstanding in lieu of a Borrowing of Revolving
Loans as provided above, interest on such Swingline Loan shall be due and
payable on demand and shall accrue at the rate then applicable to Base Rate
Loans. The proceeds of such Base Rate Loans, or participations purchased, shall
be applied to repay such Swingline Loans. A copy of each notice given by the
Agent to the Banks pursuant to this subsection 2.06(e) with respect to the
making of Revolving Loans, or the purchases of participations, shall be promptly
delivered by the Agent to Holdings. Each Bank's obligation in accordance with
this Agreement to make the Revolving Loans, or purchase the participations, as
contemplated by this subsection 2.06(e), shall be absolute and unconditional and
shall not be affected by any circumstance, including (1) any set-off,
counterclaim, recoupment, defense or other right which such Bank may have
against the Swingline Bank, Holdings or any other Person for any reason
whatsoever; (2) the occurrence or continuance of a Default, an Event of Default
or a Material Adverse Effect; or (3) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
2.07 OPTIONAL PREPAYMENTS. Subject to Section 4.04, Holdings may,
at any time or from time to time, upon not less than three Business Days'
irrevocable notice to the Agent, ratably prepay Loans in whole or in part, in
Minimum Amounts. Such notice of prepayment shall specify the date and amount of
such prepayment, whether such prepayment of Loans is of Term Loans, Revolving
Loans or Swingline Loans (or a combination thereof) and the Type(s) of Loans to
be prepaid. The Agent will promptly notify the Swingline Bank (in the case of
any prepayment of Swingline Loans) and each Bank of its receipt of any such
notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is
given by Holdings, Holdings shall make such prepayment and the payment amount
specified in such notice shall be due and payable on the date specified therein,
together with (other than in the case of Base Rate Loans) accrued interest to
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each such date on the amount prepaid and any amounts required pursuant to
Section 4.04. Optional prepayments of Term Loans shall be applied to reduce the
Term Loans with respect to each remaining installment of principal pro rata in
accordance with the then remaining installments payable under subsection
2.09(a).
2.08 MANDATORY PREPAYMENTS OF LOANS; MANDATORY COMMITMENT
REDUCTIONS. (a) If on the Closing Date the aggregate Term Commitments shall
exceed the outstanding principal amount of the Term Loans made, such unused
portion of the Term Commitments shall automatically terminate on the Closing
Date.
(b) If at any time the Effective Amount of Revolving Loans and
Swingline Loans PLUS the Effective Amount of any L/C Obligations shall exceed
the Borrowing Base, Holdings, within 15 Business Days of the earlier of (i) the
date a Responsible Officer of Holdings became aware of such excess, and (ii)
notice from the Agent informing Holdings of the existence of such excess, shall
prepay the outstanding principal amount of the Loans and any L/C Advances, in an
amount equal to such excess and, if necessary (after giving effect to such
prepayment), shall also Cash Collateralize outstanding Letters of Credit in an
amount equal to the excess of the maximum amount then available to be drawn
under the Letters of Credit over the Borrowing Base.
(c) If on any date the Effective Amount of L/C Obligations
exceeds the L/C Commitment, Holdings shall Cash Collateralize on such date the
outstanding Letters of Credit in an amount equal to the excess of the maximum
amount then available to be drawn under the Letters of Credit over the Aggregate
L/C Commitment.
(d) If on any date (after giving effect to any Cash
Collateralization made on such date pursuant to subsection 2.08(b)), the
Effective Amount of all Revolving Loans and Swingline Loans then outstanding
PLUS the Effective Amount of all L/C Obligations exceeds the combined Revolving
Commitments of the Banks, Holdings shall immediately, and without notice or
demand, prepay the outstanding principal amount of the Revolving Loans,
Swingline Loans and L/C Advances by an amount equal to the applicable excess.
(e) If Holdings, the Company or any other Subsidiary shall at
any time or from time to time make or agree to make a Disposition, then (i)
Holdings shall promptly notify the Agent in advance of such Disposition
(including the amount of the estimated Net Proceeds to be received by Holdings,
the Company or such other Subsidiary in respect thereof) and (ii) if, after
giving effect to such Disposition, the Net Proceeds of all Dispositions which
have occurred in such fiscal year are greater than $1,000,000 in the aggregate,
then promptly upon, and in no event later than one Business Day after, receipt
by Holdings, the Company or the other Subsidiary of the Net Proceeds of such
Disposition, Holdings shall prepay Term Loans in an aggregate amount equal to
the amount of all Net Proceeds received by Holdings, the Company or any other
Subsidiary on account of all Dispositions which have occurred in such fiscal
year less the amount, if any, of Net Proceeds already so applied in such fiscal
year.
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(f) If Holdings, the Company or any other Subsidiary shall at
any time or from time to time issue any debt or equity securities for cash
consideration in excess of $5,000,000, then (i) Holdings shall promptly notify
the Agent in advance of the estimated Net Issuance Proceeds of such issuance and
(ii) promptly upon, and in no event later than one Business Day after, receipt
by Holdings, the Company or the other Subsidiary of the Net Issuance Proceeds of
such issuance, Holdings shall prepay Term Loans in an aggregate amount equal to
the amount of all Net Issuance Proceeds received by Holdings, the Company or any
such other Subsidiary on account of such issuance.
(g) Any prepayments pursuant to this Section 2.08 shall be
subject to Section 4.04 and applied, first, to Swingline Loans (only if such
prepayment is pursuant to Subsection 2.08(b)) then outstanding, second, to any
Base Rate Loans then outstanding and then to Offshore Rate Loans with the
shortest Interest Periods remaining; PROVIDED, HOWEVER, that if the amount of
Swingline Loans and Base Rate Loans then outstanding is not sufficient to
satisfy the entire prepayment requirement, Holdings may, at its option, place
any amounts which it would otherwise be required to use to prepay Offshore Rate
Loans on a day other than the last day of the Interest Period therefor in an
interest-bearing account pledged to the Agent for the benefit of the Banks until
the end of such Interest Period at which time such pledged amounts will be
applied to prepay such Offshore Rate Loans. Holdings shall pay, together with
each prepayment under this Section 2.08, accrued interest on the amount of any
Offshore Rate Loans prepaid and any amounts required pursuant to Section 4.04.
Prepayments of Term Loans pursuant to this Section 2.08 shall be applied to
reduce the Term Loans with respect to each remaining installment of principal
thereof pro rata in accordance with the then remaining installments payable
under subsection 2.09(a).
2.09 REPAYMENT. (a) THE TERM LOANS. Holdings shall repay to the
Agent for the account of the Banks the aggregate principal amount of Term Loans
in quarterly installments on the last Business Day of each calendar quarter
(each a "PRINCIPAL PAYMENT DATE"), commencing on December 31, 2000, in the
amounts set forth on Schedule 2.09 hereto:
(b) THE REVOLVING LOANS AND SWINGLINE LOANS. Holdings shall
repay to the Agent for the account of the Banks on the Revolving Termination
Date the aggregate principal amount of Revolving Loans and Swingline Loans
outstanding on such date.
2.10 INTEREST (a) (i) Each Revolving Loan and Term Loan shall bear
interest on the outstanding principal amount thereof from the applicable
Borrowing Date at a rate per annum equal to the Offshore Rate or the Base Rate,
as the case may be (and subject to Holdings' right to convert to other Types of
Loans under Section 2.04), PLUS the Applicable Margin; and (ii) each Swingline
Loan shall bear interest on the outstanding principal amount thereof from the
applicable Borrowing Date at a rate per annum equal to the Base Rate plus the
Applicable Margin, or at such other rate as may be agreed to by the Swingline
Bank.
(b) Interest on each Revolving Loan, Term Loan and Swingline
Loan shall be paid in arrears on each Interest Payment Date. Interest shall also
be paid on the date of any prepayment of Loans (other than Base Rate Loans)
under Section 2.07 or 2.08 for the portion of such Loans so prepaid and upon
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payment (including prepayment) in full thereof and, during the existence of any
Event of Default, interest shall be paid on demand of the Agent at the request
or with the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, Holdings shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all outstanding Obligations, at a rate per annum
which is determined by adding 2% per annum to the Applicable Margin then in
effect for such Loans and, in the case of Obligations not subject to an
Applicable Margin, at a rate per annum equal to the Base Rate plus the
Applicable Margin then in effect for Base Rate Loans, PLUS 2% per annum;
PROVIDED, HOWEVER, that on and after the expiration of any Interest Period
applicable to any Offshore Rate Loan outstanding on the date of occurrence of
such Event of Default or acceleration, the principal amount of such Loan shall,
during the continuation of such Event of Default or after acceleration, bear
interest at a rate per annum equal to the Base Rate, PLUS the Applicable Margin
then in effect for Base Rate Loans, PLUS 2% per annum.
(d) Anything herein to the contrary notwithstanding, the
obligations of Holdings to any Bank hereunder shall be subject to the limitation
that payments of interest shall not be required for any period for which
interest is computed hereunder, to the extent (but only to the extent) that
contracting for or receiving such payment by such Bank would be contrary to the
provisions of any law applicable to such Bank limiting the highest rate of
interest that may be lawfully contracted for, charged or received by such Bank,
and in such event Holdings shall pay such Bank interest at the highest rate
permitted by applicable law.
2.11 FEES. In addition to certain fees described in Section 3.08:
(a) ARRANGEMENT AND AGENCY FEES. Holdings shall pay an
arrangement fee to the Lead Arranger for the Lead Arranger's own account, and
shall pay an agency fee to the Agent for the Agent's own account, as required by
the letter agreement (the "FEE LETTER") between Holdings and the Lead Arranger
and Agent dated September 27, 1999.
(b) COMMITMENT FEES. Holdings shall pay to the Agent for the
account of each Bank a commitment fee on the actual daily unused portion of such
Bank's Revolving Commitment (the "AVAILABLE COMMITMENT"), computed on a
quarterly basis in arrears on the last Business Day of each calendar quarter
based upon the daily utilization for that quarter as calculated by the Agent at
a rate per annum equal to the Applicable Fee Amount. For purposes of calculating
the Available Commitment under this Section 2.11, the Revolving Commitments
shall be deemed used to the extent of the Effective Amount of Revolving Loans
then outstanding, plus the Effective Amount of L/C Obligations then outstanding
(other than L/C Obligations consisting of the aggregate undrawn amount of all
Commercial Letters of Credit then outstanding). Swingline Loans shall not
constitute utilization. Such commitment fee shall accrue from the Closing Date
to the Revolving Termination Date and shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter commencing on December
31, 1999, to the Revolving Termination Date, with the final payment to be made
on the Revolving Termination Date; PROVIDED that in connection with any
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termination of Commitments hereunder, the accrued commitment fee calculated for
the period ending on such date shall also be paid on the date of termination.
The commitment fees provided in this subsection shall accrue at all times after
the above-mentioned commencement date, including at any time during which one or
more conditions in Article V are not met.
2.12 COMPUTATION OF FEES AND INTEREST. (a) All computations of
interest for Base Rate Loans when the Base Rate is determined by BofA's "prime
rate" shall be made on the basis of a year of 365 or 366 days, as the case may
be, and actual days elapsed. All other computations of fees and interest shall
be made on the basis of a 360-day year and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day year).
Interest and fees shall accrue during each period during which interest or such
fees are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall
be conclusive and binding on Holdings and the Banks in the absence of manifest
error. The Agent will, at the request of Holdings or any Bank, deliver to
Holdings or the Bank, as the case may be, a statement showing the quotations
used by the Agent in determining any interest rate and the resulting interest
rate.
2.13 PAYMENTS BY HOLDINGS. (a) All payments to be made by Holdings
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by Holdings shall be made to the Agent
for the account of the Banks at the Agent's Payment Office, and shall be made in
Dollars and in immediately available funds, no later than 11:00 a.m. (San
Francisco time) on the date specified herein. The Agent will promptly distribute
to each Bank its Pro Rata Share (or other applicable share as expressly provided
herein) of such payment in like funds as received. Any payment received by the
Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from Holdings prior to
the date on which any payment is due to the Banks that Holdings will not make
such payment in full as and when required, the Agent may assume that Holdings
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent Holdings has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate for each day from the date such amount is distributed to such Bank
until the date repaid.
2.14 PAYMENTS BY THE BANKS TO THE AGENT. (a) Unless the Agent
receives notice from a Bank on or prior to the Closing Date or, with respect to
any Borrowing after the Closing Date, at least one Business Day prior to the
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date of such Borrowing, that such Bank will not make available as and when
required hereunder to the Agent for the account of Holdings the amount of that
Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has
made such amount available to the Agent in immediately available funds on the
Borrowing Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to Holdings on such date a corresponding
amount. If and to the extent any Bank shall not have made its full amount
available to the Agent in immediately available funds and the Agent in such
circumstances has made available to Holdings such amount, that Bank shall on the
Business Day following such Borrowing Date make such amount available to the
Agent, together with interest at the Federal Funds Rate for each day during such
period. A notice of the Agent submitted to any Bank with respect to amounts
owing under this subsection (a) shall be conclusive, absent manifest error. If
such amount is so made available, such payment to the Agent shall constitute
such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to the Agent on the Business Day following the
Borrowing Date, the Agent will notify Holdings of such failure to fund and, upon
demand by the Agent, Holdings shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.15 SHARING OF PAYMENTS, ETC. If, other than as expressly provided
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its ratable share (or other share
contemplated hereunder), such Bank shall immediately (a) notify the Agent of
such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; PROVIDED, HOWEVER, that if all or
any portion of such excess payment is thereafter recovered from the purchasing
Bank, such purchase shall to that extent be rescinded and each other Bank shall
repay to the purchasing Bank the purchase price paid therefor, together with an
amount equal to such paying Bank's ratable share (according to the proportion of
(i) the amount of such paying Bank's required repayment to (ii) the total amount
so recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered.
Holdings agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 11.10) with respect to
such participation as fully as if such Bank were the direct creditor of Holdings
in the amount of such participation. The Agent will keep records (which shall be
conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks following
any such purchases or repayments.
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2.16 SECURITY AND GUARANTY. (a) All obligations of Holdings under
this Agreement, the Notes and all other Loan Documents shall be secured in
accordance with the Collateral Documents.
(b) All Collateral other than the Pledged Collateral shall be
released by the Agent and the Banks upon receipt by Holdings of not less than
$100,000,000 of Net Issuance Proceeds from the issuance by Holdings of senior
subordinated debt securities constituting Permitted Additional Subordinated Debt
(the "SENIOR SUBORDINATED NOTES"), PROVIDED that (i) any Term Loans then
outstanding, and all interest and other amounts owing with respect thereto,
shall be concurrently repaid in full, and (ii) the Agent shall have received
from Holdings a completed Compliance Certificate demonstrating pro forma
compliance (after giving effect to the issuance of the Senior Subordinated
Notes) with the financial covenants set forth at Section 8.19 hereof (including
the maximum Senior Funded Debt to Capitalization ratio required under subsection
8.19(b)) as of the last day of the then immediately preceding fiscal quarter.
(c) All obligations of Holdings under this Agreement, each of
the Notes and all other Loan Documents to which it is a party shall be
unconditionally guaranteed by each Guarantor pursuant to its Guaranty.
ARTICLE III
THE LETTERS OF CREDIT
3.01 THE LETTER OF CREDIT SUBFACILITY. (a) On the terms and
conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time
on any Business Day during the period from the Closing Date to the Revolving
Termination Date to issue Letters of Credit for the account of Holdings, and to
amend or renew Letters of Credit previously issued by it, in accordance with
subsections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of
Credit; and (ii) the Banks severally agree to participate in Letters of Credit
Issued for the account of Holdings; PROVIDED that the Issuing Bank shall not be
obligated to Issue, and no Bank shall be obligated to participate in, any Letter
of Credit if such Letter of Credit is not denominated in Dollars or if as of the
date of Issuance of such Letter of Credit and after giving effect thereto (the
"ISSUANCE DATE") (1) the Effective Amount of all L/C Obligations PLUS the
Effective Amount of all Revolving Loans and Swingline Loans shall exceed an
amount equal to the lesser of (a) the combined Revolving Commitments and (b) the
Borrowing Base, (2) the participation of any Bank in the Effective Amount of all
L/C Obligations and in the Effective Amount of all Swingline Loans PLUS the
Effective Amount of the Revolving Loans of such Bank shall exceed such Bank's
Revolving Commitment, or (3) the Effective Amount of L/C Obligations shall
exceed the L/C Commitment. Within the foregoing limits, and subject to the other
terms and conditions hereof, Holdings ability to obtain Letters of Credit shall
be fully revolving, and, accordingly, Holdings may, during the foregoing period,
obtain Letters of Credit to replace Letters of Credit which have expired or
which have been drawn upon and reimbursed.
(b) The Issuing Bank is under no obligation to Issue any
Letter of Credit if:
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(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain the
Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over
the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from,
the Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such Letter of
Credit any restriction, reserve or capital requirement (for which the Issuing
Bank is not otherwise compensated hereunder) not in effect on the Closing Date,
or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense
which was not applicable on the Closing Date and which the Issuing Bank in good
faith deems material to it;
(ii) the Issuing Bank has received written notice from any
Bank, the Agent or Holdings, on or prior to the Business Day prior to the
requested date of Issuance of such Letter of Credit, that one or more of the
applicable conditions contained in Article V is not then satisfied;
(iii) the expiry date of any requested Letter of Credit is (A)
more than 365 days after the date of Issuance, unless the Majority Banks have
approved such expiry date in writing, or (B) after the Revolving Termination
Date, unless all of the Banks have approved such expiry date in writing;
(iv) the expiry date of any requested Letter of Credit is
prior to the maturity date of any financial obligation to be supported by the
requested Letter of Credit;
(v) any requested Letter of Credit does not provide for
drafts, or is not otherwise in form and substance acceptable to the Issuing
Bank, or the Issuance of a Letter of Credit shall violate any applicable
policies of the Issuing Bank;
(vi) any Standby Letter of Credit is for the purpose of
supporting the issuance of any letter of credit by any other Person;
(vii) any Standby Letter of Credit is in a face amount less
than $1,000,000; or
(viii) any requested Letter of Credit is to be denominated in a
currency other than Dollars.
(c) Letters of Credit issued under this Article III shall be
either Commercial Letters of Credit or Standby Letters of Credit.
3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF CREDIT. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of
Holdings received by the Issuing Bank (with a copy sent by Holdings to the
Agent) at least four Business Days (or such shorter time as the Issuing Bank may
agree in a particular instance in its sole discretion) prior to the proposed
date of issuance. Each such request for issuance of a Letter of Credit shall be
by facsimile, confirmed immediately in an original writing, in the form of an
L/C Application, and shall specify in form and detail satisfactory to the
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Issuing Bank: (i) the proposed date of issuance of the Letter of Credit (which
shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii)
the expiry date of the Letter of Credit; (iv) the name and address of the
beneficiary thereof; (v) the documents to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the Issuing Bank may require.
(b) At least two Business Days prior to the Issuance of any
Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or
in writing) that the Agent has received a copy of the L/C Application or L/C
Amendment Application from Holdings and, if not, the Issuing Bank will provide
the Agent with a copy thereof. Unless the Issuing Bank has received notice on or
before the Business Day immediately preceding the date the Issuing Bank is to
issue a requested Letter of Credit from the Agent (A) directing the Issuing Bank
not to issue such Letter of Credit because such issuance is not then permitted
under subsection 3.01(a) as a result of the limitations set forth in clauses (1)
through (3) thereof or subsection 3.01(b)(ii); or (B) that one or more
conditions specified in Article V are not then satisfied; then, subject to the
terms and conditions hereof, the Issuing Bank shall, on the requested date,
issue a Letter of Credit for the account of Holdings in accordance with the
Issuing Bank's usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding
and prior to the Revolving Termination Date, the Issuing Bank will, upon the
written request of Holdings received by the Issuing Bank (with a copy sent by
Holdings to the Agent) at least four Business Days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of amendment (including a renewal or extension thereof), amend
any Letter of Credit issued by it. Each such request for amendment of a Letter
of Credit shall be made by facsimile, confirmed immediately in an original
writing, made in the form of an L/C Amendment Application and shall specify in
form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be
amended; (ii) the proposed date of amendment of the Letter of Credit (which
shall be a Business Day); (iii) the nature of the proposed amendment; and (iv)
such other matters as the Issuing Bank may require. The Issuing Bank shall be
under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would
have no obligation at such time to issue such Letter of Credit in its amended
form under the terms of this Agreement; or (B) the beneficiary of any such
Letter of Credit does not accept the proposed amendment to the Letter of Credit.
The Agent will promptly notify the Banks of the Issuance of any Standby Letter
of Credit notified to it by the Issuing Bank. The Banks acknowledge and agree
that the Agent will not notify them of the receipt by the Agent of any L/C
Application or L/C Amendment Application or of the Issuance of any Commercial
Letter of Credit. From time to time the Agent will notify the Banks of the
amount of all outstanding Letters of Credit hereunder.
(d) The Issuing Bank and the Banks agree that, while a Letter
of Credit is outstanding and prior to the Revolving Termination Date, the
Issuing Bank shall be entitled to authorize the renewal of any Letter of Credit
issued by it. The Issuing Bank shall be under no obligation so to renew any
Letter of Credit if: (A) the Issuing Bank would have no obligation at such time
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to issue or amend such Letter of Credit in its renewed form under the terms of
this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the proposed renewal of the Letter of Credit. If any outstanding Letter
of Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the Issuing Bank that such Letter of
Credit shall not be renewed, and if at the time of renewal the Issuing Bank
would be entitled to authorize the renewal of such Letter of Credit in
accordance with this subsection 3.02(d) upon the request of Holdings but the
Issuing Bank shall not have received any written direction by Holdings with
respect thereto, the Issuing Bank shall nonetheless be permitted to allow such
Letter of Credit to renew, and Holdings and the Banks hereby authorize such
renewal, and, accordingly, the Issuing Bank shall be deemed to have received an
L/C Amendment Application from Holdings requesting such renewal.
(e) The Issuing Bank may, at its election (or as required by
the Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict
with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or amendment
to or renewal of a Letter of Credit.
3.03 RISK PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS. (a)
Immediately upon the Issuance of each Letter of Credit, each Bank shall be
deemed to, and hereby irrevocably and unconditionally agrees to, purchase from
the Issuing Bank a participation in such Letter of Credit and each drawing
thereunder in an amount equal to the product of (i) the Pro Rata Share of such
Bank, times (ii) the maximum amount available to be drawn under such Letter of
Credit and the amount of such drawing, respectively. Each Issuance of a Letter
of Credit shall be deemed to utilize the Commitment of each Bank by an amount
equal to the amount of such participation.
(b) In the event of any request for a drawing under a Letter
of Credit by the beneficiary or transferee thereof, the Issuing Bank will
promptly notify Holdings and specify in such notice the date such drawing will
be honored by the Issuing Bank (the "HONOR DATE"). If the Issuing Bank so
notifies Holdings prior to 9:00 a.m. (San Francisco time) on the Honor Date,
Holdings, as account party under such Letter of Credit, shall reimburse the
Issuing Bank no later than 11:00 a.m. (San Francisco time) on the Honor Date for
the amount paid by the Issuing Bank under such Letter of Credit or, if the
Issuing Bank shall so notify Holdings after 9:00 a.m. (San Francisco time) on
the Honor Date, Holdings, as account party under such Letter of Credit, shall
reimburse the Issuing Bank no later than 11:00 a.m. (San Francisco time) on the
next succeeding Business Day for the amount paid by the Issuing Bank under such
Letter of Credit on the Honor Date (each such date, a "REIMBURSEMENT DATE"), in
each case, in an amount equal to the amount so paid by the Issuing Bank. In the
event Holdings fails to reimburse the Issuing Bank for the full amount of any
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drawing under any Letter of Credit by the required time as provided above on the
Reimbursement Date, the Issuing Bank will promptly notify the Agent, and the
Agent will promptly notify each Bank thereof (including the amount thereof and
such Bank's Pro Rata Share thereof), and Holdings shall be deemed to have
requested that Base Rate Loans be made by the Banks to Holdings to be disbursed
on the Reimbursement Date for such Letter of Credit, subject to the amount of
the unutilized portion of the Aggregate Commitment and subject to the conditions
set forth in Section 5.02. Holdings hereby directs that the proceeds of any such
Loans deemed to be made by it shall be used to pay its reimbursement obligations
in respect of any such drawing. Solely for the purposes of making such Loans,
the Minimum Amount limitations set forth in Section 2.03 shall not be
applicable. Any notice given by the Issuing Bank or the Agent pursuant to this
subsection 3.03(b) may be oral if immediately confirmed in writing (including by
facsimile); PROVIDED that the lack of such an immediate confirmation shall not
affect the conclusiveness or binding effect of such notice. In the event that
any amount of any drawing under any Letter of Credit is not reimbursed by
Holdings on the Honor Date, such unreimbursed amount shall bear interest until
it is either deemed to be an L/C Borrowing as provided in subsection (f) or
deemed to be converted to a Base Rate Loan as provided in this subsection (b),
at a rate per annum equal to the Base Rate PLUS the Applicable Margin then in
effect for Base Rate Loans.
(c) Each Bank shall upon receipt of any notice pursuant to
subsection 3.03(b) make available to the Agent for the account of the Issuing
Bank an amount in Dollars and in immediately available funds equal to its Pro
Rata Share of the amount of the drawing, whereupon such Bank shall (subject to
subsection 3.03(f)) be deemed to have made a Revolving Loan consisting of a Base
Rate Loan to Holdings in that amount. The Agent will promptly give notice of the
occurrence of the Reimbursement Date, but failure of the Agent to give any such
notice on the Reimbursement Date or in sufficient time to enable any Bank to
effect such payment on such date shall not relieve such Bank from its
obligations under this Section 3.03.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans in whole or in part, because of Holdings' failure
to satisfy the conditions set forth in Section 5.02 or for any other reason,
Holdings shall be deemed to have incurred from the Issuing Bank an L/C Borrowing
in the amount of such drawing, which L/C Borrowing shall be due and payable on
demand (together with interest) and shall bear interest at a rate per annum
equal to the Base Rate, PLUS the Applicable Margin then in effect for Base Rate
Loans, PLUS 2% per annum. In such event, each Bank shall upon receipt of any
notice pursuant to subsection 3.03(b) make available to the Agent for the
account of the Issuing Bank an amount in Dollars and in immediately available
funds equal to its Pro Rata Share of the amount of the drawing. Each Bank's
payment to the Issuing Bank pursuant to this subsection 3.03(d) shall be deemed
payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Bank in satisfaction of its participation
obligation under this Section 3.03.
(e) If any Bank fails to make available to the Agent for the
account of the Issuing Bank the amount of such Bank's Pro Rata Share of the
amount of any drawing by no later than 12:00 noon (San Francisco time) on the
Reimbursement Date, then interest shall accrue on such Bank's obligation to make
such payment, from the Reimbursement Date to the date such Bank makes such
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payment, at (i) the Federal Funds Rate in effect from time to time during the
period commencing on the Reimbursement Date and ending on the date three
Business Days thereafter, and (ii) thereafter at the Base Rate as in effect from
time to time, payable on demand of the Agent.
(f) Each Bank's obligation in accordance with this Agreement
to make or participate in the Revolving Loans or L/C Advances, as contemplated
by this Section 3.03, as a result of a drawing under a Letter of Credit, shall
be absolute and unconditional and without recourse to the Issuing Bank and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Issuing
Bank, Holdings or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default, an Event of Default or a Material
Adverse Effect; or (iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing; PROVIDED, HOWEVER, that each
Bank's obligation to make Revolving Loans under this Section 3.03 is subject to
the conditions set forth in Section 5.02.
