As filed with the Securities and Exchange Commission on March 18, 2016
(Exact name of registrant as specified in its charter)
Delaware | 5033 | 36-4173371 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(IRS Employer Identification Number) |
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Ross D. Cooper Senior Vice President, General Counsel and Secretary Beacon Roofing Supply, Inc. 5244 River Road, Second Floor Bethesda, MD 20816 (301) 272-2123 |
Michael P. Heinz Sidley Austin LLP One South Dearborn Street Chicago, Illinois 60603 (312) 853-7000 |
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | o |
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) | o |
The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
Exact Name of Additional Registrant(1) | Jurisdiction of Incorporation or Formation |
Primary Standard Industrial Classification Code Number |
I.R.S. Employer Identification Number |
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Beacon Sales Acquisition, Inc. | Delaware | 5033 | 36-4173371 |
(1) | The address and agent for service of process for the additional registrant is the same as for Beacon Roofing Supply, Inc. |
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted.
This exchange offer will expire at 5:00 p.m., New York City time, on , 2016, unless extended.
Terms of the exchange offer:
| We will exchange New Notes for all outstanding Old Notes that are validly tendered and not validly withdrawn prior to the expiration or termination of the exchange offer. |
| You may withdraw tenders of Old Notes at any time prior to the expiration or termination of the exchange offer. |
| The terms of the New Notes are substantially identical to those of the outstanding Old Notes, except that the New Notes are registered under the Securities Act of 1933, as amended (the Securities Act) and the transfer restrictions, registration rights and additional interest provisions applicable to the Old Notes do not apply to the New Notes. The New Notes will also have a separate CUSIP number from that of the Old Notes. |
| The New Notes will initially be jointly and severally and fully and unconditionally guaranteed by all of the Issuers subsidiaries that guarantee the Term Loan B Facility (as defined herein). Subject to certain exceptions, future subsidiaries that guarantee the Term Loan B Facility or incur or guarantee certain other indebtedness will also guarantee the New Notes. The New Notes and the guarantees will be the Issuers and the guarantors senior unsecured obligations and will rank equally in right of payment with the Issuers and the guarantors existing and future senior obligations. The New Notes and the guarantees will be effectively subordinated to all of the Issuers and the guarantors secured indebtedness, including the Term Loan B Facility and the ABL Facility (as defined herein and, collectively with the Term Loan B Facility, the New Senior Secured Credit Facilities) to the extent of the value of the collateral securing such indebtedness and will be structurally subordinated to all existing and future liabilities of each of the existing and future subsidiaries of the Issuer that do not guarantee New Notes. |
| The exchange of Old Notes for New Notes will not be a taxable transaction for U.S. federal income tax purposes. You should see the discussion under the caption Certain United States Federal Income Tax Considerations for more information. |
| We will not receive any proceeds from the exchange offer. |
| We issued the Old Notes in a transaction not requiring registration under the Securities Act, and as a result, their transfer is restricted. We are making the exchange offer to satisfy your registration rights as a holder of the Old Notes. |
Neither the New Notes nor the Old Notes will be listed on any securities exchange.
Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such New Notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, starting on the expiration date (as defined herein) and ending on the close of business 180 days after the expiration date, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See Plan of Distribution.
Exchanging your outstanding Old Notes for New Notes involves risks. See the risk factors described under, and incorporated by reference into, Risk Factors beginning on page 19 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is March , 2016.
You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different information. If any person other than us provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell, nor are we soliciting an offer to buy, securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained or incorporated by reference in this prospectus is accurate only as of its respective date. Our business, financial condition, results of operations and prospects may have changed since those dates.
This prospectus incorporates important business and financial information about us that is not included in or delivered with this prospectus (see Where You Can Find More Information). We will provide this information to you at no charge upon written or oral request directed to: Beacon Roofing Supply, Inc., Chief Financial Officer, 505 Huntmar Park Drive, Suite 300, Herndon, Virginia 20170 Telephone: (877) 645-3939. In order to ensure timely delivery of the information, any request should be made no later than five (5) business days before the expiration date of the exchange offer.
Neither the Old Notes nor the New Notes have been recommended by any federal, state or foreign securities authorities and they have not determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
We are not providing you with any legal, business, tax or other advice in this prospectus. You should consult with your own advisors as needed to assist you in making your investment decision and to advise you whether you are legally permitted to exchange your outstanding Old Notes for New Notes in this exchange offer.
Unless stated otherwise or the context otherwise requires, references in this prospectus to the Issuer refer to Beacon Roofing Supply, Inc., a Delaware corporation; references to Beacon refer to the Issuer and its direct and indirect subsidiaries, with regard to the period before the RSG Acquisition (as defined below); references to RSG refer to Roofing Supply Group, LLC, a Delaware limited liability company, RSG Parent and their respective direct and indirect subsidiaries, with regard to the period before the RSG Acquisition; references to RSG Parent refer to CDRR Investors, Inc., a Delaware corporation and indirect parent of Roofing Supply Group, LLC; references to Combined Company refer to the combined businesses of Beacon and RSG in the period following the consummation of the RSG Acquisition; and references to the Company, us, we or our refer to Beacon, when used with regard to the period before the RSG Acquisition, or to the Combined Company, when used with regard to the period following the consummation of the RSG Acquisition.
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This prospectus contains certain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 with respect to our business, financial condition, liquidity and results of operations. Words such as anticipates, expects, intends, plans, projects, predicts, believes, seeks, estimates, could, would, will, may, can, continue, potential, should and the negative of these terms or other comparable terminology often identify forward-looking statements. Statements in this prospectus that are not historical facts are hereby identified as forward-looking statements for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in this prospectus or incorporated by reference herein. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Combined Company include, but are not limited to, risks and uncertainties that are described in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended September 30, 2015, in our Quarterly Reports on Form 10-Q and in other securities filings by the Company with the Securities and Exchange Commission (the Commission or SEC). Factors, risks, and uncertainties that could cause actual outcomes and results to be materially different from those contemplated include, among others:
| our ability to effectively integrate newly acquired business into our operations and achieve expected cost savings or profitability from our acquisitions; |
| our ability to complete acquisitions on acceptable terms; |
| product shortages, fluctuations in the prices of raw materials, loss of key suppliers, and our dependence on third-party suppliers and manufacturers; |
| dependence on key personnel; |
| fluctuation of pricing of and rebates on the products we distribute and our ability to pass on increased costs to customers; |
| dependence on the residential home building industry, as well as the economy, the credit markets and other important factors; |
| cyclical and seasonal nature of the building products supply industry; |
| disruptions at our facilities or in our information technology systems; |
| variability of our quarterly revenues and earnings; |
| our future capital needs and our ability to obtain additional financing on acceptable terms; |
| our level of indebtedness and our ability to meet our obligations under our debt instruments; |
| our incurrence of additional indebtedness and our inability to take certain actions because of restrictions in our debt agreements; and |
| our failure to obtain the anticipated benefits, synergies and costs savings from the RSG Acquisition. |
Many of the important factors that will determine these results are beyond our ability to control or predict. You are cautioned not to put undue reliance on any forward-looking statements, which speak only as of the date of this prospectus. Except as otherwise required by law, we do not assume any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events.
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This summary highlights selected information contained or incorporated by reference in this prospectus and does not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the matters discussed in the sections entitled Risk Factors, together with the documents incorporated by reference that are described under Where You Can Find More Information and the financial statements included or incorporated by reference herein. Unless otherwise indicated, references to fiscal year refer to the fiscal year of Beacon, which ends on September 30 of each year. RSG Parents fiscal year ends on December 31 of each year.
Beacon is the second largest (and largest publicly traded) distributor of residential and commercial roofing materials in the United States, with leading positions in key metropolitan markets in both the United States and Canada. Beacon also is a leading distributor of complementary building products, including siding, windows and waterproofing systems for residential and commercial building exteriors. Beacon purchases products from a large number of manufacturers and then distributes these goods to a customer base consisting of contractors and, to a lesser extent, general contractors, home builders, retailers, and building materials suppliers. As of September 30, 2015, Beacon operated 274 branches in 42 states throughout the United States and six provinces in Canada. Beacon stocks one of the most extensive assortments of high-quality branded products in the industry with approximately 2,000 to 11,000 SKUs per branch available in inventory, enabling it to deliver products to its nearly 53,000 customers on a timely basis. In fiscal year 2015, we generated net sales of approximately $2.5 billion, approximately 84% of which was derived from roofing products and services. Approximately 93% of our fiscal 2015 net sales were in the United States. In addition, we also generated $62.3 million in net income and Adjusted EBITDA of $168.7 million during fiscal year 2015. See note 1 to the Other Financial Data table in Summary Historical and Pro Forma Financial and Operating Information Beacon Historical Financial Information below for a reconciliation of Adjusted EBITDA to net income.
On October 1, 2015, Beacon acquired Roofing Supply Group (RSG), a leading roofing products distributor owned by an investment partnership controlled by Clayton Dubilier & Rice, LLC (CD&R) and employee stockholders in a cash and stock transaction valued at approximately $1.2 billion (the RSG Acquisition), including repayment of outstanding RSG indebtedness. See The RSG Acquisition Transactions. After giving effect to the RSG Acquisition, Beacon accounted for approximately 16% of total 2014 sales in the U.S. roofing distribution market, an increase from approximately 5% of total sales in 2004, the year Beacon became a publicly traded company. Beacon pro forma net sales for fiscal year 2014 exceeded those of the next largest competitor by more than $1 billion, according to data reported in ProSales, a multi-media source of news, information and expertise for building supply distributors in the United States.
Prior to the RSG Acquisition, RSG was the fifth largest roofing distributor in the United States, providing customers with a broad range of products with approximately 300 to 2,200 SKUs per branch. As of September 30, 2015, RSG operated 85 branches strategically located in 25 U.S. states throughout the West, Rocky Mountain, Northwest, Southwest, Southeast and Midwest regions of the United States. Similar to Beacon, RSG had a customer base of contractors, home builders, retail customers, building owners and other resellers, such as retailers and lumberyards. For the nine months ended September 30, 2015, RSG generated net sales of approximately $0.9 billion.
On October 1, 2015, Beacon completed the RSG Acquisition pursuant to that certain Agreement and Plan of Merger, dated as of July 27, 2015 (the Merger Agreement), by and among Beacon, two wholly owned subsidiaries of Beacon and RSG Parent. The aggregate consideration paid by Beacon to consummate the RSG Acquisition was approximately $1.2 billion of cash and Beacon common stock.
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Concurrently with the closing of the RSG Acquisition, Beacon (i) completed its private offering of $300.0 million aggregate principal amount of the Old Notes and (ii) entered into credit agreements governing the terms of a new $450.0 million seven-year senior secured term loan B facility (the Term Loan B Facility) and a new senior secured asset-based revolving credit facility of up to $700.0 million, subject to a borrowing base (the ABL Facility). The Company utilized the net proceeds from the offering of the Old Notes, together with borrowings under the New Senior Secured Credit Facilities, to pay the cash consideration for the RSG Acquisition, to refinance certain indebtedness of Beacon, to repay certain existing indebtedness of RSG and to pay related transaction premiums, fees and expenses.
As used in this prospectus, the term RSG Acquisition Transactions refers to the: (i) issuance of the Old Notes; (ii) closing of the RSG Acquisition; (iii) closing of and borrowings under the New Senior Secured Credit Facilities; (iv) repayment of certain existing indebtedness of Beacon and RSG, including the redemption of RSGs existing unsecured senior notes; and (v) payment of premiums, fees and expenses in connection with the foregoing transactions.
We expect to realize a number of benefits from the RSG Acquisition, including the following:
| Enhanced scale and national footprint. Following the completion of the RSG Acquisition, we believe we are better-positioned to serve existing and new customers. We have a larger fleet for deliveries, greater scale in both our residential and commercial businesses, an expanded national footprint, more diversified product offerings across both our newly-acquired and existing branches and greater financial resources to develop and implement new customer service initiatives, such as e-commerce. We are poised to offer enhanced service, drawing on our combined engineering capabilities and best practices. As of December 31, 2015, the Combined Company operated 360 branches in 45 states and six provinces across Canada. The RSG Acquisition provides Beacon with an entry into the Pacific Northwest, as well as additional branches in highly attractive, dense markets such as California, Florida and Texas. In the fiscal year ended September 30, 2015, our pro forma net sales, pro forma net income, pro forma Adjusted EBITDA (before anticipated cost savings) and pro forma Adjusted EBITDA (after anticipated cost savings) were $3.7 billion, $35.8 million, $255.3 million and $305.3 million, respectively. |
| Well-positioned in attractive roofing demand markets. We believe that our national distribution platform is strategically positioned to benefit from a North American market recovery, and we expect that improving economic conditions and continued recovery in residential and non-residential construction activity will drive additional roofing demand. The addition of RSGs platform has substantially improved our presence in growing, sizable markets in the Southern and Western United States, including Texas, Florida and California, with 46%, 50% and 75% growth in the number of locations, respectively. According to the U.S. Census Bureau, during the first five months of 2015, more building permits were issued in each of those three states than any other state in the U.S., which we believe may help us grow in these locations. With the geographic scope of our combined platform, we believe we will also benefit from frequent and recurring storm activity in the Midwest, Southwest and Southeast regions. Storm activity drives demand uncorrelated to general economic activity and leads to a shorter re-roofing cycle. Over 35% of RSGs locations are located in states with high rates of severe weather disasters, such as hurricanes and tornadoes. Over 31% of the Combined Companys locations are located in such states, up from 30% prior to the RSG Acquisition. Net sales in the severe weather affected Southwest and South Central regions represented 12% and 25%, respectively, of fiscal year 2015 pro forma net sales, compared to 7% and 21%, respectively, of Beacons fiscal year 2015 net sales. |
| Extensive product offering and strong supplier relationships. The Combined Company carries one of the most extensive arrays of high-quality branded products in the industry. We believe that this product offering will continue to be a significant factor in attracting and retaining many of our customers. In addition to a broad product offering, we are able to fulfill the vast majority of our warehouse orders through the breadth and depth of the inventories at our branches. Because of our significant scale, product expertise and reputation in the markets that we serve, along with our ability to |
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hold and manage considerable inventory, we have established strong, long-term ties to the major roofing materials manufacturers and are able to achieve substantial volume discounts. With the RSG Acquisition, we will further expand our base of suppliers and strengthen our existing relationships. |
| Significant opportunity for synergies. We believe the RSG Acquisition will provide us significant cost savings opportunities through improved scale and operating leverage. Specifically, we anticipate that the RSG Acquisition could result in approximately $50 million in annual run-rate synergies within approximately two years following the closing of the acquisition, primarily driven by branch consolidation, along with an anticipated rationalization among corporate offices and anticipated procurement benefits from leveraging the long-term relationships that both Beacon and RSG maintain with their existing suppliers to generate more purchasing efficiency in the supply chain. One-time costs to achieve the cost savings are estimated to be $25 million over the first two years following closing. As with previous acquisitions, we will look to leverage our established operational platform, take advantage of current supplier relationships and implement our procurement and distribution IT systems, which we believe are among the most advanced in the roofing distribution industry. We believe these initiatives will result in a substantial increase in free cash flow that we expect will be used to pay down debt, as well as reinvest in our business to drive future growth. Finally, we believe the RSG Acquisition will provide us with significant tax assets that will facilitate free cash flow generation. For a discussion of risks related to anticipated cost savings and synergies, see Risk Factors Risks Related to the RSG Acquisition The integration of RSG by the Company may prove more difficult, costly or time-consuming than expected, and the anticipated synergies and benefits of the RSG Acquisition may not be realized in the timeframe we expect or at all. |
For a discussion of various factors that could prohibit or limit us from realizing some or all of these benefits, see Forward-Looking Statements and Risk Factors.
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The following chart summarizes our organizational structure, equity ownership and our principal indebtedness as of February 16, 2016. This chart is provided for illustrative purposes only and does not show all obligations of our legal entities. See The RSG Acquisition Transactions, The Exchange Offer, Description of New Notes and Description of Certain Other Indebtedness for more information regarding the terms of the New Notes offered hereby and our other indebtedness following the RSG Acquisition Transactions.