3.04 REPAYMENT OF PARTICIPATIONS. (a) Upon (and only upon) receipt
by the Agent for the account of the Issuing Bank of immediately available funds
from Holdings (i) in reimbursement of any payment made by the Issuing Bank under
the Letter of Credit with respect to which any Bank has paid the Agent for the
account of the Issuing Bank for such Bank's participation in the Letter of
Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of
such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share
of such funds of any Bank that did not so pay the Agent for the account of the
Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time
to return to Holdings, or to a trustee, receiver, liquidator, custodian, or any
official in any Insolvency Proceeding, any portion of the payments made by
Holdings to the Agent for the account of the Issuing Bank pursuant to subsection
3.04(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Bank shall, on demand of the Agent, forthwith
return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any
amounts so returned by the Agent or the Issuing Bank plus interest thereon from
the date such demand is made to the date such amounts are returned by such Bank
to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds
Rate in effect from time to time.
3.05 ROLE OF THE ISSUING BANK. (a) Each Bank and Holdings agree
that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not
have any responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable to
any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Majority Banks, as
applicable); (ii) any action taken or omitted in the absence of gross negligence
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or willful misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) Holdings hereby assumes all risks of the acts or omissions
of any beneficiary or transferee with respect to its use of any Letter of
Credit; PROVIDED, HOWEVER, that this assumption is not intended to, and shall
not, preclude Holdings pursuing such rights and remedies as it may have against
the beneficiary or transferee at law or under any other agreement. No
Agent-Related Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any of the
matters described in clauses (i) through (vii) of Section 3.06; PROVIDED,
HOWEVER, anything in such clauses to the contrary notwithstanding, that Holdings
may have a claim against the Issuing Bank, and the Issuing Bank may be liable to
Holdings, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by Holdings which Holdings proves
were caused by the Issuing Bank's willful misconduct or gross negligence or the
Issuing Bank's willful failure to pay under any Letter of Credit after the
presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Bank may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Bank shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
3.06 OBLIGATIONS ABSOLUTE. The obligations of Holdings under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement
or any L/C-Related Document;
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the obligations of Holdings in respect of
any Letter of Credit or any other amendment or waiver of or any consent to
departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that Holdings may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such beneficiary
or any such transferee may be acting), the Issuing Bank or any other Person,
whether in connection with this Agreement, the transactions contemplated hereby
or by the L/C-Related Documents or any unrelated transaction;
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(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or otherwise
of any document required in order to make a drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any Letter of
Credit against presentation of a draft or certificate that does not strictly
comply with the terms of any Letter of Credit; or any payment made by the
Issuing Bank under any Letter of Credit to any Person purporting to be a trustee
in bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to any beneficiary
or any transferee of any Letter of Credit, including any arising in connection
with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any other guarantee, for all or any of the obligations of Holdings in
respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, Holdings
or a guarantor.
3.07 CASH COLLATERAL PLEDGE. (i) Upon the request of the Agent, if
the Issuing Bank has honored any full or partial drawing request on any Letter
of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (ii)
if, as of the Revolving Termination Date, any Letters of Credit may for any
reason remain outstanding and partially or wholly undrawn, or (iii) the
occurrence of the circumstances described in subsection 2.08(b) or 2.08(c)
requiring Holdings to Cash Collateralize Letters of Credit, then, Holdings shall
immediately Cash Collateralize the L/C Obligations in an amount equal to such
L/C Obligations. Holdings shall, to the extent necessary, make such additional
pledges from time to time as shall be necessary to ensure that all L/C
Obligations remain at all times fully cash collateralized. Cash collateral held
under this Section 3.07 or Section 9.02 shall be maintained in blocked,
non-interest bearing deposit accounts at BofA pursuant to the Security
Agreement.
3.08 LETTER OF CREDIT FEES. (a) Holdings shall pay to the Agent for
the account of each of the Banks in accordance with its Pro Rata Share a letter
of credit fee with respect to the Standby Letters of Credit equal to the rate
per annum equal to the Applicable Fee Amount of the actual daily maximum amount
available to be drawn of the outstanding Standby Letters of Credit, computed on
a quarterly basis in arrears on the last Business Day of each calendar quarter
based upon Standby Letters of Credit outstanding for that quarter as calculated
by the Agent. Such letter of credit fees shall be due and payable quarterly in
arrears on the last Business Day of each calendar quarter during which Standby
Letters of Credit are outstanding, commencing on the first such quarterly date
to occur after the Closing Date, to the Revolving Termination Date (or such
later date upon which the outstanding Letters of Credit shall expire), with the
final payment to be made on the Revolving Termination Date (or such later
expiration date).
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(b) Holdings shall pay to the Issuing Bank, for the Issuing
Bank's sole account, a letter of credit fee with respect to the amount from time
to time available to be drawn under Commercial Letters of Credit in such amount
and on such dates as shall separately be agreed between the Issuing Bank and
Holdings.
(c) Holdings shall pay to the Issuing Bank, for the Issuing
Bank's sole account, a letter of credit fronting fee for each Standby Letter of
Credit Issued by the Issuing Bank equal to 0.125% per annum of the actual daily
maximum amount available to be drawn of the outstanding Standby Letters of
Credit, computed on a quarterly basis in arrears on the last Business Day of
each calendar quarter based upon Standby Letters of Credit outstanding for that
quarter as calculated by the Issuing Bank. Such letter of credit fronting fees
shall be due and payable quarterly in arrears on the last Business Day of each
calendar quarter during which Standby Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the Closing Date, to
the Revolving Termination Date (or such later date upon which the outstanding
Letters of Credit shall expire), with the final payment to be made on the
Revolving Termination Date (or such later expiration date).
(d) Holdings shall pay to the Issuing Bank from time to time
on demand the normal issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the Issuing Bank relating to
letters of credit as from time to time in effect.
(e) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, Holdings shall pay a letter of
credit fee (after as well as before entry of judgment thereon to the extent
permitted by law) on the actual daily maximum amount available to be drawn of
the outstanding Letters of Credit, at a rate per annum which is determined by
adding 2% per annum to the rate otherwise then in effect hereunder for such
Letters of Credit.
3.09 APPLICABILITY OF UNIFORM CUSTOMS AND PRACTICE AND ISP 98.
Unless otherwise expressly agreed by the Issuing Bank and Holdings when a Letter
of Credit is issued and subject to applicable laws, performance under Letters of
Credit by the Issuing Bank, its correspondents, and beneficiaries will be
governed by (i) with respect to Standby Letters of Credit, the rules of the
"International Standby Practices 1998" (ISP98) or such later revision as may be
published by the Institute of International Banking Law & Practice on any date
any Standby Letter of Credit may be issued, and (ii) with respect to Commercial
Letters of Credit, the rules of the Uniform Customs and Practice for Documentary
Credits, as published in its most recent version by the International Chamber of
Commerce (the "ICC") on the date any Commercial Letter of Credit is issued.
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ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 TAXES. (a) Any and all payments by Holdings to each Bank or
the Agent under this Agreement and any other Loan Document shall be made free
and clear of, and without deduction or withholding for, any Taxes. In addition,
Holdings shall pay all Other Taxes.
(b) If Holdings shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section), such
Bank or the Agent, as the case may be, receives and retains an amount equal to
the sum it would have received and retained had no such deductions or
withholdings been made;
(ii) Holdings shall make such deductions and withholdings;
(iii) Holdings shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) Holdings shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, Further Taxes in the
amount that the respective Bank specifies as necessary to preserve the after-tax
yield such Bank would have received if such Taxes, Other Taxes or Further Taxes
had not been imposed.
(c) Holdings agrees to indemnify and hold harmless each Bank
and the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii)
Further Taxes in the amount that the respective Bank specifies as necessary to
preserve the after-tax yield such Bank would have received if such Taxes, Other
Taxes or Further Taxes had not been imposed, and any liability (including
penalties, interest, additions to tax and expenses) arising therefrom or with
respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were
correctly or legally asserted. Payment under this indemnification shall be made
within 30 days after the date such Bank or the Agent makes written demand
therefor.
(d) Within 30 days after the date of any payment by Holdings
of Taxes, Other Taxes or Further Taxes, Holdings shall furnish to each Bank or
the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) If Holdings is required to pay any amount to any Bank or
the Agent pursuant to subsection (b) or (c) of this Section, then such Bank
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its Lending Office so as to eliminate any such
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additional payment by Holdings which may thereafter accrue, if such change in
the sole judgment of such Bank is not otherwise disadvantageous to such Bank.
(f) Nothing contained in this Section 4.01 shall override any
term or provision of any Specified Swap Contract regarding withholding taxes
relating to Swap Contracts.
4.02 ILLEGALITY. (a) If any Bank determines that the introduction
of any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by such Bank to Holdings through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until such Bank notifies the Agent and Holdings that the circumstances
giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any
Offshore Rate Loan, Holdings shall, upon its receipt of notice of such fact and
demand from such Bank (with a copy to the Agent), prepay in full such Offshore
Rate Loans of that Bank then outstanding, together with interest accrued thereon
and amounts required under Section 4.04, either on the last day of the Interest
Period thereof, if such Bank may lawfully continue to maintain such Offshore
Rate Loans to such day, or immediately, if such Bank may not lawfully continue
to maintain such Offshore Rate Loan. If Holdings is required to so prepay any
Offshore Rate Loan, then concurrently with such prepayment, Holdings shall
borrow from the affected Bank, in the amount of such repayment, a Base Rate
Loan.
(c) If the obligation of any Bank to make or maintain Offshore
Rate Loans has been so terminated or suspended, Holdings may elect, by giving
notice to such Bank through the Agent that all Loans which would otherwise be
made by such Bank as Offshore Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section,
the affected Bank shall designate a different Lending Office with respect to its
Offshore Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of such Bank, be
illegal or otherwise disadvantageous to such Bank.
4.03 INCREASED COSTS AND REDUCTION OF RETURN. (a) If any Bank
determines that, due to either (i) the introduction of or any change (other than
any change by way of imposition of or increase in reserve requirements included
in the calculation of the Offshore Rate) in or in the interpretation of any law
or regulation or (ii) the compliance by that Bank with any guideline or request
from any central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to such Bank of agreeing
to make or making, funding or maintaining any Offshore Rate Loans or
participating in Letters of Credit, or, in the case of the Issuing Bank, any
increase in the cost to the Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then Holdings shall
be liable for, and shall from time to time, upon demand (with a copy of such
demand to be sent to the Agent), pay to the Agent for the account of such Bank,
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additional amounts as are sufficient to compensate such Bank for such increased
costs.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by such Bank (or its Lending Office) or any corporation controlling
such Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by such Bank or any
corporation controlling such Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to Holdings through the
Agent, Holdings shall pay to such Bank, from time to time as specified by such
Bank, additional amounts sufficient to compensate such Bank for such increase.
4.04 FUNDING LOSSES. Holdings shall reimburse each Bank and hold
each Bank harmless from any loss or expense which such Bank may sustain or incur
as a consequence of:
(a) the failure of Holdings to make on a timely basis any
payment of principal of any Offshore Rate Loan;
(b) the failure of Holdings to borrow, continue or convert a
Loan after Holdings has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of Holdings to make any prepayment in
accordance with any notice delivered under Section 2.05, 2.07 or 2.08;
(d) the prepayment (including pursuant to Section 2.05, 2.07,
2.08 or 4.02(b)) or other payment (including after acceleration thereof) of an
Offshore Rate Loan on a day that is not the last day of the relevant Interest
Period; and
(e) the conversion under Section 2.04 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained. For purposes of
calculating amounts payable by Holdings to the Banks under this Section and
under subsection 4.03(a), each Offshore Rate Loan made by a Bank (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR used in determining the Offshore Rate
for such Offshore Rate Loan by a matching deposit or other borrowing in the
London interbank eurodollar market for a comparable amount and for a comparable
period, whether or not such Offshore Rate Loan is in fact so funded.
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4.05 INABILITY TO DETERMINE RATES. If the Agent or the Majority
Banks determine that for any reason adequate and reasonable means do not exist
for determining the Offshore Rate for any requested Interest Period with respect
to a proposed Borrowing of Offshore Rate Loans or conversion or continuation of
Offshore Rate Loans, or that the Offshore Rate applicable pursuant to subsection
2.10(a) for any requested Interest Period with respect to a proposed Borrowing
of Offshore Rate Loans, or a conversion into or continuation of Offshore Rate
Loans does not adequately and fairly reflect the cost to such Banks of funding
such Loans, the Agent will promptly so notify Holdings and each Bank.
Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans,
as the case may be, hereunder shall be suspended until the Agent upon the
instruction of the Majority Banks revokes such notice in writing. Upon receipt
of such notice, Holdings may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If Holdings does not revoke such
Notice, the Banks shall make, convert or continue the Loans, as proposed by
Holdings, in the amount specified in the applicable notice submitted by
Holdings, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans, as the case may be.
4.06 CERTIFICATES OF BANKS. Any Bank claiming reimbursement or
compensation under this Article IV shall deliver to Holdings (with a copy to the
Agent) a certificate setting forth in reasonable detail the amount payable to
such Bank hereunder, and the basis for calculation of such amount, and such
certificate shall be conclusive and binding on Holdings in the absence of
manifest error.
4.07 SUBSTITUTION OF BANKS. Upon the receipt by Holdings from any
Bank (an "AFFECTED BANK") of a claim for compensation under Section 4.03,
Holdings may: (i) request one or more of the other Banks to acquire and assume
all of such Affected Bank's Loans and Commitment; or (ii) designate a
replacement lending institution (which shall be an Eligible Assignee) to acquire
and assume all of such Affected Bank's Loans and Commitment (a "REPLACEMENT
BANK"); PROVIDED, HOWEVER, that Holdings shall be liable for the payment upon
demand of all costs and other amounts arising under Section 4.04 that result
from the acquisition of any Affected Bank's Loan and/or Commitment (or any
portion thereof) by a Bank or Replacement Bank, as the case may be, on a date
other than the last day of the applicable Interest Period with respect to any
Offshore Rate Loan then outstanding. Any such designation of a Replacement Bank
under clause (ii) shall be effected in accordance with, and subject to the terms
and conditions of, the assignment provisions contained in Section 11.08, and
shall in any event be subject to the prior written consent of the Agent, the
Issuing Bank and the Swingline Bank (which consent shall not be unreasonably
withheld).
4.08 SURVIVAL. The agreements and obligations of Holdings in this
Article IV shall survive the termination of the Commitments, the termination or
expiration of all Letters of Credit and the payment of all other Obligations.
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ARTICLE V
CONDITIONS PRECEDENT
5.01 CONDITIONS OF INITIAL CREDIT EXTENSIONS. The obligation of
each Bank and the Swingline Bank to make its initial Credit Extension hereunder
and the obligation of the Issuing Bank to Issue its initial Letter of Credit
shall be subject to the condition that the Agent shall have received on or
before the Closing Date all of the following, in form and substance reasonably
satisfactory to the Agent and each Bank, and in sufficient copies for each Bank:
(a) CREDIT AGREEMENT AND NOTES. This Agreement executed by
each party hereto and Notes executed by Holdings for the Banks requesting Notes;
(b) RESOLUTIONS; INCUMBENCY.
(i) Copies of the resolutions of the board of directors of
each Loan Party authorizing the transactions contemplated hereby, certified as
of the Closing Date by the Secretary or an Assistant Secretary of such Person;
and
(ii) a certificate of the Secretary or Assistant Secretary of
each Loan Party, dated as of the Closing Date, certifying the names, titles and
true signatures of the officers of such Person authorized to execute, deliver
and perform, as applicable, this Agreement and all other Loan Documents to be
delivered by it hereunder;
(c) ORGANIZATION DOCUMENTS; GOOD STANDING. Each of the
following documents:
(i) the articles or certificate of incorporation and the
bylaws of each Loan Party as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of such Person as of the Closing Date; and
(ii) a good standing certificate, as of a recent date, for
each Loan Party from the Secretary of State (or similar, applicable Governmental
Authority) of its state of incorporation and each state where its ownership,
lease or operation of property or the conduct of its business requires such Loan
Party be qualified or otherwise licensed to do business, together with
bring-down certificates by facsimile, dated the Closing Date or not more than
one Business Day prior thereto, if requested by the Agent;
(d) LEGAL OPINION. An opinion of Gibson, Dunn & Crutcher LLP,
counsel to the Loan Parties and addressed to the Agent and the Banks, dated the
Closing Date, substantially in the form of EXHIBIT D;
(e) PAYMENT OF FEES. Evidence of payment by Holdings of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with reasonable Attorney Costs of BofA to the
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extent invoiced prior to or on the Closing Date, PLUS such additional amounts of
reasonable Attorney Costs as shall constitute BofA's reasonable estimate of
Attorney Costs incurred or to be incurred by it through the closing proceedings
(PROVIDED that such estimate shall not thereafter preclude final settling of
accounts between Holdings and BofA); including any such costs, fees and expenses
arising under or referenced in Sections 2.11 and 11.04;
(f) OFFICER'S CERTIFICATE. A certificate signed by a
Responsible Officer of each of Holdings and the Company, dated as of the Closing
Date, stating that:
(i) the representations and warranties contained in Article
VI are true and correct on and as of such date, as though made on and as of such
date;
(ii) no Default or Event of Default exists or would result
from the initial Credit Extension; and
(iii) there has occurred since December 31, 1998, no event or
circumstance that has resulted or could reasonably be expected to result in a
Material Adverse Effect;
(g) FINANCIAL STATEMENTS.
(i) The audited consolidated balance sheet of Holdings and
its Subsidiaries as at December 31, 1996, December 31, 1997 and December 31,
1998, and the related consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal year then ended, certified by
a Responsible Officer of the Company;
(ii) the unaudited consolidated balance sheet of Holdings and
its Subsidiaries as at September 30, 1999, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal quarter then ended, certified by a Responsible Officer of the Company;
and
(iii) such other financial information as the Agent or any
Bank may reasonably request;
(h) BORROWING BASE CERTIFICATE. A completed Borrowing Base
Certificate, certifying the Borrowing Base as of the month ended October 31,
1999, signed by a Responsible Officer of Holdings, and dated the Closing Date;
(i) PERFECTION CERTIFICATE. A completed Perfection Certificate
from Holdings as to each Loan Party, dated as of the Closing Date;
(j) COLLATERAL DOCUMENTS. The Collateral Documents, executed
by each Loan Party, in appropriate form for recording, where necessary, together
with:
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(i) acknowledgment copies of all UCC-l financing statements
filed to perfect the security interests of the Agent for the benefit of the
Banks, or other evidence satisfactory to the Agent that there have been filed,
registered or recorded all financing statements and other filings, registrations
and recordings necessary and advisable to perfect the Liens of the Agent for the
benefit of the Banks in accordance with applicable law, or, with respect to the
Mortgaged Property, evidence satisfactory to the Agent that the executed
Mortgages with respect to the Mortgaged Property shall have been delivered to
Chicago Title Insurance Company in recordable form on or prior to the Closing
Date for recording;
(ii) written advice relating to such Lien and judgment
searches as the Agent shall have requested, and such termination statements or
other documents as may be necessary to confirm that the Collateral is subject to
no other Liens in favor of any Persons (other than Permitted Liens);
(iii) all certificates and instruments representing the
Pledged Collateral, together with stock transfer powers executed in blank with
signatures guaranteed as the Agent may specify;
(iv) funds sufficient to pay any filing or recording tax or
fee in connection with any and all UCC-1 financing statements and the Mortgages;
(v) with respect to the Mortgaged Property, an A.L.T.A. Form
B (or other form acceptable to the Agent and the Banks) mortgagee policy of
title insurance or a binder issued by a title insurance company satisfactory to
the Agent and the Banks insuring (or undertaking to insure, in the case of a
binder) that each Mortgage creates and constitutes a valid first Lien against
the Mortgaged Property contemplated thereby in favor of the Agent, subject only
to exceptions acceptable to the Agent and the Banks, with such endorsements and
affirmative insurance as the Agent or any Bank may reasonably request;
(vi) surveys and surveyor's certification as to all real
property and all land covered by a lease in respect of which there is delivered
a Mortgage, or as may be reasonably required by the Agent, each in form and
substance satisfactory to the Agent and the Banks;
(vii) appraisals, in form and substance satisfactory to the
Agent and the Majority Banks, of certain real property Collateral;
(viii) proof of payment of all title insurance premiums,
documentary stamp or intangible taxes, recording fees and mortgage taxes payable
in connection with the recording of any Mortgage or the issuance of the title
insurance policies (whether due on the Closing Date or in the future) including
sums due in connection with any future advances;
(ix) such consents, estoppels, subordination agreements and
other documents and instruments executed by landlords, tenants and other Persons
party to material contracts relating to any Collateral as to which the Agent
shall be granted a Lien for the benefit of the Banks, as requested by the Agent
or any Bank; and
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(x) evidence that all other actions necessary or, in the
reasonable opinion of the Agent or the Banks, desirable to perfect and protect
the first priority Lien created by the Collateral Documents, and to enhance the
Agent's ability to preserve and protect its interests in and access to the
Collateral;
(k) INSURANCE POLICIES. Evidence that the Agent has been named
as loss payee under all policies of casualty insurance under a Form 438FBFU or
other standard lender's loss payable endorsement, and as additional insured
under all policies of liability insurance, required in accordance with Section
7.06 and the Collateral Documents, together with a certificate of insurance as
to all insurance coverage on the properties of Holdings and its Subsidiaries;
(l) COMPLIANCE CERTIFICATE. A completed Compliance
Certificate, as of the fiscal quarter immediately preceding the Closing Date,
signed by a Responsible Officer of Holdings, and dated the Closing Date;
(m) TERMINATION OF EXISTING CREDIT FACILITY. Evidence that:
(i) all amounts due under the Existing Credit Facility have been paid in full;
(ii) the Company is not obligated with respect to any outstanding letters of
credit thereunder; (iii) all guarantees of any of the Company's obligations in
respect of the Existing Credit Facility have terminated on the Closing Date, and
(iv) all commitments of the lenders under the Existing Credit Facility have been
terminated as of the Closing Date;
(n) REPAYMENT OF SENIOR SECURED NOTES. Evidence that the
Senior Secured Notes have been repaid in full, or concurrently with the initial
Borrowing hereunder shall have been paid full, and cancelled;
(o) OTHER DOCUMENTS. Such other approvals, opinions, documents
or materials as the Agent or any Bank may reasonably request.
5.02 CONDITIONS TO ALL CREDIT EXTENSIONS. The obligation of each
Bank and the Swingline Bank to make any Credit Extension (including its initial
Credit Extension) and the obligation of the Issuing Bank to Issue any Letter of
Credit (including the initial Letter of Credit) shall be subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date or Issuance Date:
(a) NOTICE, APPLICATION. The Agent shall have received a
Notice of Borrowing or in the case of any Issuance of any Letter of Credit, the
Issuing Bank and the Agent shall have received an L/C Application or L/C
Amendment Application, as required under Section 3.02;
(b) CONTINUATION OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date or Issuance Date with the same effect as if made on and
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as of such Borrowing Date or Issuance Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date) and except that this
subsection (b) shall be deemed instead to refer to the last day of the most
recent quarter and year for which financial statements have then been delivered
in respect of the representation and warranty made in subsection 6.11(a));
(c) NO EXISTING DEFAULT. No Default or Event of Default shall
exist or shall result from such Borrowing or Issuance;
(d) NO MATERIAL ADVERSE EFFECT. There has occurred since
December 31, 1998, no event or circumstance that has resulted or could
reasonably be expected to result in a Material Adverse Effect; and
(e) BORROWING BASE. On any such Borrowing Date or Issuance
Date, the Agent shall be in receipt of the completed Borrowing Base Certificate
then required to be delivered by Holdings hereunder, and the Effective Amount of
all outstanding Revolving Loans and Swingline Loans and the Effective Amount of
all L/C Obligations shall not exceed an amount equal to the lesser of (A) the
Aggregate Commitment and (B) the Borrowing Base.
(f) NO FUTURE ADVANCE NOTICE. Neither the Agent nor any Bank
shall have received from Holdings or any other Person any notice that any
Collateral Document will no longer secure on a first priority basis future
advances or future Loans to be made or extended under this Agreement.
Each Notice of Borrowing and L/C Application or L/C Amendment Application
submitted by Holdings hereunder shall constitute a representation and warranty
by Holdings hereunder, as of the date of each such notice and as of each
Borrowing Date or Issuance Date, as applicable, that (i) the conditions in this
Section 5.02 are satisfied, and (ii) the statements contained in the most recent
Borrowing Base Certificate, if any, delivered by Holdings hereunder shall be
true, correct and complete on and as of the date of such Borrowing Date or
Issuance Date, as applicable, as though made on and as of such date, except for
changes in the information set forth in such Borrowing Base Certificate in the
ordinary course of business.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Each of Holdings and the Company represents and warrants to the Agent
and each Bank that:
6.01 CORPORATE EXISTENCE AND POWER. Holdings and each of its
Subsidiaries:
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(a) is a corporation, limited liability company or partnership
duly organized or formed, as the case may be, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or formation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals (i) to own its assets and carry on its
business and (ii) in the case of any Loan Party, to execute, deliver, and
perform its obligations under the Loan Documents;
(c) is duly qualified, licensed and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, license or good
standing; and
(d) is in compliance with all Requirements of Law;
except, in each case referred to in clauses (b)(i) or (c) of this Section 6.01,
to the extent that the failure to do so would not reasonably be expected to have
a Material Adverse Effect.
6.02 CORPORATE AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by each Loan Party of this Agreement and each other
Loan Document to which such Loan Party is party, have been duly authorized by
all necessary corporate action, and do not and will not:
(a) contravene the terms of any of that Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation to which such Person is a party or any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject; or
(c) violate any Requirement of Law.
6.03 GOVERNMENTAL AUTHORIZATION. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority (except for recordings or filings in connection with the
Liens granted to the Agent under the Collateral Documents) is necessary or
required in connection with the execution, delivery or performance by, or
enforcement against, any Loan Party of this Agreement or any other Loan
Document.
6.04 BINDING EFFECT. This Agreement and each other Loan Document to
which any Loan Party is a party constitute the legal, valid and binding
obligations of such Loan Party, enforceable against any Loan Party in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
6.05 LITIGATION. Except as specifically disclosed in SCHEDULE 6.05,
there are no actions, suits, proceedings, claims or disputes pending, or to the
best knowledge of Holdings and the Company, threatened or contemplated, at law,
in equity, in arbitration or before any Governmental Authority, against
Holdings, or its Subsidiaries or any of their respective properties which:
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(a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or
(b) are reasonably likely to result in an adverse result for
Holdings or its Subsidiaries, which adverse result would reasonably be expected
to have a Material Adverse Effect. No injunction, writ, temporary restraining
order or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution, delivery
or performance of this Agreement or any other Loan Document, or directing that
the transactions provided for herein or therein not be consummated as herein or
therein provided.
6.06 NO DEFAULTS. No Default or Event of Default exists or would
result from the incurring of any Obligations by any Loan Party or from the grant
or perfection of the Liens of the Agent and the Banks on the Collateral. Neither
Holdings nor any Subsidiary is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would create an Event of Default under subsection 9.01(e).
6.07 ERISA COMPLIANCE. Except as specifically disclosed in SCHEDULE
6.07:
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other federal or state law.
Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of Holdings and the Company, nothing has occurred which would cause the loss of
such qualification. Holdings, the Company and each ERISA Affiliate have made all
required contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither
Holdings nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability under Title IV of ERISA with respect to any Pension Plan (other
than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Holdings nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
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Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Holdings nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
6.08 USE OF PROCEEDS; MARGIN REGULATIONS. The proceeds of the Loans
and the Letters of Credit are to be used solely for the purposes set forth in
and permitted by Section 7.12 and Section 8.07. No Loan Party is generally
engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock.