(1) | The New Notes will be guaranteed on a senior basis by certain of the Issuers domestic subsidiaries. For further information, see Description of New Notes Subsidiary Guarantees. The subsidiary guarantees will be subject to limitations under applicable laws and may be released under certain circumstances. For further information, see Description of New Notes Subsidiary Guarantees, Risk Factors Risks Related to Our Indebtedness and the New Notes Claims of holders of the New Notes will be structurally subordinated to claims of creditors of certain of our subsidiaries that will not guarantee the New Notes and Risk Factors Risks Related to Our Indebtedness and the New Notes The lenders under the Term Loan B Facility can release guarantors of such credit facility under certain circumstances, which will result in the release of those guarantees of the New Notes. Following consummation of the |
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RSG Acquisition, certain subsidiary guarantors of the Old Notes were merged with and into other subsidiary guarantors for tax planning purposes as permitted by the Indenture (as defined below). As of the date the New Notes are first issued, the only subsidiary guarantor of the New Notes will be Beacon Sales Acquisition, Inc. |
(2) | In connection with the RSG Acquisition Transactions, the Issuer entered into the Term Loan B Facility, which provides for a seven-year senior secured term loan facility of $450.0 million. Borrowings under the Term Loan B Facility are guaranteed by the same domestic subsidiaries of the Issuer that will guarantee the New Notes and the ABL Facility, except that Beacon Canada, Inc. (a domestic subsidiary with no material assets other than stock in a foreign subsidiary) guarantees the borrowings under the ABL Facility by the Canadian subsidiaries of the Issuer but will not guarantee the New Notes or borrowings under the Term Loan B Facility. See Description of Certain Other Indebtedness New Senior Secured Credit Facilities. |
(3) | In connection with the RSG Acquisition Transactions, the Issuer entered into the ABL Facility, which provides for a senior secured asset-based revolving credit facility of up to $700.0 million, subject to a borrowing base. Borrowings under the ABL Facility are guaranteed by the Issuer and will be guaranteed by any future domestic subsidiaries that guarantee the New Notes and the Term Loan B Facility (except with respect to Beacon Canada, Inc., as described in footnote (2) above). Borrowings under the ABL Facility by Canadian subsidiaries of the Issuer are guaranteed by the Issuer and Beacon Canada, Inc. and will be guaranteed by any future domestic subsidiaries that guarantee the New Notes and the Term Loan B Facility and by certain foreign subsidiaries (as defined in the Description of New Notes) (and any such foreign subsidiary will not guarantee the New Notes or borrowings under the Term Loan B Facility). See Description of Certain Other Indebtedness New Senior Secured Credit Facilities. |
The Issuer was incorporated in Delaware in 1997 and completed its initial public offering in September 2004. Its common stock trades on the Nasdaq Global Select Market under the symbol BECN. Our principal executive offices are located at 505 Huntmar Park Drive, Suite 300, Herndon, Virginia 20170, and our telephone number is (571) 323-3939. Our Internet website address is www.becn.com, and the information contained on, or accessible from, our website is not part of this prospectus by reference or otherwise.
Following the consummation of the RSG Acquisition, CD&R Roadhouse Holdings, L.P. (the CD&R Stockholder), an entity affiliated with the CD&R private investment firm and the former controlling stockholder of RSG, beneficially owned approximately 15% of our outstanding common stock and became our largest stockholder. As of March 16, 2016, the CD&R Stockholder beneficially owned approximately 14.4% of our outstanding common stock. In connection with the RSG Acquisition, we entered into an investment agreement with the CD&R Stockholder, which, as amended, provides that the CD&R Stockholder (i) may designate two directors to the Beacon board of directors, for so long as the CD&R Stockholder and its affiliates hold at least 58.6% of the shares of our common stock received by the CD&R Stockholder at the closing of the RSG Acquisition and (ii) may designate one director to the Beacon board of directors for so long as the CD&R Stockholder and its affiliates hold less than 58.6%, but at least 3.0%, of such shares; provided that the CD&R Stockholder and its affiliates shall not be entitled to such one director designee pursuant to clause (ii) if they own less than 4.0% of the shares of our common stock then outstanding and the number of members of the Beacon board is at such time less than eight. Upon consummation of the RSG Acquisition, Philip W. Knisely, Chairman of RSG and an operating advisor to the CD&R funds, and Nathan K. Sleeper, a partner of CD&R, were appointed as the CD&R Stockholders designees to the Beacon board of directors.
Upon consummation of the RSG Acquisition, we also entered into a registration rights agreement with the CD&R Stockholder, pursuant to which we agreed to file a resale shelf registration statement for the benefit of the CD&R Stockholder and certain of its permitted transferees promptly upon the expiration of a 180-day post-closing lock-up period. The registration rights agreement also provides for customary demand and piggyback registration rights with respect to the shares of Beacon common stock received by the CD&R Stockholder in connection with the RSG Acquisition.
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The following is a brief summary of the terms of this exchange offer. It does not contain all of the information that you need to consider in making your decision regarding whether to exchange your Old Notes for New Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The section of this prospectus entitled The Exchange Offer contains a more detailed description of the terms and conditions of this exchange offer. To understand all of the terms of this exchange offer and the New Notes, you should carefully read this prospectus as well as the documents incorporated by reference that are described under Where You Can Find More Information.
Background |
On October 1, 2015, we completed a private placement of $300,000,000 aggregate principal amount of 6.375% Senior Notes due 2023. As part of that offering, we entered into a registration rights agreement with the initial purchasers of the Old Notes in which we agreed, among other things, to complete this exchange offer for the Old Notes. |
Old Notes |
$300,000,000 unregistered 6.375% Senior Notes due 2023, which were issued on October 1, 2015. The Old Notes were issued under the Indenture, dated as of October 1, 2015 (the Indenture). The Old Notes and the New Notes are herein collectively referred to as Notes under the Indenture. |
New Notes |
$300,000,000 6.375% Senior Notes due 2023, the issuance of which has been registered under the Securities Act. The form and terms of the New Notes are substantially identical in all material respects to those of the Old Notes, except that the transfer restrictions, registration rights and additional interest provisions applicable to the Old Notes do not apply to the New Notes. |
Exchange Offer |
We are offering to issue up to $300,000,000 aggregate principal amount of New Notes in exchange for a like principal amount of the Old Notes to satisfy our obligations under the registration rights agreement that was executed when the Old Notes were issued in a transaction in reliance upon the exemptions from registration provided by Rule 144A and Regulation S of the Securities Act. You may tender your Old Notes for exchange by following the procedures described below and in the section entitled The Exchange Offer in this prospectus. |
Expiration Date; Tenders |
The exchange offer will expire at 5:00 p.m., New York City time, on , 2016 (which is business days following the date of this prospectus), unless extended in our sole and absolute discretion. By tendering your Old Notes, you represent to us that: |
you are not our affiliate, as defined in Rule 405 under the Securities Act; |
any New Notes you receive in the exchange offer are being acquired by you in the ordinary course of your business; |
at the time of commencement of the exchange offer, neither you nor anyone receiving New Notes from you has any arrangement or understanding with any person to participate in the distribution, as defined in |
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the Securities Act, of the New Notes in violation of the Securities Act; and |
if you are a broker-dealer that will receive the New Notes for your own account in exchange for Old Notes that were acquired by you as a result of your market-making or other trading activities, then you will deliver a prospectus in connection with any resale of the New Notes you receive. For further information regarding resales of the New Notes by participating broker-dealers, see the discussion under the caption Plan of Distribution. |
Withdrawal; Non-Acceptance |
You may withdraw any Old Notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on , 2016. If we decide for any reason not to accept any Old Notes tendered for exchange, the Old Notes will be returned to the registered holder at our expense promptly after the expiration or termination of the exchange offer. In the case of the Old Notes tendered by book-entry transfer into the exchange agents account at The Depository Trust Company (DTC), any withdrawn or unaccepted Old Notes will be credited to the tendering holders account at DTC. For further information regarding the withdrawal of tendered Old Notes, see The Exchange Offer Terms of the Exchange Offer; Period for Tendering Old Notes and the The Exchange Offer Withdrawal Rights. |
Conditions to the Exchange Offer |
The exchange offer is subject to customary conditions, which we may waive. See the discussion below under the caption The Exchange Offer Conditions to the Exchange Offer for more information regarding the conditions to the exchange offer. |
Procedures for Tendering the Old Notes |
If you wish to tender your Old Notes for New Notes pursuant to the exchange offer, you must transmit to U.S. Bank National Association, as the exchange agent for the exchange offer, on or before the expiration date, either: |
a properly completed and duly executed letter of transmittal, which accompanies this prospectus, with any required signature guarantees, together with the certificates for your Old Notes, in proper form for transfer, and any other required documentation, to the exchange agent at its address listed in this prospectus and on the front cover of the letter of transmittal; or |
a computer generated message transmitted through DTCs Automated Tender Offer Program (ATOP) system and received by the exchange agent and forming a part of a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal. |
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Special Procedures for Beneficial Owners |
If you are a beneficial owner whose Old Notes are registered in the name of the broker, dealer, commercial bank, trust company or other nominee and you wish to tender your Old Notes in the exchange offer, you should promptly contact the person in whose name the Old Notes are registered and instruct that person to tender on your behalf. If you wish to tender in the exchange offer on your own behalf, prior to completing and executing the letter of transmittal and delivering your Old Notes, you must either make appropriate arrangements to register ownership of the Old Notes in your name or obtain a properly completed bond power from the person in whose name the Old Notes are registered. |
Material Federal Income Tax Considerations |
The exchange of the Old Notes for New Notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. See the discussion under the caption Certain United States Federal Income Tax Considerations for more information regarding the tax consequences to you of the exchange offer. |
Use of Proceeds |
We will not receive any proceeds from the exchange offer. |
Exchange Agent |
U.S. Bank National Association is the exchange agent for the exchange offer. You can find the address and telephone number of the exchange agent below under the caption The Exchange Offer Exchange Agent. |
Resales |
Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that the New Notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act. However, you will not be able to freely transfer the New Notes if: |
you are our affiliate, as defined in Rule 405 under the Securities Act; |
you are not acquiring the New Notes in the exchange offer in the ordinary course of your business; |
you have an arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the New Notes, you will receive in the exchange offer; or |
you are a participating broker-dealer that received New Notes for its own account in the exchange offer in exchange for Old Notes that were acquired as a result of market-making or other trading activities. |
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If you fall within one of the exceptions listed above, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction involving the New Notes. See the discussion below under the caption The Exchange Offer Procedures for Tendering Old Notes for more information. |
Broker-Dealer |
Each broker-dealer that receives New Notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of New Notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes which were acquired by such broker-dealer as a result of market making activities or other trading activities. We have agreed that for a period of up to 180 days after the expiration date, as defined in this prospectus, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See Plan of Distribution for more information. |
Registration Rights Agreement |
When we issued the Old Notes, we entered into a registration rights agreement with the representatives of the initial purchasers obligating us to file an exchange offer registration statement or, under specified circumstances, a shelf registration statement, with the SEC with respect to New Notes. If we fail to satisfy these obligations, we have agreed to pay additional interest to holders of the Old Notes in specified circumstances. We are not obligated to consummate an exchange offer with respect to the Old Notes until 270 days after the issue date. See The Exchange Offer Registration Rights Agreement. |
A copy of the registration rights agreement is incorporated by reference herein as an exhibit to the registration statement of which this prospectus forms a part and is available from us upon request (see Where You Can Find More Information). |
If you do not exchange your Old Notes in the exchange offer, your Old Notes will continue to be subject to the restrictions on transfer described in the legend on the certificate for your Old Notes. In general, you may offer or sell your Old Notes only:
| if they are registered under the Securities Act and applicable state securities laws; |
| if they are offered or sold under an exemption from registration under the Securities Act and applicable state securities laws; or |
| if they are offered or sold in a transaction not subject to the Securities Act and applicable state securities laws. |
We do not currently intend to register the Old Notes under the Securities Act. Under some circumstances, however, holders of the Old Notes, may require us to file, and to cause to become effective, a shelf registration statement covering resales of Old Notes by these holders. For more information regarding the consequences of not tendering your Old Notes and our obligation to file a shelf registration statement, see The Exchange Offer Consequences of Exchanging or Failing to Exchange Old Notes.
9
The following is a brief summary of the terms of the New Notes. It does not contain all of the information that you need to consider in making your investment decision. The terms of the New Notes and those of the outstanding Old Notes are substantially identical, except that the transfer restrictions and rights under the registration rights agreement, including the right to earn additional interest under circumstances relating to our registration obligations, do not apply to the New Notes. To understand all of the terms of the New Notes, you should carefully read this prospectus as well as the documents incorporated by reference that are described under Where You Can Find More Information.
Issuer |
Beacon Roofing Supply, Inc. |
Notes Offered |
$300,000,000 aggregate principal amount of 6.375% Senior Notes due 2023. |
Issue Date |
The New Notes will be issued on , 2016. |
Maturity Date |
October 1, 2023. |
Interest Rate |
6.375% per annum. |
Interest Payment Dates |
Interest on the New Notes will be payable semi-annually on April 1 and October 1 of each year, beginning on October 1, 2016, and on the maturity date, and will be deemed to have accrued from April 1, 2016, the most recent date to which interest has been paid. |
Ranking |
The New Notes will be our unsecured senior indebtedness and will rank: |
equal in right of payment with all of our existing and future senior indebtedness; |
senior in right of payment to all of our existing and future subordinated obligations; |
effectively subordinated to all of our secured indebtedness, including indebtedness under our $450.0 million Term Loan B Facility and obligations under our new ABL Facility of up to $700.0 million, to the extent of the value of the assets securing such indebtedness; and |
structurally subordinated to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries. |
Guarantors |
The New Notes will be guaranteed, on an unsecured senior basis, by each of our domestic subsidiaries that is a borrower under or that guarantees our obligations under our Term Loan B Facility (and any refinancing indebtedness) and any other capital market indebtedness that we may incur in the future. These guarantees are subject to limitations under applicable laws and may be released under specified circumstances. See Description of New Notes Subsidiary Guarantees. The guarantee of each subsidiary guarantor will be an unsecured senior obligation of that subsidiary guarantor and will rank: |
equal in right of payment with all existing and future senior indebtedness of that subsidiary guarantor; |
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senior in right of payment to all existing and future subordinated obligations of that subsidiary guarantor; |
effectively subordinated to all secured indebtedness of that subsidiary guarantor to the extent of the value of the assets securing such indebtedness, including any such subsidiary guarantors guarantee of indebtedness under our new $450.0 million Term Loan B Facility and obligations under our new ABL Facility of up to $700.0 million; and |
structurally subordinated to all existing and future indebtedness and other liabilities of our non-guarantor subsidiaries. |
For the fiscal year ended September 30, 2015, after giving pro forma effect to the RSG Acquisition Transactions, the two subsidiaries of the Issuer that will not be subsidiary guarantors on the date the New Notes are first issued represented $3.0 million, or approximately 8.4%, of pro forma net income. For the three months ended December 31, 2015, the two subsidiaries of the Issuer that will not be subsidiary guarantors on the date the New Notes are first issued represented $0.5 million, or approximately 7.6%, of net income. As of December 31, 2015, these two non-guarantor subsidiaries represented $97.4 million, or approximately 3.3%, of total assets and $58.5 million, or approximately 3.3%, of total liabilities, $7.2 million of which was indebtedness. |
Optional Redemption |
We may redeem the New Notes, in whole or in part, at any time (1) prior to October 1, 2018, at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, plus the make-whole premium described under Description of New Notes Optional Redemption, and (2) on and after October 1, 2018, at the redemption prices described under Description of New Notes Optional Redemption. |
In addition, prior to October 1, 2018, we may redeem on one or more occasions up to 35% of the original aggregate principal amount of the New Notes in an amount not exceeding the net proceeds of one or more equity offerings at a redemption price equal to 106.375% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, as described under Description of New Notes Optional Redemption. |
Offer to Repurchase |
If we experience a change of control, we must offer to repurchase all of the New Notes (unless otherwise redeemed) at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date. See Description of New Notes Change of Control. |
If we sell assets under certain circumstances, we must use the proceeds to make an offer to purchase New Notes at a price equal to 100% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase. See |
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Description of New Notes Certain Covenants Limitation on Sales of Assets and Subsidiary Stock. |
Certain Covenants |
The Indenture contains covenants that generally restrict our ability and the ability of our restricted subsidiaries to: |
incur more indebtedness or issue certain preferred shares; |
pay dividends, redeem stock or make other distributions; |
make investments; |
create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers; |
create liens; |
transfer or sell assets; |
merge or consolidate; |
enter into certain transactions with our affiliates; and |
designate subsidiaries as unrestricted subsidiaries. |
Most of these covenants will be suspended for so long as the New Notes have investment grade ratings from both Moodys Investors Service, Inc. (Moodys) and Standard & Poors Investors Ratings Service (S&P). These covenants are subject to important exceptions and qualifications, which are described under Description of New Notes Certain Covenants and Description of New Notes Merger and Consolidation. |
Further Issuances |
We may, from time to time, without notice to or consent of the holders of the New Notes, create and issue additional notes ranking equally and ratably with the New Notes in all respects, including the same terms as to status, redemption or otherwise. |
Form and Denomination |
The New Notes will be issued in the form of one or more fully registered global securities, without coupons, in denominations of $2,000 in principal amount and integral multiples of $1,000 in excess thereof. These global securities will be deposited with the trustee as custodian for, and registered in the name of, DTC or its nominee. Except as described under Description of the New Notes Transfer and Exchange or as we may otherwise agree, notes in certificated form will not be issued or exchanged for interests in global securities. |
No Prior Market |
The New Notes are a new issue of securities, and there is currently no established trading market for the New Notes. We do not intend to apply for listing of the New Notes on any securities exchange and cannot assure you that any active or liquid market will develop for the New Notes. |
Trustee |
U.S. Bank National Association |
Risk Factors |
Investing in the New Notes involves a high degree of risk, you should carefully consider all of the information included or incorporated by reference in this prospectus, including the information under Risk Factors beginning on page 19 of this prospectus. |
12
The following tables set forth summary consolidated historical and unaudited pro forma condensed combined financial information for Beacon and RSG Parent for the periods ended and as of the dates indicated. Beacons fiscal year ends on September 30, while RSG Parents fiscal year ends on December 31.
Beacons financial information for the fiscal years ended September 30, 2015, 2014 and 2013 and as of September 30, 2015 and 2014 has been derived from Beacons audited consolidated financial statements and the notes related thereto included elsewhere in this prospectus. Beacons financial information for the three months ended December 31, 2015 and 2014 and as of December 31, 2015 and 2014 has been derived from Beacons unaudited consolidated financial statements and the notes related thereto included elsewhere in this prospectus. Such unaudited interim financial information has been prepared on a basis consistent with the audited consolidated financial statements.