6.09 TITLE TO PROPERTIES; LIENS. Holdings and each Subsidiary have
good record and marketable title in fee simple to, or valid leasehold interests
in, all real property necessary or used in the ordinary conduct of their
respective businesses, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect. The property
of Holdings and its Subsidiaries is subject to no Liens, other than Permitted
Liens.
6.10 TAXES. Holdings and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with GAAP. There is no proposed tax assessment against Holdings or
any Subsidiary that would, if made, have a Material Adverse Effect.
6.11 FINANCIAL CONDITION. (a) The audited consolidated balance
sheet of Holdings and its Subsidiaries dated December 31, 1998, the unaudited
balance sheet of Holdings and its Subsidiaries for the fiscal quarter ended
September 30, 1999 and the related consolidated statements of income or
operations, shareholders' equity and cash flows for the fiscal period ended on
that date:
(i) were prepared in accordance with GAAP consistently
applied throughout the period covered thereby, except as otherwise expressly
noted therein, subject to ordinary, good faith year end audit adjustments in the
case of quarterly financial statements;
(ii) are complete and accurate in all material respects and
fairly present the financial condition of Holdings and its Subsidiaries as of
the date thereof and results of operations and cash flows for the period covered
thereby; and
(iii) except as specifically disclosed in SCHEDULE 6.11, show
all material Indebtedness and other liabilities, direct or contingent, of
Holdings and its consolidated Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Contingent Obligations.
(b) Since December 31, 1998, there has not been, nor is it
reasonably likely that there will be, any Material Adverse Effect.
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(c) Any pro forma financial statements of Holdings and its
Subsidiaries furnished by Holdings to the Banks hereunder were prepared in
accordance with GAAP, are complete and accurate in all material respects and
fairly present the pro forma financial condition of Holdings and its
Subsidiaries as of the date thereof, and any financial projections furnished to
the Banks hereunder represent Holdings' best estimates and assumptions as to
future performance, which Holdings believes to be fair and reasonable as of the
time made in the light of current and reasonably foreseeable business
conditions.
6.12 ENVIRONMENTAL MATTERS. Holdings conducts in the ordinary
course of business a review of the effect of existing Environmental Laws and
existing Environmental Claims on its business, operations and properties, and as
a result thereof Holdings has reasonably concluded that, except as specifically
disclosed in SCHEDULE 6.12, such Environmental Laws and Environmental Claims
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(a) To the best knowledge of Holdings, except as specifically
disclosed in SCHEDULE 6.12, the ongoing operations of Holdings and each of its
Subsidiaries comply in all respects with all Environmental Laws, except such
non-compliance which would not (if enforced in accordance with applicable law)
result in liability in excess of $1,000,000 in the aggregate.
(b) Except as specifically disclosed in SCHEDULE 6.12,
Holdings and each of its Subsidiaries have obtained all licenses, permits,
authorizations and registrations required under any Environmental Law
("ENVIRONMENTAL PERMITS") and necessary for their respective ordinary course
operations, all such Environmental Permits are in good standing, and Holdings
and each of its Subsidiaries are in compliance with all material terms and
conditions of such Environmental Permits.
(c) Except as specifically disclosed in SCHEDULE 6.12, none of
Holdings, any of its Subsidiaries or any of their respective present property or
operations, is subject to any outstanding written order from or agreement with
any Governmental Authority, nor subject to any judicial or docketed
administrative proceeding, respecting any Environmental Law, Environmental Claim
or Hazardous Material.
(d) Except as specifically disclosed in SCHEDULE 6.12, there
are no Hazardous Materials or other conditions or circumstances existing with
respect to any property of Holdings or any Subsidiary, or arising from
operations prior to the Closing Date, of Holdings or any of its Subsidiaries
that would reasonably be expected to give rise to Environmental Claims with a
potential liability of Holdings and its Subsidiaries in excess of $1,000,000 in
the aggregate for any such condition, circumstance or property. In addition, (i)
neither Holdings nor any Subsidiary has any underground storage tanks (A) that
are not properly registered or permitted under applicable Environmental Laws, or
(B) that are leaking or disposing of Hazardous Materials off-site, and (ii)
Holdings and its Subsidiaries have notified all of their employees of the
existence, if any, of any health hazard arising from the conditions of their
employment and have met all notification requirements under Title III of CERCLA
and all other Environmental Laws.
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6.13 COLLATERAL DOCUMENTS. (a) The provisions of each of the
Collateral Documents are effective to create in favor of the Agent for the
benefit of the Banks, a legal, valid and enforceable first priority Lien in all
right, title and interest of Holdings, or the applicable Subsidiary (as the case
may be), in the Collateral described therein, and financing statements have been
filed in the offices in all of the jurisdictions listed in the schedule to the
Security Agreement and each Intellectual Property Security Agreement has been
filed in the U.S. Patent and Trademark Office and the U.S. Copyright Office.
(b) Each Mortgage when delivered will be effective to grant to
the Agent for the benefit of the Banks a legal, valid and enforceable deed of
trust/mortgage Lien on all the right, title and interest of the mortgagor under
such Mortgage in the Mortgaged Property described therein. When each such
Mortgage is duly recorded in the offices listed on the schedule to such Mortgage
and the mortgage recording fees and taxes in respect thereof are paid and
compliance is otherwise had with the formal requirements of state law applicable
to the recording of real estate mortgages generally, each such Mortgaged
Property, subject to the encumbrances and exceptions to title set forth therein
and except as noted in the title policies delivered to the Agent pursuant to
Section 5.01, is subject to a legal, valid, enforceable and perfected first
priority Lien; and when financing statements have been filed in the offices
specified in such Mortgage, such Mortgage also creates a legal, valid,
enforceable and perfected first Lien on all right, title and interest of
Holdings or such Subsidiary under such Mortgage in all personal property and
fixtures which is covered by such Mortgage, subject to no other Liens, except
the encumbrances and exceptions to title set forth therein and except as noted
in the title policies delivered to the Agent pursuant to Section 5.01, and
Permitted Liens.
(c) All representations and warranties of Holdings and any of
its Subsidiaries party thereto contained in the Collateral Documents are true
and correct.
6.14 REGULATED ENTITIES. None of Holdings, any Person controlling
Holdings, or any Subsidiary, is an "Investment Company" within the meaning of
the Investment Company Act of 1940. No Loan Party is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal
or state statute or regulation limiting its ability to incur Indebtedness.
6.15 NO BURDENSOME RESTRICTIONS. Neither Holdings nor any
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect. Neither Holdings
nor any Subsidiary is a party to or bound by any Contractual Obligation which
restricts, limits or prohibits the payment of dividends by any Subsidiary or the
making of any other distribution in respect of such Subsidiary's capital stock.
6.16 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. Holdings or
its Subsidiaries own or are licensed or otherwise have the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of Holdings and the Company, no
slogan or other advertising device, product, process, method, substance, part or
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other material now employed, or now contemplated to be employed, by Holdings or
any Subsidiary infringes upon any rights held by any other Person. Except as
specifically disclosed in SCHEDULE 6.05, no claim or litigation regarding any of
the foregoing is pending or, to the best knowledge of Holdings and the Company,
threatened, and no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or, to the best
knowledge of Holdings and the Company, proposed, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
6.17 SUBSIDIARIES. As of the Closing Date, Holdings has no
Subsidiaries other than those specifically disclosed in part (a) of SCHEDULE
6.17 and has no equity investments in any other Person other than those
specifically disclosed in part (b) of SCHEDULE 6.17. All U.S. Subsidiaries of
Holdings as of the Closing Date are identified as such on part (a) of SCHEDULE
6.17.
6.18 INSURANCE. Except as specifically disclosed in SCHEDULE 6.18,
the properties of Holdings and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of Holdings, in such
amounts, with such deductibles and covering such risks as are deemed to be
appropriate by Holdings in the exercise of its reasonable business judgment.
6.19 SWAP OBLIGATIONS. (a) Neither Holdings nor any of its
Subsidiaries has incurred any outstanding obligations under any Swap Contracts,
other than Permitted Swap Obligations. In the ordinary course of managing its
business, Holdings undertakes its own independent assessment of its consolidated
assets, liabilities and commitments and considers appropriate means of
mitigating and managing risks associated with such matters, and Holdings has not
relied on any swap counterparty or any Affiliate of any swap counterparty in
determining whether to enter into any Swap Contract.
(b) Neither Holdings nor any of its Subsidiaries has entered
into any master agreement relating to Swap Contracts and under which termination
values resulting from Swap contracts that are Specified Swap Contracts are
nettable against termination values resulting from Swap Contracts that are not
Specified Swap Contracts, unless only Specified Swap Contracts are outstanding
under such master agreement.
6.20 YEAR 2000. On the basis of a comprehensive review and
assessment of Holdings' and its Subsidiaries' systems and equipment and inquiry
made of Holdings' and its Subsidiaries' material suppliers, vendors and
customers, each of Holdings and the Company reasonably believes that the "Year
2000 problem" (i.e., the inability of computers, as well as embedded microchips
in non-computing devices, to perform properly date-sensitive functions with
respect to certain dates prior to and after December 31, 1999), including costs
of remediation, will not result in a Material Adverse Effect. Holdings and its
Subsidiaries have developed feasible contingency plans adequately to ensure
uninterrupted and unimpaired business operation in the event of failure of their
own or a third party's systems or equipment due to the Year 2000 problem,
including those of vendors, customers, and suppliers, as well as a general
failure of or interruption in its communications and delivery infrastructure.
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6.21 REAL PROPERTY. Schedule 6.21 contains a complete listing of
all real property owned by Holdings or any of its Subsidiaries as of the Closing
Date, and identifies which of such properties constitute Mortgaged Property as
of the Closing Date.
6.22 FULL DISCLOSURE. None of the representations or warranties
made by any Loan Party in the Loan Documents as of the date such representations
and warranties are made or deemed made, and none of the statements contained in
any exhibit, report, statement or certificate furnished by or on behalf of any
Loan Party in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of any Loan Party to the Banks
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered; PROVIDED that to the
extent any such information, report, financial statement, exhibit or schedule
was based upon or constitutes a forecast or projection, such Loan Party
represents only that it acted in good faith and utilized reasonable assumptions
and due care in the preparation of such information, report, financial
statement, exhibit or schedule (it being understood that forecasts and
projections by their nature involve approximations and uncertainties).
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
7.01 FINANCIAL STATEMENTS. Holdings shall deliver to the Agent and
each Bank, in form and detail satisfactory to the Agent and the Majority Banks:
(a) as soon as available, but not later than 90 days after the
end of each fiscal year, a copy of the audited consolidated balance sheet of
Holdings and its Subsidiaries as at the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the unqualified opinion of
PricewaterhouseCoopers LLP or another nationally-recognized independent public
accounting firm (the "INDEPENDENT AUDITOR") which report shall state that such
consolidated financial statements present fairly the financial position for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years. Such opinion shall not be qualified as to (i) going concern, (ii)
any limitation in the scope of the audit, or (iii) possible errors generated by
financial reporting and related systems due to the Year 2000 problem;
(b) as soon as available, but not later than 45 days after the
end of each of the first three fiscal quarters of each fiscal year, a copy of
the unaudited consolidated balance sheet of Holdings and its Subsidiaries as of
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the end of such quarter and the related consolidated statements of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, and certified by a Responsible
Officer of Holdings as being complete and accurate in all material respects and
fairly presenting, in accordance with GAAP (subject to ordinary, good faith
year-end audit adjustments), the financial position and the results of
operations and cash flows of Holdings and the Subsidiaries; and
(c) promptly, such other financial statements and information
(including financial information regarding Minority Investments) as the Agent,
at the request of any Bank, may from time to time request.
As to any information contained in materials furnished pursuant to subsection
7.02(e), Holdings shall not be separately required to furnish such information
under subsection (a) or (b) above, but the foregoing shall not be in derogation
of the obligation of Holdings to furnish the information and materials described
in subsection (a) and (b) above at the times specified therein.
7.02 CERTIFICATES; OTHER INFORMATION. Holdings shall furnish to the
Agent and each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.01(a), a certificate of the Independent Auditor
stating that in the course of the regular examination of the business of
Holdings and its Subsidiaries, which examination was conducted by such
accounting firm in accordance with GAAP, nothing has come to the attention of
the Independent Auditor which would cause it to believe that a Default or Event
of Default has occurred and is continuing, or if, in the opinion of the
Independent Auditor, a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof.
(b) within 90 days after the close of each fiscal year, an
update of the projections delivered to the Banks prior to the Closing Date (the
"CLOSING DATE PROJECTIONS") for the then-current and next succeeding four fiscal
years, certified by a Responsible Officer of Holdings, together with a statement
of such Responsible Officer explaining in reasonable detail any significant
variances from the Closing Date Projections;
(c) concurrently with the delivery of the financial statements
referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by
a Responsible Officer of Holdings;
(d) within 30 days after the end of each calendar month until
such time as the Collateral (other than the Pledged Collateral) is released
pursuant to Subsection 2.16(b), and thereafter within 30 days after the end of
each fiscal quarter of Holdings (or, at Holdings' option, within 30 days after
the end of each calendar month), a Borrowing Base Certificate appropriately
completed by a Responsible Officer of Holdings;
(e) promptly, copies of all financial statements and reports
that Holdings sends to its shareholders, and copies of all financial statements
and regular, periodical or special reports (including Forms 10K, 10Q and 8K)
that Holdings or any Subsidiary may make to, or file with, the SEC;
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(f) promptly upon sending or receipt, copies of any and all
management letters and correspondence relating to management letters, sent or
received by Holdings or any of its Subsidiaries to or from the Independent
Auditor;
(g) at the same time it is provided to the holders of any
Subordinated Debt, any notices and other information provided to such holders
pursuant to the reporting and notices provisions of the Subordinated Debt
Documents (without duplication of any notices, financial statements and other
information required hereunder);
(h) upon the request of the Agent or any Bank, a copy of
Holdings' and its Subsidiaries' plan, timetable and budget to address the Year
2000 problem, together with periodic updates thereof and expenses incurred to
date, any third party assessment of Holdings' and its Subsidiaries' Year 2000
remediation efforts, and any Year 2000 contingency plans, and any estimates of
Holdings' and its Subsidiaries' potential litigation exposure (if any) to the
Year 2000 problem;
(i) within 20 days of the Agent's or any Bank's request
therefor, (i) a current list of the names, addresses and outstanding debts of
all Account Debtors, and (ii) a current list of the names, addresses and
outstanding amounts due all creditors of Holdings or any Subsidiary;
(j) concurrently with the delivery of the financial statements
referred to in subsections 7.01(a) and (b), an Update Certificate, in
substantially the form of EXHIBIT K, executed by a Responsible Officer of
Holdings;
(k) promptly, such additional information regarding the
business, financial or corporate affairs of Holdings or any Subsidiary as the
Agent, at the request of any Bank, may from time to time request.
7.03 NOTICES. Holdings shall promptly notify the Agent:
(a) of the occurrence of any Default or Event of Default, and
of the occurrence or existence of any event or circumstance that foreseeably
will become a Default or Event of Default;
(b) of any matter that has resulted or could result in a
Material Adverse Effect, including (i) any breach or non-performance of, or any
default under, any Contractual Obligation of Holdings or any of its Subsidiaries
which has resulted or could result in a Material Adverse Effect; and (ii) any
dispute, litigation, investigation, proceeding or suspension which may exist at
any time between Holdings or any of its Subsidiaries and any Governmental
Authority (including under or pursuant to any Environmental Laws) which has
resulted or could result in a Material Adverse Effect;
(c) of the commencement of, or any material development in,
any litigation or proceeding affecting Holdings or any Subsidiary (i) which, if
adversely determined, would reasonably be expected to have a Material Adverse
Effect, or (ii) in which the relief sought is an injunction or other stay of the
performance of this Agreement or any Loan Document;
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(d) until such time as the Collateral (other than the Pledged
Collateral) is released pursuant to Subsection 2.16(b): upon, but in no event
later than 10 days after, becoming aware of (i) any and all enforcement,
cleanup, removal or other governmental or regulatory actions instituted,
completed or threatened against Holdings or any Subsidiary or any of their
respective properties pursuant to any applicable Environmental Laws, (ii) all
other Environmental Claims, and (iii) any environmental or similar condition on
any real property adjoining or in the vicinity of the property of Holdings or
any Subsidiary that could reasonably be anticipated to cause such property or
any part thereof to be subject to any restrictions on the ownership, occupancy,
transferability or use of such property under any Environmental Laws;
(e) of any other litigation or proceeding affecting Holdings
or any of its Subsidiaries which Holdings would be required to report to the SEC
pursuant to the Exchange Act, within four days after reporting the same to the
SEC;
(f) of the occurrence of any of the following events affecting
Holdings or any ERISA Affiliate (but in no event more than 10 days after such
event), and deliver to the Agent and each Bank a copy of any notice with respect
to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to Holdings or any ERISA Affiliate with
respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of
any Pension Plan;
(iii) the adoption of, or the commencement of contributions
to, any Plan subject to Section 412 of the Code by Holdings or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to
Section 412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
(g) of any material change in accounting policies or financial
reporting practices by Holdings or any of its consolidated Subsidiaries; and
(h) upon the request from time to time of the Agent or any
Bank, the Swap Termination Values, together with a description of the method by
which such amounts were determined, relating to any then-outstanding Swap
Contracts to which Holdings or any of its Subsidiaries is party;
(i) the occurrence of any Event of Loss exceeding $1,000,000;
(j) of the entry by Holdings into any Specified Swap Contract,
together with the details thereof; and
(k) of the occurrence of any default, event of default,
termination event or other event under any Specified Swap Contract that after
the giving of notice, passage of time or both, would permit either counterparty
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to such Specified Swap Contract to terminate early any or all trades relating to
such contract.
Each notice under this Section shall be accompanied by a
written statement by a Responsible Officer of Holdings setting forth details of
the occurrence referred to therein, and stating what action Holdings or any
affected Subsidiary proposes to take with respect thereto and at what time. Each
notice under subsection 7.03(a) shall describe with particularity any and all
clauses or provisions of this Agreement or other Loan Document that have been
(or foreseeably will be) breached or violated.
7.04 PRESERVATION OF CORPORATE EXISTENCE, ETC. Holdings shall, and
shall cause each Subsidiary to, except in connection with transactions permitted
by Section 8.03 and sales of assets permitted by Section 8.02:
(a) preserve and maintain in full force and effect its (i)
legal existence and (ii) good standing under the laws of its state or
jurisdiction of incorporation or formation;
(b) preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business;
(c) use reasonable efforts, in the ordinary course of
business, to preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents,
trademarks, trade names and service marks, the non-preservation of which could
reasonably be expected to have a Material Adverse Effect.
7.05 MAINTENANCE OF PROPERTY. Holdings shall, and shall cause each
Subsidiary to, maintain, and preserve all its property which is used or useful
in its business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that its property shall
be fully and efficiently preserved and maintained consistent with Holdings' or
such Subsidiary's past practice.
7.06 INSURANCE. In addition to insurance requirements set forth in
the Collateral Documents, Holdings shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons, including workers'
compensation insurance, public liability and property and casualty insurance.
Until such time as the Collateral (other than the Pledged Collateral) is
released pursuant to Subsection 2.16(b), (a) all such insurance shall name the
Agent as loss payee/mortgagee and as additional insured, for the benefit of the
Banks, as their interests may appear, (b) all casualty and key man insurance
maintained by Holdings shall name the Agent as loss payee and all liability
insurance shall name the Agent as additional insured for the benefit of the
Banks, as their interests may appear, and (c) upon the request of the Agent or
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any Bank, Holdings shall furnish the Agent, with sufficient copies for each
Bank, at reasonable intervals (but not more than once per calendar year) a
certificate of a Responsible Officer of Holdings (and, if requested by the
Agent, any insurance broker of Holdings) setting forth the nature and extent of
all insurance maintained by Holdings and its Subsidiaries in accordance with
this Section or any Collateral Documents (and which, in the case of a
certificate of a broker, were placed through such broker).
7.07 PAYMENT OF OBLIGATIONS. Holdings shall, and shall cause each
of its Subsidiaries to, pay and discharge as the same shall become due and
payable, all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges
or levies upon it or its properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by Holdings or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a
Lien upon its property not constituting a Permitted Lien; and
(c) all Indebtedness, as and when due and payable, but subject
to any subordination provisions contained in any instrument or agreement
evidencing such Indebtedness (except where failure to do so would not otherwise
constitute a Default or Event of Default hereunder).
7.08 COMPLIANCE WITH LAWS. Holdings shall comply, and shall cause
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.09 COMPLIANCE WITH ERISA. Holdings shall, and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan in compliance in all material
respects with the applicable provisions of ERISA, the Code and other federal or
state law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; and (c) make all required contributions to
any Plan subject to Section 412 of the Code.
7.10 INSPECTION OF PROPERTY AND BOOKS AND RECORDS. (a) Holdings
shall, and shall cause each Subsidiary to, maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of Holdings and such Subsidiary. Holdings
shall permit, and shall cause each Subsidiary to permit, representatives and
independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial,
operating and other records, and make copies thereof or abstracts therefrom, and
to discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
Holdings and the Company and at such reasonable times during normal business
hours and as often as may be reasonably desired, upon reasonable advance notice
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to Holdings; PROVIDED, HOWEVER, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at any time during normal business hours and
without advance notice;
(b) Without limiting the generality of subsection 7.10(a), as
frequently as the Majority Banks may deem appropriate, each of Holdings and the
Company will provide Agent or its designee access to Holdings' and the Company's
records and premises and allow such auditors or appraisers to conduct audits of
Holdings' and its Subsidiaries' accounts, including Accounts and Inventory.
Holdings shall pay all reasonable fees and expenses of one such audit in any
12-month period; PROVIDED, HOWEVER, that during the existence of any Event of
Default, Holdings shall pay all reasonable fees and expenses of each such audit.
7.11 ENVIRONMENTAL LAWS. (a) Holdings shall, and shall cause
each Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
(b) Until such time as the Collateral (other than the Pledged
Collateral) is released pursuant to Subsection 2.16(b), upon the written request
of the Agent or any Bank, Holdings shall submit and cause each of its
Subsidiaries to submit, to the Agent with sufficient copies for each Bank, at
Holdings' sole cost and expense, at reasonable intervals, a report providing an
update of the status of any environmental, health or safety compliance, hazard
or liability issue identified in any notice or report required pursuant to
subsection 7.03(d), that could, individually or in the aggregate, result in
liability in excess of $1,000,000.
7.12 USE OF PROCEEDS. Holdings shall, directly or indirectly, use
the proceeds of the Loans (i) for Permitted Acquisitions, (ii) for making
Investments permitted under Section 8.04, (iii) to refinance the Existing Credit
Facility and the Senior Secured Notes, and (iv) for working capital and other
general corporate purposes not in contravention of any Requirement of Law or of
any Loan Document.
7.13 ADDITIONAL GUARANTORS. (a) If a Minority Investment or
Subsidiary shall at any time become a U.S. Subsidiary, or if Holdings, or any
Subsidiary of Holdings, otherwise shall incorporate, create or acquire any U.S.
Subsidiary, Holdings shall cause such U.S. Subsidiary to furnish promptly, but
in no event more than 30 days thereafter, each of the following to the Agent, in
sufficient quantities for each Bank:
(i) a duly executed notice and agreement in substantially
the form of EXHIBIT G (an "ADDITIONAL GUARANTOR ASSUMPTION AGREEMENT");
(ii) (A) copies of the resolutions of the board of directors
(or equivalent governing body) of such Subsidiary approving and authorizing the
execution, delivery and performance by such Subsidiary of its Additional
Guarantor Assumption Agreement and this Agreement , certified as of the date of
such Additional Guarantor Assumption Agreement (the "ADDITIONAL GUARANTOR
ACCESSION DATE") by the Secretary or an Assistant Secretary (or other
appropriate officer) of such Subsidiary; (B) a certificate of the Secretary or
Assistant Secretary (or other appropriate officer) of such Subsidiary certifying
the names and true signatures of the officers of such Subsidiary authorized to
execute and deliver and perform, as applicable, its Additional Guarantor
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Assumption Agreement, this Agreement and all other Loan Documents to be
delivered hereunder; (C) copies of the articles or certificate of incorporation
and bylaws (or other applicable Organization Documents) of such Subsidiary as in
effect on the Additional Guarantor Accession Date, certified by the Secretary or
Assistant Secretary (or other appropriate officer) of such Subsidiary as of the
Additional Guarantor Accession Date; and (D) an opinion of counsel to such
Subsidiary and addressed to the Agent and the Banks, substantially in the form
of EXHIBIT H; and
(iii) until such time as the Collateral (other than the
Pledged Collateral) is released pursuant to Subsection 2.16(b): (A) such
amendments to the schedules to the Security Agreement as shall be required in
connection with the accession of such Subsidiary thereto;(B) executed UCC-1
financing statements furnished by the Agent in each jurisdiction in which such
filing is necessary to perfect the security interest of the Agent on behalf of
the Banks in the Collateral of such Subsidiary and in which the Agent requests
that such filing be made, and (C) if requested by the Agent, such Mortgages and
other documents as may be required to create and perfect a lien in the interests
of such Subsidiary in any real property and such title insurance policies and
other documents as the Agent or the Majority Banks may reasonably request in
connection therewith.
(b) Additionally, Holdings and such Subsidiary shall have
executed and delivered to the Agent (in sufficient quantities for each Bank)
such other items as reasonably requested by the Agent in connection with the
foregoing, including officers' certificates, search reports and other
certificates and documents.
7.14 ADDITIONAL SUBSIDIARIES. If Holdings, directly or indirectly,
incorporates, creates or acquires any additional Subsidiary, or if any Minority
Investment shall become a Subsidiary, then within ten (10) days thereafter,
Holdings shall (i) (A) pledge the capital stock of such additional Subsidiary to
the Agent pursuant to the Security Agreement, if such stock is directly owned by
Holdings, or (B) if such stock is owned by a Subsidiary, cause such Subsidiary
to pledge the capital stock of such additional Subsidiary to the Agent pursuant
to the Security Agreement, and (ii) execute and deliver, or cause such
Subsidiary to have executed and delivered, to the Agent stock transfer powers
executed in blank with signatures guaranteed as the Agent shall request, such
UCC-1 financing statements (as furnished by the Agent) in each jurisdiction in
which such filing is necessary to perfect the security interest of the Agent in
the Collateral with respect to Holdings or such Subsidiary, and (iii) deliver
such other items as reasonably requested by the Agent in connection with the
foregoing, including resolutions, incumbency and officers' certificates,
opinions of counsel, search reports and other certificates and documents;
PROVIDED, HOWEVER, that if any such additional Subsidiary is not a U.S.
Subsidiary, in no event shall more than 65% of the capital stock of any such
Subsidiary be required to be so pledged.
7.15 ENVIRONMENTAL REVIEW. Holdings shall deliver to the Agent by
not later than January 31, 2000, an environmental site assessment or other
environmental analysis, report or review with respect to any real property as to
which the Agent is granted a Lien for the benefit of the Banks, in form and
substance reasonably satisfactory to the Agent. If any such environmental site
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assessment or other environmental analysis, report or review with respect to any
Mortgaged Property shall indicate the presence of any Hazardous Materials on or
in the vicinity of such Mortgaged Property or otherwise shall indicate any
environmental problem with respect to such Mortgaged Property (including any
environmental problem which may give rise to any Environmental Claim) which, in
the reasonable determination of the Agent, adversely affects the value of such
Mortgaged Property or causes the Agent to desire to exclude such Mortgaged
Property from the Collateral, then Holdings shall, and shall cause its
Subsidiaries to, enter into and deliver to the Agent one or more Mortgages in
respect of additional or replacement real property Collateral, in form and
substance reasonably satisfactory to the Agent, together with such title
insurance policies, insurance endorsements, surveys, appraisals, consents,
estoppels, subordination agreements and other documents and other instruments as
the Agent shall reasonably request; PROVIDED, HOWEVER, that no such additional
or replacement real property Collateral shall be required at any time after the
Collateral (other than the Pledged Collateral) has been released pursuant to
subsection 2.16(b).
7.16 FURTHER ASSURANCES. Holdings shall ensure that all written
information, exhibits and reports furnished to the Agent or the Banks do not and
will not contain any untrue statement of a material fact and do not and will not
omit to state any material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which made,
and will promptly disclose to the Agent and the Banks and correct any defect or
error that may be discovered therein or in any Loan Document or in the
execution, acknowledgement or recordation thereof.
(b) Until such time as the Collateral (other than the Pledged
Collateral) is released pursuant to Subsection 2.16(b), if at any time Holdings,
the Company or any Subsidiary shall become the owner of any real property that
is located in the United States that has a fair market or book value equal to at
least $1,000,000, then, upon the request of the Agent or the Majority Banks,
Holdings and the Company shall (and shall cause any of their Subsidiaries to)
promptly, and in any event within thirty (30) days following acquisition of such
real property, enter into and deliver to the Agent a Mortgage in respect to such
property, in form and substance reasonably satisfactory to the Agent, together
with such title insurance policies, insurance endorsements, surveys, appraisals,
consents, estoppels, subordination agreements and other documents and other
instruments as the Agent or the Majority Banks shall reasonably request.
(c) Promptly upon request by the Agent or the Majority Banks,
Holdings shall (and shall cause any of its Subsidiaries to) do, execute,
acknowledge, deliver, record, re-record, file, re-file, register and
re-register, any and all such further acts, deeds, conveyances, security
agreements, mortgages, assignments, estoppel certificates, financing statements
and continuations thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments the Agent or such
Banks, as the case may be, may reasonably require from time to time in order (i)
to carry out more effectively the purposes of this Agreement or any other Loan
Document, (ii) to subject to the Liens created by any of the Collateral
Documents any of the properties, rights or interests covered by any of the
Collateral Documents, (iii) to perfect and maintain the validity, effectiveness
and priority of any of the Collateral Documents and the Liens intended to be
created thereby, and (iv) to better assure, convey, grant, assign, transfer,
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preserve, protect and confirm to the Agent and Banks the rights granted or now
or hereafter intended to be granted to the Banks under any Loan Document or
under any other document executed in connection therewith.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.01 LIMITATION ON LIENS. (a) Holdings shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, make, create, incur,
assume or suffer to exist any Lien upon or with respect to any part of its
property, whether now owned or hereafter acquired, other than the following
("PERMITTED LIENS"):
(i) any Lien existing on the Closing Date and set forth in
SCHEDULE 8.01 securing Indebtedness outstanding on such date;
(ii) any Lien created under any Loan Document;
(iii) Liens for taxes, fees, assessments or other governmental
charges which are not delinquent or remain payable without penalty, or to the
extent that non-payment thereof is permitted by subsection 7.07(a), PROVIDED
that no notice of Lien has been filed or recorded under the Code;
(iv) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary course
of business which are not delinquent or remain payable without penalty or which
are being contested in good faith and by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
subject thereto;
(v) Liens (other than any Lien imposed by ERISA and other
than on the Collateral) consisting of pledges or deposits required in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other social security legislation;
(vi) Liens securing (A) the non-delinquent performance of
bids, trade contracts (other than for borrowed money), leases (other than
Capital Leases), statutory obligations, (B) contingent obligations on surety and
appeal bonds, and (C) other non-delinquent obligations of a like nature; in each
case, incurred in the ordinary course of business, PROVIDED all such Liens in
the aggregate would not (even if enforced) cause a Material Adverse Effect;
(vii) Liens (other than Liens on the Collateral) consisting of
judgment or judicial attachment liens, PROVIDED that the enforcement of such
Liens is effectively stayed and all such Liens in the aggregate at any time
outstanding for Holdings and its Subsidiaries do not exceed $1,000,000;
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(viii) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of Holdings and its Subsidiaries;
(ix) Liens on specific tangible assets of Persons which
become Subsidiaries after the date of this Agreement; PROVIDED, HOWEVER, that
(A) such Liens existed at the time the respective Persons became Subsidiaries
and were not created in anticipation thereof, (B) any such Lien does not by its
terms cover any assets after the time such Person becomes a Subsidiary which
were not covered immediately prior thereto, (C) any such Lien does not by its
terms secure any Indebtedness other than Indebtedness existing immediately prior
to the time such Person becomes a Subsidiary, and (D) such Indebtedness is
permitted by Section 8.05(d);
(x) purchase money Liens on any property acquired or held by
Holdings or its Subsidiaries in the ordinary course of business, securing
Indebtedness incurred or assumed for the purpose of financing all or any part of
the cost of acquiring such property; PROVIDED that (i) any such Lien attaches to
such property concurrently with or within 20 days after the acquisition thereof,
(ii) such Lien attaches solely to the property so acquired in such transaction,
(iii) the principal amount of the Indebtedness secured thereby does not exceed
100% of the cost of such property, and (iv) such Indebtedness is permitted under
subsection 8.05(d);
(xi) Liens securing obligations in respect of Capital Leases
on assets subject to such leases, PROVIDED that such Capital Leases are
otherwise permitted hereunder;
(xii) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; PROVIDED that (A) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Holdings in excess of those set forth by regulations promulgated by
the FRB, and (B) such deposit account is not intended by Holdings or any
Subsidiary to provide collateral to the depository institution;
(xiii) Liens consisting of pledges of cash collateral or
government securities to secure on a mark-to-market basis Permitted Swap
Obligations only, PROVIDED that (A) the counterparty to any Swap Contract
relating to such Permitted Swap Obligation is under a similar requirement to
deliver similar collateral from time to time to Holdings or the Subsidiary party
thereto on a mark-to-market basis; and (B) the aggregate value of such
collateral so pledged by Holdings and the Subsidiaries together in favor of any
counterparty does not at any time exceed $3,000,000; and
(xiv) Liens not otherwise permitted hereunder securing
Indebtedness in principal amount not exceeding $5,000,000 in the aggregate at
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any time outstanding; PROVIDED that (A) no such Lien shall attach to any
Collateral and (B) such Indebtedness is otherwise permitted hereunder.
(b) Holdings shall not, and shall not permit any of its
Subsidiaries to, enter into or suffer to exist any agreement (other than this
Agreement) prohibiting or conditioning the creation or assumption of any Lien
upon any of its properties, revenues or assets, whether now owned or hereafter
acquired.
Notwithstanding the foregoing, no other Liens may exist at any time on
or with respect to the Pledged Collateral.
8.02 DISPOSITION OF ASSETS. Holdings shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease,
convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse) or enter into any agreement to do any of the foregoing,
except:
(a) dispositions of inventory or equipment, all in the
ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions of inventory and equipment by the Company or
any Subsidiary to the Company or any Subsidiary pursuant to reasonable business
requirements and in the ordinary course of business;
(d) the lease or sublease of real property by Holdings or any
Subsidiary to other Persons in the ordinary course of business;
(e) the sale of cash equivalents and other short term money
market investments in the ordinary course of business pursuant to Holdings'
usual and customary cash management policies and procedures;
(f) dispositions of inventory and equipment (other than
dispositions permitted under subsection (a)) by Holdings or any Subsidiary to
any Person in which Holdings has a Minority Investment, PROVIDED that the
aggregate amount of such dispositions in any calendar year, PLUS the aggregate
amount of Minority Investments under subsection 8.04(d) in such year, does not
exceed the sublimit of the Annual Limit specified in subsection 8.04(d);
(g) dispositions pursuant to sales and leaseback transactions
permitted under Section 8.14;
(h) dispositions not otherwise permitted hereunder which are
made for fair market value (as determined in good faith by Holdings or the
Company); PROVIDED that (i) at the time of any disposition, no Event of Default
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shall exist or shall result from such disposition, (ii) the aggregate sales
price from such disposition shall be paid in cash, (iii) immediately after
giving effect to such disposition, the Disposition Value of all assets disposed
of as permitted by this subsection 8.02(h) during the period of 365 days ending
on the date of such proposed sale (but excluding the Disposition Value of any
real property so disposed of, PROVIDED that the proceeds of any such disposition
are reinvested within six (6) months of such disposition in similar replacement
property) shall not exceed 15% of Total Assets determined as of such date, (iv)
no disposition by Holdings of any of its equity interest in the Company shall be
permitted hereunder, and (v) no dispositions of accounts or notes receivable
shall be permitted hereunder unless in connection with the sale of all or
substantially all of a business unit, division or Subsidiary of Holdings and
such sale is otherwise permitted hereunder.
8.03 CONSOLIDATIONS AND MERGERS. Holdings shall not, and shall not
suffer or permit any Subsidiary to, merge, consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with Holdings, PROVIDED that
Holdings shall be the continuing or surviving Person, or with any one or more
Subsidiaries, PROVIDED that if any transaction shall be between a Subsidiary and
a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing
or surviving Person;
(b) as permitted by Section 8.02;
(c) any Subsidiary may sell all or substantially all of its
assets (upon voluntary liquidation or otherwise), to Holdings or to a
Wholly-Owned Subsidiary; and
(d) Holdings or any Subsidiary thereof may merge with or
consolidate into any other Person, PROVIDED that (i) (in the case of Holdings)
Holdings shall be the continuing or surviving Person, (ii) such merger or
consolidation is in connection with a Permitted Acquisition, and (iii) no such
merger or consolidation shall be made while there exists a Default or if a
Default would occur as a result thereof.
8.04 LOANS AND INVESTMENTS. Holdings shall not purchase or acquire,
or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any Person
including any Affiliate of Holdings (together, "INVESTMENTS"), except for:
(a) Investments held by Holdings or Subsidiary in the form of
cash equivalents and short term money market investments in the ordinary course
of business pursuant to Holdings' usual and customary cash management policies
and procedures;
(b) extensions of credit in the nature of accounts receivable
or notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
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(c) Investments in the capital stock of Wholly-Owned
Subsidiaries, and extensions of credit by Holdings to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to Holdings or to any
other Wholly-Owned Subsidiaries in the ordinary course of business;
(d) Investments constituting Minority Investments and
Investments incurred in order to consummate Permitted Acquisitions, PROVIDED
that (i) all such Investments in the aggregate, PLUS the aggregate amount of
dispositions under subsection 8.02(f), do not exceed $60,000,000 in any calendar
year (the "ANNUAL LIMIT"), (ii) all such Investments constituting Minority
Investments, PLUS the aggregate amount of dispositions under subsection 8.02(f),
do not exceed a sublimit of $25,000,000 in any calendar year, and (iii) no such
Investment shall be made if the Subsidiary or the Person in which Holdings has a
Minority Investment, as the case may be, that is the subject of such Investment
shall not be a U.S. Subsidiary or is located outside the United States;
(e) Investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations; and
(f) officer, shareholder, director and employee loans and
guarantees in accordance with Holdings' and its Subsidiaries' usual and
customary practices with respect thereto in aggregate amount not exceeding
$1,000,000 at any time.
8.05 LIMITATION ON INDEBTEDNESS. Holdings shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations
permitted pursuant to Section 8.08;
(c) Indebtedness existing on the Closing Date and set forth in
SCHEDULE 8.05;
(d) Indebtedness secured by Liens permitted by clauses (ix),
(x) and (xiv) of subsection 8.01(a) in an aggregate amount outstanding not to
exceed $25,000,000;
(e) Indebtedness of Wholly-Owned Subsidiaries of Holdings to
Holdings or to other Wholly-Owned Subsidiaries of Holdings;
(f) Indebtedness incurred pursuant to sales and leaseback
transactions permitted under Section 8.14;
(g) Indebtedness owing under the Senior Subordinated Notes;
(h) additional unsecured Indebtedness incurred after the
Closing Date in an aggregate amount not to exceed $25,000,000, PROVIDED that (i)
no such Indebtedness shall be incurred while there exists a Default or if a
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Default would occur as a result thereof, and (ii) without limiting the
generality of the foregoing, as of the end of the most recent quarter for which
Holdings has delivered financial statements under subsection 7.01(a) or 7.01(b)
and immediately after giving effect to such incurrence, Holdings shall be in
full compliance with subsections 8.19(a) and 8.19(b); and
(i) additional Indebtedness which by its terms is expressly
subordinated to the Obligations, PROVIDED that (i) the terms of such
subordination shall be satisfactory to the Majority Banks, (ii) the terms of
such Indebtedness and the indenture or other agreement evidencing such
Indebtedness otherwise shall be satisfactory in all material respects to the
Majority Banks (including terms and conditions relating to the interest rate,
fees, amortization, maturity, covenants, events of default and remedies), (iii)
no such Indebtedness shall be incurred while there exists a Default or if a
Default would occur as a result thereof, and (iv) without limiting the
generality of the foregoing, as of the end of the most recent quarter for which
Holdings has delivered financial statements under subsection 7.01(a) or 7.01(b)
and immediately after giving effect to such incurrence, Holdings shall be in
full compliance with subsections 8.19(a) and, if then applicable, 8.19(b) (any
such Indebtedness issued in compliance with this subsection (i) hereinafter
"PERMITTED ADDITIONAL SUBORDINATED DEBT").
Notwithstanding anything to the contrary in this Section 8.05, the Indebtedness
of all Subsidiaries that are not Guarantors which is otherwise permitted under
this Section 8.05 shall not exceed $5,000,000 in the aggregate at any time
outstanding.
8.06 TRANSACTIONS WITH AFFILIATES. Holdings shall not, and shall
not suffer or permit any Subsidiary to, enter into any transaction with any
Affiliate of Holdings, except upon fair and reasonable terms no less favorable
to Holdings or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not an Affiliate of Holdings or such Subsidiary.
8.07 USE OF PROCEEDS. Holdings shall not, and shall not suffer or
permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of Holdings or others incurred to
purchase or carry Margin Stock, or (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock.
8.08 CONTINGENT OBLIGATIONS. Holdings shall not, and shall not
suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations, except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of Holdings in respect of
Indebtedness of any of its Wholly-Owned Subsidiaries, or Contingent Obligations
of any of its Wholly-Owned Subsidiaries in respect of Indebtedness of another of
its Wholly-Owned Subsidiaries or of Holdings, in each case to the extent such
Indebtedness is permitted hereunder;
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(d) Contingent Obligations of Holdings and its Subsidiaries
existing as of the Closing Date and listed in SCHEDULE 8.08;
(e) Contingent Obligations with respect to Surety Instruments
incurred in the ordinary course of business and not exceeding at any time
$5,000,000 in the aggregate in respect of Holdings and its Subsidiaries
together;
(f) Contingent Obligations of Subsidiaries of Holdings owing
under the Senior Subordinated Note Documents in respect of Indebtedness of
Holdings owing under the Senior Subordinated Note Documents; and
(g) Contingent Obligations of Holdings with respect to Stock
Price Guaranties incurred in the ordinary course of business and not exceeding
at any time $5,000,000 in the aggregate.
Notwithstanding anything to the contrary in this Section 8.08, the Contingent
Obligations of all Subsidiaries that are not Guarantors which are otherwise
permitted under this Section 8.08 shall not exceed $5,000,000 in the aggregate
at any time outstanding.
8.09 SUBSIDIARIES. Holdings shall not, and shall not suffer or
permit any Subsidiary to, incorporate, create or acquire any Subsidiary which is
not a U.S. Subsidiary.
8.10 LEASE OBLIGATIONS. Holdings shall not, and shall not suffer or
permit any Subsidiary to, create or suffer to exist any obligations for the
payment of rent for any property under any Operating Lease, which exceed
$15,000,000 in aggregate amount in any fiscal year.
8.11 RESTRICTED PAYMENTS. Holdings shall not, and shall not suffer
or permit any Subsidiary to, declare or make any dividend payment or other
distribution of assets, properties, cash, rights, obligations or securities on
account of any shares of any class of its capital stock (other than dividends or
other distributions by a Subsidiary to Holdings), or purchase, redeem or
otherwise acquire for value any shares of its capital stock or any warrants,
rights or options to acquire such shares, now or hereafter outstanding; except
that Holdings may:
(a) declare and make dividend payments or other distributions
payable solely in its common stock;
(b) purchase, redeem or otherwise acquire shares of its common
stock or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its common
stock; and
(c) allow any Subsidiary that is not a Wholly-Owned Subsidiary
to make distributions to its owners (on a pro rata basis).
8.12 ERISA. Holdings shall not, and shall not suffer or permit any
of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted or could reasonably expected to result in liability of Holdings in an
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aggregate amount in excess of $500,000; or (b) engage in a transaction that
could be subject to Section 4069 or 4212(c) of ERISA.
8.13 CAPITAL EXPENDITURES. Holdings shall not, and shall not permit
any of its Subsidiaries to, make any Capital Expenditures in excess of, on a
consolidated basis, in any fiscal year, the sum of (a) the Capital Expenditure
Annual Limit PLUS (b) so long as no Event of Default has occurred and is
continuing, the Permitted Capital Expenditure Carry-Forward for all prior fiscal
years (beginning with fiscal year 1999).
8.14 SALES AND LEASEBACKS. Holdings shall not, and shall not permit
any of its Subsidiaries to, become liable, directly or indirectly, with respect
to any lease, whether an Operating Lease or a Capital Lease, of any property
(whether real, personal or mixed), whether now owned or hereafter acquired, (i)
which Holdings or such Subsidiary has sold or transferred or is to sell or
transfer to any other Person or (ii) which Holdings or such Subsidiary intends
to use for substantially the same purposes as any other property which has been
or is to be sold or transferred by Holdings or such Subsidiary to any other
Person in connection with such lease; PROVIDED that Holdings and any of its
Subsidiaries may enter into any such lease if (A) no Default shall then exist or
would occur as a result thereof, (B) as of the end of the most recent quarter
for which Holdings has delivered financial statements under subsection 7.01(a)
or 7.01(b) and immediately after giving effect to any such lease, Holdings shall
be in full compliance with subsections 8.19(a), 8.19(b) and 8.19(c) and (C) the
aggregate amount of Indebtedness incurred in connection with all such leases
shall not exceed $25,000,000 at any time outstanding.
8.15 CERTAIN PAYMENTS. Holdings shall not, and shall not permit any
of its Subsidiaries to, (i) prepay, redeem, repurchase or otherwise acquire for
value any of the Subordinated Debt; or (ii) make any principal, interest or
other payments on any Subordinated Debt if not permitted by the respective
subordination provisions of the Subordinated Debt Documents.
8.16 MODIFICATION OF SUBORDINATED DEBT DOCUMENTS. Holdings shall
not, and shall not permit any of its Subsidiaries to, agree to or permit any
amendment, modification or waiver of any provision of any Subordinated Debt
Document (including any amendment, modification or waiver pursuant to an
exchange of other securities or instruments for outstanding Subordinated Debt)
if the effect of such amendment, modification or waiver is to (i) increase the
interest rate on such Subordinated Debt or change (to earlier dates) the dates
upon which principal and interest are due thereon; (ii) alter the redemption,
prepayment or subordination provisions thereof; (iii) alter the covenants and
events of default in a manner which would make such provisions more onerous or
restrictive to Holdings or such Subsidiary; or (iv) otherwise increase the
obligations of Holdings or such Subsidiary in respect of such Subordinated Debt
or confer additional rights upon the holders thereof which individually or in
the aggregate would be adverse to Holdings, its Subsidiaries or the Banks.
8.17 CHANGE IN BUSINESS. Holdings shall not, and shall not suffer
or permit any Subsidiary to, engage in any material line of business
substantially different from those lines of business carried on by Holdings and
its Subsidiaries on the date hereof and lines of business ancillary thereto.
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8.18 ACCOUNTING CHANGES. Holdings shall not, and shall not suffer
or permit any Subsidiary to, make any significant change in accounting treatment
or reporting practices, except as required by GAAP, or change the fiscal year of
Holdings or of any Subsidiary, except to change the fiscal year of a Subsidiary
to conform its fiscal year to that of Holdings.
8.19 FINANCIAL COVENANTS. (a) Holdings shall not permit as at the
end of any fiscal quarter, measured on a consolidated basis for Holdings and its
Subsidiaries for the period of four fiscal quarters ended on such date in
accordance with GAAP, Total Funded Debt to be an amount which exceeds 60% of
Capitalization.
(b) From and after the date on which the Liens of the Agent
and the Banks in respect of the Collateral (other than the Pledged Collateral)
are released pursuant to subsection 2.16(b), Holdings shall not permit as at the
end of any fiscal quarter, measured on a consolidated basis for Holdings and its
Subsidiaries for the period of four fiscal quarters ended on such date in
accordance with GAAP, Senior Funded Debt to be an amount which exceeds 55% of
Capitalization.
(c) Holdings shall not permit its Consolidated Net Worth as of
the last day of any fiscal quarter to be less than $169,016,000, PLUS (b) 50% of
Consolidated Net Income for each fiscal quarter (without giving effect to any
net loss for any such period) ending after September 30, 1999, PLUS (c) 50% of
all Net Issuance Proceeds from and after September 30, 1999, MINUS (d) the
prepayment premium paid (after taxes) by Holdings or the Company to the holders
of the Senior Secured Notes in connection with the repayment of the Senior
Secured Notes and any write-offs of deferred financing costs by Holdings or the
Company associated with such repayment of the Senior Secured Notes (after
taxes).
(d) Holdings shall not permit as at the end of any fiscal
quarter, measured on a consolidated basis for Holdings and its Subsidiaries for
the period of four fiscal quarters ended on such date in accordance with GAAP,
the ratio of (i) EBITA to (ii) the sum of (A) cash Interest Expense, PLUS (B)
cash taxes, PLUS (C) scheduled principal payments in respect of Indebtedness
(but excluding any principal payments in respect of the Senior Secured Notes),
to be less than 1.20 to 1.00.
8.20 NO RESTRICTIONS ON SUBSIDIARY DIVIDENDS. Holdings shall not,
and shall not suffer or permit any Subsidiary to, enter into or be bound by any
Contractual Obligation which restricts, limits or prohibits the payment of
dividends by any Subsidiary or the making of any other distribution in respect
of such Subsidiary's capital stock.
ARTICLE IX
EVENTS OF DEFAULT
9.01 EVENT OF DEFAULT. Any of the following shall constitute an
"EVENT OF DEFAULT":
(a) NON-PAYMENT. Holdings fails to make, (i) when and as
required to be made herein, payments of any amount of principal of any Loan or
of any L/C Obligation, (ii) when and as required to be paid under any Specified
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Swap Contract, any payment or transfer under such Specified Swap Contract, or
(iii) within three Business Days after the same becomes due, payment of any
interest, fee or any other amount payable hereunder or under any other Loan
Document (other than a Specified Swap Contract); or
(b) REPRESENTATION OR WARRANTY. Any representation or warranty
by any Loan Party made or deemed made herein, in any other Loan Document (other
than a Specified Swap Contract), or which is contained in any certificate,
document or financial or other statement by any Loan Party, or any Responsible
Officer, furnished at any time under this Agreement, or in or under any other
Loan Document (other than a Specified Swap Contract), is incorrect in any
material respect on or as of the date made or deemed made; or
(c) SPECIFIC DEFAULTS. Holdings or the Company fails to
perform or observe any term, covenant or agreement contained in any of Section
7.04(a)(i), or 7.12 or in Article VIII; or
(d) OTHER DEFAULTS. Any Loan Party fails to perform or observe
any other term or covenant contained in this Agreement or any other Loan
Document (other than a Specified Swap Contract), and such default shall continue
unremedied for a period of 20 days after the earlier of (i) the date upon which
a Responsible Officer of Holdings or the Company obtained actual knowledge of
such failure and (ii) the date upon which written notice thereof is given to
Holdings by the Agent or any Bank; or
(e) CROSS-DEFAULT. (i) Holdings or any Subsidiary (A) fails to
make any payment in respect of any Indebtedness or Contingent Obligation (other
than in respect of Swap Contracts), having an aggregate principal amount
(including undrawn committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit arrangement) of more than
$1,000,000 when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure; or (B) fails to perform or observe any other condition
or covenant, or any other event shall occur or condition exist, under any
agreement or instrument relating to any such Indebtedness or Contingent
Obligation, and such failure continues after the applicable grace or notice
period, if any, specified in the relevant document on the date of such failure
if the effect of such failure, event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause such Indebtedness to be declared to be
due and payable prior to its stated maturity, or such Contingent Obligation to
become payable or cash collateral in respect thereof to be demanded; or (ii)
there occurs under any Swap Contract an Early Termination Date (as defined in
such Swap Contract) resulting from (1) any event of default under such Swap
Contract as to which Holdings or any Subsidiary is the Defaulting Party (as
defined in such Swap Contract) or (2) any Termination Event (as so defined) as
to which Holdings or any Subsidiary is an Affected Party (as so defined), and,
in either event, the Swap Termination Value owed by Holdings or such Subsidiary
as a result thereof is greater than $1,000,000; or
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(f) INSOLVENCY; VOLUNTARY PROCEEDINGS. Holdings or any
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against Holdings or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of Holdings' or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) Holdings or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) Holdings or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a
Pension Plan or Multiemployer Plan which has resulted or could reasonably be
expected to result in liability of Holdings under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$500,000; the aggregate amount of Unfunded Pension Liability among all Pension
Plans at any time exceeds $500,000; or (iii) Holdings or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under Section
4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of
$500,000; or
(i) MONETARY JUDGMENTS. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against Holdings or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related or unrelated
series of transactions, incidents or conditions, of $1,000,000 or more, and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of 30 days after the entry thereof; or
(j) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order
or decree is entered against Holdings or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
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period of 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) CHANGE OF CONTROL. There occurs any Change of Control; or
(l) GUARANTOR DEFAULTS. Any Guarantor fails in any material
respect to perform or observe any term, covenant or agreement in its Guaranty;
or any Guaranty is for any reason partially (including with respect to future
advances) or wholly revoked or invalidated, or otherwise ceases to be in full
force and effect, or such Guarantor or any other Person contests in any manner
the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder; or any event described at subsections (f) or
(g) of this Section occurs with respect to the Guarantor; or
(m) INVALIDITY OF SUBORDINATION PROVISIONS. The subordination
provisions applicable to the Subordinated Debt shall be for any reason revoked
or invalidated, or otherwise cease to be in full force and effect, or the
holders thereof or any other Person shall contest in any manner the validity or
enforceability thereof or denies that it has any further liability or obligation
thereunder, or the Indebtedness hereunder is for any reason subordinated or does
not have the priority contemplated by this Agreement or such subordination
provisions.
(n) COLLATERAL. (i) Any provision of any Collateral Document
shall for any reason cease to be valid and binding on or enforceable against
Holdings or any Subsidiary party thereto or Holdings or any Subsidiary shall so
state in writing or bring an action to limit its obligations or liabilities
thereunder; or (ii) any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest in the
Collateral purported to be covered thereby or such security interest shall for
any reason cease to be a perfected and first priority security interest subject
only to Permitted Liens.