RSG Parents financial information for the fiscal year ended December 31, 2014 has been derived from RSG Parents audited consolidated financial statements and the notes related thereto incorporated by reference into this prospectus. RSG Parents financial information for the nine months ended September 30, 2015 and 2014 and as of September 30, 2015 has been derived from RSG Parents unaudited consolidated interim financial statements and the notes related thereto incorporated by reference into this prospectus. Such unaudited interim financial information has been prepared on a basis consistent with the audited consolidated financial statements.
The unaudited pro forma condensed combined statement of operations information for the fiscal year ended September 30, 2015 gives effect to the RSG Acquisition Transactions as if they had been consummated on October 1, 2014 and combines Beacons historical results for the fiscal year ended September 30, 2015 with RSG Parents historical results for the twelve-month period ended September 30, 2015, which was derived by adding RSG Parents audited statement of operations information for the fiscal year ended December 31, 2014 to the unaudited statement of operations information for the nine months ended September 30, 2015 and subtracting the corresponding unaudited statement of operations information for the nine months ended September 30, 2014. See Unaudited Pro Forma Condensed Combined Financial Information and the accompanying notes.
The unaudited pro forma condensed combined statement of operations data reflects adjustments to Beacons and RSG Parents historical consolidated financial information that are (i) directly attributable to the RSG Acquisition Transactions, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The final purchase price allocation for the RSG Acquisition Transactions will be completed promptly following the end of the second quarter of the current fiscal year. Any final adjustments may change the allocation of purchase price, which could result in a change to the unaudited pro forma condensed combined financial information, including goodwill. The result of the final purchase price allocation could be materially different from the preliminary allocation set forth herein. Except where indicated with respect to pro forma Adjusted EBITDA for the fiscal year ended September 30, 2015, the unaudited pro forma condensed combined financial information does not reflect any cost savings, including the anticipated $50 million in annual run-rate synergies described elsewhere in this prospectus (or associated costs to achieve such savings), utilization of RSG Parents net operating loss carryforwards or other restructuring that may result from the RSG Acquisition Transactions. Synergies and integration costs have been excluded from consideration because they do not meet the criteria for unaudited pro forma adjustments.
The unaudited pro forma condensed combined financial information is provided for informational and illustrative purposes only and is not intended to represent or be indicative of the consolidated results of operations or financial position of Beacon that would have been reported had the RSG Acquisition Transactions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Beacon following the consummation of the RSG Acquisition Transactions. We therefore caution you not to place undue reliance on the unaudited pro forma condensed combined financial information.
The following summary historical and pro forma financial and operating information should be read in conjunction with Unaudited Pro Forma Condensed Combined Financial Information and the accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations and the
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consolidated financial statements and related notes of Beacon and RSG Parent included elsewhere in this prospectus or incorporated by reference herein.
Year Ended September 30, | Three Months Ended December 31, |
|||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Net sales | $ | 2,515,169 | $ | 2,326,905 | $ | 2,240,723 | $ | 976,480 | $ | 596,042 | ||||||||||
Cost of products sold | 1,919,804 | 1,799,065 | 1,709,326 | 743,292 | 458,477 | |||||||||||||||
Gross profit | 595,365 | 527,840 | 531,397 | 233,188 | 137,565 | |||||||||||||||
Operating expenses | 478,284 | 428,977 | 401,676 | 206,344 | 113,745 | |||||||||||||||
Income from operations | 117,081 | 98,863 | 129,721 | 26,844 | 23,820 | |||||||||||||||
Interest expense, financing costs and other | 11,037 | 10,095 | 8,247 | 16,256 | 2,655 | |||||||||||||||
Income before provision for income taxes | 106,044 | 88,768 | 121,474 | 10,588 | 21,165 | |||||||||||||||
Provision for income taxes | 43,767 | 34,922 | 48,867 | 3,470 | 8,258 | |||||||||||||||
Net income | $ | 62,277 | $ | 53,846 | $ | 72,607 | $ | 7,118 | $ | 12,907 |
September 30, | December 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in thousands) | ||||||||||||||||
Balance Sheet Data: |
||||||||||||||||
ASSETS |
||||||||||||||||
Current assets: |
||||||||||||||||
Cash and cash equivalents | $ | 45,661 | $ | 54,472 | $ | 32,210 | $ | 23,337 | ||||||||
Accounts receivable, net | 399,732 | 360,802 | 489,172 | 269,383 | ||||||||||||
Inventories, net | 320,999 | 301,626 | 466,063 | 314,670 | ||||||||||||
Prepaid expenses and other current assets | 97,928 | 66,828 | 150,384 | 76,975 | ||||||||||||
Deferred income taxes | 2,309 | 14,610 | 31,938 | 14,629 | ||||||||||||
Total current assets | 866,629 | 798,338 | 1,169,767 | 698,994 | ||||||||||||
Property and equipment, net | 90,405 | 88,565 | 145,607 | 88,303 | ||||||||||||
Goodwill | 496,415 | 466,206 | 1,162,111 | 489,325 | ||||||||||||
Intangibles, net | 87,055 | 72,266 | 487,477 | 97,273 | ||||||||||||
Other assets, net | 1,233 | 6,027 | 1,270 | 10,916 | ||||||||||||
TOTAL ASSETS | $ | 1,541,737 | $ | 1,431,402 | $ | 2,966,232 | $ | 1,384,811 | ||||||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||||||||||
Current liabilities: |
||||||||||||||||
Accounts payable | $ | 244,891 | $ | 220,834 | $ | 347,205 | $ | 163,367 | ||||||||
Accrued expenses | 124,794 | 80,285 | 151,547 | 72,738 | ||||||||||||
Borrowings under revolver lines of credit | 11,240 | 18,514 | | 23,289 | ||||||||||||
Current portion of long-term obligations | 16,320 | 16,602 | 14,287 | 16,689 | ||||||||||||
Total current liabilities | 397,245 | 336,235 | 513,039 | 276,083 | ||||||||||||
Long-term debt, net of current portion | 170,200 | 183,131 | 722,888 | 180,657 | ||||||||||||
Borrowings under revolver lines of credit | | | 343,225 | | ||||||||||||
Deferred income taxes | 68,809 | 64,100 | 132,605 | 64,165 | ||||||||||||
Long-term obligations under equipment financing and other, net of current portion | $ | 22,367 | $ | 30,835 | $ | 43,322 | $ | 34,112 | ||||||||
Total liabilities | 658,621 | 614,301 | 1,755,079 | 555,017 | ||||||||||||
Total stockholders equity | 883,116 | 817,101 | 1,211,153 | 829,794 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY | $ | 1,541,737 | $ | 1,431,402 | $ | 2,966,232 | $ | 1,384,811 |
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Year Ended September 30, | Three Months Ended December 31, |
|||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Cash Flow Data: |
||||||||||||||||||||
Net cash provided by operating activities | $ | 109,340 | $ | 55,497 | $ | 78,493 | $ | 44,675 | $ | 40,189 | ||||||||||
Net cash used in investing activities | (104,714 | ) | (37,316 | ) | (89,491 | ) | (943,080 | ) | (72,769 | ) | ||||||||||
Net cash provided by (used in) financing activities | (12,707 | ) | (9,798 | ) | 18,013 | 885,305 | 1,558 | |||||||||||||
Effect of exchange rate changes on cash | (730 | ) | (938 | ) | (193 | ) | (351 | ) | (113 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents | (8,811 | ) | 7,445 | 6,822 | (13,451 | ) | (31,135 | ) | ||||||||||||
Cash and cash equivalents at end of period | 45,661 | 54,472 | 47,027 | 32,210 | 23,337 |
Year Ended September 30, | Three Months Ended December 31, |
|||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Other Financial Data: |
||||||||||||||||||||
EBITDA(1) | $ | 151,746 | $ | 129,398 | $ | 161,297 | $ | 50,515 | $ | 32,077 | ||||||||||
Adjusted EBITDA(1) | 168,660 | 136,820 | 170,563 | 73,396 | 34,425 | |||||||||||||||
Total debt | 218,178 | 243,861 | 262,272 | 1,120,807 | 244,825 | |||||||||||||||
Net debt(2) | 172,517 | 189,389 | 215,245 | 1,088,597 | 221,488 | |||||||||||||||
Depreciation & amortization | 34,862 | 30,294 | 30,415 | 23,671 | 8,257 | |||||||||||||||
Capital expenditures | 20,802 | 37,239 | 26,120 | 2,153 | 3,138 | |||||||||||||||
Cash interest expense | 8,276 | 9,312 | 12,012 | 10,827 | 2,624 | |||||||||||||||
Ratio of earnings to fixed charges(3) | 6.69 | 6.07 | 8.62 | 1.56 | 5.48 | |||||||||||||||
Number of branches at end of period | 274 | 264 | 236 | 360 | 268 |
(1) | Beacon defines EBITDA as net income plus income tax expense, interest expense, net and depreciation and amortization. Beacon defines Adjusted EBITDA as EBITDA plus stock-based compensation and RSG acquisition costs. EBITDA is a measure commonly used in the distribution industry, and we present EBITDA and Adjusted EBITDA to enhance your understanding of our operating performance. An Adjusted EBITDA-based metric is used in our financing covenants and we use EBITDA and Adjusted EBITDA as an internal performance measurement and as one criterion for evaluating our performance relative to that of our peers. We believe that the presentation of EBITDA and Adjusted EBITDA provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Further, we believe that EBITDA and Adjusted EBITDA are useful measures because they improve comparability of results of operations, since purchase accounting used for acquisitions can render depreciation and amortization non-comparable between periods. Management of Beacon uses EBITDA and Adjusted EBITDA to evaluate performance period over period, to analyze the underlying trends in its business and to establish operational goals and forecasts that are used in allocating resources. |
While we believe these are useful measures for investors, they are not presented in accordance with GAAP. You should not consider non-GAAP measures in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. In addition, each of EBITDA and Adjusted EBITDA has inherent material limitations as a performance measure because it adds back certain expenses to net income, resulting in those expenses not being taken into account in the applicable financial measure. For instance, each of EBITDA and Adjusted EBITDA does not include interest expense. Because we have borrowed money, interest expense is a necessary element of our costs. In addition, each of EBITDA and Adjusted EBITDA does not include depreciation and amortization expense. Because we have capital and intangible assets, depreciation and amortization expense is a necessary element of our costs. Adjusted EBITDA also does not include stock-based compensation, which is a necessary element of our costs since we make stock awards to key members of management as an important incentive to maximize overall company performance and as a benefit. Adjusted EBITDA also
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does not include acquisition costs because these are non-recurring costs that we paid or incurred to finance and consummate the RSG Acquisition. Moreover, each of EBITDA and Adjusted EBITDA does not include taxes, and payment of taxes is a necessary element of our operations. Because not all companies use identical calculations, our presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The following table is a reconciliation of our net income to EBITDA and Adjusted EBITDA:
Year Ended September 30, | Three Months Ended December 31, |
|||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net income | $ | 62,277 | $ | 53,846 | $ | 72,607 | $ | 7,118 | $ | 12,907 | ||||||||||
Income tax expense | 44,046 | 34,922 | 48,867 | 3,470 | 8,258 | |||||||||||||||
Interest expense, net | 10,561 | 10,336 | 9,211 | 16,256 | 2,655 | |||||||||||||||
Depreciation and amortization | 34,862 | 30,294 | 30,612 | 23,671 | 8,257 | |||||||||||||||
EBITDA | $ | 151,746 | $ | 129,398 | $ | 161,297 | $ | 50,515 | $ | 32,077 | ||||||||||
Adjustments: |
||||||||||||||||||||
Stock-based compensation | 9,936 | 7,422 | 9,266 | 7,179 | 2,348 | |||||||||||||||
RSG Acquisition costs(a) | 6,978 | | | 15,702 | | |||||||||||||||
Adjusted EBITDA | $ | 168,660 | $ | 136,820 | $ | 170,563 | $ | 73,396 | $ | 34,425 |
(a) | RSG Acquisition costs reflect all non-recurring charges related to the acquisition (excluding the impact of tax) that are not embedded in other balances of the table. Additional RSG Acquisition costs are included in interest expense, income taxes, depreciation and amortization, and stock-based compensation in the table above. |
(2) | Beacon defines net debt as total debt less cash and cash equivalents. While management believes net debt is a useful measure of financial position for investors, it is not presented in accordance with GAAP. |
(3) | For purposes of calculating the ratio of earnings to fixed charges, earnings consist of earnings before provision for income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and approximately 20% of rental expense that Beacon management believes is representative of the interest component of rental expense. |
Year Ended September 30, 2015 |
||||
(in thousands) | ||||
Statement of Operations Data: |
||||
Net sales | $ | 3,707,629 | ||
Cost of products sold | 2,851,404 | |||
Gross profit | 856,225 | |||
Operating expenses | 722,807 | |||
Income from operations | 133,418 | |||
Interest expense, financing costs and other | 50,028 | |||
Income before provision for income taxes | 83,390 | |||
Provision for income taxes | 47,567 | |||
Net income | $ | 35,823 |
Year Ended September 30, 2015 |
||||
(in thousands) | ||||
Unaudited Pro Forma Financial Data: |
||||
Pro Forma EBITDA(1) | $ | 225,862 | ||
Pro Forma Adjusted EBITDA, before cost savings(1) | 255,348 | |||
Pro Forma Adjusted EBITDA, after cost savings(1) | 305,348 |
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(1) | Beacon defines pro forma EBITDA as pro forma net income (loss) plus pro forma income tax expense (benefit), pro forma interest expense, net, and pro forma depreciation and amortization. Beacon defines pro forma Adjusted EBITDA as pro forma EBITDA plus stock-based compensation, sponsor and director fees, minority interest, acquisition costs and other adjustments. EBITDA is a measure commonly used in the distribution industry, and we present EBITDA and Adjusted EBITDA to enhance your understanding of our operating performance. An Adjusted EBITDA-based metric is used in our financing covenants, and we use EBITDA and Adjusted EBITDA as an internal performance measurement and as one criterion for evaluating our performance relative to that of our peers. We believe that the presentation of EBITDA and Adjusted EBITDA provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Further, we believe that EBITDA and Adjusted EBITDA are useful measures because they improve comparability of results of operations, since purchase accounting used for acquisitions can render depreciation and amortization non-comparable between periods. Management uses EBITDA and Adjusted EBITDA to evaluate performance period over period, to analyze the underlying trends in our business and to establish operational goals and forecasts that are used in allocating resources. |
While we believe these are useful measures for investors, they are not presented in accordance with GAAP. You should not consider non-GAAP measures in isolation or as a substitute for net income, cash flows from operations, or any other items calculated in accordance with GAAP. In addition, each of EBITDA and Adjusted EBITDA has inherent material limitations as a performance measure because it adds back certain expenses to net income, resulting in those expenses not being taken into account in the applicable financial measure. For instance, each of EBITDA and Adjusted EBITDA does not include interest expense. Because we have borrowed money, interest expense is a necessary element of our costs. In addition, each of EBITDA and Adjusted EBITDA does not include depreciation and amortization expense. Because we have capital and intangible assets, depreciation and amortization expense is a necessary element of our costs. Adjusted EBITDA also does not include stock-based compensation, which is a necessary element of our costs since we make stock awards to key members of management as an important incentive to maximize overall company performance and as a benefit. Adjusted EBITDA also does not include minority interest, which is a necessary element of RSG Parents costs since RSG Parent has non-controlling interests. Adjusted EBITDA also does not include sponsor & director fees and acquisition costs because these are non-recurring costs that RSG Parent paid to its private equity sponsor and non-employee directors or incurred to finance, consummate and integrate prior acquisitions, as applicable. Moreover, each of EBITDA and Adjusted EBITDA does not include taxes, and payment of taxes is a necessary element of our operations. Accordingly, since EBITDA and Adjusted EBITDA exclude these items, they have material limitations as a performance measure. Management separately monitors capital expenditures, which impacts depreciation expense, as well as amortization expense, interest expense, and income tax expense. Because not all companies use identical calculations, our presentation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The following table is a reconciliation of Beacon and RSG Parent net income (loss) to pro forma EBITDA and pro forma Adjusted EBITDA:
Year Ended September 30, 2015 | ||||||||||||||||
Beacon | RSG Parent |
Pro Forma Adjustments |
Pro Forma Combined |
|||||||||||||
(in thousands) | ||||||||||||||||
Net income (loss) | $ | 62,277 | $ | (23,581 | ) | $ | (2,873 | ) | $ | 35,823 | ||||||
Income tax expense (benefit) | 44,046 | 5,637 | (1,837 | ) | 47,846 | |||||||||||
Interest expense, net | 10,561 | 42,920 | (3,039 | ) | 50,442 | |||||||||||
Depreciation and amortization | 34,862 | 45,158 | 11,731 | 91,751 | ||||||||||||
EBITDA | $ | 151,746 | $ | 70,134 | $ | 3,982 | $ | 225,862 | ||||||||
Adjustments: |
||||||||||||||||
Stock-based compensation | $ | 9,936 | $ | 2,068 | $ | 3,731 | $ | 15,735 | ||||||||
RSG Acquisition one-time transaction costs | 6,978 | 1,705 | 8,683 | |||||||||||||
Sponsor & director fees | 2,497 | 2,497 |
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Year Ended September 30, 2015 | ||||||||||||||||
Beacon | RSG Parent |
Pro Forma Adjustments |
Pro Forma Combined |
|||||||||||||
(in thousands) | ||||||||||||||||
Minority interest | 229 | 229 | ||||||||||||||
Acquisition costs(a) | 118 | 118 | ||||||||||||||
Other adjustments(b) | 2,224 | 2,224 | ||||||||||||||
Total Adjustments | 16,914 | 8,841 | 3,731 | 29,486 | ||||||||||||
Adjusted EBITDA, before cost savings | $ | 168,660 | $ | 78,975 | $ | 7,713 | $ | 255,348 | ||||||||
Estimated cost savings(c) | $ | | $ | | $ | 50,000 | $ | 50,000 | ||||||||
Adjusted EBITDA, after cost savings | $ | 168,660 | $ | 78,975 | $ | 57,713 | $ | 305,348 |
(a) | Acquisition costs primarily relate to the costs incurred by RSG Parent to integrate prior acquisitions. |
(b) | Other adjustments primarily relate to (i) severance compensation paid to terminated employees, (ii) consulting fees paid in connection with certain accounting, financial reporting, corporate development and tax projects, and (iii) a sales and use tax audit reserve related to periods prior to the May 2012 acquisition of RSG by its prior owner that was resolved during 2015. |
(c) | Represents Beacon managements estimated projected annual cost savings from the RSG Acquisition through branch consolidation, general and administrative cost reductions and procurement benefits totaling approximately $50 million, which are expected to be fully implemented beginning with the third year following consummation of the RSG Acquisition. During the first year following closing, we anticipate realizing approximately $30 million of the anticipated $50 million of annual cost savings. During the second year following closing, we anticipate realizing an additional $17 million, or $47 million total, of the anticipated $50 million of annual cost savings. Excludes estimated one-time costs of $25 million over the first two years required to achieve the anticipated annual savings. Anticipated branch consolidation cost savings relate to potential savings achieved through the planned consolidation of branch facilities in overlapping Beacon and RSG regions. Anticipated general and administrative cost savings relate to potential savings achieved through the planned consolidation of corporate support functions and planned consolidation of benefit plans and insurance policies. Anticipated procurement cost savings relate to potential savings achieved through optimized pricing and rebates with existing contractual relationships with suppliers. |
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Exchanging your Old Notes for New Notes involves risks. Before making an investment decision, you should carefully consider all of the information included or incorporated by reference in this prospectus, including the risks described below, and under Risk Factors in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015, which are incorporated by reference in this prospectus. See Where You Can Find More Information. The risks and uncertainties described are not the only ones that we face. Additional risks and uncertainties not known to us or that we deem immaterial may also adversely affect our business, operating results, cash flows and financial condition.