9.02 REMEDIES. If any Event of Default occurs, the Agent shall, at
the request of, or may, with the consent of, the Majority Banks, do any or all
of the following:
(a) declare the obligation of each Bank to make any Loans
hereunder and any obligation of the Issuing Bank to Issue any Letters of Credit
hereunder to be terminated, whereupon such obligations and each Bank's
Commitment and the L/C Commitment shall be terminated;
(b) declare an amount equal to the maximum aggregate amount
that is or at any time thereafter may become available for drawing under any
outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, which amount shall be held by the Agent as security for Holdings'
reimbursement obligations for drawings that may subsequently occur under
outstanding Letters of Credit, and declare the unpaid principal amount of all
outstanding Loans, all interest accrued and unpaid thereon, and all other
amounts owing or payable hereunder or under any other Loan Document to be
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immediately due and payable, without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by Holdings; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
PROVIDED, HOWEVER, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or any Bank.
9.03 SPECIFIED SWAP CONTRACT REMEDIES. Notwithstanding any other
provision of this Article IX, each Swap Provider shall have the right, with
prior notice to the Agent, but without the approval or consent of the Agent or
the other Banks, with respect to any Specified Swap Contract of such Swap
Provider, (a) to declare an event of default, termination event or other similar
event thereunder and to create an Early Termination Date (as defined in such
Specified Swap Contract), (b) to determine net termination amounts in accordance
with the terms of such Specified Swap Contracts and to set-off amounts between
such Specified Swap Contracts, and (c) to prosecute any legal action against
Holdings to enforce net amounts owing to such Swap Provider.
ARTICLE X
THE AGENT
10.01 APPOINTMENT AND AUTHORIZATION; "AGENT". (a) Each Bank hereby
irrevocably (subject to Section 10.09) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with reference
to the Agent is not intended to connote any fiduciary or other implied (or
express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Majority Banks to act for the Issuing Bank with respect thereto;
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PROVIDED, HOWEVER, that the Issuing Bank shall have all of the benefits and
immunities (i) provided to the Agent in this Article X with respect to any acts
taken or omissions suffered by the Issuing Bank in connection with Letters of
Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent," as used in this Article X, included the Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to the Issuing Bank.
10.02 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
10.03 LIABILITY OF AGENT. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by Holdings or any
Subsidiary or Affiliate of Holdings, or any officer thereof, contained in this
Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent under or in connection with, this Agreement or any other Loan Document, or
for the value of or title to any Collateral, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of any Loan Party or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Bank to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of Holdings or any of its Subsidiaries or
Affiliates.
10.04 RELIANCE BY AGENT (a) The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to any Loan Party), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Banks as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Majority Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
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(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent (or made available) by the Agent to such
Bank for consent, approval, acceptance or satisfaction, or required thereunder
to be consented to or approved by or acceptable or satisfactory to such Bank.
10.05 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Banks, unless the Agent shall
have received written notice from a Bank or any Loan Party referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." The Agent will notify the Banks of its receipt
of any such notice. The Agent shall take such action with respect to such
Default or Event of Default as may be requested by the Majority Banks in
accordance with Article IX; PROVIDED, HOWEVER, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable or in the best interest
of the Banks.
10.06 CREDIT DECISION. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of
Holdings and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Holdings and its Subsidiaries, the value of and title to any Collateral, and all
applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to any Loan Party hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of any Loan Party. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
the Agent shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of Holdings or any
Subsidiary which may come into the possession of any of the Agent-Related
Persons.
10.07 INDEMNIFICATION OF AGENT. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company or Holdings and without limiting the obligation of the Company and
Holdings to do so), in accordance with the Banks' Pro Rata Shares, from and
against any and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Bank
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shall be liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities to the extent they are found by a final decision of
a court of competent jurisdiction to have resulted solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent
in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document
contemplated by or referred to herein, to the extent that the Agent is not
reimbursed for such expenses by or on behalf of Holdings and the Company. The
undertaking in this Section shall survive the termination of the Commitments,
the termination or expiration of all Letters of Credit, the payment of all other
Obligations hereunder and the resignation or replacement of the Agent.
10.08 AGENT IN INDIVIDUAL CAPACITY. BofA and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with Holdings and its
Subsidiaries and Affiliates as though BofA were not the Agent or the Issuing
Bank hereunder and without notice to or consent of the Banks. The Banks
acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding Holdings or its Subsidiaries or Affiliates
(including information that may be subject to confidentiality obligations in
favor of Holdings or such Subsidiary or Affiliate) and acknowledge that the
Agent shall be under no obligation to provide such information to them. With
respect to its Loans, BofA shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent or the Issuing Bank.
10.09 SUCCESSOR AGENT. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Majority Banks shall appoint from among
the Banks a successor agent for the Banks. If no successor agent is appointed
prior to the effective date of the resignation of the Agent, the Agent may
appoint, after consulting with the Banks and Holdings, a successor agent from
among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article X and Sections 11.04 and 11.05 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent by
the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BofA may not be removed as the
Agent at the request of the Majority Banks unless BofA shall also simultaneously
be replaced as "Issuing Bank" and "Swingline Bank" hereunder pursuant to
documentation in form and substance reasonably satisfactory to BofA.
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10.10 WITHHOLDING TAX. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
(i) if such Bank claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, two properly completed and
executed copies of IRS Form W-8BEN before the payment of any interest or fees in
the first calendar year and before the payment of any interest or fees in each
third succeeding calendar year during which interest or fees may be paid under
this Agreement;
(ii) if such Bank claims that interest or fees paid under
this Agreement is exempt from United States withholding tax because it is
effectively connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form W-8ECI before the payment of
any interest or fees is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest or fees may be paid
under this Agreement; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form W-8BEN
and such Bank sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of Holdings owing to such Bank, such Bank agrees
to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of Holdings owing to such Bank. To the extent of
such percentage amount, the Agent will treat such Bank's IRS Form W-8BEN as no
longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form W-8ECI with the Agent sells, assigns, grants
a participation in, or otherwise transfers all or part of the Obligations of
Holdings owing to such Bank, such Bank agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
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(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed, or
because such Bank failed to notify the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify the Agent fully for all amounts
paid, directly or indirectly, by the Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Agent under this Section, together with all costs and
expenses (including reasonable Attorney Costs). The obligation of the Banks
under this subsection shall survive the termination of the Commitments, the
termination or expiration of all Letters of Credit, the payment of all other
Obligations hereunder and the resignation or replacement of the Agent.
(f) Each Bank party to this Agreement as of the Closing Date
represents and warrants to the Agent and Holdings as of the Closing Date that
under applicable law and treaties no tax is required to be withheld by Holdings
or the Agent with respect to any payments to be made to such Bank hereunder.
10.11 COLLATERAL MATTERS.
(a) The Agent is authorized on behalf of all the Banks,
without the necessity of any notice to or further consent from the Banks, from
time to time to take any action with respect to any Collateral or the Collateral
Documents which may be necessary to perfect and maintain perfected the security
interest in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Banks irrevocably authorize the Agent, at its option
and in its discretion, to release any Lien granted to or held by the Agent upon
any Collateral (i) upon termination of the Commitments and payment in full of
all Loans and all other Obligations known to the Agent and payable under this
Agreement or any other Loan Document; (ii) constituting property sold or to be
sold or disposed of as part of or in connection with any disposition permitted
hereunder; (iii) constituting property in which Holdings or any Subsidiary owned
no interest at the time the Lien was granted or at any time thereafter; (iv)
constituting property leased to Holdings or any Subsidiary in a transaction
permitted under this Agreement; (v) consisting of an instrument evidencing
Indebtedness or other debt instrument, if the indebtedness evidenced thereby has
been paid in full; (vi) constituting real property to be excluded from the
Collateral pursuant to matters arising under Section 7.15; or (vii) if approved,
authorized or ratified in writing by the Majority Banks or all the Banks, as the
case may be, as provided in subsection 11.01(f). Upon request by the Agent at
any time, the Banks will confirm in writing the Agent's authority to release
particular types or items of Collateral pursuant to this subsection 10.11(b),
PROVIDED that the absence of any such confirmation for whatever reason shall not
affect the Agent's rights under this Section 10.11.
(c) Each Bank agrees with and in favor of each other (which
agreement shall not be for the benefit of Holdings or any Subsidiary) that the
Obligations to such Bank under this Agreement and the other Loan Documents shall
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not be secured by any real property collateral now or hereafter acquired by such
Bank other than the Mortgaged Properties described in the Mortgages.
10.12 SENIOR MANAGING AGENTS; CO-AGENTS. None of the Banks
identified on the facing page or signature pages of this Agreement as a "senior
managing agent" or a "co-agent" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Banks as such. Without limiting the foregoing, none of the
Banks so identified as a "senior managing agent" or a "co-agent" shall have or
be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.
ARTICLE XI
MISCELLANEOUS
11.01 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by any Loan Party therefrom, shall be effective unless
the same shall be in writing and signed by the Majority Banks (or by the Agent
at the written request of the Majority Banks) and such Loan Party and
acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; PROVIDED, HOWEVER, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Banks and acknowledged by the Agent, do
any of the following:
(a) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 9.02);
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document (including the date of any mandatory prepayment hereunder);
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or (subject to clause (iii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder;
(e) discharge any Guarantor except as otherwise may be
provided herein;
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(f) release any portion of the Collateral except as otherwise
may be provided herein or in the Collateral Documents or except where the
consent of the Majority Banks only is specifically provided for;
(g) amend this Section 11.01, Section 2.15, the definition of
"Majority Banks" herein, or any provision herein providing for consent or other
action by all Banks or some specified amount of Banks; or
(h) waive any of the conditions precedent to the Closing Date
set forth in subsections 5.01(m) and 5.01(n); or
(i) amend the definition of "Borrowing Base" herein;
and, PROVIDED FURTHER, that (i) no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank in addition to the Majority Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Bank
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall,
unless in writing and signed by the Agent in addition to the Majority Banks or
all the Banks, as the case may be, affect the rights or duties of the Agent
under this Agreement or any other Loan Document, (iii) the Fee Letter and
documents evidencing Specified Swap Contracts may be amended, or rights or
privileges thereunder waived, in a writing executed by the parties thereto, and
(iv) no amendment, waiver or consent shall, unless in writing and signed by the
Swingline Bank in addition to the Majority Banks or all the Banks, as the case
may be, increase the Swingline Commitment or otherwise affect the rights or
duties of the Swingline Bank under this Agreement.
11.02 NOTICES. (a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, but excluding
by electronic mail unless accompanied by notice delivered via one of the other
methods specified herein), and mailed, faxed or delivered, to the address or
facsimile number specified for notices on SCHEDULE 11.02; or, as directed to
Holdings, the Company or the Agent, to such other address as shall be designated
by such party in a written notice to the other parties, and as directed to any
other party, at such other address as shall be designated by such party in a
written notice to Holdings, the Company and the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the mails, or if delivered, upon delivery; except that notices
pursuant to Article II, III or X to the Agent shall not be effective until
actually received by the Agent, notices pursuant to Article III to the Issuing
Bank shall not be effective until actually received by the Issuing Bank at the
address specified for the "Issuing Bank" on SCHEDULE 11.02 and notices pursuant
to Article II to the Swingline Bank shall not be effective until actually
received by the Swingline Bank, at the address specified for such Person on
SCHEDULE 11.02.
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(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of Holdings. The Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by Holdings to
give such notice and the Agent and the Banks shall not have any liability to
Holdings or other Person on account of any action taken or not taken by the
Agent or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of Holdings to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure by the Agent and the Banks
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent and the Banks of a confirmation which is at variance with
the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
11.03 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
11.04 COSTS AND EXPENSES. Holdings shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent and
Issuing Bank) within five Business Days after demand (subject to subsection
5.01(e)) for all costs and expenses incurred by BofA (including in its capacity
as Agent and Issuing Bank) in connection with (i) the development, preparation,
delivery, administration and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection herewith or
therewith, (ii) the consummation of the transactions contemplated hereby and
thereby, and (iii) the syndication and assignment following the Closing Date of
all or any part of BofA's interest as Bank hereunder, including reasonable
Attorney Costs incurred by BofA (including in its capacity as Agent and Issuing
Bank) with respect thereto;
(b) pay or reimburse the Agent, the Lead Arranger and each
Bank within five Business Days after demand (subject to subsection 5.01(e)) for
all invoiced (or otherwise documented) costs and expenses (including Attorney
Costs) incurred by them in connection with the enforcement, attempted
enforcement, or preservation of any rights or remedies under this Agreement or
any other Loan Document during the existence of an Event of Default or after
acceleration of the Loans (including in connection with any "workout" or
restructuring regarding the Loans, and including in any Insolvency Proceeding or
appellate proceeding); and
(c) pay or reimburse BofA (including in its capacity as Agent)
within five Business Days after demand (subject to subsection 5.01(e)) for all
appraisal (including the allocated cost of internal appraisal services), audit,
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environmental inspection and review (including the allocated cost of such
internal services), search and filing costs, fees and expenses, incurred or
sustained by BofA (including in its capacity as Agent) in connection with the
matters referred to under subsections (a) and (b) of this Section.
11.05 INDEMNIFICATION.
(a) Whether or not the transactions contemplated hereby are
consummated, each of Holdings and the Company shall indemnify, defend and hold
the Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"INDEMNIFIED PERSON") harmless from and against any and all liabilities, claims,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
settlement costs, charges, expenses and disbursements (including reasonable
Attorney Costs) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans, the termination of all
Specified Swap Contracts, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or replacement of any Bank)
be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement, the other Loan Documents or any
document contemplated by or referred to therein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement, the Specified
Swap Contracts, the Loans or Letters of Credit or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "INDEMNIFIED LIABILITIES"); PROVIDED that neither
Holdings nor the Company shall have any obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities to the extent they are found by a
final decision of a court of competent jurisdiction to have resulted primarily
from the gross negligence or willful misconduct of such Indemnified Person. The
agreements in this Section and in Section 11.04 shall survive the termination of
the Commitments, the termination or expiration of all Letters of Credit and the
payment of all other Obligations.
(b) (i) Each of Holdings and the Company shall indemnify,
defend and hold harmless each Indemnified Person, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses or disbursements (including Attorney Costs and the
allocated cost of internal environmental audit or review services), which may be
incurred by or asserted against such Indemnified Person in connection with or
arising out of any pending or threatened investigation, litigation or
proceeding, or any action taken by any Person, with respect to any Environmental
Claim arising out of or related to any property subject to a Mortgage in favor
of the Agent or any Bank. No action taken by legal counsel chosen by the Agent
or any Bank in defending against any such investigation, litigation or
proceeding or requested remedial, removal or response action shall vitiate or
any way impair Holdings' and the Company's obligation and duty hereunder to
indemnify and hold harmless the Agent and each Bank.
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(ii) In no event shall any site visit, observation, or
testing by the Agent or any Bank (or any contractee of the Agent or any Bank) be
deemed a representation or warranty that Hazardous Materials are or are not
present in, on, or under, the site, or that there has been or shall be
compliance with any Environmental Law. Neither Holdings nor any other Person is
entitled to rely on any site visit, observation, or testing by the Agent or any
Bank. Neither the Agent nor any Bank owes any duty of care to protect Holdings
or any other Person against, or to inform Holdings or any other Person of, any
Hazardous Materials or any other adverse condition affecting any site or
property. Neither the Agent nor any Bank shall be obligated to disclose to
Holdings or any other Person any report or findings made as a result of, or in
connection with, any site visit, observation, or testing by the Agent or any
Bank.
(c) The obligations in this Section shall survive payment of
all other Obligations. At the election of any Indemnified Person, Holdings shall
defend such Indemnified Person using legal counsel satisfactory to such
Indemnified Person in such Person's sole discretion, at the sole cost and
expense of Holdings. All amounts owing under this Section shall be paid within
30 days after demand.
11.06 MARSHALLING; PAYMENTS SET ASIDE. Neither the Agent nor the
Banks shall be under any obligation to marshal any assets in favor of Holdings
or any other Person or against or in payment of any or all of the Obligations.
To the extent that any Loan Party makes a payment to the Agent or the Banks, or
the Agent or the Banks exercise their right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Agent or such Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to the extent
of such recovery the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such set-off had not occurred, and (b) each Bank
severally agrees to pay to the Agent upon demand its Pro Rata Share of any
amount so recovered from or repaid by the Agent.
11.07 SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that a Loan Party may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of the Agent and each Bank.
11.08 ASSIGNMENTS, PARTICIPATIONS, ETC. (a) Any Bank may, with
the written consent of Holdings, the Agent, the Issuing Bank and the Swingline
Bank (which in each case shall not be unreasonably withheld), at any time assign
and delegate to one or more Eligible Assignees (each an "ASSIGNEE") all, or any
ratable part of all, of the Loans, the Commitment, the L/C Obligations and the
other rights and obligations of such Bank hereunder; PROVIDED, HOWEVER, that (i)
no written consent of Holdings shall be required during the existence of a
Default or an Event of Default; (ii) no written consent of Holdings or the
Agent, the Issuing Bank or the Swingline Bank shall be required in connection
with any assignment and delegation by a Bank to an Eligible Assignee that is
another Bank or an Affiliate of such Bank, PROVIDED that if the proposed
Assignee is another Bank, the Bank seeking to assign its interests hereunder
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shall consult with Holdings and the Agent before entering into such assignment);
(iii) except in connection with an assignment of all of a Bank's rights and
obligations with respect to its Commitment, Loans and L/C Obligations, any such
assignment to an Eligible Assignee that is not a Bank hereunder shall be equal
to or greater than $5,000,000; and (iv) each such partial assignment shall be of
a ratable part of the Loans, the Commitment and the other interests, rights and
obligations hereunder of such assigning Bank; and PROVIDED FURTHER, HOWEVER,
that Holdings and the Agent may continue to deal solely and directly with such
Bank in connection with the interest so assigned to an Assignee until (A) such
Bank and its Assignee shall have delivered to Holdings and the Agent an
Assignment and Acceptance Agreement substantially in the form of Exhibit E
("Assignment and Acceptance"), together with any Note or Notes subject to such
assignment; (B) a written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee, in
substantially the form of the Notice of Assignment and Acceptance attached as
Schedule 1 to the Assignment and Acceptance, shall have been given to Holdings
and the Agent by such Bank and the Assignee; (C) the assignor Bank or Assignee
shall have paid to the Agent a processing fee in the amount of $4,000 and (D)
the Agent, Holdings, the Issuing Bank and the Swingline Bank each shall have
provided any required consent to such assignment in accordance with this
Section. In connection with any assignment by BofA, its Swingline Commitment may
be assigned in whole (and not part) and only in connection with an assignment
transaction involving an assignment of all of its Commitment and Loans, and the
Assignment and Acceptance may be appropriately modified to include an assignment
and delegation of its Swingline Commitment and any outstanding Swingline Loans.
(b) From and after the date that the Agent notifies the
assignor Bank that the Agent has received (and, if required, provided its
consent with respect thereto and received any other consents required under this
Section 11.08) an executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Bank under the Loan Documents, (ii) this Agreement shall be
deemed to be amended to the extent, but only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of the Commitments
arising therefrom, and (iii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents; PROVIDED, HOWEVER, that
the assignor Bank shall not relinquish its rights under Article IV or under
Sections 11.04 and 11.05 to the extent such rights relate to the time prior to
the effective date of the Assignment and Acceptance. The Commitment allocated to
each Assignee shall reduce the Commitment of the assigning Bank pro tanto.
(c) Within five Business Days after Holding's receipt of
notice by the Agent that it has received (and, if necessary, consented to) an
executed Assignment and Acceptance and payment of the processing fee (and
PROVIDED that the Issuing Bank, the Swingline Bank and Holdings each consent to
such assignment in accordance with subsection 11.08(a)), Holdings shall execute
and deliver to the Agent any new Note requested by such Assignee evidencing such
Assignee's assigned Loans and Commitment and, if the assignor Bank has retained
a portion of its Loans and its Commitment, replacement Notes as requested by the
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assignor Bank evidencing the Loans and Commitment retained by the assignor Bank
(such Note to be in exchange for, but not in payment of, the Note held by such
Bank, if any).
(d) Any Bank may at any time sell to one or more commercial
banks or other Persons not Affiliates of Holdings (a "PARTICIPANT")
participating interests in any Loans, the Commitment of that Bank and the other
interests of that Bank (the "ORIGINATING BANK") hereunder and under the other
Loan Documents; PROVIDED, HOWEVER, that (i) the originating Bank's obligations
under this Agreement shall remain unchanged, (ii) the originating Bank shall
remain solely responsible for the performance of such obligations, (iii)
Holdings, the Issuing Bank and the Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Bank shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Banks
as described in the first proviso to Section 11.01. In the case of any such
participation, the Participant shall be entitled to the benefit of Sections
4.01, 4.03 and 11.05 as though it were also a Bank hereunder, and except that,
if amounts outstanding under this Agreement are due and unpaid, or shall have
been declared or shall have become due and payable upon the occurrence of an
Event of Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this Agreement
to the same extent as if the amount of its participating interest were owing
directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any
Bank may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement and any Note held by
it (other than in respect of Swingline Loans) in favor of any Federal Reserve
Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31
C.F.R. ss.203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law.
11.09 CONFIDENTIALITY. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by Holdings or the Company and provided to it by Holdings, the Company
or any Subsidiary, or by the Agent on Holdings', the Company's or such
Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with Holdings, the Company or any Subsidiary; except to the extent
such information (i) was or becomes generally available to the public other than
as a result of disclosure by such Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than Holdings or the Company,
PROVIDED that such source is not bound by a confidentiality agreement with
Holdings or the Company known to such Bank; PROVIDED, HOWEVER, that any Bank may
disclose such information (A) at the request or pursuant to any requirement of
any Governmental Authority to which such Bank is subject or in connection with
an examination of such Bank by any such authority; (B) pursuant to subpoena or
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other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors, legal counsel and
other professional advisors; (G) to any Participant or Assignee, actual or
potential, PROVIDED that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) as to any
Bank or its Affiliate, as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which Holdings, the Company
or any Subsidiary is party or is deemed party with such Bank or such Affiliate;
and (I) to its Affiliates.
11.10 SET-OFF. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to any Loan Party, any such notice being waived by such Loan Party
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held by, and other indebtedness at any time owing by, such Bank to or for the
credit or the account of such Loan Party against any and all Obligations owing
to such Bank, now or hereafter existing, irrespective of whether or not the
Agent or such Bank shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each Bank
agrees promptly to notify such Loan Party and the Agent after any such set-off
and application made by such Bank; PROVIDED, HOWEVER, that the failure to give
such notice shall not affect the validity of such set-off and application.
NOTWITHSTANDING THE FOREGOING, NO BANK SHALL EXERCISE, OR ATTEMPT TO EXERCISE,
ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR
PROPERTY OF HOLDINGS OR ANY SUBSIDIARY OF HOLDINGS HELD OR MAINTAINED BY THE
BANK WITHOUT THE PRIOR WRITTEN CONSENT OF THE MAJORITY BANKS.
11.11 [INTENTIONALLY OMITTED.]
11.12 GUARANTY. (a) GUARANTY. Each of the Guarantors unconditionally
and irrevocably, jointly and severally guarantees to the Agent, the Lead
Arranger and the Banks, and their respective successors, endorsers, transferees
and assigns (the "GUARANTEED PERSONS"), the full and prompt payment when due
(whether at stated maturity, by required prepayment, declaration, acceleration,
demand or otherwise) and performance of all indebtedness, liabilities and other
obligations of Holdings to any Guaranteed Person, whether arising out of or in
connection with this Agreement, any other Loan Document or otherwise, including
all unpaid principal of the Loans, all L/C Obligations, all interest accrued
thereon, all fees due under this Agreement and all other amounts payable by
Holdings to any Guaranteed Person thereunder or in connection therewith. The
terms "indebtedness," "liabilities" and "obligations" are used herein in their
most comprehensive sense and include any and all advances, debts, obligations
and liabilities, now existing or hereafter arising, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness, liabilities and obligations may be or hereafter become
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unenforceable or shall be an allowed or disallowed claim under the Bankruptcy
Code or other applicable law. The foregoing indebtedness, liabilities and other
obligations of Holdings shall hereinafter be collectively referred to as the
"GUARANTEED OBLIGATIONS." The Guaranteed Obligations include interest which, but
for an Insolvency Proceeding, would have accrued on such Guaranteed Obligations,
whether or not a claim is allowed against Holdings for such interest in any such
Insolvency Proceeding.
(b) SEPARATE OBLIGATION. Each Guarantor acknowledges and
agrees (i) that the Guaranteed Obligations are separate and distinct from any
indebtedness, obligations or liabilities arising under or in connection with any
other agreement, instrument or guaranty, including under any provision of this
Agreement other than this Section 11.12, executed at any time by such Guarantor
in favor of any Guaranteed Person, and (ii) such Guarantor shall pay and perform
all of the Guaranteed Obligations as required under this Section 11.12, and each
Guaranteed Person may enforce any and all of its rights and remedies hereunder,
without regard to any other agreement, instrument or guaranty, including any
provision of this Agreement other than this Section 11.12, at any time executed
by such Guarantor in favor of any Guaranteed Person, regardless of whether or
not any such other agreement, instrument or guaranty, or any provision thereof
or hereof, shall for any reason become unenforceable or any of the indebtedness,
obligations or liabilities thereunder shall have been discharged, whether by
performance, avoidance or otherwise. Each Guarantor acknowledges that in
providing benefits to Holdings and such Guarantor, the Guaranteed Persons are
relying upon the enforceability of this Section 11.12 and the Guaranteed
Obligations as separate and distinct indebtedness, obligations and liabilities
of such Guarantor, and each Guarantor agrees that each Guaranteed Person would
be denied the full benefit of their bargain if at any time this Section 11.12 or
the Guaranteed Obligations were treated any differently. The fact that the
Guaranty of each Guarantor is set forth in this Agreement rather than in a
separate guaranty document is for the convenience of Holdings and the Guarantors
and shall in no way impair or adversely affect the rights or benefits of any
Guaranteed Person under this Section 11.12. Each Guarantor agrees to execute and
deliver a separate agreement, immediately upon request at any time of any
Guaranteed Person, evidencing such Guarantor's obligations under this Section
11.12. Upon the occurrence of any Event of Default, a separate action or actions
may be brought against each Guarantor, whether or not Holdings or any other
Guarantor or Person is joined therein or a separate action or actions are
brought against Holdings or any other Guarantor or Person.
(c) LIMITATION OF GUARANTY. To the extent that any court of
competent jurisdiction shall impose by final judgment under applicable law
(including the California Uniform Fraudulent Transfer Act and ss.ss.544 and 548
of the Bankruptcy Code) any limitations on the amount of any Guarantor's
liability with respect to the Guaranteed Obligations which any Guaranteed Person
can enforce under this Section 11.12, each Guaranteed Person by its acceptance
hereof accepts such limitation on the amount of such Guarantor's liability
hereunder to the extent needed to make this Section 11.12 fully enforceable and
nonavoidable.
(d) LIABILITY OF GUARANTOR. The liability of each Guarantor
under this Section 11.12 shall be irrevocable, absolute, independent and
unconditional, and shall not be affected by any circumstance which might
constitute a discharge of a surety or guarantor other than the indefeasible
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payment and performance in full of all Guaranteed Obligations. In furtherance of
the foregoing and without limiting the generality thereof, each Guarantor agrees
as follows:
(i) such Guarantor's liability hereunder shall be the
immediate, direct, and primary obligation of such Guarantor and shall not be
contingent upon any Guaranteed Person's exercise or enforcement of any remedy it
may have against Holdings or any other Person, or against any collateral or
other security for any Guaranteed Obligations;
(ii) this Guaranty is a guaranty of payment when due and not
merely of collectibility;
(iii) such Guarantor's payment of a portion, but not all, of
the Guaranteed Obligations shall in no way limit, affect, modify or abridge such
Guarantor's liability for any portion of the Guaranteed Obligations remaining
unsatisfied; and
(iv) such Guarantor's liability with respect to the
Guaranteed Obligations shall remain in full force and effect without regard to,
and shall not be impaired or affected by, nor shall such Guarantor be exonerated
or discharged by, any of the following events:
(A) any Insolvency Proceeding;
(B) any limitation, discharge, or cessation of the
liability of Holdings or any other guarantor or Person for any Guaranteed
Obligations due to any statute, regulation or rule of law, or any invalidity or
unenforceability in whole or in part of any of the Guaranteed Obligations or the
Loan Documents;
(C) any merger, acquisition, consolidation or change in
structure of Holdings or any other Guarantor or Person, or any sale, lease,
transfer or other disposition of any or all of the assets or shares of Holdings
or any other Guarantor or other Person;
(D) any assignment or other transfer, in whole or in
part, of any Guaranteed Person's interests in and rights under this Guaranty or
the other Loan Documents;
(E) any claim, defense, counterclaim or set-off, other
than that of prior performance, that Holdings, such Guarantor, any other
guarantor or other Person may have or assert, including any defense of
incapacity or lack of corporate or other authority to execute any of the Loan
Documents;
(F) any Guaranteed Person's amendment, modification,
renewal, extension, cancellation or surrender of any Loan Document or any
Guaranteed Obligations;
(G) any Guaranteed Person's exercise or nonexercise of
any power, right or remedy with respect to any Guaranteed Obligations or any
collateral;
(H) any Guaranteed Person's vote, claim, distribution,
election, acceptance, action or inaction in any Insolvency Proceeding; or
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(I) any other guaranty, whether by any Guarantor or any
other Person, of all or any part of the Guaranteed Obligations or any other
indebtedness, obligations or liabilities of any Guaranteed Person.
(e) CONSENTS OF GUARANTOR. Each Guarantor hereby
unconditionally consents and agrees that, without notice to or further assent
from such Guarantor:
(i) the principal amount of the Guaranteed Obligations may
be increased or decreased and additional indebtedness or obligations of Holdings
under the Loan Documents may be incurred and the time, manner, place or terms of
any payment under any Loan Document be extended or changed, by one or more
amendments, modifications, renewals or extensions of any Loan Document or
otherwise;
(ii) the time for Holdings' (or any other Person's)
performance of or compliance with any term, covenant or agreement on its part to
be performed or observed under any Loan Document may be extended, or such
performance or compliance waived, or failure in or departure from such
performance or compliance consented to, all in such manner and upon such terms
as any Guaranteed Person (or the Majority Banks, as the case may be) may deem
proper;
(iii) each Guaranteed Person may request and accept other
guarantees and may take and hold other security as collateral for the Guaranteed
Obligations, and may, from time to time, in whole or in part, exchange, sell,
surrender, release, subordinate, modify, waive, rescind, compromise or extend
such other guaranties or security and may permit or consent to any such action
or the result of any such action, and may apply such security and direct the
order or manner of sale thereof;
(iv) each Guaranteed Person may exercise, or waive or
otherwise refrain from exercising, any other right, remedy, power or privilege
even if the exercise thereof affects or eliminates any right of subrogation or
any other right of such Guarantor against Holdings.
(f) GUARANTOR'S WAIVERS. Each Guarantor waives and agrees not
to assert:
(i) any right to require the Agent, the Issuing Bank or any
Bank to marshal assets in favor of Holdings, the Guarantors, any other guarantor
or any other Person, to proceed against Holdings, any other guarantor or any
other Person, to proceed against or exhaust any of the Collateral, to give
notice of the terms, time and place of any public or private sale of personal
property security constituting the Collateral or other collateral for the
Guaranteed Obligations or comply with any other provisions of ss.9504 of the UCC
(or any equivalent provision of any other applicable law) or to pursue any other
right, remedy, power or privilege of the Agent, the Issuing Bank or any Bank
whatsoever;
(ii) the defense of the statute of limitations in any action
hereunder or for the collection or performance of the Guaranteed Obligations;
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(iii) any defense arising by reason of any lack of corporate
or other authority or any other defense of Holdings, such Guarantor or any other
Person;
(iv) any defense based upon any Guaranteed Person's errors or
omissions in the administration of the Guaranteed Obligations;
(v) any rights to set-offs and counterclaims;
(vi) without limiting the generality of the foregoing, to the
fullest extent permitted by law, any defenses or benefits that may be derived
from or afforded by applicable law limiting the liability of or exonerating
guarantors or sureties, or which may conflict with the terms of this Section
11.12;
(vii) any defense based upon an election of remedies
(including, if available, an election to proceed by nonjudicial foreclosure)
which destroys or impairs the subrogation rights of such Guarantor or the right
of such Guarantor to proceed against Holdings or any other obligor of the
Guaranteed Obligations for reimbursement;
(viii) without limiting the generality of the foregoing, to the
fullest extent permitted by law, any defenses or benefits that may be derived
from or afforded by applicable law limiting the liability of or exonerating
guarantors or sureties, or which may conflict with the terms of this Section
11.12, including any and all benefits that otherwise might be available to such
Guarantor under California Civil Code ss.ss.1432, 2809, 2810, 2815, 2819, 2839,
2845, 2848, 2849, 2850, 2899 and 3433 and California Code of Civil Procedure
ss.ss.580a, 580b, 580d and 726. Accordingly, each Guarantor waives all rights
and defenses that such Guarantor may have because Holdings' debt is secured by
real property. This means, among other things: (A) the Agent , the Issuing Bank
and the Banks may collect from such Guarantor without first foreclosing on any
real or personal property Collateral pledged by Holdings; and (B) if the Agent
forecloses on any real property Collateral pledged by Holdings: (1) the amount
of the debt may be reduced only by the price for which that Collateral is sold
at the foreclosure sale, even if the Collateral is worth more than the sale
price, and (2) the Agent, the Issuing Bank and the Banks may collect from such
Guarantor even if the Agent, by foreclosing on the real property Collateral, has
destroyed any right such Guarantor may have to collect from Holdings. This is an
unconditional and irrevocable waiver of any rights and defenses such Guarantor
may have because Holdings' debt is secured by real property. These rights and
defenses include, but are not limited to, any rights of defenses based upon
Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure; and
(ix) any and all notice of the acceptance of this Guaranty,
and any and all notice of the creation, renewal, modification, extension or
accrual of the Guaranteed Obligations, or the reliance by any Guaranteed Person
upon this Guaranty, or the exercise of any right, power or privilege hereunder.
The Guaranteed Obligations shall conclusively be deemed to have been created,
contracted, incurred and permitted to exist in reliance upon this Guaranty. Each
Guarantor waives promptness, diligence, presentment, protest, demand for
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payment, notice of default, dishonor or nonpayment and all other notices to or
upon Holdings, such Guarantor or any other Person with respect to the Guaranteed
Obligations.
(g) FINANCIAL CONDITION OF HOLDINGS. No Guarantor shall have
any right to require any Guaranteed Person to obtain or disclose any information
with respect to: the financial condition or character of Holdings or the ability
of Holdings to pay and perform the Guaranteed Obligations; the Guaranteed
Obligations; any collateral or other security for any or all of the Guaranteed
Obligations; the existence or nonexistence of any other guarantees of all or any
part of the Guaranteed Obligations; any action or inaction on the part of any
Guaranteed Person or any other Person; or any other matter, fact or occurrence
whatsoever. Each Guarantor hereby acknowledges that it has undertaken its own
independent investigation of the financial condition of Holdings and the other
Loan Parties and all other matters pertaining to this Guaranty and further
acknowledges that it is not relying in any manner upon any representation or
statement of any Guaranteed Person with respect thereto.
(h) SUBROGATION. Until the Guaranteed Obligations shall be
satisfied in full and the Commitments shall be terminated, each Guarantor shall
not have, and shall not directly or indirectly exercise (i) any rights that it
may acquire by way of subrogation under this Section 11.12, by any payment
hereunder or otherwise, (ii) any rights of contribution, indemnification,
reimbursement or similar suretyship claims arising out of this Section 11.12 or
(iii) any other right which it might otherwise have or acquire (in any way
whatsoever) which could entitle it at any time to share or participate in any
right, remedy or security of any Guaranteed Person as against Holdings or other
guarantors, whether in connection with this Section 11.12, any of the other Loan
Documents or otherwise. If any amount shall be paid to any Guarantor on account
of the foregoing rights at any time when all the Guaranteed Obligations shall
not have been paid in full, such amount shall be held in trust for the benefit
of each Guaranteed Person and shall forthwith be paid to the Agent to be
credited and applied to the Guaranteed Obligations, whether matured or
unmatured, in accordance with the terms of the Loan Documents.
(i) CONTINUING GUARANTY. This Guaranty is a continuing
guaranty and agreement of subordination and shall continue in effect and be
binding upon each Guarantor until termination of the Commitments and payment and
performance in full of all Guaranteed Obligations, including Guaranteed
Obligations which may exist continuously or which may arise from time to time
under successive transactions, and each Guarantor expressly acknowledges that
this Guaranty shall remain in full force and effect notwithstanding that there
may be periods in which no Guaranteed Obligations exist.
(j) REINSTATEMENT. This Guaranty shall continue to be
effective or shall be reinstated and revived, as the case may be, if, for any
reason, any payment of the Guaranteed Obligations by or on behalf of Holdings
(or receipt of any proceeds of collateral) shall be rescinded, invalidated,
declared to be fraudulent or preferential, set aside, voided or otherwise
required to be repaid to Holdings, its estate, trustee, receiver or any other
Person (including under the Bankruptcy Code or other state or federal law), or
must otherwise be restored by any Guaranteed Person, whether as a result of
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Insolvency Proceedings or otherwise. All losses, damages, costs and expenses
that any Guaranteed Person may suffer or incur as a result of any voided or
otherwise set aside payments shall be specifically covered by the indemnity in
favor of the Banks and the Agent contained in Section 11.05.
(k) SUBSTANTIAL BENEFITS. The funds that have been borrowed
from the Banks by Holdings have been and are to be contemporaneously used for
the direct or indirect benefit of Holdings and each Guarantor. It is the
position, intent and expectation of the parties that Holdings and each Guarantor
have derived and will derive significant and substantial direct or indirect
benefits from the accommodations that have been made by the Banks under the Loan
Documents.
(l) KNOWING AND EXPLICIT WAIVERS. EACH GUARANTOR ACKNOWLEDGES
THAT IT EITHER HAS OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAS HAD THE
OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF
THIS SECTION 11.12. EACH GUARANTOR ACKNOWLEDGES AND AGREES THAT EACH OF THE
WAIVERS AND CONSENTS SET FORTH HEREIN ARE MADE WITH FULL KNOWLEDGE OF THEIR
SIGNIFICANCE AND CONSEQUENCES, AND THAT ALL SUCH WAIVERS AND CONSENTS HEREIN ARE
EXPLICIT AND KNOWING AND WHICH EACH GUARANTOR EXPECTS TO BE FULLY ENFORCEABLE.
(m) RELEASE OF SUBSIDIARY GUARANTORS. Holdings may at any time
deliver to the Agent a certificate from a Responsible Officer of Holdings
certifying as of the date of the certificate that, after the consummation of the
transaction or series of transactions described in such certificate (which
certification shall also state that such transactions, individually or in the
aggregate, will be in compliance with the terms and conditions of this
Agreement, including to the extent applicable Sections 8.02 and 8.03, and that
no Event of Default existed, exists or will exist, as the case may be,
immediately before, as a result of or immediately after giving effect to such
transaction or transactions and termination), the Guarantor identified in such
certification will no longer be a Subsidiary of Holdings. Effective upon the
consummation of the transaction or series of transactions described in such
certificate, the Subsidiary identified in such certification shall thereupon
automatically cease to be a Guarantor hereunder and shall cease to be a party
hereto and shall thereupon automatically be released from its obligations under
this Section 11.12 and under the Security Agreement, and all Liens in favor of
the Agent and the Banks under the Collateral Documents in respect of the
property of such Subsidiary shall thereupon terminate. Holdings shall promptly
notify the Agent of the consummation of any such transaction or series of
transactions. The Agent, on behalf of the Banks, shall, at Holdings' expense,
execute and deliver such instruments as Holdings may reasonably request to
evidence such release and Lien termination.
11.13 NOTIFICATION OF ADDRESSES, LENDING OFFICES, ETC. Each Bank
shall notify the Agent in writing of any changes in the address to which notices
to such Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
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11.14 COUNTERPARTS. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.15 SEVERABILITY. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
11.16 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and legal benefit of Holdings, the Company, the
Banks, the Agent and the Agent-Related Persons, the Indemnified Persons and
their permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of action or
claim in connection with, this Agreement or any of the other Loan Documents.
11.17 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND ANY
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF CALIFORNIA OR OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE LOAN PARTIES, THE AGENT
AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE LOAN PARTIES, THE AGENT
AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE
LOAN PARTIES, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
(c) Nothing contained in this Section shall override any
contrary provision contained in any Specified Swap Contract.
11.18 WAIVER OF JURY TRIAL. THE LOAN PARTIES, THE BANKS AND THE
AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
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ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE LOAN
PARTIES, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF
ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
11.19 ENTIRE AGREEMENT. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Loan
Parties, the Issuing Bank, the Swingline Bank, the Banks and the Agent, and
supersedes all prior or contemporaneous agreements and understandings of such
Persons, verbal or written, relating to the subject matter hereof and thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in San Francisco, California, by their proper and
duly authorized officers as of the day and year first above written.
BUILDING MATERIALS HOLDING CORPORATION
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
BMC WEST CORPORATION
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
BMC WEST CORPORATION SOUTHCENTRAL
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
BMCW SOUTHCENTRAL, L.P.
By: BMC WEST CORPORATION
SOUTHCENTRAL, its General Partner
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
105
<PAGE>
BMCW, LLC
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
BMHC FRAMING, INC.
By: /s/ ELLIS C. GOEBEL
-------------------
Title: Senior Vice President-Finance
& Treasurer
BANK OF AMERICA, N.A.,
as Agent, Issuing Bank, Swingline Bank
and a Bank
By: /s/ KEVIN LEADER
----------------
Title: Managing Director
COMERICA BANK
By: /s/ SIGNED
------------------
Title: Account Officer
FIRST SECURITY BANK, N.A.
By: /s/ BRIAN COOK
------------------
Title: Vice President
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FIRST UNION NATIONAL BANK
By: /s/ DAVID C. HAUGLID
--------------------
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ MARY K. YOUNG
-----------------
Title: Assistant Vice President
SOUTH TRUST BANK, N.A.
By: /s/ DAVID C. OLDANI
-------------------
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ DAVID M. JACKSON
--------------------
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION
By: /s/ JAMES W. HENKEN
-------------------
Title: Vice President
107
<PAGE>
WELLS FARGO BANK, N.A.
By: /s/ TRACY HANSON
-----------------
Title: Vice President
WM BUSINESS BANK A DIVISION OF
WASHINGTON MUTUAL
By: /s/ S. C. SCHUMACHER
--------------------
Title: Vice President
108
BUILDING MATERIALS HOLDING CORPORATION
AMENDED AND RESTATED
SEVERANCE PLAN FOR CERTAIN EXECUTIVE OFFICERS,
SENIOR MANAGEMENT AND KEY EMPLOYEES OF THE
COMPANY AND ITS SUBSIDIARIES
This Severance Plan (the "Plan") was adopted by the Board of Directors
of BMC West Corporation, a Delaware corporation, on July 20, 1993 and was
assumed by Building Materials Holding Corporation, a Delaware corporation
(together with its predecessor, the "Company") as of September 23, 1997, for the
benefit of certain executive officers, senior management and key employees of
the Company and its Subsidiaries. The Plan, as amended and restated, was
confirmed by the Board of Directors on February 17, 2000.
1. PURPOSE
The Company, on behalf of itself and its stockholders, desires to
continue to attract and retain well-qualified executive and key personnel who
are an integral part of the management of the Company, such as the Designated
Employees, and to assure itself of continuity of management. The principal
purposes of the Plan are to (i) provide an incentive to the Designated Employees
to remain in the employ of the Company, notwithstanding any uncertainty and job
insecurity which may be created by an actual or prospective Change in Control,
(ii) encourage the Designated Employees' full attention and dedication to the
Company currently and in the event of any actual or prospective Change in
Control, and (iii) provide an incentive for the Designated Employees to be
objective concerning any potential Change in Control and to fully support any
Change in Control transaction approved by the Board of Directors.
2. DEFINITIONS
Terms not otherwise defined in the Plan shall have the meanings set
forth in this Section 2.
(a) CASH COMPENSATION. "Cash Compensation" shall mean the sum
of (i) the higher of the Designated Employee's annual base salary (x) at the
time the Notice of Termination provided for in Section 4(c) of the Plan is given
or (y) immediately prior to a Change in Control, and (ii) an amount equal to the
highest cash bonus paid to the Designated Employee under the Company's bonus
program for any of such prior three years, and (iii) the highest amount
contributed as a Company matching or profit-sharing contribution on behalf of
the Designated Employee under the Company's 401(k) plan (or any successor plan)
for any of the three fiscal years immediately preceding the year in which the
Date of Termination occurs, and (iv) the highest amount allocated or accrued
(whether or not funded) as a Company contribution on behalf of the Designated
Employee under the Company's supplemental executive retirement plan (or any
successor plan) for any of the three fiscal years immediately preceding the year
in which the Date of Termination occurs.
(b) CAUSE. For purposes of the Plan and any agreements entered
into pursuant to the Plan only, "Cause" shall mean: (i) the commission of a
felony (other than driving while intoxicated or while under the influence of
<PAGE>
alcohol or drugs), (ii) a willful dereliction of duty or intentional and
malicious conduct contrary to the best interests of the Company or its business
if such dereliction of duty or misconduct is not corrected within thirty (30)
days after written notice thereof from the Company, or (iii) a refusal to
perform reasonable services customarily performed by a Designated Employee
(other than by reason of a Disability) if such refusal is not corrected within
thirty (30) days after written notice thereof from the Company; provided,
however, that the Designated Employee shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to the
Designated Employee a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Company's Board
of Directors at a meeting of the Board called and held for the purpose (after
reasonable notice to the Designated Employee and an opportunity for the
Designated Employee, together with the Designated Employee's counsel, to be
heard before the Board), finding that in the good faith opinion of the Board the
Designated Employee was guilty of the conduct set forth above and specifying the
particulars thereof in detail. Notwithstanding the foregoing, the Designated
Emp1oyee shall have the right to contest his termination for Cause (for purposes
of this Agreement) by arbitration in accordance with the provisions of the Plan.
(c) CHANGE IN CONTROL. A "Change in Control" of the Company
shall be deemed to have occurred if (i) there shall be consummated (x) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock are to be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (y) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the business and/or
assets of the Company, or (ii) the stockholders of the Company approve a plan or
proposal for the liquidation or dissolution of the Company, or (iii) any
"person" (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), including any group), shall become the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of fifty (50%) percent or more of the Company's outstanding
Common Stock, or (iv) if for any reason a majority of the Board is not comprised
of "Continuing Directors," where a "Continuing Director" of the Corporation as
of any date means a member of the Board who (x) was a member of the Board two
years prior to such date and at all times through such date or (y) was nominated
for election or elected to the Board with the affirmative vote of at least
two-thirds of the directors who were Continuing Directors at the time of such
nomination or election; PROVIDED, HOWEVER, that no individual initially elected
or nominated as a director of the Corporation as a result of an actual or
threatened election contest with respect to directors or any other actual or
threatened solicitation of proxies or consents by or on behalf of any person
other than the Board shall be deemed to be a Continuing Director.
Notwithstanding the above, a Change in Control shall not be deemed to have
occurred in connection with a transaction resulting in a merger, consolidation,
sale of assets or sale of securities if such transaction has been initiated (in
contrast to an action in response to or resulting from receipt of an offer or
its equivalent from a third party) at the direction of the Board of Directors of
the Company acting with the approval of a majority of the Independent Directors.
<PAGE>
(d) DESIGNATED EMPLOYEES. "Designated Employees'" shall refer
to those employees of the Company and its Subsidiaries who are designated on
Schedule A attached hereto and incorporated herein by reference ("Schedule A"),
and such other employees of the Company and its Subsidiaries as the Board of
Directors of the Company shall designate from time to time. The Designated
Employees may be divided into certain categories for purposes of the Plan as set
forth on Schedule A.
(e) GOOD REASON. A Designated Employee's termination of
employment with the Company shall be deemed for "Good Reason" if any of the
following events occur without the Designated Employee's express written consent
(provided, however, that Subparagraph (iv) below shall not be applicable to any
Designated Employee in Categories III and IV on Schedule A) and the Designated
Employee provides his Notice of Termination upon or within six months after such
event occurring:
(i) The assignment to the Designated Employee by the Company
of duties inconsistent with, or a substantial alteration in
the nature or status of, the Designated Employee's
responsibilities immediately prior to a Change in Control of
the Company other than any such alteration primarily
attributable to the fact that the Company's securities are no
longer publicly traded;
(ii) A reduction by the Company in the Designated Employee's
Cash Compensation as in effect on the date of a Change in
Control of the Company or as in effect thereafter if such Cash
Compensation has been increased;
(iii) Any failure by the Company to continue in effect without
substantial change any compensation, incentive, welfare or
benefit plan or arrangement, as well as any plan or
arrangement whereby the Designated Employee may acquire
securities of the Company or its publicly traded parent, in
which the Designated Employee is participating at the time of
a Change in Control of the Company (or any other plans
providing the Designated Employee with substantially similar
benefits) (hereinafter referred to as "Benefit Plans"), or the
taking of any action by the Company which would adversely
affect, either as to the past or prospectively, the Designated
Employee's participation in or materially reduce or deprive
the Designated Employee of the Designated Employee's benefits
that were provided under any such Benefit Plan at the time of
a Change in Control of the Company; unless an equitable
substitute arrangement (embodied in an ongoing substitute or
alternative Benefit Plan) has been made for the benefit of the
Designated Employee with respect to the Benefit Plan in
question; provided that for purposes of the foregoing,
"Benefit Plans" shall include, but not be limited to, the
Company's stock option plans, 401(k) plan, annual bonus plan,
long-term incentive plan, or any other plan or arrangement to
receive and exercise stock options or stock appreciation
rights, supplemental pension plan, insured medical
reimbursement plan, automobile benefits, executive financial
planning, group life insurance plan, personal catastrophe
liability insurance, medical, dental, accident and disability
plans;
<PAGE>
(iv) Relocation to any place more than 25 miles from the
office regularly occupied by the Designated Employee prior to
the time of a Change in Control, except for required travel by
the Designated Employee on the Company's business to an extent
substantially consistent with the Designated Employee's
business travel obligations at the time of a Change in Control
of the Company;
(v) Any material breach by the Company of any provision of the
Plan or of any agreement entered into pursuant to the Plan; or
(vi) The failure by the Company or by any successor or assign
of the Company (whether by operation of law or otherwise,
including any surviving company in a merger or similar
transaction involving the Company), within ten business days
following a Change in Control to deliver to the Designated
Employee an agreement expressly reaffirming its obligations
under or agreeing to assume and comply with the obligations of
the Company under this Plan and any agreement entered into
with the Designated Employee pursuant to the Plan.
(f) INDEPENDENT DIRECTOR. "Independent Director" shall have
the meaning ascribed to such term in the Company's Rights Plan as initially
adopted by the Board of Directors.
3. BENEFICIARIES
Each of the Designated Employees shall be a beneficiary of the Plan and
entitled to receive the Benefits set forth herein. The Company and each of the
Designated Employees will execute an agreement reiterating or incorporating the
obligations and benefits which arise from the Plan.
4. TERMINATION FOLLOWING CHANGE IN CONTROL
(a) TERMINATION OF EMPLOYMENT. If a Change in Control of the
Company shall have occurred while the Designated Employee is still an employee
of the Company, the Designated Employee shall be entitled to the compensation
provided in Section 5 upon the subsequent termination, within three years of
such Change in Control, of the Designated Employee's employment with the Company
unless such termination is as a result of (i) the Designated Employee's death;
(ii) the Designated Employee's Disability (as defined in Section 4(b) below);
(iii) the Designated Employee's retirement in accordance with the Company's
retirement policies; (iv) the Designated Employee's termination by the Company
for Cause; or (v) the Designated Employee's decision to terminate his employment
with the Company other than for Good Reason.
(b) DISABILITY. If, as a result of the Designated Employee's
incapacity due to physical or mental illness, the Designated Employee shall have
been absent from his duties with the Company on a full-time basis for six months
<PAGE>
and the Company thereafter gives the Designated Employee thirty (30) day's
written notice of its intention to terminate his employment, upon the expiration
of such thirty (30) day period the Company may terminate the Designated
Employee's employment for "Disability" if the Designated Employee shall not have
returned to the full-time performance of the Designated Employee's duties.
(c) NOTICE OF TERMINATION. Any purported termination of the
Designated Employee's employment by the Company or the Designated Employee
hereunder shall be communicated by a Notice of Termination given to the other
party in accordance with the terms of the agreement entered into pursuant to the
Plan. For purposes of the Plan and any agreement entered into pursuant hereto, a
"Notice of Termination" shall mean a written notice which shall indicate whether
or not the termination is as a result of any of the situations enumerated in
Section 4(a) above and which sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for asserting that the termination of
the Designated Employee's employment is or is not under the provision so
indicated.
(d) DATE OF TERMINATION. "Date of Termination" shall mean (i)
if the Designated Employee is terminated by the Company for Disability, thirty
(30) days after the Notice of Termination is given to the Designated Employee
(provided that the Designated Employee shall not have returned to the
performance of the Designated Employee's duties on a full-time basis during such
thirty (30) day period) or (ii) if the Designated Employee's employment is
terminated by the Company for any other reason or by the Designated Employee,
the date on which a Notice of Termination is given.
5. SEVERANCE COMPENSATION UPON TERMINATION OF EMPLOYMENT
If the Designated Employee's employment with the Company shall be
terminated other than as a result of one of the circumstances enumerated in
Section 4(a)(i) through (v) of the Plan, then the Company shall:
(i) Pay to the Designated Employee as severance pay in a lump
sum, in cash, on or before the fifth day following the Date of
Termination, an amount equal to the multiple specified on
Schedule A times the Designated Employee's Cash Compensation;
(ii) Arrange to provide the Designated Employee, for the
period (or such shorter period as the Designated Employee may
elect) specified on Schedule A, with disability, accident,
health and life insurance substantially similar to those
insurance benefits which the Designated Employee is receiving
immediately prior to either (A) the Change in Control or (B)
the Notice of Termination, as elected by the Designated
Employee. Benefits otherwise receivable by the Designated
Employee pursuant to this Section 5(ii) shall be reduced to
the extent comparable benefits are actually received by the
Designated Employee during such specified period following his
termination (or such shorter period elected by the Designated
Employee), and any such benefits actually received by the
Designated Employee shall be reported by him to the Company;
<PAGE>
(iii) Pay to the Designated Employee a single lump sum payment
equal to the excess of (x) over (y), where (x) is equal to the
lump sum present value of the pension benefit that the
Designated Employee would receive under any pension plan which
is or has been maintained by the Company and in which the
Designated Employee is or was a participant (the "Pension
Plan"), at his earliest benefit commencement date under the
Pension Plan computed by increasing his actual number of years
of credited service performed as of the date of his
termination of employment, or, if earlier, the termination of
the Pension Plan, by the number of years specified on Schedule
A, and (y) is equal to the lump sum present value of the
pension benefit actually payable to the Designated Employee on
his earliest benefit commencement date under the Pension Plan
based on the actual number of years of credited service
performed as of the Designated Employee's Date of Termination,
or, if earlier, the termination of the Pension Plan. The
foregoing lump sum present value amounts shall be computed
using the actuarial factors under the Pension Plan in effect
on the Designated Employee's Date of Termination or, if
earlier, the termination of the Pension Plan; and
(iv) Pay to the Designated Employee any gross-up amounts as
calculated under Section 6 of the Plan.