If you do not exchange your Old Notes for New Notes in the exchange offer, then you will continue to be subject to the transfer restrictions on the Old Notes as set forth in the offering memorandum distributed in connection with the private offering of the Old Notes. In general, the Old Notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act and applicable state securities laws. We do not intend to register resales of the Old Notes under the Securities Act. You should refer to Summary The Exchange Offer and The Exchange Offer for information about how to tender your Old Notes.
The tender of Old Notes under the exchange offer will reduce the principal amount of the Old Notes outstanding, which may have an adverse effect upon, and increase the volatility of, the market price of the Old Notes due to reduction in liquidity.
If you do not follow the procedures described herein, you will not receive any New Notes. The New Notes will be issued to you in exchange for Old Notes only if you properly tender the Old Notes to the exchange agent prior to the expiration of the exchange offer. If you want to tender your Old Notes in exchange for New Notes, you should allow sufficient time to ensure timely delivery. No one is under any obligation to give you notification of defects or irregularities with respect to tenders of Old Notes for exchange. If you are the beneficial holder of Old Notes that are held through your broker, dealer, commercial bank, trust company or other nominee, and you wish to tender such Old Notes in the exchange offer, you should promptly contact the person through whom your Old Notes are held and instruct that person to tender on your behalf. For additional information, see the section captioned The Exchange Offer in this prospectus.
In order to comply with the securities laws of certain jurisdictions, the New Notes may not be offered or resold by any holder, unless they have been registered or qualified for sale in such jurisdictions or an exemption from registration or qualification is available and the requirements of such exemption have been satisfied. We currently do not intend to register or qualify the resale of the New Notes in any such jurisdictions. However, generally an exemption is available for sales to registered broker-dealers and certain institutional buyers. Other exemptions under applicable state securities laws also may be available.
Based on interpretations of the staff of the SEC contained in Exxon Capital Holdings Corp., SEC no-action letter (April 13, 1988), Morgan Stanley & Co. Inc., SEC no-action letter (June 5, 1991) and Shearman & Sterling, SEC no-action letter (July 2, 1983), we believe that you may offer for resale, resell or otherwise transfer the New Notes without compliance with the registration and prospectus delivery requirements of the Securities Act. However, in some instances described in this prospectus under Plan of Distribution, certain holders of New Notes will remain obligated to comply with the registration and prospectus delivery requirements of the Securities Act to transfer the New Notes. If such a holder transfers
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any New Notes without delivering a prospectus meeting the requirements of the Securities Act or without an applicable exemption from registration under the Securities Act, such a holder may incur liability under the Securities Act. We do not and will not assume, or indemnify such a holder against, this liability.
Our obligations under the New Notes will be unsecured and will be effectively junior to our secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. Borrowings under the New Senior Secured Credit Facilities will be secured by substantially all of the assets of the Issuer and the guarantors (including any future guarantors), including all of the capital stock of the domestic guarantors. In addition, we may incur additional secured indebtedness in the future.
The New Notes are or will be effectively subordinated to all such secured indebtedness to the extent of the value of that collateral. If an event of default occurs under the ABL Facility or the Term Loan B Facility, the holders of such senior secured indebtedness will have a prior right to our assets, to the exclusion of the holders of the New Notes, even if we are in default with respect to the New Notes. In that event, our assets would first be used to repay in full all indebtedness and other obligations secured by them (including all amounts outstanding under the New Senior Secured Credit Facilities), resulting in all or a portion of our assets being unavailable to satisfy the claims of the holders of the New Notes and other unsecured indebtedness. Other secured indebtedness would have similar priorities in similar circumstances. Therefore, in the event of any distribution or payment of our assets in any foreclosure, dissolution, winding-up, liquidation, reorganization, or other bankruptcy proceeding, holders of the New Notes will participate in our remaining assets ratably with each other and with all holders of our unsecured indebtedness that is deemed to be of the same class as such notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor. As a result, holders of such New Notes may receive less, ratably, than holders of secured indebtedness. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the New Notes.
As of December 31, 2015, we had approximately $800 million of senior secured indebtedness outstanding, consisting of $449 million of borrowings under the Term Loan B Facility and $351 million drawn under the ABL Facility (subject to availability under a borrowing base and excluding approximately $11 million of letters of credit expected to be issued, replaced or cash collateralized, which were outstanding as of December 31, 2015).
The New Notes and the related guarantees would have ranked effectively junior to such outstanding secured indebtedness. The New Senior Secured Credit Facilities permit us to add incremental facilities, subject to certain conditions being satisfied. The Indenture will also permit us, subject to certain limitations, to incur additional secured indebtedness, which could be substantial.
As of December 31, 2015, we had $300 million in aggregate principal amount of the Old Notes outstanding, $449 million incurred under the Term Loan B Facility, $351 million drawn under the ABL Facility, and $19 million of total other indebtedness.
Our substantial debt could have important consequences to us, including:
| increasing our vulnerability to general economic and industry conditions; |
| requiring a substantial portion of our cash flow used in operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our liquidity and our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; |
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| exposing us to the risk of increased interest rates, and corresponding increased interest expense, because future borrowings under the ABL Facility and/or the Term Loan B Facility would be at variable rates of interest; |
| reducing funds available for working capital, capital expenditures, acquisitions and other general corporate purposes, due to the costs and expenses associated with such debt; |
| limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes; and |
| limiting our ability to adjust to changing marketplace conditions and placing us at a competitive disadvantage compared to our competitors who may have less debt. |
In addition, the credit agreements that govern our New Senior Secured Credit Facilities and the Indenture governing the New Notes impose significant operating and financial restrictions on us, including limitations on our ability to, among other things, pay dividends and make other distributions on, or redeem or repurchase, capital stock; make certain investments; incur certain liens; enter into transactions with affiliates; merge or consolidate; enter into agreements that restrict the ability of the Issuers subsidiaries to make dividends or other payments to the Issuer; and transfer or sell assets. As a result of these restrictions, we will be limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to capitalize on available business opportunities.
The amount of cash required to pay interest on our increased indebtedness levels and, thus, the demands on our cash resources, will be substantially greater than the amount of cash flows required to service our historical indebtedness prior to the RSG Acquisition Transactions. Our liquidity at December 31, 2015 included $280 million in net borrowing availability under the ABL Facility (subject to availability under a borrowing base and after giving effect to approximately $11 million of letters of credit expected to be issued, replaced or cash collateralized, which were outstanding as of December 31, 2015 and $32 million of cash on hand. There are no assurances that we will maintain a level of liquidity sufficient to permit us to pay the principal, premium and interest on our indebtedness.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital, or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations, which could cause us to default on our debt obligations and impair our liquidity. In the event of a default under any of our indebtedness, including the New Notes, the holders of the defaulted debt could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest, which in turn could result in cross-defaults under our other indebtedness. The lenders under our New Senior Secured Credit Facilities could also elect to terminate their commitments thereunder and cease making further loans, and such lenders could institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or liquidation.
We may be able to incur significant additional indebtedness in the future. Although the Indenture, the agreements that govern the New Senior Secured Credit Facilities and the applicable agreements governing our other debt instruments contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions are subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. To the extent we incur additional indebtedness or other obligations, the risks described in the immediately preceding risk factor and others described herein may increase.
The Issuer is a holding company that derives all of its operating income from its subsidiaries. Substantially all of the Issuers assets are held by its direct and indirect subsidiaries. The Issuer relies on the
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earnings and cash flows of its subsidiaries, which are paid to it by its subsidiaries in the form of dividends and other payments or distributions, to meet its debt service obligations. Unless they are guarantors of the New Notes, the Issuers subsidiaries do not have any obligation to pay amounts due on the New Notes or to make funds available to the Issuer for that purpose. In the event that the Issuer is unable to receive distributions from subsidiaries, it may be unable to make required principal and interest payments on our indebtedness, including the New Notes.
Each of the Issuers domestic subsidiaries that guarantees the New Senior Secured Credit Facilities will initially guarantee the New Notes, except that Beacon Canada, Inc. (a domestic subsidiary with no material assets other than stock in a foreign subsidiary) will guarantee the borrowings under the ABL Facility by the Canadian subsidiaries of the Issuer but will not guarantee the New Notes or borrowings under the Term Loan B Facility. The Indenture does not require all subsidiaries to guarantee the New Notes. For example, Beacon Canada, Inc. and the Issuers Canadian subsidiaries guarantee Canadian borrowings under the ABL Facility but will not guarantee the New Notes or the Term Loan B Facility. Claims of holders of the New Notes will be structurally subordinated to the claims of creditors of these non-guarantor subsidiaries, including trade creditors, and will not be satisfied from the assets of these non-guarantor subsidiaries until their creditors are paid in full. In addition, the guarantee of a subsidiary guarantor will be released in connection with the sale of such subsidiary guarantor in a transaction not prohibited by the Indenture or upon certain other events described in Description of New Notes Subsidiary Guarantees.
For the fiscal year ended September 30, 2015 after giving pro forma effect to the RSG Acquisition Transactions, the two subsidiaries of the Issuer that will not be subsidiary guarantors on the date the New Notes are first issued represented $3.0 million, or approximately 8.4%, of pro forma net income. As of December 31, 2015, these two non-guarantor subsidiaries represented $97.4 million, or approximately 3.3%, of total assets and $58.5 million, or approximately 3.3%, of pro forma total liabilities, $7.2 million of which was indebtedness. The Indenture, subject to certain limitations, permits these non-guarantor subsidiaries to incur additional debt and does not limit their ability to incur other liabilities that are not considered indebtedness under the Indenture, such as trade payables.
While any obligations under the Term Loan B Facility remain outstanding, any guarantee of the New Notes may be released without action by, or consent of, any holder of the New Notes or the trustee under the Indenture that will govern the New Notes if the related guarantor is no longer a guarantor of the Term Loan B Facility. See Description of New Notes Subsidiary Guarantees. You will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the New Notes, and the indebtedness and other liabilities, including trade payables, of those subsidiaries will effectively be senior to claims of any holders of the New Notes. See Claims of holders of the New Notes will be structurally subordinated to claims of creditors of certain of our subsidiaries that will not guarantee the New Notes.
If we become a debtor in a case under the Bankruptcy Code or encounter other financial difficulty under federal or state fraudulent transfer law, a court may void or otherwise decline to enforce the New Notes or the subsidiary guarantees. A court might do so if it found that when we issued the New Notes, or in some states when payments became due under the New Notes, we received less than reasonably equivalent value or fair consideration and:
| were insolvent or rendered insolvent by reason of such incurrence; |
| were left with inadequate capital to conduct our business; |
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| believed or reasonably should have believed that we would incur debts beyond our ability to pay; or |
| were a defendant in an action for money damages or had a judgment for money damages docketed against us if, in either case, the judgment is unsatisfied after final judgment. |
A court would likely find that we did not receive reasonably equivalent value or fair consideration for the New Notes if we did not substantially benefit directly or indirectly from the issuance of the New Notes. If a court were to void the issuance of the New Notes or a subsidiary guarantee, you would no longer have any claim against the Issuer or the subsidiary guarantor, as applicable. Sufficient funds to repay the New Notes may not be available from other sources, including the remaining guarantors, if any. In addition, the court might direct you to repay any amounts that you already received from us. In the event of a finding that a fraudulent transfer or conveyance occurred, you may not receive any repayment on the New Notes. Further, the avoidance of the New Notes could result in an event of default with respect to our and our subsidiaries other debt, which could result in acceleration of that debt. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, we would be considered insolvent if:
| the sum of our debts, including contingent liabilities, was greater than the fair saleable value of all of our assets; |
| if the present fair saleable value of our assets was less than the amount that would be required to pay our probable liability on our existing debts, including contingent liabilities, as they become absolute and mature; or |
| we could not pay our debts as they become due. |
On the basis of historical financial information, recent operating history and other factors, we believe that we, after giving effect to these New Notes, will not be insolvent, will not have unreasonably small capital for the business in which we are engaged and will not have incurred debts beyond our ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions.
Finally, as a court of equity, the bankruptcy court may subordinate the claims in respect of the New Notes to other claims against us under the principle of equitable subordination if the court determines that (a) the holder of New Notes engaged in some type of inequitable conduct, (b) the inequitable conduct resulted in injury to our other creditors or conferred an unfair advantage upon the holders of New Notes and (c) equitable subordination is not inconsistent with the provisions of the Bankruptcy Code.
Upon a change of control, as defined under the Indenture, you will have the right to require us to offer to purchase all of the New Notes then outstanding at a price equal to 101% of the principal amount of the New Notes, plus accrued interest. In order to obtain sufficient funds to pay the purchase price of the outstanding New Notes, we expect that we would have to refinance the New Notes. We cannot assure you that we would be able to refinance the New Notes on reasonable terms, if at all. Our failure to offer to purchase all outstanding notes or to purchase all validly tendered New Notes would be an event of default under the Indenture.
The occurrence of a change of control would also constitute a default under the credit agreements governing the New Senior Secured Credit Facilities. These agreements prohibit, and future debt agreements may also prohibit, us from repurchasing the New Notes upon a change or control unless our indebtedness under such agreements has been repurchased or repaid and/or other specified requirements have been met. Moreover, the exercise by holders of their right to require us to repurchase the New Notes could cause a default under future debt agreements, even if the change of control itself does not, due to the financial effect of such repurchase on us.
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Certain important corporate events, such as leveraged recapitalizations, may not, under the Indenture, constitute a change of control that would require us to repurchase the New Notes, notwithstanding the fact that such corporate events could increase the level of our indebtedness or otherwise adversely affect our capital structure, credit ratings or the value of the New Notes. Therefore, we could, in the future, enter into certain transactions, including acquisitions, reorganizations, refinancings or other recapitalizations, which would not constitute a change of control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect our capital structure or credit ratings.
The definition of change of control in the Indenture includes a phrase relating to the sale of all or substantially all of the assets of the Issuer and its restricted subsidiaries. Although there is a developing body of case law interpreting the phrase substantially all, there is no precise definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of all or substantially all of the assets of the Issuer and its restricted subsidiaries and therefore it may be unclear as to whether a change of control has occurred and whether the holders of the New Notes have the right to require us to repurchase such notes. See Description of New Notes Change of Control.
There is no existing trading market for the New Notes. As a result, there can be no assurance that a liquid market will develop or be maintained for the New Notes, that holders will be able to sell any of the New Notes at a particular time (if at all) or that the prices holders receive if or when they sell the New Notes will be above their initial offering price. If the New Notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending on prevailing interest rates, the market for similar securities, the price and volatility in the price of our common stock, our performance and other factors. We do not intend to list the New Notes on any national securities exchange. The liquidity of any market for the New Notes will depend on a number of factors, including:
| changes in the overall market for securities similar to the New Notes; |
| changes in our financial performance or prospects; |
| the prospects for companies in our industry generally; |
| the number of holders of the New Notes; |
| the conditions of the financial markets; |
| the interest of securities dealers in making a market in the New Notes; and |
| prevailing interest rates. |
An active market for the New Notes may not develop and, if it develops, may not continue.
The New Notes offered hereby will have a non-investment grade rating on the closing date. In the future, the rating of the New Notes could be lowered or withdrawn entirely by a rating agency if, in that rating agencys judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. Credit ratings are not recommendations to purchase, hold or sell the New Notes, and may be revised or withdrawn at any time. Additionally, credit ratings may not reflect the potential effect of risks relating to the structure or marketing of the New Notes. If the credit rating of the New Notes is subsequently lowered or withdrawn for any reason, you may not be able to resell your New Notes without a substantial discount.
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The Indenture provides that certain covenants will be suspended if the New Notes are rated investment grade by both S&P and Moodys, and no default or event of default has otherwise occurred and is continuing under the Indenture. If the New Notes are subsequently downgraded below investment grade, such covenants will be reinstated. The covenants that would be suspended include, among others, limitations on our and our restricted subsidiaries ability to pay dividends, make restricted payments, incur indebtedness, sell certain assets and enter into certain other transactions. Any actions that we take while these covenants are not in force will be permitted even if the covenants are subsequently reinstated. There can be no assurance that the New Notes will ever be rated investment grade, or that if they are rated investment grade, the New Notes will maintain such ratings. See Description of New Notes Suspension of Covenants.
On October 1, 2015, we completed the RSG Acquisition, the largest acquisition in our companys history (as measured by purchase price, total revenue, and number of branches of acquired business). The integration of RSG is a complex, costly and time-consuming process, and the significant size and scale of RSG increases the risks to which we are subject relative to other acquired businesses. Such risks include the following:
| While we anticipate that the RSG Acquisition could result in approximately $50 million in annual run-rate synergies within approximately two years following the closing of the acquisition, realization of these synergies depends on our ability to successfully integrate RSGs business with our current operations. If we experience difficulties or delays with the RSG integration process, these anticipated synergies and other financial and operational benefits may not be realized fully or at all, or may take longer to realize than expected. |
| The integration process could result in the loss of key employees, diversion of management attention or disruption of either companys ongoing business that adversely affect the Combined Companys ability to maintain relationships with customers, suppliers, vendors and employees or to achieve the anticipated benefits and cost savings of the RSG Acquisition, any of which may adversely affect our business, financial condition and results of operations. |
| Our Combined Company has incurred and will continue to incur a number of significant non-recurring costs associated with the RSG Acquisition and the related integration process. One-time costs to achieve the anticipated cost savings are estimated to be $25 million over the first two years following closing. If additional unanticipated costs are incurred during the RSG integration, such costs may offset or negate anticipated efficiencies related to the RSG Acquisition. |
The unaudited pro forma condensed combined financial information included in this prospectus is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the RSG Acquisition been completed on the dates indicated. This information reflects adjustments, which are based upon preliminary estimates, to allocate the consideration paid in connection with the RSG Acquisition to RSGs identifiable net assets. Following the completion of the purchase price allocation promptly after the end of the second quarter of the current fiscal year, there may be further refinements of the allocation as additional information becomes available. Accordingly, the final accounting adjustments related to the consideration paid in connection with the RSG Acquisition may differ materially from the pro forma adjustments reflected herein. See Unaudited Pro Forma Condensed Combined Financial Information and the accompanying notes.
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Following the consummation of the RSG Acquisition, CD&R Roadhouse Holdings, L.P. (the CD&R Stockholder), an entity affiliated with the Clayton Dubilier & Rice, LLC private investment firm and the former controlling stockholder of RSG, became our largest stockholder. As of March 16, 2016, the CD&R Stockholder beneficially owns approximately 14.4% of our outstanding common stock. The CD&R Stockholder (together with its permitted transferees) may sell its shares (which are restricted) under certain circumstances, including pursuant to a registered underwritten public offering under the Securities Act or in accordance with Rule 144 under the Securities Act. We have entered into a registration rights agreement with the CD&R Stockholder, which will give this holder (together with its permitted transferees) the right to require us to register all or a portion of its shares at certain times, subject to certain conditions and restrictions. The sale of a substantial number of our shares by these or other significant stockholders within a short period of time could cause our stock price to decrease.
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We will not receive any proceeds from the exchange offer. Any Old Notes that are properly tendered and exchanged pursuant to the exchange offer will be retired and cancelled.
The following table contains our ratio of earnings to fixed charges for the periods indicated. For purposes of computing the ratio of earnings to fixed charges for the periods set forth below, earnings consist of earnings before provision for income taxes plus fixed charges. Fixed charges consist of interest expense, amortization of deferred financing fees and approximately 20% of rental expense that Beacon management believes is representative of the interest component of rental expense
For the fiscal year ended September 30, |
For the three months ended December 31, 2015 |
|||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | 2015 | 2014 | ||||||||||||||||||||||
Ratio of earnings to fixed charges | 6.69x | 6.07x | 8.62x | 6.47x | 5.83x | 1.56x | 5.48x |
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The accompanying unaudited pro forma condensed combined statement of operations for the fiscal year ended September 30, 2015 and the related notes thereto have been derived by the application of pro forma adjustments based upon the historical financial statements of Beacon and RSG Parent, giving effect to the RSG Acquisition Transactions and related adjustments described in the accompanying notes.
The unaudited pro forma condensed combined statement of operations for the fiscal year ended September 30, 2015 gives effect to the RSG Acquisition Transactions as if they had been consummated on October 1, 2014 and combines Beacons historical results for the fiscal year ended September 30, 2015 with RSG Parents historical results for the twelve-month period ended September 30, 2015, which was derived by adding RSG Parents audited statement of operations information for the fiscal year ended December 31, 2014 to the unaudited statement of operations information for the nine months ended September 30, 2015 and subtracting the corresponding unaudited statement of operations information for the nine months ended September 30, 2014. Beacons fiscal year ends on September 30, while RSG Parents fiscal year ends on December 31.
The unaudited pro forma condensed combined statement of operations reflects adjustments to Beacons and RSG Parents historical consolidated financial information that are (i) directly attributable to the RSG Acquisition Transactions, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The final purchase price allocation for the RSG Acquisition Transactions will be completed promptly following the end of the second quarter of the current fiscal year. Any final adjustments may change the allocation of purchase price, which could result in a change to the unaudited pro forma condensed combined financial information, including goodwill. The result of the final purchase price allocation could be materially different from the preliminary allocation set forth herein. The unaudited pro forma condensed combined statement of operations data does not reflect any cost savings, including the anticipated $50 million in annual run-rate synergies described elsewhere in this prospectus (or associated costs to achieve such savings), utilization of RSG Parents net operating loss carryforwards or other restructuring that may result from the RSG Acquisition Transactions. Synergies and integration costs have been excluded from consideration because they do not meet the criteria for unaudited pro forma adjustments.
The unaudited pro forma condensed combined statement of operations is provided for informational and illustrative purposes only and should be read in conjunction with (i) the audited consolidated financial statements and the notes related thereto for Beacon for the fiscal years ended September 30, 2015, 2014 and 2013 and as of September 30, 2015 and 2014, and the unaudited consolidated financial statements and the notes related thereto for Beacon as of and for the three months ended December 31, 2015 and 2014, each of which is included elsewhere in this prospectus, and (ii) the audited consolidated financial statements and the notes related thereto for RSG Parent for the year ended December 31, 2014 and as of December 31, 2014, and the unaudited consolidated financial statements and the notes related thereto for RSG Parent for the nine months ended September 30, 2015 and 2014 and as of September 30, 2015, each of which is incorporated by reference into this prospectus. The unaudited pro forma condensed combined statement of operations is not intended to represent or be indicative of the consolidated results of operations or financial position of Beacon that would have been reported had the RSG Acquisition Transactions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Beacon following the consummation of the RSG Acquisition Transactions. We therefore caution you not to place undue reliance on the unaudited pro forma condensed combined statement of operations.
The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting for business combinations under the guidance in Accounting Standards Codification (ASC) Topic 805, Business Combinations.
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Historical | Pro Forma Adjustments |
Note Ref |
Pro Forma Combined | |||||||||||||||||
Beacon | RSG Parent | |||||||||||||||||||
(in thousands, other than share and per share amounts) | ||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Net sales | $ | 2,515,169 | $ | 1,192,460 | $ | | $ | 3,707,629 | ||||||||||||
Cost of products sold | 1,919,804 | 931,600 | | 2,851,404 | ||||||||||||||||
Gross profit | 595,365 | 260,860 | | 856,225 | ||||||||||||||||
Operating expenses | 478,284 | 236,774 | 7,749 | 3(a), 3(b), 3(c) |
722,807 | |||||||||||||||
Income (loss) from operations | 117,081 | 24,086 | (7,749 | ) | 133,418 | |||||||||||||||
Interest expense, financing costs and other | 11,037 | 42,030 | (3,039 | ) | 3(d) | 50,028 | ||||||||||||||
Income (loss) before provision for income taxes | 106,044 | (17,944 | ) | (4,710 | ) | 83,390 | ||||||||||||||
Provision (benefit) for income taxes |
43,767 | 5,637 | (1,837 | ) | 3(e) | 47,567 | ||||||||||||||
Net income (loss) | $ | 62,277 | $ | (23,581 | ) | $ | (2,873 | ) | $ | 35,823 | ||||||||||
Net income per share: |
||||||||||||||||||||
Basic | $ | 1.26 | $ | 0.61 | ||||||||||||||||
Diluted | $ | 1.24 | $ | 0.60 | ||||||||||||||||
Weighted average shares used in computing net income per share: |
||||||||||||||||||||
Basic | 49,578,130 | 9,037,789 | 3(f) | 58,615,919 | ||||||||||||||||
Diluted | 50,173,478 | 9,416,075 | 3(f) | 59,589,553 |
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On October 1, 2015, Beacon completed the acquisition of RSG Parent for approximately $1.2 billion in total consideration, consisting of cash, Beacon stock, Beacon stock options, and the assumption of RSG Parents long-term debt.
The Unaudited Pro Forma Condensed Combined Financial Information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations.
(a) | In accordance with ASC 805, the estimated purchase price of RSG Parent has been allocated on a preliminary basis to the fair value of its assets and liabilities. The preliminarily determined fair value for definite-lived intangible assets (customer relationships) is approximately $318.7 million. The preliminarily determined fair value for property and equipment is $58.0 million. This adjustment primarily increases operating expenses for incremental amortization and depreciation expense based on the fair value of definite-lived intangible assets and property and equipment acquired as follows: |
(in thousands) | Year Ended September 30, 2015 |
|||
Estimated pro forma amortization and depreciation | $ | 56,889 | ||
Historical amortization and depreciation | (45,158 | ) | ||
Incremental amortization | $ | 11,731 |
Definite lived intangible assets consisting of amounts assigned to customer relationships of approximately $318.7 million are expected to be amortized over their estimated life of 20 years on an accelerated basis. Estimated future amortization for the five year period following the closing date of the RSG Acquisition is $48.1 million, $57.1 million, $46.7 million, $37.6 million, and $30.0 million for the years ending September 30, 2016, 2017, 2018, 2019, and 2020, respectively.
(b) | As part of the RSG Acquisition, Beacon issued unvested non-qualified stock options exercisable into 661,349 shares of Beacon common stock (as replacements for unvested stock options in RSG Parent that were cancelled upon closing of the RSG Acquisition). The net adjustment records the effects of share based compensation expense of approximately $3.7 million for the fiscal year ended September 30, 2015, as if the replacement awards were issued as of October 1, 2014. |
(c) | As part of the RSG Acquisition, Beacon and RSG Parent incurred certain transaction costs that have been expensed in the historical condensed statements of operations for the year ended September 30, 2015. This adjustment reflects the reversal of approximately $7.7 million of such costs. |
(d) | To consummate the RSG Acquisition, Beacon entered into a $700.0 million ABL Facility, of which $350.0 million was drawn on the closing date. Beacon also entered into a $450.0 million Term Loan B Facility and issued $300.0 million of aggregate principal amount of senior unsecured notes, the proceeds of which were used to effect the RSG Acquisition and repay and refinance outstanding borrowings of Beacon and RSG Parent. Based on the interest rates on these debt financings in |
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connection with the RSG Acquisition Transactions and the fees and costs related thereto, the pro forma adjustment to interest expense is as follows: |
(in thousands) | Year Ended September 30, 2015 |
|||
Interest expense on financing incurred in connection with the RSG Transaction | $ | 43,513 | ||
Amortization of deferred financing costs recorded in connection with the RSG Transaction | 4,779 | |||
Reverse interest expense recorded in RSG Parents historical results, net of deferred financing fees and capital lease interest | (37,399 | ) | ||
Reverse interest expense recorded in RSG Parents historical results related to deferred financing costs | (5,539 | ) | ||
Reverse interest expense recorded in Beacon's historical results related to interest expense, net of deferred financing fees | (7,307 | ) | ||
Reverse interest expense recorded in Beacon's historical results related to deferred financing costs | (1,086 | ) | ||
Total pro forma adjustment to interest expense | $ | (3,039 | ) |
This adjustment is based on an assumed weighted average interest rate on the new indebtedness of approximately 4.0%. A hypothetical 1/8% increase or decrease in the expected weighted average interest rate, including from an increase in LIBOR, would increase or decrease interest expense on Beacons financing by approximately $1.0 million annually.
(e) | For purposes of the Unaudited Pro Forma Condensed Combined Statement of Operations, the combined United States federal and state statutory tax rate of approximately 39% has been applied to the net pro forma adjustments for the year ended September 30, 2015. This does not reflect Beacons effective tax rate, which includes other tax items such as tax charges or benefits, and does not take into account any historical or possible future tax events that may impact Beacon in the future. |
(f) | As a result of the RSG Acquisition, Beacon issued 9,037,789 shares of Beacon common stock to the former shareholders of RSG Parent and issued 661,349 stock options in exchange for unvested stock options in RSG Parent. The effect of those issuances have been included in the computation of basic and diluted net income per share as if such shares had been issued as October 1, 2014. |
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On October 1, 2015, we privately placed $300,000,000 aggregate principal amount of Old Notes in a transaction exempt from registration under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless so registered or unless an exemption from the Securities Act registration requirements is available. In the registration rights agreement, we agreed to file a registration statement with the SEC relating to the exchange offer and upon effectiveness of the exchange offer registration statement, promptly commence an exchange offer. In addition, we have agreed to keep the exchange offer open for at least twenty (20) business days after the date on which we mail or send notice of the exchange offer to holders of the Old Notes. The New Notes are being offered under this prospectus to satisfy our obligations under the registration rights agreement.
Subject to terms and conditions detailed in this prospectus, we will accept for exchange Old Notes which are properly tendered on or prior to the expiration date and not withdrawn as permitted below. As used herein, the term expiration date means 5:00 p.m., New York City time, on , 2016, the twentieth (20th) business day following the date of this prospectus. We may, however, in our sole discretion, extend the period of time during which the exchange offer is open. If extended, the term expiration date means the latest time and date to which the exchange offer is extended.
As of the date of this prospectus, $300,000,000 aggregate principal amount of Old Notes are outstanding. This prospectus, together with the letter of transmittal and related documentation, is first being sent on or about the date hereof, to all holders of Old Notes known to us.
We expressly reserve the right, at any time, to extend the period of time during which the exchange offer is open, and delay acceptance for exchange of any Old Notes, by giving written notice of such extension to the holders thereof as described below. During any such extension, all Old Notes previously tendered will remain subject to the exchange offer and may be accepted for exchange by us. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer.
Old Notes tendered in the exchange offer must be in denominations of principal amount of $2,000 or larger integral multiples of $1,000.
We expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any Old Notes, upon the occurrence of any of the conditions of the exchange offer specified under Conditions to the Exchange Offer. We will give written notice of any extension, amendment, non-acceptance or termination to the holders of the Old Notes as promptly as practicable. Such notice, in the case of any extension, will be issued by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.
The tender to us of Old Notes by you as set forth below and our acceptance of the Old Notes will constitute a binding agreement between us and you upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal and related documentation. A holder need not submit a letter of transmittal if the holder tenders Old Notes in accordance with the procedures mandated by DTCs ATOP. To tender Old Notes without submitting a letter of transmittal, the electronic instructions sent to DTC and transmitted to the exchange agent must contain your acknowledgment of receipt of and your agreement to be bound by and to make all of the representations contained in the letter of transmittal. In all other cases, a letter of transmittal must be manually executed and delivered as described in this prospectus.
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Only a holder of record of Old Notes may tender Old Notes in the exchange offer. To tender in the exchange offer, a holder must either:
| complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal, have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires and deliver the letter of transmittal or facsimile, together with the certificates representing the Old Notes specified therein, to the exchange agent on or prior to the expiration date; or |
| in lieu of delivering a letter of transmittal, instruct DTC to transmit on behalf of the holder a computer-generated message to the exchange agent in which the holder of the Old Notes acknowledges and agrees to be bound by the terms of the letter of transmittal, which computer-generated message (an agents message) must be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date, and comply with DTCs procedures for book entry transfer described below on or prior to the expiration date. |
To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under Exchange Agent before expiration of the exchange offer. To receive confirmation of valid tender of Old Notes, a holder should contact the exchange agent at the telephone number listed under Exchange Agent.