Notwithstanding the foregoing, in the event that the multiples set
forth on Schedule A for any Designated Employee are greater than the number of
full years remaining until such Designated Employee's mandatory retirement date
under the Company's retirement policies, the multiples shall be automatically
reduced to the number of years and/or partial years (measured by months)
remaining until said Designated Employee's mandatory retirement.
6. GROSS-UP IN BENEFITS FOR "PARACHUTE PAYMENT"
In the event that, as a result of payments in the nature of
compensation to or for the benefit of a Designated Employee under this Agreement
or otherwise in connection with a Change in Control, any state, local or federal
taxing authority imposes any taxes on the Designated Employee that would not be
imposed but for the occurrence of a Change in Control, including any excise tax
under Section 4999 of the Internal Revenue Code and any successor or comparable
provision, then, in addition to the benefits provided for under Sections 5(i)
through (iii) or otherwise, the Company (including any successor to the Company)
shall pay to the Designated Employee at the time any such amounts are paid an
amount equal to the amount of any such tax imposed or to be imposed on the
Designated Employee (the amount of any such payment, the "Parachute Tax
Reimbursement"). In addition, the Company (including any successor to the
Company) shall "gross up" such Parachute Tax Reimbursement by paying to the
Designated Employee at the same time an additional amount equal to the aggregate
amount of any additional taxes (whether income taxes, excise taxes, special
taxes, employment taxes or otherwise) that are or will be payable by the
Designated Employee as a result of the Parachute Tax Reimbursement being paid or
payable to the Designated Employee and/or as a result of the additional amounts
paid or payable to the Designated Employee pursuant to this sentence, such that
after payment of such additional taxes the Designated Employee shall have been
paid on an after-tax basis an amount equal to the Parachute Tax Reimbursement.
<PAGE>
7. ARBITRATION
Any and all disputes or controversies arising out of or relating to the
Plan, including, without limitation, any claim of fraud, any agreement entered
into between the parties pursuant to the Plan or the general validity or
enforceability of either, shall be governed by the laws of the State of
Delaware, without giving effect to its conflict of laws provisions, and shall be
submitted to binding arbitration before one arbitrator of the American
Arbitration Association selected by the employee among a panel of five proposed
by the Company, such arbitration to be conducted in the city where the
Designated Employee's principal office was maintained prior to his termination
of employment, applying the laws of the State of Delaware. All fees and expenses
of any arbitration, including the Designated Employee's reasonable legal fees
and costs, are to be advanced by the Company. The award of the arbitrator, which
shall include a determination based on relative success on the merits as to whom
shall bear the Designated Employee's legal fees and costs, is to be final and
enforceable. All costs of enforcement are to be borne by the Company.
8. MITIGATION OF DAMAGES; EFFECT OF PLAN
(a) The Designated Employee shall not be required to mitigate
damages or the amount of any payment provided for under the Plan by seeking
other employment or otherwise, nor shall the amount of any payment provided for
under the Plan be reduced by any compensation earned by the Designated Employee
as a result of employment by another employer or by retirement benefits after
the Date of Termination, or otherwise, except to the extent provided in Section
5(ii) above.
(b) The provisions of the Plan, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Designated Employee's then existing rights, or rights which would
accrue solely as a result of the passage of time, under any Benefit Plan,
employment agreement or other contract, plan or arrangement.
9 TERM; AMENDMENTS; NO EFFECT ON EMPLOYMENT PRIOR TO CHANGE IN
CONTROL
(a) The Plan shall have successive two-year terms which shall
be automatically renewed unless prior to a Change in Control and prior to the
applicable automatic renewal date action is taken by the Board of Directors of
the Company to terminate the Plan effective as of a renewal date. The Plan may
also be amended from time to time by the Board of Directors of the Company;
provided, however, that such amendments may only be adopted prior to a Change in
Control and shall only be effective on and after the applicable renewal date, in
both cases unless agreed to and approved by the Designated Employee.
Notwithstanding the foregoing, the Plan shall terminate three years from the
date of a Change in Control and shall terminate as to any Designated Employee
participating in the Plan upon the termination of the Designated Employee's
employment with the Company based on death, Disability (as defined in Section
3(b)), mandatory retirement or Cause (as defined in Section 1(b)) or by the
<PAGE>
Designated Employee other than for Good Reason (as defined in Section 1(e)).
Termination or amendment of the Plan shall not affect any obligation of the
Company under the Plan which has accrued and is unpaid as of the effective date
of the termination or amendment. Unless and until a Change in Control shall have
occurred, a Designated Employee shall not have any vested rights under the Plan
or any agreement entered into pursuant to the Plan.
(b) Nothing in the Plan or any agreement entered into pursuant
to the Plan shall confer upon the Designated Employee any right to continue in
the employ of the Company prior to a Change in Control of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge the Designated Employee at any time
prior to the date of a Change in Control of the Company for any reason
whatsoever, with or without cause.
BUILDING MATERIALS HOLDING CORPORATION
Computation of Earnings Per Share
For the Year Ended December 31, 1999, 1998 and 1997
- ---------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
COMPUTATION OF BASIC EARNINGS PER SHARE
Net income $ 19,683,000 $ 15,149,000 $ 9,493,000
Class B preferred stock accretion -- -- (6,500)
------------ ------------ ------------
Net income available
to common shareholders $ 19,683,000 $ 15,149,000 $ 9,486,500
============ ============ ============
Weighted average shares
outstanding 12,667,372 12,509,351 11,919,469
============ ============ ============
Basic earnings per share $1.55 $1.21 $0.80
===== ===== =====
COMPUTATION OF DILUTED EARNINGS PER SHARE
Net income available
to common shareholders $ 19,683,000 $ 15,149,000 $ 9,486,500
============ ============ ============
Weighted average shares
outstanding 12,667,372 12,509,351 11,919,469
Net effect of dilutive
stock options based on
the treasury stock
method using average
market price 125,160 137,489 217,410
------------ ------------ ------------
Total shares outstanding 12,792,532 12,646,840 12,136,879
============ ============ ============
Diluted earnings per share $1.54 $1.20 $0.78
===== ===== =====
</TABLE>
FINANCIAL REVIEW
Building Materials Holding Corporation
This financial review covers management's discussion and analysis of
consolidated financial condition and operating results and should be read in
conjunction with the financial statements and the notes thereto appearing
elsewhere in this Annual Report.
RESULTS OF OPERATIONS
The following table sets forth for the years ended December 31, 1999, 1998 and
1997, the percentage relationship to net sales of certain costs, expenses and
income items.
- ---------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------
Net sales ......................... 100.0% 100.0% 100.0%
Gross profit ...................... 25.0 24.4 23.1
Selling, general and
administrative expense .......... 20.7 20.5 20.0
Other income ...................... 0.2 0.1 0.3
Income from operations ............ 4.5 4.0 3.4
Equity in earnings of
unconsolidated subsidiaries...... 0.5 -- --
Interest expense .................. 1.3 1.2 1.2
Income taxes ...................... 1.4 1.1 0.9
Extraordinary item ................ (0.3) -- --
Net income ........................ 2.0 1.7 1.3
- ---------------------------------------------------------------------
1999 COMPARED WITH 1998
Net sales for 1999 were $1.0 billion, a 14.8% increase over net sales of $877.3
million in 1998. Sales in 1999 were positively affected by favorable overall
economic conditions, including strong employment levels and consumer confidence.
Acquisitions of building materials centers and value-added facilities that
occurred in 1998 and 1999 contributed a 5.3% increase to net sales in 1999.
Sales at facilities that operated for at least nine months of the year in both
1998 and 1999 increased 13.5%. This same-store sales increase is largely due to
the shift in our focus toward value-added products that attract new customers
and gives us the opportunity to increase our total sales per building permit.
Value-added products accounted for $348.6 million, or 34.6% of net sales in
1999, an increase from $275.9 million, or 31.4% of net sales in 1998.
Gross profit increased to $252.0 million, or 25.0% of net sales in 1999
from $214.2 million, or 24.4% of net sales, in 1998, primarily as a result of a
positive effect of the increased mix of higher-margin, value-added products such
as pre-hung doors, millwork, roof trusses and pre-assembled windows and higher
commodity wood product prices.
Selling, general and administrative ("SG&A") expenses increased to $208.8
million, or 20.7% of net sales, in 1999 from $180.1 million, or 20.5% of net
sales, in 1998. This increase as a percentage of net sales was due primarily to
higher costs associated with expanding value-added sales and costs associated
with integrating new operating units acquired in the fourth quarter of 1998 and
the full year of 1999. In addition, low unemployment and a tight labor market
resulted in higher wage costs in 1999 in an effort to attract and retain high
quality employees.
Other income increased primarily from a gain on the sale of equipment and
three centers located in Texas of $1,384,000. This was partially offset by costs
of $768,000, related to a postponed private placement of subordinated debt.
Equity in earnings of unconsolidated subsidiaries increased to $5.0
million, net of amortization of goodwill, after the completion of an investment
of a 49% interest in Knipp Brothers Industries, LLC, a framing company, and KBI
Distribution, LLC, a lumber yard, during 1999.
Interest expense increased to $13.2 million, or 1.3% of net sales in 1999
from $10.2 million, or 1.2% of net sales in 1998. The increase was due primarily
to an increase in interest rates and average debt outstanding. Average debt
outstanding was $156.2 million in 1999 compared with $121.9 million in 1998.
Average interest rates on variable rate debt were approximately 7.6% for 1999
compared with 6.8% for 1998. Increased average debt outstanding resulted
primarily from higher working capital requirements resulting from increased
sales activity and from financing acquisitions made in 1999.
The provision for income taxes increased to $14.4 million in 1999 from
$9.8 million in 1998. The increase in the provision for income taxes resulted
primarily from increased income from operations in 1999 as compared with the
prior year. In 1999, our tax rate decreased to 38.5% from 39.2% in 1998. This
was primarily due to a decrease in our state income taxes.
The Company entered into a new senior secured credit facility and used the
net proceeds to repay amounts borrowed under its prior senior credit facility,
two outstanding series of senior notes and a promissory note issued in
connection with an acquisition. Upon repayment of the senior notes, the Company
paid a redemption premium and wrote-off related deferred financing costs, the
aggregate of which is reflected as an extraordinary charge that reduced 1999
earnings by $3.4 million, or $0.26 per diluted share, net of tax.
1998 COMPARED WITH 1997
Net sales for 1998 were $877.3 million, a 20.5% increase over net sales of
$728.1 million in 1997. Acquisitions of building materials centers and
value-added facilities which occurred in 1997 and 1998 contributed a 14.5%
increase to net sales in 1998. Same-store sales increased 8.1%.
<PAGE>
Gross profit increased to $214.2 million, or 24.4% of net sales in 1998
from $168.4 million, or 23.1% of net sales, in 1997, primarily as a result of
the increased mix of higher-margin, value-added products such as pre-hung doors,
millwork, roof trusses and pre-assembled windows. These value-added products
accounted for $275.9 million, or 31.4% of net sales in 1998, an increase from
$176.0 million, or 24.2% of net sales in 1997.
SG&A expenses, increased to $180.1 million, or 20.5% of net sales, in 1998
from $145.9 million, or 20.0% of net sales, in 1997. This increase as a
percentage of net sales was due primarily to lower prices for wood products
which decreased sales and thereby increased SG&A as a percent of sales, higher
costs associated with expanding value-added sales, and costs associated with
integrating new operating units. In addition, low unemployment and a tight labor
market resulted in higher wage costs in 1998 in an effort to attract and retain
high quality employees.
Although consistent as a percent of sales, interest expense increased to
$10.2 million in 1998 from $8.7 million in 1997. The increase was due primarily
to an increase in average debt outstanding. Average debt outstanding was $121.9
million in 1998 compared with $99.0 million in 1997. Average interest rates on
variable rate debt were approximately 6.8% for 1998 compared with 6.9% for 1997.
Increased average debt outstanding resulted primarily from higher working
capital requirements as a result of increased sales and from acquisitions made
in late 1997 and 1998.
The provision for income taxes increased to $9.8 million in 1998 from $6.2
million in 1997. The increase in the provision for income taxes resulted
primarily from increased income from operations in 1998 as compared with the
prior year.
As a result of the foregoing factors, net income increased $5.7 million to
$15.1 million in 1998, or 1.7% of net sales, as compared with $9.5 million, or
1.3% of net sales in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital resources is to fund future growth and
capital expenditures, as well as to finance its working capital needs which have
been increasing as the Company has grown in recent years. Capital resources have
primarily consisted of cash flows from operations and incurrence of debt.
OPERATIONS
In 1999, operations provided $14.6 million in cash, compared with $44.8 million
in 1998, a decrease of $30.2 million due primarily to changes in accounts
receivable, inventories, prepaid expenses and accounts payable and accrued
expenses. Net working capital was $139.3 million at the end of 1999, compared
with $116.7 million at the end of 1998. The increase in working capital was
primarily the result of higher sales activity over 1998 levels. Receivables,
net, increased $18.0 million, or 19.6% compared to the prior year, however $6.8
million of this increase was attributable to locations acquired in 1999.
In 1998, operations provided $44.8 million in cash, compared with $35.3
million in 1997. This increase was due primarily to increases in net income and
improvements in working capital, net of acquisitions. Net working capital was
$116.7 million at the end of 1998, compared with $118.6 million at the end of
1997. The decrease in working capital was primarily the result of the effort by
management to increase inventory turns and decrease days sales outstanding.
CAPITAL INVESTMENT AND ACQUISITIONS
Capital expenditures, exclusive of acquisitions, were $27.4 million in 1999 and
$19.6 million in 1998 and $13.3 million in 1997. The principal property and
equipment expenditures included purchases of additional property and expansion
of existing building materials centers and value-added facilities.
In 1999, cash used for acquisitions and equity investments totaled $41.9
million. During 1999, the Company completed four transactions, including nine
value-added facilities and two equity-basis investments.
In 1998, cash used for acquisitions totaled $24.3 million, as the Company
completed eight acquisitions. These acquisitions included three building
materials centers and eleven value-added facilities.
<PAGE>
FINANCING
Net cash provided by financing activities was $44.5 million in 1999 compared to
$1.7 million of cash used in 1998. The Company utilized its available borrowing
capacity to finance its growth during 1999.
The Company's borrowing capacity under its new revolving credit facility
is currently $125 million. Borrowings under the agreement bear interest at prime
plus 0.50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. The agreement expires
in 2004. At year-end the Company had $54.8 million of unborrowed capacity under
this agreement. Borrowings under the revolver increased to $70.2 million at
year-end 1999 from $42.4 million at year-end 1998 primarily due to increased
borrowings needed to complete the Company's 1999 acquisitions and equity-basis
investments.
The agreements related to these borrowings contain covenants providing for
the maintenance of certain financial ratios and conditions including total
funded debt to earnings before interest, taxes, depreciation and amortization
(EBITDA) and limitations on capital expenditures, among certain other
restrictions. The Company is currently in compliance with these covenants and
conditions.
In the third quarter of 1998, the Company filed a shelf registration with
the Securities and Exchange Commission to register 2,000,000 shares of common
stock. These shares may be issued from time to time in connection with future
business combinations, mergers and/or acquisitions.
Based on the Company's ability to generate cash flow from operations, its
borrowing capacity under the revolver and its access to equity markets, the
Company believes it will have sufficient capital to meet its anticipated needs.
DISCLOSURES OF CERTAIN MARKET RISKS
The Company experiences changes in interest expense when market interest rates
change. Changes in the Company's debt could also increase these risks.
Previously, the Company has managed its exposure to market interest rate changes
through periodic refinancing of its variable rate debt with fixed rate term debt
obligations. Based on average debt outstanding at December 31, 1999, a 25 basis
point increase in interest rates would result in approximately $434,000 of
additional interest costs.
Commodity wood products, including lumber and panel products, currently
account for approximately 44% of the Company's net sales. Prices of commodity
wood products, which are subject to significant volatility, could directly
affect the Company's net sales. The Company does not utilize any derivative
financial instruments.
QUARTERLY RESULTS AND SEASONALITY
The Company's first and fourth quarters historically are adversely affected by
weather patterns in the Company's markets which result in decreases in levels of
building and construction activity. In addition, quarterly results historically
have reflected, and are expected to continue to reflect, fluctuations from
period to period as a consequence of the impact of various other factors,
including general economic conditions, commodity wood product prices, interest
rates, building permit activity, single-family housing starts, employment
levels, consumer confidence and the availability of credit to professional
contractors.
The composition and level of working capital typically change during
periods of increasing sales as the Company carries more inventories and
receivables. Working capital levels typically increase in the second and third
quarters of the year due to higher sales during the peak building and
construction season. These increases historically have resulted in negative
operating cash flows during this peak season, which generally have been financed
through the revolving credit agreement. Collection of receivables and reduction
in inventory levels following the peak of the building and construction season
have more than offset this negative
<PAGE>
cash flow in recent years. The Company believes it will continue to generate
positive annual cash flows from operating activities.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company is required to adopt this
statement in the first quarter of 2001 and based on the Company's present and
historic use of derivative instruments the adoption of this Statement is not
expected to have a material impact on the Company's consolidated results of
operations, financial condition, or cash flows.
OUTLOOK
The Company's financial performance could be negatively impacted by any adverse
economic changes in the Company's geographic market areas. The building
materials industry has seen considerable cyclicality in the past. The Company's
operations have been subject to substantial fluctuations from period to period,
as a reflection of these changes in general economic conditions, commodity wood
product prices, building permit activity, interest rates, single-family housing
starts, employment levels, consumer confidence and the availability of credit to
professional contractors and homeowners. These factors may have a more
significant impact on the Company, which derives a significant percentage of its
net sales from professional contractors, than on those building supply companies
which target a broad range of retail customers. The Company expects that
fluctuations from period to period will continue in the future.
Additionally, the Company's results of operations throughout the year are
impacted by the weather in the states in which the Company has operations. The
Company's financial performance could be negatively impacted by poor weather,
which historically has affected building activity levels in the Company's market
areas in the first and fourth quarters. Commodity wood products, including
lumber and panel products, currently account for approximately 44% of the
Company's net sales. Prices of commodity wood products, which are subject to
significant volatility, directly affect the Company's sales, and future declines
in commodity wood prices could adversely impact the Company's results of
operations.
Certain statements in the Financial Review and elsewhere in the Annual
Report to Shareholders may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors are discussed in detail above or in the
Company's Form 10-K for the fiscal year ended December 31, 1999. Given these
uncertainties, prospective investors are cautioned not to place undue reliance
on such forward-looking statements. The Company disclaims any obligation to
update any such factors or to publicly announce the results of any revisions to
any of the forward-looking statements contained in the Annual Report on Form
10-K except as required by law.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Building Materials Holding Corporation
<TABLE>
<CAPTION>
For the years ended December 31,
- ---------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales ...................................................................... $ 1,007,108 $ 877,280 $ 728,065
Cost of sales .................................................................. 755,137 663,122 559,655
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit ................................................................... 251,971 214,158 168,410
Selling, general and administrative expense .................................... 208,775 180,129 145,935
Other income ................................................................... 2,466 1,094 1,882
- ---------------------------------------------------------------------------------------------------------------------------
Income from operations ......................................................... 45,662 35,123 24,357
Equity in earnings of unconsolidated companies, net of amortization ............ 4,978 -- --
Interest expense ............................................................... 13,184 10,218 8,666
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and extraordinary item .............................. 37,456 24,905 15,691
Income taxes ................................................................... 14,421 9,756 6,198
- ---------------------------------------------------------------------------------------------------------------------------
Income before extraordinary item ............................................... 23,035 15,149 9,493
Extraordinary item, net of tax ................................................. (3,352) -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net income ..................................................................... $ 19,683 $ 15,149 $ 9,493
===========================================================================================================================
Income before extraordinary item per common share:
Basic ........................................................................ $ 1.82 $ 1.21 $ 0.80
Diluted ...................................................................... $ 1.80 $ 1.20 $ 0.78
Net income per common share:
Basic ........................................................................ $ 1.55 $ 1.21 $ 0.80
Diluted ...................................................................... $ 1.54 $ 1.20 $ 0.78
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
Building Materials Holding Corporation
<TABLE>
<CAPTION>
At December 31,
- ------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash ................................................................... $ 7,452 $ 8,264
Receivables, net ....................................................... 110,123 92,113
Inventories ............................................................ 80,679 78,746
Deferred income tax benefit ............................................ 2,781 2,488
Prepaid expenses ....................................................... 7,652 2,355
- ------------------------------------------------------------------------------------------------
Total current assets ................................................. 208,687 183,966
Property, plant and equipment, net ....................................... 153,598 139,585
Equity investments in unconsolidated companies ........................... 30,762 --
Goodwill, net ............................................................ 47,477 43,903
Deferred loan costs ...................................................... 4,873 914
Other .................................................................... 4,722 5,613
- ------------------------------------------------------------------------------------------------
Total assets ............................................................. $450,119 $373,981
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt ...................................... $ 3,200 $ --
Accounts payable and accrued expenses .................................. 66,204 67,222
- ------------------------------------------------------------------------------------------------
Total current liabilities ............................................ 69,404 67,222
Long-term debt, net of current portion ................................... 170,547 117,805
Deferred income taxes .................................................... 5,124 5,404
Other long-term liabilities .............................................. 4,934 3,300
Shareholders' equity
Common stock, $.001 par value, 20,000,000 shares authorized;
12,679,686 and 12,652,298 shares outstanding, respectively............ 13 13
Additional paid-in capital ............................................... 108,433 108,256
Retained earnings ........................................................ 91,664 71,981
- ------------------------------------------------------------------------------------------------
Total shareholders' equity ............................................. 200,110 180,250
Total liabilities and shareholders' equity ............................... $450,119 $373,981
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Building Materials Holding Corporation
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
(AMOUNTS IN THOUSANDS) Shares Amount Capital Earnings Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .............. 11,825 $ 12 $ 97,731 $ 47,345 $ 145,088
Net income ............................ -- -- -- 9,493 9,493
Accretion of redeemable preferred stock -- -- -- (6) (6)
Stock issued for acquisitions ......... 492 -- 6,300 -- 6,300
Stock options exercised and other ..... 14 -- 76 -- 76
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 .............. 12,331 12 104,107 56,832 160,951
Net income ............................ -- -- -- 15,149 15,149
Stock issued for acquisitions ......... 299 -- 4,000 -- 4,000
Stock options exercised and other ..... 22 1 149 -- 150
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 .............. 12,652 13 108,256 71,981 180,250
Net income ............................ -- -- -- 19,683 19,683
Stock options exercised and other ..... 28 -- 177 -- 177
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 .............. 12,680 $ 13 $ 108,433 $ 91,664 $ 200,110
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Building Materials Holding Corporation
<TABLE>
<CAPTION>
For the years ended December 31,
- --------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................... $ 19,683 $ 15,149 $ 9,493
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization .................................................... 14,149 12,955 11,009
Deferred income taxes ............................................................ (573) (137) (117)
Loss (gain) on sales of assets and location centers .............................. (1,403) 91 (466)
Equity in earnings of unconsolidated subsidiaries, net of amortization ........... (4,978) -- --
Distributions received from unconsolidated subsidiaries .......................... 2,496 -- --
Extraordinary item, write-off of deferred financing costs ........................ 663 -- --
Changes in assets and liabilities, net of effects of acquisitions and location sales
Receivables, net ................................................................. (12,418) 733 (3,064)
Inventories ...................................................................... (2,419) 5,974 9,452
Prepaid expenses ................................................................. (5,287) 1,213 (1,484)
Accounts payable and accrued expenses ............................................ 662 8,868 10,655
Other assets ..................................................................... 2,409 (34) (1,350)
Other long-term liabilities ...................................................... 1,633 3 1,212
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities .......................................... 14,617 44,815 35,340
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ................................................ (27,380) (19,595) (13,289)
Acquisitions, net of cash acquired ................................................. (15,779) (24,330) (40,231)
Equity investments in unconsolidated subsidiaries .................................. (26,093) -- --
Proceeds from sale of building materials centers, net of cash sold ................. 6,680 -- --
Proceeds from dispositions of property and equipment ............................... 4,152 909 1,450
Investments in preferred stock ..................................................... (1,000) -- --
Other, net ......................................................................... (511) -- --
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities .............................................. (59,931) (43,016) (52,070)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing under term note .......................................................... 100,000 -- --
Net borrowings under revolving credit agreements ................................... 27,792 7,705 20,630
Principal payments of unsecured senior notes ....................................... (66,667) (9,457) (561)
Principal payments of other notes payable .......................................... (8,723) -- --
Deferred financing costs ........................................................... (4,963) -- --
Decrease in book overdrafts ........................................................ (3,112) -- --
Redemption of preferred stock ...................................................... -- -- (2,000)
Other, net ......................................................................... 175 40 (228)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ................................ 44,502 (1,712) 17,841
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash ................................................................. (812) 87 1,111
Cash, beginning of year ............................................................ 8,264 8,177 7,066
- --------------------------------------------------------------------------------------------------------------------------
Cash, end of year .................................................................. $ 7,452 $ 8,264 $ 8,177
- --------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized ........................................... $ 13,294 $ 10,389 $ 8,353
Income taxes ................................................................... $ 21,314 $ 6,068 $ 5,567
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Building Materials Holding Corporation
1. ORGANIZATIONAL STRUCTURE, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATIONAL STRUCTURE AND NATURE OF OPERATIONS
On September 23, 1997, Building Materials Holding Corporation ("BMHC") was
formed to provide its predecessor, BMC West Corporation ("BMC West"), with a
holding company organizational structure that can accommodate future growth from
internal operations, acquisitions or joint ventures, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. BMC West's outstanding capital stock was converted,
on a share for share basis, into capital stock of Building Materials Holding
Corporation. BMHC's common stock is listed on the Nasdaq National Market under
the symbol BMHC.
BMHC operates two wholly-owned subsidiaries--BMC West Corporation and BMHC
Framing, Inc. BMC West is a regional provider of building materials and services
in the United States, selling primarily to professional contractors and
builders, as well as to project-oriented consumers (including professional
repair and remodel contractors hired by them); through 53 building materials
centers and value-added facilities, located throughout the Western and South
Central United States. BMC West provides value-added conversion products, which
include pre-hung doors, roof and floor trusses and pre-assembled windows and
lumber pre-cut to meet customer specifications. BMHC Framing, Inc., owns a 49%
equity interest in Knipp Brothers Industries, LLC, ("Industries") a framing
contractor in Arizona and Nevada, and a 49% equity interest in KBI Distribution,
LLC ("Distribution"), a provider of building materials in Arizona.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of BMHC and its
wholly-owned subsidiaries (the "Company"). The equity method of accounting is
used for investments in which the Company has significant influence. All
significant intercompany balances and transactions are eliminated in
consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts reported in prior periods,
none of which affect the Company's financial position, results of operations, or
cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
The Company reviews the recoverability of all long-lived assets including
goodwill, whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The measurement of any impairment is
based primarily on the ability to recover the cost of long-lived assets from
expected future operating cash flows on an undiscounted basis. In management's
opinion, no such impairment existed at December 31, 1999 and 1998.
CASH AND CASH EQUIVALENTS
Cash represents amounts on deposit with high-credit-quality financial
institutions and such balances may, at times, exceed FDIC limits. The Company
considers all highly liquid investments that have a maturity of three months or
less at the date of purchase to be cash equivalents.