The tender by a holder that is not withdrawn before expiration of the exchange offer will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. Only a registered holder of Old Notes may tender the Old Notes in the exchange offer. If a holder completing a letter of transmittal tenders less than all of the Old Notes held by this holder, this tendering holder should fill in the applicable box of the letter of transmittal. The amount of Old Notes delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated.
The method of delivery of Old Notes, letters of transmittal and all other required documents is at your election and risk. If such delivery is by mail, it is recommended that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery. You may request your broker, dealer, commercial bank, trust company or nominee to effect these transactions for you. No letter of transmittal or Old Notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed unless the Old Notes surrendered for exchange are tendered:
| by a holder of the Old Notes who has not completed the box entitled Special Issuance Instructions or Special Delivery Instructions on the letter of transmittal, or |
| for the account of an eligible institution (as defined herein). |
In the event that signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, such guarantees must be by a firm which is a member of the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange Medallion Program (each such entity being hereinafter referred to as an eligible institution). If Old Notes are registered in the name of a person other than the signer of the letter of transmittal, the Old Notes surrendered for exchange must be endorsed by, or be accompanied by a written instrument or instruments of transfer or exchange, in satisfactory form as we or the exchange agent determine in our sole discretion, duly executed by the registered holders with the signature thereon guaranteed by an eligible institution.
We in our sole discretion will make a final and binding determination on all questions as to the validity, form, eligibility (including time of receipt) and acceptance of Old Notes tendered for exchange. We reserve the absolute right to reject any and all tenders of any particular Old Note not properly tendered or to not accept any particular Old Note which acceptance might, in our judgment or our counsels, be unlawful. We also reserve the absolute right to waive any defects or irregularities or conditions of the exchange offer as to any particular Old Note either before or after the expiration date (including the right to waive the ineligibility of any holder who seeks to tender Old Notes in the exchange offer). Our interpretation of the terms and conditions of the exchange offer as to any particular Old Note either before or after the expiration date
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(including the letter of transmittal and the instructions thereto) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes for exchange must be cured within a reasonable period of time, as we determine. We are not, nor is the exchange agent or any other person, under any duty to notify you of any defect or irregularity with respect to your tender of Old Notes for exchange, and no one will be liable for failing to provide such notification.
If the letter of transmittal or any Old Notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us or the exchange agent, proper evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal.
By tendering Old Notes, you represent to us that, among other things, (i) the New Notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the person receiving such New Notes, whether or not such person is the holder, (ii) neither the holder nor such other person has any arrangement or understanding with any person to participate in the distribution of the New Notes, (iii) neither you nor, to your knowledge, any other person receive New Notes from you is an affiliate (as defined under Rule 405 of the Securities Act), and (iv) if you are not a broker-dealer, neither you nor, to your knowledge, any other person receiving New Notes from you is engaging or intends to engage in a distribution of the New Notes.
If you are our affiliate, as defined under Rule 405 under the Securities Act, and engage in or intend to engage in or have an arrangement or understanding with any person to participate in a distribution of such New Notes to be acquired pursuant to the exchange offer, you or any such other person:
| may not rely on the applicable interpretations of the staff of the SEC; and |
| must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. |
Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will comply with the applicable provisions of the Securities Act (including, but not limited to, delivery of a prospectus in connection with any resale of such New Notes). See Plan of Distribution. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an underwriter within the meaning of the Securities Act.
Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all Old Notes properly tendered and not validly withdrawn and will issue the New Notes promptly after acceptance of the Old Notes. See Conditions to the Exchange Offer. For purposes of the exchange offer, we will be deemed to have accepted properly tendered Old Notes for exchange if and when we give oral (confirmed in writing) or written notice to the exchange agent.
The holder of each Old Note accepted for exchange will receive a New Note in the amount equal to the surrendered Old Note. Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the exchange offer will receive interest accruing from the most recent date to which interest has been paid on the Old Notes. Holders of New Notes will not receive any payment in respect of accrued interest on Old Notes otherwise payable on any interest payment date, the record date for which occurs on or after the consummation of the exchange offer.
In all cases, issuance of New Notes for Old Notes that are accepted for exchange will be made only after timely receipt by the exchange agent of:
| certificates for such Old Notes or a timely book-entry confirmation of such Old Notes into the exchange agents account at DTC, |
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| a properly completed and duly executed letter of transmittal or an agents message in lieu thereof, and |
| all other required documents. |
If any tendered Old Notes are not accepted for any reason set forth in the terms and conditions of the exchange offer or if Old Notes are submitted for a greater principal amount than the holder desires to exchange, such unaccepted or non-exchanged Old Notes will be returned without expense to the tendering holder or, in the case of Old Notes tendered by book entry transfer, such non-exchanged Old Notes will be credited to an account maintained with DTC promptly after the expiration or termination of the exchange offer.
For purposes of the exchange offer, the exchange agent will request that an account be established with respect to the Old Notes at DTC, unless the exchange agent has already established an account with DTC suitable for the exchange offer. Any financial institution that is a participant in DTC may make book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into the exchange agents account at DTC in accordance with DTCs procedures for transfer.
Such participant should transmit its acceptance to DTC on or prior to the expiration date. DTC will verify such acceptance, execute a book-entry transfer of the tendered old notes into the exchange agents account at DTC and then send to the exchange agent confirmation of such book-entry transfer. The confirmation of such book-entry transfer will include an Agents Message confirming that DTC has received an express acknowledgment from such participant that such participant has received and agrees to be bound by the Letter of Transmittal and that we may enforce the Letter of Transmittal against such participant. Notwithstanding the foregoing, the Letter of Transmittal or facsimile thereof or an Agents Message, with any required signature guarantees and any other required documents, must be transmitted to and received by the exchange agent at the address set forth below under the heading The Exchange Agent on or prior to the expiration date.
You may withdraw your tender of Old Notes at any time prior to 5:00 p.m., New York City time, on the expiration date. To be effective, the exchange agent must receive a computer-generated notice of withdrawal transmitted by DTC on behalf of the holder in accordance with the standard operating procedures of DTC, or a written or facsimile notice of withdrawal at one of the addresses set forth below under Exchange Agent. This notice must:
| specify the name of the person having tendered the Old Notes to be withdrawn, |
| identify the Old Notes to be withdrawn (including the certificate number(s) of the outstanding Old Notes physically delivered) and aggregate principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name of the account at DTC, |
| be signed by the holder of those Old Notes in the same manner as the original letter of transmittal, including any signature guarantees, or be accompanied by evidence satisfactory to us that the person withdrawing the tender has succeeded to the beneficial ownership of the Old Notes, |
| contain a statement that the holder is withdrawing his election to have the Old Notes exchanged, and |
| specify where certificates for Old Notes have been transmitted (if physically delivered), and the name in which such Old Notes are registered, if different from that of the withdrawing holder. |
If certificates for Old Notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an eligible institution, unless such holder is an eligible institution. If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes and otherwise comply with the procedures of DTC.
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We will make a final and binding determination on all questions as to the validity, form and eligibility (including time of receipt) of such notices. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer. Any Old Notes tendered for exchange but not exchanged for any reason will be returned to the holder without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the exchange agents account at DTC pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with DTC for the Old Notes promptly after withdrawal, rejection of tender or termination of the exchange offer). Properly withdrawn Old Notes may be retendered by following one of the procedures described under Procedures for Tendering Old Notes above at any time on or prior to the expiration date.
Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or issue any New Notes for, any Old Notes, and may terminate or amend the exchange offer before the acceptance of the Old Notes, if:
(a) | we determine that the exchange offer violates any applicable law or applicable interpretation of the staff of the SEC; |
(b) | an action or proceeding has been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer, or a material adverse development has occurred in any existing action or proceeding with respect to the Issuer; or |
(c) | we determine that we have not obtained all governmental approvals that we deem necessary for the consummation of the exchange offer. |
The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any condition or may be waived by us in whole or in part at any time in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights will not be deemed a waiver of any such right and each such right will be deemed an ongoing right which may be asserted at any time.
In addition, we will not accept for exchange any Old Notes tendered, and no New Notes will be issued in exchange for any such Old Notes, if at such time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the Indenture under the Trust Indenture Act of 1939. In any such event, we must use commercially reasonable efforts to obtain the withdrawal of any stop order as soon as practicable.
We have appointed U.S. Bank National Association as the exchange agent for the exchange offer. All executed letters of transmittal should be directed to the exchange agent at the address set forth below. Questions, requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guarantee delivery or the notice of withdrawal should be directed to the exchange agent addressed as follows:
By Hand, Overnight Delivery or Mail (Registered or Certified Mail Recommended): |
By Facsimile Transmission (for eligible institutions only): |
|
U.S. Bank National Association 60 Livingston Avenue St. Paul, MN 55107 Attention: Specialized Finance |
(651) 466-7372 Attention: Specialized Finance Fax cover sheets should provide a call-back number and request a call back, upon receipt. Confirm receipt by calling: (800) 934-6802 |
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DELIVERY OF THE LETTER OF TRANSMITTAL OR A NOTICE OF WITHDRAWAL TO AN ADDRESS OTHER THAN AS SHOWN ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL OR A NOTICE OF WITHDRAWAL.
We will pay the exchange agent customary fees for its services, reimburse the exchange agent for its reasonable out-of-pocket expenses incurred in connection with the provision of these services and pay other registration expenses, including fees and expenses of the trustee under the Indenture relating to the New Notes, filing fees, blue sky fees and printing and distribution expenses. We will not make any payment to brokers, dealers or others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person by our and our affiliates officers and regular employees and by persons so engaged by us.
We will record the New Notes at the same carrying value as the Old Notes, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes. The expenses of the exchange offer will be amortized over the term of the New Notes.
If you do not exchange your Old Notes for New Notes in the exchange offer, your Old Notes will continue to be subject to the provisions of the Indenture relating to the New Notes regarding transfer and exchange of the Old Notes and the restrictions on transfer of the Old Notes described in the legend on your Old Notes. These transfer restrictions are required because the Old Notes were issued under an exemption from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We do not plan to register the Old Notes under the Securities Act. Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties, we believe that the New Notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act. However, you will not be able to freely transfer the New Notes if:
| you are our affiliate, as defined in Rule 405 under the Securities Act; |
| you are not acquiring the New Notes in the exchange offer in the ordinary course of your business; |
| at the time of commencement of the exchange offer, you or anyone receiving New Notes from you, has any arrangement or understanding with any person to participate in the distribution, as defined in the Securities Act, of the New Notes in violation of the Securities Act; or |
| if you are a broker-dealer that will receive the New Notes for your own account in exchange for Old Notes that were acquired by you as a result of your market-making or other trading activities. For further information regarding resales of the New Notes by participating broker-dealers, see the discussion under the caption Plan of Distribution. |
We do not intend to request the SEC to consider, and the SEC has not considered, the exchange offer in the context of a similar no-action letter. As a result, we cannot guarantee that the staff of the SEC would make a similar determination with respect to the exchange offer as in the circumstances described in the no action letters discussed above. Each holder, other than a broker-dealer, must acknowledge that it is not engaged in, and does not intend to engage in, a distribution of New Notes and has no arrangement or understanding to participate in a distribution of New Notes. If you are our affiliate, are engaged in or intend to engage in a distribution of the New Notes or have any arrangement or understanding with respect to the distribution of the New Notes you will receive in the exchange offer, you may not rely on the applicable interpretations of the staff of the SEC and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction involving the New Notes. If you are a participating
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broker-dealer, you must acknowledge that you will deliver a prospectus in connection with any resale of the New Notes. In addition, to comply with state securities laws, you may not offer or sell the New Notes in any state unless they have been registered or qualified for sale in that state or an exemption from registration or qualification is available and is complied with. The offer and sale of the New Notes to qualified institutional buyers (as defined in Rule 144A of the Securities Act) is generally exempt from registration or qualification under state securities laws. We do not plan to register or qualify the sale of the New Notes in any state where an exemption from registration or qualification is required and not available.
When the Old Notes were issued, we entered into a registration rights agreement with the initial purchaser of the Old Notes. In such agreement, we and the subsidiary guarantor agreed for the benefit of the holders of the Old Notes to (1) use our reasonable best efforts to file a registration statement on an appropriate registration form with respect to a registered offer to exchange the Old Notes for New Notes that are guaranteed by the subsidiary guarantor with terms substantially identical in all material respects to the Old Notes (except that the New Notes will not contain terms with respect to transfer restrictions or any increase in annual interest rate), and (2) use our commercially reasonable efforts to cause the registration statement to be declared effective under the Securities Act and complete the exchange offer within 270 days after the issue date of the Old Notes with holders that have elected to exchange their Old Notes for New Notes.
A holder of registrable securities (as defined below) that participates in the exchange offer will be required to make certain representations to us. We will use our commercially reasonable efforts to complete the exchange offer for the Old Notes not later than 60 days after the exchange offer registration statement of which this prospectus forms a part becomes effective with holders that have elected to exchange Old Notes for New Notes. Under existing interpretations of the SEC contained in several no-action letters to third parties, the New Notes will generally be freely transferable after the exchange offer without further registration under the Securities Act, except that any broker-dealer that participates in the exchange must deliver a prospectus meeting the requirements of the Securities Act when it resells the exchange notes. In addition, under applicable interpretations of the staff of the SEC, our affiliates will not be permitted to exchange Old Notes for registered New Notes in the exchange offer.
If we determine that a registered exchange offer is not available or may not be completed as soon as practicable after the last date for acceptance of notes for exchange because it would violate any applicable law or applicable interpretations of the staff of the SEC or, if for any reason the exchange offer is not completed by June 27, 2016, which is 270 days after the issue date of the Old Notes, or, under certain other circumstances, any initial purchaser so requests, we and the subsidiary guarantor will use our reasonable best efforts to file and commercially reasonable efforts to have become effective a shelf registration statement relating to resales of the Old Notes and to keep that shelf registration statement effective until the date that the Old Notes cease to be registrable securities. We and the subsidiary guarantor will, in the event of such a shelf registration, provide to each participating holder of notes copies of a prospectus, notify each participating holder of Old Notes when the shelf registration statement has become effective and take certain other actions to permit resales of the Old Notes. A holder of registrable securities that sells notes under the shelf registration statement generally will be (i) required to make certain representations to us, (ii) required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, (iii) subject to certain of the civil liability provisions under the Securities Act in connection with those sales and (iv) bound by the provisions of the registration rights agreement that are applicable to such a holder of registrable securities (including certain indemnification obligations). Holders of registrable securities will also be required to suspend their use of the prospectus included in the shelf registration statement under specified circumstances upon receipt of notice from us.
If a registration default occurs with respect to registrable securities, then additional interest shall accrue on the principal amount of the Old Notes that are registrable securities at a rate of 0.25% per annum for the first 90-day period beginning on the day immediately following such registration default (which rate will be increased by an additional 0.25% per annum for each subsequent 90-day period until and including the date such registration default ends, up to a maximum increase of 1.00% per annum). The additional interest will cease to accrue when the registration default is cured. A registration default occurs if (1) we have not exchanged New Notes for all Old Notes validly tendered in accordance with the terms of the exchange offer
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on or prior to June 27, 2016, which is the 270th day after the issuance of the Old Notes; (2) a shelf registration statement is required because an exchange offer registration statement on Form S-4 is not available or the exchange offer may not be completed under applicable law or interpretations of the staff of the SEC and such shelf registration statement is not declared effective prior to June 27, 2016; (3) a shelf registration statement is requested by an initial purchaser pursuant to the terms of the registration rights agreement and such shelf registration statement is not declared effective, on or prior to the later of (a) June 27, 2016 and (b) the 90th day after delivery of such shelf registration request; (4) if applicable, a shelf registration statement covering resales of the Old Notes has been declared effective and such shelf registration statement ceases to be effective or the prospectus contained therein ceases to be usable for resales of the Old Notes at any time during the required effectiveness period, and such failure to remain effective or be usable exists for more than 30 days (whether or not consecutive) in any 12-month period; or (5) if applicable, a shelf registration statement covering resales of the Old Notes has been declared effective and such shelf registration statement ceases to be effective or the prospectus contained therein ceases to be usable for resales of the Old Notes on more than two occasions in any 12-month period during the required effectiveness period.
The registration rights agreement defines registrable securities initially to mean the Old Notes. The Old Notes will cease to be registrable securities upon the earliest to occur of (1) when a registration statement with respect to such Old Notes has become effective under the Securities Act and such Old Notes have been exchanged or disposed of pursuant to such registration statement; (2) when such Old Notes cease to be outstanding; or (3) when such Old Notes are sold pursuant to Rule 144 under the Securities Act.
The foregoing description is a summary of material provisions of the registration rights agreement. It does not restate that agreement in its entirety. We urge you to read the registration rights agreement in its entirety because it, and not this description, defines your registration rights as holders of the Old Notes. A copy of the registration rights agreement is incorporated by reference herein as an exhibit to the registration statement of which this prospectus forms a part and is available from us upon request (see Where You Can Find More Information).
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The following is a summary of certain provisions of the instruments evidencing our material indebtedness. This summary does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the agreements, including the definitions of certain terms therein that are not otherwise defined in this prospectus.
Concurrently with the issuance of the Old Notes, we entered into new credit agreements governing the terms of our New Senior Secured Credit Facilities, consisting of (i) the ABL Facility, a new senior secured asset-based revolving credit facility, with certain subsidiaries of the Issuer as borrowers, the Issuer as guarantor, Wells Fargo Bank, National Association, as administrative agent and collateral agent, and the lenders and financial institutions party thereto from time to time, and (ii) the Term Loan B Facility, a new senior secured term loan B facility, with the Issuer as borrower, certain subsidiaries of the Issuer as guarantors, Citibank, N.A. as administrative agent and collateral agent, and the lenders party thereto from time to time. The following is a summary description of certain terms of the New Senior Secured Credit Facilities, and is qualified in its entirety by reference to the credit agreements governing the terms of the New Senior Secured Credit Facilities, each of which is incorporated by reference herein as an exhibit to the registration statement of which this prospectus forms a part. See Where You Can Find More Information.
The ABL Facility had an initial commitment of $700 million and the Term Loan B Facility had an initial commitment of up to $450 million. The proceeds from the New Senior Secured Credit Facilities were used to (i) provide working capital and funds for other general corporate purposes of the Combined Company, (ii) refinance or otherwise extinguish all third-party indebtedness for borrowed money under Beacons and RSGs existing senior secured credit facilities and RSGs unsecured senior notes due 2020, (iii) pay all of the cash consideration to RSG Parent stockholders required under the Merger Agreement, (iv) cash collateralize, replace or provide credit support for existing letters of credit outstanding on the closing date of the RSG Acquisition under the existing Beacon and RSG senior secured credit facilities and (v) pay fees and expenses associated with the RSG Acquisition Transactions.
The ABL Facility is required to be prepaid to the extent extensions of credit thereunder exceed the applicable borrowing base. In addition, if excess availability as determined by reference to a borrowing base falls below a specified threshold or if certain events of default occur under the ABL Facility, all cash proceeds of collateral pledged under the ABL Facility will be applied to repay the ABL Facility or secure certain obligations thereunder, subject to the right to reborrow thereafter under the ABL Facility. The Company may voluntarily repay and reborrow outstanding loans under the ABL Facility at any time without a premium or penalty, other than customary breakage costs with respect to LIBOR loans. The ABL Facility will mature five years from the closing of the offering, on October 1, 2020.
The Term Loan B Facility incurred under the New Senior Secured Credit Facilities will mature seven years from the closing of the offering, on October 1, 2022.
Subject to certain exceptions, the Term Loan B Facility is subject to mandatory prepayments, including in amounts equal to:
| 100% of the net cash proceeds from issuances or the incurrence of debt by the Combined Company or any of its subsidiaries (other than certain indebtedness permitted by the Term Loan B Facility); |
| 100% of the net cash proceeds from all non-ordinary course sales or other dispositions of assets (including as a result of the sale of equity securities of any subsidiary of the Combined Company to a third-party and insurance and condemnation proceeds) by the Combined Company or any of the subsidiary guarantors in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; and |
| 50% (with stepdowns to 25% and 0% based upon achievement of specified senior secured leverage ratio) of annual excess cash flow of the Combined Company and its subsidiaries, subject to customary exceptions and limitations. |
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Borrowings under the Term Loan B Facility are guaranteed by certain of the Issuers domestic subsidiaries, which subsidiaries also guarantee the Old Notes and will guarantee the New Notes. Borrowings under the ABL Facility are guaranteed by the Issuer and will be guaranteed by any future domestic subsidiaries that guarantee the New Notes and the Term Loan B Facility, except that Beacon Canada, Inc. (a domestic subsidiary with no material assets other than stock in a foreign subsidiary) will guarantee the borrowings under the ABL Facility by the Canadian subsidiaries of the Issuer but does not guarantee the Old Notes or borrowings under the Term Loan B Facility, and will not guarantee the New Notes. Borrowings under the ABL Facility by Canadian subsidiaries of the Issuer are guaranteed by the Issuer and Beacon Canada, Inc. and will be guaranteed by any future domestic subsidiaries that guarantee the New Notes and the Term Loan B Facility and by certain foreign subsidiaries (as defined in the Description of New Notes) (and any such foreign subsidiary will not guarantee the New Notes or borrowings under the Term Loan B Facility.) All domestic subsidiaries providing guarantees will do so on a joint and several, irrevocable and unconditional basis as a primary obligor and not merely as a surety.
The ABL Facility is secured by a first priority lien over substantially all of the Combined Companys and each guarantors accounts and other receivables, chattel paper, deposit accounts and securities accounts and inventory (as well as intangibles, books, records and documents related thereto), subject to certain exceptions (the ABL Priority Collateral) and a second priority lien over substantially all of the Combined Companys and each guarantors other assets (including all of the capital stock of the domestic guarantors), subject to certain exceptions (the Term Priority Collateral). The Term Loan B Facility will be secured by a first priority lien on the Term Priority Collateral and a second priority lien on the ABL Priority Collateral. Certain excluded assets will not be included in the Term Priority Collateral and the ABL Priority Collateral.
At the Issuers election, the interest rate per annum applicable to initial loans issued under the Term Loan B Facility is based on a fluctuating rate of interest determined by reference to either (i) a base rate determined by reference to the highest of (a) the rate last publically announced by the administrative agent as its prime rate, (b) the federal funds rate plus 0.50%, (c) (x) the London interbank offered rate (LIBOR) applicable for an interest period of one month, plus (y) 1.00% and (d) 2.00%, in each case, plus an applicable margin or (ii) the higher of (x) LIBOR and (y) 1.00% per annum, in each case, plus an applicable margin.
At the Issuers election, the interest rate per annum applicable to loans issued under the ABL Facility is based on a fluctuating rate of interest determined by reference to (i) in the case of revolving loans in U.S. Dollars, either (a) a base rate determined by reference to the highest of (x) the federal funds rate plus 0.50%, (y) (1) the LIBOR rate applicable for an interest period of one month, plus (2) 1.00% and (z) the prime rate publicly announced by the administrative agent, in each case, plus an applicable margin or (b) an adjusted LIBOR rate determined by reference to the higher of (x) LIBOR and (y) 0%, in each case, plus an applicable margin and (ii) in the case of revolving loans in Canadian Dollars, either (a) a base rate determined by reference to the higher of (x) the prime rate for Canadian dollar commercial loans made in Canada as reported by certain services or sources and (y) the 30 day Bankers Acceptances rate (the BA rate) quoted from time to time, plus 1.00% or (b) the BA rate, in each case, plus an applicable margin.
We pay certain recurring fees with respect to the New Senior Secured Credit Facilities and will continue to do so, including, (i) fees on the unused commitments of the lenders under the ABL Facility, (ii) upfront fees for the lenders under the Term Loan B Facility, (iii) letter of credit fees on the aggregate face amounts of outstanding letters of credit plus a fronting fee to the issuing bank under the ABL Facility and (iv) administration fees. Under the Term Loan B Facility, any repayment or prepayment of the term loans pursuant to a refinancing at a lower effective yield than the term loans that occurs prior to a date that is six months after the closing of the offering will require a payment of a fee in an amount equal to 1.00% of the aggregate principal amount of the loans so repaid or prepaid under the Term Loan B Facility.
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The New Senior Secured Credit Facilities contain a number of customary affirmative and negative covenants that, among other things, will limit or restrict the ability of the Combined Company and the guarantors to:
| incur additional indebtedness (including guarantee obligations); |
| incur liens; |
| engage in mergers or other fundamental changes; |
| sell certain property or assets; |
| pay dividends or other distributions; |
| make acquisitions, investments, loans and advances; |
| prepay certain indebtedness; |
| change the nature of their business; |
| engage in certain transactions with affiliates; and |
| incur restrictions on contractual obligations limiting interactions between the Combined Company and its subsidiaries or limit actions in relation to the New Senior Secured Credit Facilities. |
In addition, the ABL Facility contains a springing financial covenant that requires the Combined Company, after failure to maintain a specified minimum amount of the Combined Companys availability to borrow under the ABL Facility, to comply with a minimum fixed charge coverage ratio (Consolidated EBITDA less capital expenditures to Consolidated Fixed Charges (each as defined in the ABL Facility)) of 1.00 to 1.00. Under the ABL Facility, Consolidated EBITDA includes additional add-backs to net income for certain costs, fees, taxes, losses, charges, write-offs, write-downs and expenses and Consolidated Fixed Charges include cash interest expenses, scheduled principal payments in respect of indebtedness, income taxes paid in cash, and certain restricted payments.
The New Senior Secured Credit Facilities contain customary events of default, including with respect to nonpayment of principal, interest, fees or other amounts; material inaccuracy of a representation or warranty; failure to perform or observe covenants; bankruptcy and insolvency events; material monetary judgment defaults; cross-defaults to other material indebtedness; actual or asserted invalidity or impairment of any material definitive loan documentation; and change of control. If an event of default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the obligations under the Term Loan Credit Facility will become immediately due and payable without any declaration or other act on the part of the administrative agent any lender.
The availability of the New Senior Secured Credit Facilities is subject to a number of conditions. To the extent that any of these conditions are not satisfied, the New Senior Secured Credit Facilities may not be available on the terms described herein.
On October 1, 2015, the Issuer issued $300.0 million aggregate principal amount of senior notes due October 1, 2023. The Old Notes bear interest at a rate of 6.375% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 1, 2016. The Old Notes are jointly and severally and fully and unconditionally guaranteed by all of the Issuers subsidiaries that guarantee the Term Loan B Facility.
At any time prior to October 1, 2018, the Issuer may redeem some or all of the existing notes at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the date of redemption, plus a make-whole premium. The redemption price during each
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of the twelve-month periods commencing on October 1, 2018 is 104.781%, 103.188%, 101.594 and 100.000% of the principal amount plus accrued and unpaid interest thereon, respectively.
Upon the occurrence of a change of control, the holders of the existing notes will have the right to require the Issuer to make an offer to repurchase each holders existing notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest.
The Old Notes contain covenants limiting, among other things, Beacons and its restricted subsidiaries ability to incur more indebtedness or issue certain preferred shares, pay dividends, redeem stock or make other distributions, make investments, create restrictions on the ability of our restricted subsidiaries to pay dividends to us or make other intercompany transfers, create liens, transfer or sell assets, merge or consolidate, enter into certain transactions with our affiliates and designate subsidiaries as unrestricted subsidiaries. The Old Notes also contain customary events of default.
As of December 31, 2015, there was a total of $24 million outstanding under our equipment financing facilities, with fixed interest rates ranging from 2.33% to 4.49% and monthly principal and accrued interest payments due through September 2021. Beacons prior equipment financing facility matured on October 1, 2014. No further amounts can be drawn under our existing equipment financing facilities. Beacons obligations under the equipment financing facilities are collateralized by specific transportation and material handling equipment. As of December 31, 2015, we were in compliance with all our covenants under the equipment financing facilities.
In connection with the RSG Acquisition, we assumed various capital lease agreements for the purchase of vehicles and equipment from RSG. At December 31, 2015, we had $26 million of outstanding capital lease obligations. The terms of these agreements range from five to eight years. The gross amount of these capital leases was $36 million as of December 31, 2015. The related amount of accumulated amortization was $10 million as of December 31, 2015. Scheduled maturities under our capital lease agreements as of December 31, 2015 are as follows (in thousands):
Amount | ||||
(In thousands) | ||||
2016 | 4,601 | |||
2017 | 5,362 | |||
2018 | 5,423 | |||
2019 | 5,962 | |||
2020 | 3,238 | |||
Thereafter | 1,487 | |||
$ | 26,073 |
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General
The Old Notes were, and the New Notes will be, issued under the Indenture, dated as of October 1, 2015 (the Indenture), among the Company, as issuer, the Subsidiary Guarantors and U.S. Bank National Association, as trustee (the Trustee). Therefore, as used in this description, the terms Issue Date and date of the Indenture refer to October 1, 2015, the date on which the Old Notes were issued.
Pursuant to a registration rights agreement that the Company entered into at the closing of the offering of the Old Notes (the Notes Registration Rights Agreement), the Company agreed to file an exchange offer registration statement for the New Notes or, under specified circumstances, a shelf registration statement with the SEC with respect to the Old Notes. See Exchange Offer; Registration Rights. Upon the effectiveness of the exchange offer registration statement of which this prospectus forms a part, the Indenture will be qualified under the Trust Indenture Act of 1939, as amended (the TIA), and will be subject to, and governed by, the TIA.
The Indenture and the Old Notes contain, and the New Notes will contain, provisions that define your rights and govern the obligations of the Company under the Notes. The following is a summary of certain provisions of the Indenture and the Notes. It does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Notes, including the definitions of certain terms therein and (in the case of the Indenture) those terms to be made a part thereof by the TIA. Copies of the forms of the Indenture and the New Notes will be made available to prospective purchasers of the New Notes upon request, when available, and are also incorporated by reference herein as exhibits to the registration statement of which this prospectus forms a part. See Where You Can Find More Information.
You will find the definitions of certain capitalized terms used in this Description of New Notes under the heading Certain Definitions. Any reference to the Company in this Description of New Notes refers only to the Issuer and not to any of its Subsidiaries, unless the context otherwise requires. Any reference to a Holder or a Noteholder in this Description of New Notes refers to the Holders of the Notes. Any reference to Notes or a class of Notes in this Description of New Notes refers to the Notes as a class. When we refer to the Notes in this description, the term includes the Old Notes, the New Notes and any Additional Notes as defined herein. Any reference to Subsidiary Guarantee includes any guarantee by a Subsidiary Guarantor of the Notes.
Brief Description of Ranking of the New Notes
The New Notes will be:
| unsecured Senior Indebtedness of the Company; |
| pari passu in right of payment with all existing and future Senior Indebtedness of the Company; |
| senior in right of payment to all future Subordinated Obligations of the Company; |
| effectively subordinated to all secured Indebtedness and other secured liabilities of the Company to the extent of the value of the assets securing such Indebtedness or other liabilities; and |
| structurally subordinated to all Indebtedness and other liabilities of the Companys Subsidiaries that are not Subsidiary Guarantors. |
Brief Description of Ranking of the Subsidiary Guarantees
On the date the New Notes are first issued, each Restricted Subsidiary that guarantees payment by the Company or any Subsidiary Guarantor of any Indebtedness of the Company or such Subsidiary Guarantor under the Senior Term Facility will guarantee payment of the New Notes under the Indenture. As of such issue date, there will be two Foreign Subsidiaries that do not guarantee the New Notes (or the Senior Term Facility). As of such issue date, there will be no Unrestricted Subsidiaries.
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The Subsidiary Guarantees of each Subsidiary Guarantor in respect of the New Notes will be:
| unsecured Senior Indebtedness of such Subsidiary Guarantor; |
| pari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor; |
| senior in right of payment to all future Subordinated Obligations of such Subsidiary Guarantor; |
| effectively subordinated to all secured Indebtedness and other secured liabilities of such Subsidiary Guarantor to the extent of the value of the assets securing such Indebtedness or other liabilities; and |
| structurally subordinated to all Indebtedness and other liabilities of the Subsidiaries of such Subsidiary Guarantor that are not Subsidiary Guarantors. |
For the fiscal year ended September 30, 2015, after giving pro forma effect to the RSG Aquisition Transactions, the two Subsidiaries of the Company that will not be Subsidiary Guarantors as of the date the New Notes are first issued represented $3.0 million, or approximately 8.4%, of pro forma net income. For the three months ended December 31, 2015, such Subsidiaries represented $0.5 million, or approximately 7.6%, of net income. As of December 31, 2015, these two non-Subsidiary Guarantors represented $97.4 million, or approximately 3.3%, of total assets, and $58.5 million, or approximately 3.3%, of total liabilities, $7.2 million of which was indebtedness.
Principal, Maturity and Interest
The New Notes will mature on October 1, 2023. The New Notes will bear interest at the rate of 6.375% per annum from April 1, 2016, or from the most recent date to which interest has been paid or provided for. Interest will be payable in cash semiannually in arrears to Holders of record at the close of business on the March 15 or September 15 immediately preceding the interest payment date on April 1 and October 1 of each year, commencing October 1, 2016. Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. If the maturity date or any earlier payment date for a Change of Control Offer or redemption falls on a day that is not a Business Day, the related payment of principal and interest will be made on the next Business Day as if it were made on the date such payment was due, and no interest will accrue on the amounts so payable for the period from and after such date to the next Business Day.
Additional interest may accrue on the Notes in certain circumstances pursuant to the Notes Registration Rights Agreement and, except where the context otherwise requires, all references to interest contained herein shall be deemed to include such additional interest. See Exchange Offer; Registration Rights.
The New Notes will be issued initially in an aggregate principal amount of up to $300 million. From time to time the Company may issue additional notes (Additional Notes) having identical terms and conditions to the New Notes offered hereby, other than the issue date, the issue price and, in certain circumstances, the date from which interest will accrue; provided, however, that the Company will only be permitted to issue such Additional Notes if at the time of and after giving effect to such issuance, the Company and its Restricted Subsidiaries are in compliance with the covenant set forth under Certain Covenants Limitation on Indebtedness. The New Notes offered hereby and any Additional Notes will constitute a single class for all purposes under the Indenture, including waivers, amendments, redemptions and offers to purchase; provided, however, that in the event any Additional Notes are not fungible with the New Notes offered hereby for U.S. federal income tax purposes, such non-fungible notes will be issued with a separate CUSIP number or ISIN so they are distinguishable from the New Notes offered hereby.