INVENTORIES
Inventories consist principally of materials purchased for resale and are stated
at the lower of average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and depreciated using the
straight-line method. The estimated useful lives are ten to thirty years for
buildings and improvements, seven to ten years for machinery and fixtures and
three to ten years for handling and delivery equipment.
Major additions and improvements including interest costs, are capitalized
while maintenance and repairs that do not extend the useful life of the property
are expensed as incurred. Gains and losses from dispositions of property, plant
and equipment are included in the Company's consolidated statement of income in
other income.
DEFERRED LOAN COSTS
Loan costs are capitalized upon the issuance of long-term debt and amortized
over the life of the related debt using the effective interest rate method for
the Company's term notes and the straight-line method for the Company's
revolving credit facility. Interest expense includes amortization of deferred
loan costs of $341,000, $410,000 and $315,000 in 1999, 1998 and 1997,
respectively.
GOODWILL
Goodwill is amortized on a straight-line basis over 30 years. Accumulated
amortization of goodwill was $5,460,000 and $3,840,000 at December 31, 1999 and
1998, respectively.
<PAGE>
OTHER ASSETS
Other assets consist of cash surrender values on Company owned life insurance, a
preferred stock investment accounted for at historical cost, non-compete
agreements arising from acquisitions and trade rebates receivable from
cooperative supplier organizations.
The non-compete agreements are amortized over the life of the related
agreements (two to five years).
REVENUE RECOGNITION
Revenues are recognized when title to the goods passes to the buyer, which is
generally at the time of delivery.
STOCK COMPENSATION
The Company records compensation expense associated with awards of stock using
the intrinsic method rather than the fair value method.
ADVERTISING
Advertising costs are expensed when incurred. During 1999, 1998 and 1997
advertising expense was $1,964,000, $1,953,000 and $2,200,000, respectively.
NEW ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at their
fair value. The Company is required to adopt this Statement in the first quarter
of 2001 and based on the Company's present and historic use of derivative
instruments the adoption of this Statement is not currently expected to have a
material impact on the Company's consolidated results of operations, financial
condition, or cash flows.
2. EXTRAORDINARY ITEM
During the fourth quarter of 1999, the Company repaid its unsecured senior
subordinated notes prior to maturity. In connection with this early retirement,
the Company wrote off $663,000 of related deferred loan costs and paid a
makewhole premium of $4,788,000. These costs are included in the 1999
consolidated statement of income as an extraordinary item, net of a $2,099,000
tax benefit.
3. ACQUISITIONS
Businesses acquired are accounted for using the purchase method of accounting.
Under this accounting method, the purchase price is allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. Any excess of the purchase price over the estimated fair
value of the net assets acquired is recorded as goodwill. Operating results of
the acquired businesses are included in the consolidated statements of income
from the date of acquisition.
In 1999, the Company completed three acquisitions involving six
value-added facilities located in Colorado, Montana, Nevada and Texas. The
aggregate purchase price was $19,319,000, consisting of $15,779,000 in cash and
a note payable for $3,540,000, net of discount. The issuance of the note payable
is considered a non-cash transaction for purposes of the consolidated statement
of cash flows.
The following summarized unaudited pro forma results of operations assume
the 1999 acquisitions occurred as of the beginning of 1999 and 1998. The pro
forma data has been prepared for comparative purposes only. It does not purport
to be indicative of the results of operations that would have resulted had the
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future. (in thousands, except per share data).
Unaudited
- ---------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------
Net sales ......................... $1,037,304 $ 908,886
Income before extraordinary item .. 25,516 17,333
Net income ........................ 22,164 17,333
Income before extraordinary item
per diluted common share ........ 1.99 1.37
Net income per diluted common share 1.73 1.37
In 1998, the Company completed eight acquisitions involving three building
materials centers and eleven value-added facilities located in Colorado,
Montana, Nevada, Oregon, Texas and Washington. The total consideration given was
$33,978,000, consisting of $24,330,000 in cash, a note payable for $5,023,000,
299,343 shares of common stock valued at $4,000,000 and other assumed operating
liabilities of $625,000. The issuance of the note payable, payment of the
Company's common stock and the assumption of operating liabilities are
considered non-cash transactions for purposes of the consolidated statement of
cash flows.
<PAGE>
The following summarized unaudited pro forma results of operations assume
the 1998 acquisitions occurred as of the beginning of 1998 and 1997. The pro
forma data has been prepared for comparative purposes only. It does not purport
to be indicative of the results of operations that would have resulted had the
acquisitions been consummated at the beginning of the years presented, or that
may occur in the future. (in thousands, except share data.)
Unaudited
- ---------------------------------------------------------
1998 1997
- ---------------------------------------------------------
Net sales ...................... $920,140 $796,448
Net income ..................... 15,313 9,656
Per diluted common share........ 1.20 .78
4. RECEIVABLES
Receivables consisted of the following at December 31, (in thousands):
- ---------------------------------------------------------
1999 1998
- ---------------------------------------------------------
Trade receivables .............. $ 106,965 $ 90,968
Other .......................... 5,415 3,207
Allowance for returns, discounts
and doubtful accounts ........ (2,257) (2,062)
- ---------------------------------------------------------
$ 110,123 $ 92,113
- ---------------------------------------------------------
No one customer exceeds 2% of net sales. Because the customers are
dispersed among the Company's various markets, its credit risk to any one
customer or state economy is not significant. The Company performs ongoing
credit evaluations of its customers and provides an allowance for doubtful
accounts when events or circumstances indicate that collection is doubtful.
5. EQUITY INVESTMENTS
In May 1999, the Company completed the investment of a 49% interest in
Industries, a framing company with operations in Phoenix and Tucson, Arizona and
Las Vegas, Nevada. The total cost was $28,293,000 consisting of $26,093,000 in
cash and $2,200,000 from various assets of its Phoenix operation. The Company
has the right to acquire the remaining 51% interest in Industries and the 51%
owner has a corresponding right to require the Company to purchase its 51%
ownership after five years.
In December 1999, Industries contributed the net assets and liabilities of
its lumberyard operation to Distribution in consideration for a 100% ownership
interest, which was subsequently distributed to the members of Industries in
proportion to their respective ownership interest in Industries.
Summarized 1999 combined financial information of the Company's
equity-basis unconsolidated companies follows (in thousands):
Income statement information:
Net sales ............................................... $ 101,354
Income from operations .................................. $ 1,298
Net income .............................................. $ 1,478
Other members' share of net income ...................... (754)
- -----------------------------------------------------------------------
Company's share of net income ........................... 724
Other income allocations, net of amortization of goodwill 4,254
- -----------------------------------------------------------------------
Equity in earnings of unconsolidated companies .......... $ 4,978
- -----------------------------------------------------------------------
Financial position information:
Current assets .......................................... $ 29,569
Noncurrent assets ....................................... $ 5,444
Total liabilities (current) ............................. $ 6,639
Members' capital ........................................ $ 28,374
Other members' share of capital ......................... (14,471)
- -----------------------------------------------------------------------
Company's share of capital .............................. 13,903
Goodwill ................................................ 16,859
- -----------------------------------------------------------------------
Equity investments in unconsolidated companies .......... $ 30,762
- -----------------------------------------------------------------------
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, (in
thousands):
- ----------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------
Land .................................. $ 39,337 $ 38,794
Buildings and improvements ............ 80,414 76,018
Machinery and fixtures ................ 38,391 30,725
Handling and delivery equipment........ 34,573 30,812
Construction in progress .............. 11,097 6,915
- ----------------------------------------------------------------
203,812 183,264
Less accumulated depreciation ......... (50,214) (43,679)
- ----------------------------------------------------------------
$ 153,598 $ 139,585
- ----------------------------------------------------------------
Interest of $221,000, $94,000 and $0 has been capitalized during 1999,
1998 and 1997, respectively. Depreciation expense was $11,779,000, $10,484,000
and $9,055,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999 the Company had $7,658,000 of land and buildings and
improvements held for sale.
In December 1999, the Company sold three of its centers (located in
Fredericksburg, Marble Falls and Shiner, Texas) to Parker Lumber and recorded a
gain of $1,384,000.
<PAGE>
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following at December 31,
(in thousands):
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
Trade accounts payable ............................... $ 33,583 $ 30,209
Book overdrafts ...................................... 12,188 15,300
Accrued compensation ................................. 10,966 8,937
Sales tax payable .................................... 4,114 3,734
Income taxes payable ................................. -- 3,607
Other ................................................ 5,353 5,435
- -------------------------------------------------------------------------------
$ 66,204 $ 67,222
- -------------------------------------------------------------------------------
8. DEBT
Debt consisted of the following at December 31, (in thousands):
- -------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------
Term note ..................................................... $ 100,000
Revolving credit facility ..................................... 70,207
Non-interest bearing term note, net of related
discount of $1,460 .......................................... 3,540
- -------------------------------------------------------------------------------
173,747
Less current portion .......................................... (3,200)
- -------------------------------------------------------------------------------
$ 170,547
- -------------------------------------------------------------------------------
During the fourth quarter of 1999, management entered into a new senior
credit facility which included a revolving credit facility of $125,000,000 and a
term note of $100,000,000. The financing was arranged through Bank of America,
N.A., as administrative agent, and nine other banks. The facility was used to
repay the Company's 8.10% and 9.18% unsecured senior notes and other debt and
will be available to fund future acquisitions.
Under the existing revolving credit facility, the Company has the ability
to borrow up to $125,000,000 due 2004. Borrowings under the revolver bear
interest at prime plus 0.50% to 1.50%, or Offshore Rate plus 2.00% to 3.00%. A
fee of .375% to .50% per annum is charged on the unused portion. At December 31,
1999 the Company had $54,793,000 of unborrowed capacity under this agreement.
The $100,000,000 term note is due 2004 and bears interest at prime plus 0.50% to
1.50%, or Offshore Rate plus 2.00% to 3.00%.
The term note and revolving credit facility are both secured by the
following assets: all accounts, chattel paper, deposit accounts, documents,
equipment, general intangibles, pledged collateral, inventory, books, letter of
credit proceeds and deeds of trust on certain real property.
The agreements related to the above borrowings contain covenants providing
for the maintenance of certain financial ratios and conditions including total
funded debt to capitalization; consolidated net worth; and coverage ratio which
includes earnings before interest, taxes, depreciation and amortization (EBITDA)
and limitations on capital expenditures, among certain other restrictions. At
December 31, 1999, the Company was in compliance with these covenants and
conditions.
In connection with a 1999 acquisition, the Company issued a $5,000,000
non-interest bearing five-year term note to the previous owner as partial
consideration for the purchase. The note has been recorded assuming a 15%
effective interest rate resulting in a discount of $1,460,000 at December 31,
1999. Under the terms of the note, principal payments are due beginning 2004;
however, accelerated payments may be due based on the operating results of the
acquired facilities during each of the next five years. The Company has
discounted its principal payments for this note based on estimates of the
operating results of the acquired business.
The scheduled principal payments of debt are $3,200,000 in 2000,
$10,800,000 in 2001, $12,150,000 in 2002, $16,000,000 in 2003 and $131,597,000
in 2004.
9. PREFERRED STOCK
BMHC has 2,000,000 shares of preferred stock authorized but not currently
issued.
In 1987, BMC West authorized and issued 50,000 shares of Class B preferred
stock with a total mandatory redemption requirement of $5,000,000 due $1,000,000
annually through 1996 and $2,000,000 in 1997. As of December 31, 1996, 20,000
shares of Class B preferred stock were outstanding. During 1997, these remaining
shares were redeemed for $2,000,000.
10. STOCK PURCHASE AND INCENTIVE PLANS
Shareholders' Rights Plan
BMHC adopted a shareholder rights plan which expires in 2007. Under the plan, if
a company acquires 15% or more of BMHC's stock or makes a tender or other offer
to do so without the approval of the Board of Directors, shareholders would have
the right to purchase stock of BMHC or the acquiring company at a significant
discount. The Board of Directors of BMHC has the right to redeem the rights for
a nominal amount, to extend the period before shareholders may exercise the
rights or to take other actions permitted by the plan. The rights trade with
BMHC's stock but do not give shareholders any voting rights. The rights plan is
intended to encourage any person seeking to acquire BMHC to negotiate with the
Board of Directors.
Cash Equity Plan
On April 1, 1999, BMHC adopted a Cash Equity Plan to provide incentive for key
management employees. The awards vest after three years from the date of grant
and expire after five years. Each unit under an award allows for an exchange for
cash in the amount of the fair market value of BMHC's common stock at the date
of exercise. The number of units available for grant, including those units
outstanding and unexercised, cannot exceed two-percent of BMHC's common shares
outstanding at any given time. During 1999, BMHC awarded 73,190 units and
recognized compensation expense of $243,000. Accelerated vesting may occur if
there is a change of control of BMHC, as defined in the Cash Equity Plan.
<PAGE>
STOCK OPTION PLANS
BMHC has four stock option plans: the 1991 Senior Management and Field
Management Plan, the 1992 Non-Qualified Stock Option Plan, the 1993 Employee
Stock Option Plan and the 1993 Non-Employee Stock Option Plan (the Stock Option
Plans). A total of 1,397,000 shares of common stock have been reserved for
potential grants under the Stock Option Plans.
The 1991 Senior Management and Field Management Plan provides for the
granting of options to purchase shares of BMHC's common stock at exercise prices
below fair market value. At December 31, 1999, options to purchase 2,898 shares
under this plan remain outstanding. Such options expire ten years from the date
of grant.
The 1992 Non-Qualified Stock Option Plan and the 1993 Employee Stock
Option Plan provide for the granting of options, at the discretion of the Board
of Directors, to purchase shares of BMHC's common stock. At December 31, 1999,
options to purchase 7,812 and 149,179 shares from the 1992 and 1993 plans,
respectively, remain outstanding. The exercise price is equal to the fair market
value of BMHC's common stock on the date the options are granted. Options vest
over five years from the date of grant and expire at the end of ten years if
unexercised.
The 1993 Non-Employee Stock Option Plan is available only to nonemployee
directors. Options granted under this plan have an exercise price equal to the
fair market value of BMHC's common stock on the date the options are granted. At
December 31, 1999, options to purchase 88,500 shares of BMHC's common stock
under this plan remain outstanding. The options are exercisable after one year
following the date of grant and expire at the end of ten years if unexercised.
During 1997, as an additional incentive to attract a member of senior
management, the Board of Directors authorized and issued an award of 50,000
options. The exercise price was equal to the fair market value of BMHC's common
stock on the date the options were granted. These options will vest in 2002, but
vesting may be accelerated if BMHC's common stock reaches certain fair market
values. These options expire 10 years from the date of grant, or 2007, and are
included in the tables below.
A summary of the activity of the Stock Option Plans for the years ended
December 31, 1999, 1998 and 1997, is presented in the table below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of the year .................. 920,995 $ 11.57 795,704 $ 11.24 603,060 $ 10.76
Options granted ................................... 215,750 10.42 173,470 12.52 227,170 12.47
Options exercised ................................. (27,388) 3.40 (21,907) 3.05 (13,946) 4.46
Options forfeited ................................. (34,556) 13.95 (26,272) 15.00 (20,580) 15.35
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of the year ........................ 1,074,801 $ 11.46 920,995 $ 11.57 795,704 $ 11.24
- ---------------------------------------------------------------------------------------------------------------------------------
Exercisable at end of the year .................... 701,594 $ 11.33 606,187 $ 10.74 526,285 $ 9.78
Weighted average fair value of options granted .... $ 6.56 $ 6.24 $ 5.93
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------------------
Number Weighted Average Number
Outstanding at Remaining Exercisable at
Range of December Contractual Weighted Average December Weighted Average
Exercise Prices 31, 1999 Life Years Exercise Price 31, 1999 Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.21 to $ 5.67 225,062 1.5 $ 2.89 225,062 $ 2.89
$ 8.67 to $17.00 741,902 7.5 12.43 379,006 13.34
$19.50 to $29.75 107,837 5.7 22.64 97,526 22.97
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1.21 to $29.75 1,074,801 6.0 $11.46 701,594 $11.33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: risk-free interest rates of
5.4%, 5.5% and 6.0%, respectively; estimated lives of approximately 6 years, 6
years and 6 years, respectively; and expected stock price volatility of 61.6%,
42.7% and 38.0%, respectively.
Had compensation cost for these plans been determined using the fair value
method, the Company's 1999 net income would have been reduced on a pro forma
basis by $617,000 and basic and diluted earnings per share would have been
reduced on a pro forma basis by $0.05. The 1998 pro forma reductions would have
been a reduction in net income of $437,000, and a reduction in basic and diluted
earnings per share of $0.03. The 1997 pro forma reductions would have been a
reduction in net income of $351,000, and a reduction in basic and diluted
earnings per share of $0.03.
11. INCOME TAXES
Income taxes for the years ended December 31, 1999, 1998 and 1997 consisted of
the following (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Current income taxes
Federal ........................ $ 13,912 $ 8,853 $ 5,480
State .......................... 1,082 1,040 835
- --------------------------------------------------------------------------------
14,994 9,893 6,315
Deferred income taxes
Federal ........................ (529) (126) (102)
State .......................... (44) (11) (15)
- --------------------------------------------------------------------------------
(573) (137) (117)
- --------------------------------------------------------------------------------
$ 14,421 $ 9,756 $ 6,198
- --------------------------------------------------------------------------------
A reconciliation of the statutory Federal income tax rate to the rate as
provided in the consolidated statements of income follows:
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory rate ........................ 35.0% 35.0% 35.0%
State income taxes..................... 2.4 3.0 3.4
Other ................................. 1.1 1.2 1.1
- --------------------------------------------------------------------------------
38.5% 39.2% 39.5%
- --------------------------------------------------------------------------------
Deferred income taxes are provided to reflect temporary differences between the
financial and tax bases of assets and liabilities using presently enacted tax
rates and laws.
The components of deferred income taxes included in the Company's year-end
balance sheets were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets
Tax basis in excess of book basis
of acquired assets ................................ $ 30 $ 30
Inventories, tax basis in excess of book basis....... 1,647 1,901
Reserves not yet deductible for tax ................. 2,663 2,077
Other ............................................... 1,548 1,276
- --------------------------------------------------------------------------------
Total deferred tax assets ........................... 5,888 5,284
- --------------------------------------------------------------------------------
Deferred tax liabilities
Tax in excess of book depreciation .................. 7,040 7,046
Deferred costs deducted for taxes ................... 1,191 1,154
- --------------------------------------------------------------------------------
Total deferred tax liabilities ...................... 8,231 8,200
- --------------------------------------------------------------------------------
$(2,343) $(2,916)
Classified as
Deferred income tax benefit (current assets) ........ $ 2,781 $ 2,488
Deferred income taxes (long-term liabilities) ....... (5,124) (5,404)
- --------------------------------------------------------------------------------
$(2,343) $(2,916)
- --------------------------------------------------------------------------------
12. NET INCOME PER COMMON SHARE
Net income per common share was determined as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net income ............................ $ 19,683 $ 15,149 $ 9,493
Class B preferred stock accretion ..... -- -- (6)
- --------------------------------------------------------------------------------
Net income available to
common shareholders ................. $ 19,683 $ 15,149 $ 9,487
- --------------------------------------------------------------------------------
Weighted average shares
outstanding used to determine
basic net income per common share ... 12,667 12,509 11,919
Net effect of dilutive stock options(1) 125 138 218
- --------------------------------------------------------------------------------
Average shares used to
determine diluted net income
per common share ...................... 12,792 12,647 12,137
- --------------------------------------------------------------------------------
(1) STOCK OPTIONS OF 644,371, 493,187 AND 495,140 WERE NOT INCLUDED IN THE
COMPUTATION, BECAUSE TO DO SO WOULD HAVE BEEN ANTI-DILUTIVE FOR THE YEARS
ENDED DECEMBER 31, 1999, 1998 AND 1997, RESPECTIVELY.
13. RETIREMENT PLANS
BMHC has a savings and retirement plan for its salaried and certain of its
hourly employees whereby the eligible employees may contribute a percentage of
their earnings to a trust, i.e., a 401(k) plan. The Company also makes
contributions to the trust based on a percentage of the contributions made by
the participating employees and a percentage of net income for the period. The
Company's contributions are charged against operations and were $2,707,000 in
1999, $2,402,000 in 1998 and $1,449,000 in 1997.
<PAGE>
BMHC has a supplemental retirement plan for selected key management
employees and directors. The contributions are based on the Company achieving
certain operating earnings levels. Pursuant to this plan, the Company charged
operations for $1,420,000 in 1999, $1,065,000 in 1998, and $606,000 in 1997.
BMHC has purchased company-owned life insurance in order to have a funding
mechanism for this plan. Retirement payments will be paid to the participants or
their beneficiary over a 15-year period subsequent to retirement or death.
BMHC does not provide any other postretirement benefits for its employees.
14. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases real property, vehicles and office equipment under operating
leases. Rental expense was $6,813,000 in 1999, $6,503,000 in 1998, $5,180,000 in
1997. Certain of the leases are noncancelable and have minimum lease payment
requirements of $6,143,000 in 2000, $4,487,000 in 2001, $3,179,000 in 2002,
$2,425,000 in 2003 and $1,655,000 in 2004.
LEGAL PROCEEDINGS
The Company is involved in litigation and other legal matters arising in the
normal course of business. In the opinion of management, the Company's recovery
or liability, if any, under any of these matters will not have a material
adverse effect on the Company's financial position, liquidity or results of
operations.
15. FINANCIAL INSTRUMENTS
The book value compared with the fair value of financial instruments at December
31, were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------
Book Fair Book Fair
Value Value Value Value
- --------------------------------------------------------------------------------
Long-term debt:
Variable rate debt........... $167,607 $167,607 $ 42,415 $ 42,415
Fixed rate debt ............. 3,540 3,540 75,390 79,713
- --------------------------------------------------------------------------------
$171,147 $171,147 $117,805 $122,128
- --------------------------------------------------------------------------------
The book values of cash and cash equivalents, accounts receivable, accounts
payable and variable interest rate long-term debt approximated fair value due to
either the short-term maturities or current variable interest rates of these
instruments.
The fair value of fixed rate debt has been estimated based upon the
discounted cash flows using the Company's incremental rate of borrowing for
similar debt.
16. BUSINESS SEGMENT AND PRODUCTS
The Company's chief operating decision makers consist of senior managers who
work together to allocate resources to and assess the performance of each of the
Company's individual locations.
Management believes its locations have similar operating and economic
characteristics and has aggregated its operations into a single reporting
segment, that being the supply and distribution of lumber and building materials
to professional contractors and project oriented consumers.
The Company's locations principally derive revenues from wood products
(lumber, plywood and oriented strand board), value-added (millwork, roof and
floor trusses, pre-hung doors, windows and moldings), building materials
(roofing, siding, insulation and steel products) and other revenues (paint,
hardware, tools, electrical and plumbing). Net sales by product for the years
ended December 31, 1999, 1998 and 1997 were as follows (in thousands):
- --------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales
Wood products ...................... $ 444,834 $ 381,221 $ 340,972
Value-added ........................ 348,569 275,862 175,955
Building materials.................. 136,757 136,856 138,332
Other .............................. 76,948 83,341 72,806
- --------------------------------------------------------------------------------
Total revenues ..................... $1,007,108 $ 877,280 $ 728,065
- --------------------------------------------------------------------------------
17. RESULTS OF QUARTERLY OPERATIONS (UNAUDITED)
Operating results by quarter for 1999 and 1998 are as follows (dollars in
thousands, except per share data):
- --------------------------------------------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
1999
Net sales ............ $ 215,625 $ 256,005 $ 288,715 $ 246,763
Gross profit ......... 54,111 64,165 69,805 63,890
Income from
operations ......... 6,644 14,444 18,286 6,288
Extraordinary item ... -- -- -- (3,352)
Net income ........... 2,521 7,039 8,964 1,159
Income before extra-
ordinary item per
diluted common
share(1) ........... $ 0.20 $ 0.55 $ 0.70 $ 0.35
Net income per
diluted common
share(1) ........... $ 0.20 $ 0.55 $ 0.70 $ 0.09
Common stock prices:
High ................. $ 12.625 $ 12.750 $ 13.313 $ 11.750
Low .................. 9.375 9.750 10.000 7.500
1998
Net sales ............ $ 183,631 $ 226,017 $ 249,757 $ 217,875
Gross profit ......... 43,965 54,604 61,108 54,481
Income from
operations ......... 3,902 10,532 13,565 7,124
Net income ........... 850 4,754 6,723 2,822
Net income per diluted
common share(1) .... $ 0.07 $ 0.38 $ 0.53 $ 0.22
Common stock prices:
High ................. $ 13.625 $ 14.875 $ 14.438 $ 13.063
Low .................. 10.625 11.500 10.500 9.313
(1) NET INCOME PER SHARE CALCULATIONS ARE BASED ON THE AVERAGE COMMON SHARES
OUTSTANDING FOR EACH PERIOD PRESENTED. ACCORDINGLY, THE TOTAL OF THE PER
SHARE FIGURES FOR THE QUARTERS MAY NOT EQUAL THE PER SHARE FIGURE REPORTED
FOR THE YEAR.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Building Materials Holding Corporation
In our opinion, the accompanying consolidated balance sheet as of December 31,
1999 and the related consolidated statements of income, shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Building Materials Holding Corporation and its subsidiaries (the "Company") at
December 31, 1999, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above. The financial
statements of the Company as of December 31, 1998 and for the two years then
ended were audited by other independent accountants whose report dated January
25, 1999 expressed an unqualified opinion on those statements.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PRICEWATERHOUSECOOPERS LLP
San Francisco, California
February 17, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-52478 and 33-80952), Form S-8-A (Nos. 33-52478
and 33-80952) and on Form S-4 (Nos. 333-36387 and 333-61221) of Building
Materials Holding Corporation of our report dated February 17, 2000 relating to
the financial statements, which appears in the Annual Report to Shareholders,
which is incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated February 17, 2000 relating to the
financial statement schedule, which appears in this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
- -------------------------------
PricewaterhouseCoopers LLP
San Francisco, California
March 27, 2000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 25, 1999, included in Building Materials Holding
Corporation's Form 10-K for the year ended December 31, 1999, into Building
Materials Holding Corporation's previously filed Registration Statement File No.
33-52478 as amended by Post-Effective Amendment No. 1 on Form S-8, Registration
Statement File No. 33-80952 as amended by Post Effective Amendment No. 1 on Form
S-8 and Registration Statements File No. 333-36387 and 333-61221 on Form S-4.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boise, Idaho
March 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-TYPE> YEAR
<PERIOD-END> DEC-31-1999
<CASH> 7,452
<RECEIVABLES> 112,380
<ALLOWANCES> 2,257
<SECURITIES> 0
<INVENTORY> 80,679
<CURRENT-ASSETS> 208,687
<PP&E> 203,812
<DEPRECIATION> 50,214
<TOTAL-ASSETS> 450,119
<CURRENT-LIABILITIES> 69,404
<BONDS> 173,747
0
0
<COMMON> 13
<OTHER-SE> 200,110
<TOTAL-LIABILITY-AND-EQUITY> 450,119
<SALES> 1,007,108
<TOTAL-REVENUES> 1,007,108
<CGS> 755,137
<TOTAL-COSTS> 963,912
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,184
<INCOME-PRETAX> 37,456
<INCOME-TAX> 14,421
<INCOME-CONTINUING> 23,035
<DISCONTINUED> 0
<EXTRAORDINARY> (3,352)
<CHANGES> 0
<NET-INCOME> 19,683
<EPS-BASIC> 1.55
<EPS-DILUTED> 1.54
</TABLE>