Other Terms
Principal of (and premium, if any) and interest on the New Notes will be payable, and the New Notes may be exchanged or transferred, at the office or agency of the Company maintained for such purposes (which initially shall be the corporate trust office of the Trustee), except that, at the option of the Company, payment of interest may be made by wire transfer of immediately available funds to the account designated to the Company by the Person entitled thereto or by check mailed to the address of the registered Holders of the New Notes as such address appears in the New Notes register.
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The New Notes will be issued in the form of global notes that will be deposited upon issuance with the Trustee as custodian for The Depository Trust Company (DTC), and purchasers of New Notes will not receive or be entitled to receive physical, certificated New Notes (except in the very limited circumstances described herein). Principal of (and premium, if any) and interest on New Notes in global form registered in the name of or held by DTC or its nominee will be payable in immediately available funds to DTC or its nominee, as the case may be, as the registered Holder of such global New Note.
The New Notes will be issued only in fully registered form, without coupons. The New Notes will be issued only in minimum denominations of $2,000 (the Minimum Denomination) and any integral multiple of $1,000 in excess thereof.
Optional Redemption
The Company may redeem the Notes, at the Companys option, at any time prior to maturity at varying redemption prices in accordance with the applicable provisions set forth below.
The Company may redeem the Notes, at the Companys option, in whole or in part, at any time and from time to time on and after October 1, 2018, at the applicable redemption price set forth below. Such redemption may be made upon notice mailed or otherwise delivered to each Holder in accordance with the applicable procedures of DTC (or, if the Notes are then certificated, to each Holders registered address), not less than 30 nor more than 60 days prior to the date of redemption (the Redemption Date). The Company may provide in such notice that payment of the redemption price and the performance of the Companys obligations with respect to such redemption may be performed by another Person. Any such redemption and notice may, in the Companys discretion, be subject to the satisfaction of one or more conditions precedent, including the occurrence of a Change of Control. The Notes will be so redeemable at the following redemption prices (expressed as a percentage of principal amount of the Notes to be redeemed), plus accrued and unpaid interest, if any, to the relevant Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on October 1 of each of the years set forth below:
Year | Percentage | |||
2018 | 104.781 | % | ||
2019 | 103.188 | % | ||
2020 | 101.594 | % | ||
2021 and thereafter | 100.000 | % |
In addition, at any time and from time to time prior to October 1, 2018, the Company at its option may redeem up to 35% of the original aggregate principal amount of the Notes (including the principal amount of any Additional Notes), with funds in an aggregate amount (the Redemption Amount) not exceeding the aggregate proceeds of one or more Equity Offerings (as defined below), at a redemption price (expressed as a percentage of principal amount thereof) of 106.375%, plus accrued and unpaid interest, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that if Notes are redeemed, an aggregate principal amount of Notes equal to at least 65% of the original aggregate principal amount of Notes (including the principal amount of any Additional Notes) must remain outstanding immediately after each such redemption. Such redemption may be made upon notice mailed or otherwise delivered to each Holder in accordance with the applicable procedures of DTC (or, if the Notes are then certificated, to each Holders registered address), not less than 30 nor more than 60 days prior to the Redemption Date (but in no event more than 180 days after the completion of the related Equity Offering). The Company may provide in such notice that payment of the redemption price and performance of the Companys obligations with respect to such redemption may be performed by another Person. Any such notice may be given prior to the completion of the related Equity Offering, and any such redemption or notice may, at the Companys discretion, be subject to the satisfaction of one or more conditions precedent, including the completion of the related Equity Offering. Equity Offering means a sale of Capital Stock (i) that is a sale of Capital Stock of the Company (other than Disqualified Stock or sales to Subsidiaries of the Company or sales the proceeds of which constitute an Excluded Contribution) or (ii) proceeds of which in an amount equal to or exceeding the Redemption Amount
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are contributed to the equity capital of the Company or any of its Restricted Subsidiaries (other than proceeds from a sale to Subsidiaries of Capital Stock of the Company or proceeds that constitute an Excluded Contribution).
At any time prior to October 1, 2018, Notes may also be redeemed in whole or in part, at any time and from time to time, at the Companys option, at a price (the Redemption Price) equal to 100.0% of the principal amount thereof plus the Applicable Premium (as defined below) as of, and accrued but unpaid interest, if any, to, the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). Such redemption may be made upon notice mailed or otherwise delivered to each Holder in accordance with the applicable procedures of DTC (or, if the Notes are then certificated, to each Holders registered address), not less than 30 nor more than 60 days prior to the Redemption Date. The Company may provide in such notice that payment of the Redemption Price and performance of the Companys obligations with respect to such redemption may be performed by another Person. Any such redemption or notice may, at the Companys discretion, be subject to the satisfaction of one or more conditions precedent, including the occurrence of a Change of Control.
Applicable Premium means, with respect to a Note at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such Redemption Date of (1) the redemption price of such Note on October 1, 2018 (such redemption price being that described in the second paragraph of this Optional Redemption section) plus (2) all required remaining scheduled interest payments due on such Note through October 1, 2018 (excluding accrued and unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note on such Redemption Date, as calculated by the Company or on behalf of the Company by such Person as the Company shall designate; provided that such calculation shall not be a duty or obligation of the Trustee.
Treasury Rate means, with respect to a Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two Business Days prior to such Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such Redemption Date to October 1, 2018; provided, however, that if the period from the Redemption Date to such date is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.
Selection
In the case of any partial redemption, selection of the Notes for redemption will be made in accordance with the procedures of DTC or, if the Notes are then certificated, by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, in integral multiples of $1,000, although no Note of a principal amount equal to or less than the Minimum Denomination will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Note (or if the Note is a global note, an adjustment will be made to the schedule attached thereto).
Mandatory Redemption; Open Market Purchases
The Company is not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, the Company may be required to offer to purchase the Notes as described under the captions Change of Control and Certain Covenants Limitation on Sales of Assets and Subsidiary Stock.
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The Company may acquire Notes by means other than a redemption, whether by tender offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws, so long as such acquisition does not otherwise violate the terms of the Indenture.
Subsidiary Guarantees
On the date the New Notes are first issued, each Restricted Subsidiary that guarantees payment by the Company or any Subsidiary Guarantor of any Indebtedness of the Company or such Subsidiary Guarantor under the Senior Term Facility will guarantee payment of the New Notes under the Indenture. As of such issue date, there will be two Foreign Subsidiaries that do not guarantee the New Notes (or the Senior Term Facility). As of such issue date, there will be no Unrestricted Subsidiaries.
From and after the Issue Date, the Company will cause each Restricted Subsidiary (other than a Foreign Subsidiary) that Incurs (including by Guarantee) any Indebtedness under the Senior Term Facility (or any Refinancing Indebtedness in respect thereof) or any capital market Indebtedness to execute and deliver to the Trustee, within 30 days thereafter, a supplemental indenture or other instrument pursuant to which such Restricted Subsidiary will guarantee payment of the Notes, whereupon such Restricted Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture. In addition, the Company may cause any Subsidiary that is not a Subsidiary Guarantor so to guarantee payment of the Notes and become a Subsidiary Guarantor.
Each Subsidiary Guarantor, as primary obligor and not merely as surety, will jointly and severally, irrevocably and fully and unconditionally Guarantee, on an unsecured senior basis, the punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all monetary obligations of the Company under the Indenture and the Notes, whether for principal of (premium, if any) or interest on the Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Subsidiary Guarantors being herein called the Subsidiary Guaranteed Obligations). Such Subsidiary Guarantor will agree to pay, in addition to the amount stated above, any and all reasonable out-of-pocket expenses (including reasonable counsel fees and expenses) incurred by the Trustee or, in accordance with the terms of the Indenture, the Holders in enforcing any rights under its Subsidiary Guarantee.
The obligations of each Subsidiary Guarantor will be limited to the maximum amount, as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including any Guarantee by it of any Credit Facility Indebtedness), result in the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law, or being void or unenforceable under any law relating to insolvency of debtors. If a Subsidiary Guarantee were rendered voidable, it could be subordinated by a court to all other Indebtedness (including guarantees and other contingent liabilities) of the Subsidiary Guarantor, and, depending on the amount of such Indebtedness, a Subsidiary Guarantors liability on its Subsidiary Guarantee could be reduced to zero. See Risk Factors Risks Related to Our Indebtedness and the New Notes Federal and state statutes allow courts, under specific circumstances, to void notes and subsidiary guarantees and require note holders to return payments received.
Each such Subsidiary Guarantee shall be a continuing Guarantee and shall (i) remain in full force and effect until payment in full of the principal amount of all outstanding Notes (whether by payment at Stated Maturity, purchase, redemption, defeasance, retirement or other acquisition) and all other Subsidiary Guaranteed Obligations then due and owing unless earlier terminated as described below, (ii) be binding upon such Subsidiary Guarantor and (iii) inure to the benefit of the Trustee, the Holders and their permitted successors, transferees and assigns.
Notwithstanding the preceding paragraph, any Subsidiary Guarantor will automatically and unconditionally be released from all obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall thereupon terminate and be discharged and of no further force or effect, (i) concurrently with any direct or indirect sale, transfer or other disposition (by merger, consolidation or otherwise) of such Subsidiary Guarantor or any interest therein in accordance with the terms of the covenant described under Certain Covenants Limitation on Sales of Assets and Subsidiary Stock by the Company or a Restricted Subsidiary, following which such Subsidiary Guarantor is no longer a Restricted Subsidiary of the
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Company, (ii) at any time that such Subsidiary Guarantor is released from all of its obligations (including any Guarantee) in respect of any Indebtedness under the Senior Term Facility (and any Refinancing Indebtedness in respect thereof) and any capital market Indebtedness (it being understood that a release subject to contingent reinstatement is still a release, and that if any such obligation is so reinstated, such Subsidiary Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Subsidiary Guarantee pursuant to the covenant described under Certain Covenants Future Subsidiary Guarantors), (iii) upon the merger or consolidation of any Subsidiary Guarantor with and into the Company or another Subsidiary Guarantor that is the surviving Person in such merger or consolidation, or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Company or another Subsidiary Guarantor, (iv) concurrently with any Subsidiary Guarantor becoming an Unrestricted Subsidiary, (v) during the Suspension Period, upon the merger or consolidation of any Subsidiary Guarantor with and into another Subsidiary that is not a Subsidiary Guarantor with such other Subsidiary being the surviving Person in such merger or consolidation, or upon liquidation of such Subsidiary Guarantor following the transfer of all of its assets to a subsidiary that is not a Subsidiary Guarantor (it being understood that on a Reversion Date, such Subsidiary Guarantee shall also be reinstated to the extent that such Subsidiary would then be required to provide a Subsidiary Guarantee pursuant to the covenant described under Certain Covenants Future Subsidiary Guarantors), (vi) upon legal or covenant defeasance of the Companys obligations under, or satisfaction and discharge of, the Indenture or (vii) subject to customary contingent reinstatement provisions, upon payment in full of the aggregate principal amount of all Notes then outstanding and all other Subsidiary Guaranteed Obligations then due and owing. In addition, the Company will have the right, upon 30 days notice to the Trustee, to cause any Subsidiary Guarantor that has not Incurred (including by Guarantee) any Indebtedness under the Senior Term Facility (or any Refinancing Indebtedness in respect thereof) or any such capital market Indebtedness to be unconditionally released from all obligations under its Subsidiary Guarantee, and such Subsidiary Guarantee shall thereupon automatically terminate and be discharged and of no further force or effect. Upon any such occurrence specified in this paragraph, the Trustee shall execute any documents reasonably requested by the Company in order to evidence such release, discharge and termination in respect of such Subsidiary Guarantee, subject to receipt of an Officers Certificate and Opinion of Counsel.
Neither the Company nor any Subsidiary Guarantor shall be required to make a notation on the Notes to reflect any such Subsidiary Guarantee or any such release, termination or discharge. The Notes will be structurally subordinated to all liabilities of Subsidiaries that do not Guarantee the Notes.
Ranking
The Indebtedness evidenced by the New Notes (i) will be unsecured Senior Indebtedness of the Company, (ii) will rank pari passu in right of payment with all existing and future Senior Indebtedness of the Company and (iii) will be senior in right of payment to all future Subordinated Obligations of the Company. The New Notes will also be effectively subordinated to all secured Indebtedness and other secured liabilities of the Company and to the extent of the value of the assets securing such Indebtedness or other liabilities, and structurally subordinated to all Indebtedness and other liabilities of the Companys Subsidiaries that are not Subsidiary Guarantors.
Each Subsidiary Guarantee in respect of the New Notes (i) will be unsecured Senior Indebtedness of such Subsidiary Guarantor, (ii) will rank pari passu in right of payment with all existing and future Senior Indebtedness of such Subsidiary Guarantor and (iii) will be senior in right of payment to all future Subordinated Obligations of such Subsidiary Guarantor. Such Subsidiary Guarantee will also be effectively subordinated to all secured Indebtedness and other secured liabilities of such Subsidiary Guarantor to the extent of the value of the assets securing such Indebtedness or other liabilities, and structurally subordinated to all Indebtedness and other liabilities of the Subsidiaries of such Subsidiary Guarantor that are not Subsidiary Guarantors.
Change of Control
Upon the occurrence after the Issue Date of a Change of Control (as defined below), each Holder of Notes will have the right to require the Company to repurchase all or any part of such Notes at a purchase price in cash equal to 101.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the
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date of repurchase (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that the Company shall not be obligated to repurchase Notes pursuant to this covenant in the event that it has exercised its right to redeem all of the Notes as described under Optional Redemption.
The term Change of Control means:
(i) any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 50.0% of the total voting power of the Voting Stock of the Company; or
(ii) the Company merges or consolidates with or into, or sells or transfers (in one or a series of related transactions) all or substantially all of the assets of the Company and its Restricted Subsidiaries to, another Person and any person or group (as defined in clause (i) above) is or becomes the beneficial owner (as so defined), directly or indirectly, of more than 50.0% of the total voting power of the Voting Stock of the surviving Person in such merger or consolidation, or the transferee Person in such sale or transfer of assets, as the case may be.
Unless the Company has exercised its right to redeem all of the Notes as described under Optional Redemption, the Company shall, not later than 30 days following the date the Company obtains actual knowledge of any Change of Control having occurred, mail or otherwise deliver in accordance with the applicable procedures of DTC a notice (a Change of Control Offer) to each Holder with a copy to the Trustee stating: (1) that a Change of Control has occurred or may occur and that such Holder has, or upon such occurrence will have, the right to require the Company to repurchase such Holders Notes at a purchase price in cash equal to 101.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase (subject to the right of Holders of record on a record date to receive interest due on the relevant interest payment date); (2) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed or otherwise delivered); (3) the instructions determined by the Company, consistent with this covenant, that a Holder must follow in order to have its Notes repurchased; and (4) if such notice is mailed or otherwise delivered prior to the occurrence of a Change of Control, that such offer is conditioned on the occurrence of such Change of Control. No Note will be repurchased in part if less than the Minimum Denomination in principal amount of such Note would be left outstanding.
The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company by increasing the capital required to effectuate such transactions.
Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of a Change of Control, conditional upon such Change of Control, if a definitive agreement that if fully performed would result in a Change of Control is in effect at the time of making of the Change of Control Offer.
If Holders of not less than 90% in aggregate principal amount of the then outstanding Notes validly tender and do not withdraw such Notes in a Change of Control Offer and the Company, or any third party making a Change of Control Offer in lieu of the Company as described above, repurchases all of the Notes validly tendered and not withdrawn by such Holders, the Company or such third party will have the right, upon not less than 30 nor more than 60 days prior notice, provided that such notice is given not more than 30 days following such repurchase pursuant to the Change of Control Offer described above, to redeem all Notes that remain outstanding following such repurchase at a price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to but excluding the date of redemption.
The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions
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of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between the Company and the initial purchasers of the Old Notes. The Company has no present plans to engage in a transaction involving a Change of Control, although it is possible that the Company could decide to do so in the future. Subject to the limitations discussed below, the Company could, in the future, enter into certain transactions, including acquisitions, refinancings or recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect the Companys capital structure or credit ratings. Restrictions on the ability of the Company to Incur additional Indebtedness are contained in the covenants described under Certain Covenants Limitation on Indebtedness and Certain Covenants Limitation on Liens. Such restrictions can only be waived with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Except for the limitations contained in such covenants, however, the Indenture will not contain any covenants or provisions that may afford Holders protection in the event of a highly leveraged transaction.
The occurrence of a Change of Control would constitute a default under each Senior Credit Agreement. Agreements governing Indebtedness of the Company may contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased or repaid upon a Change of Control. Each Senior Credit Agreement prohibits, and agreements governing Indebtedness of the Company Incurred after the Issue Date may also prohibit, the Company from repurchasing the Notes upon a Change of Control unless such Indebtedness has been repurchased or repaid (or an offer made to effect such repurchase or repayment has been made and the Indebtedness of the holders of such Indebtedness accepting such offer has been repurchased or repaid) and/or other specified requirements have been met. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such agreements, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company and its Subsidiaries. If the Company experiences a Change of Control that triggers a default under such agreements, the Company could seek a waiver of such default or seek to refinance such Indebtedness. In the event the Company does not obtain such a waiver or does not refinance such Indebtedness, such default could result in such Indebtedness being declared due and payable. Finally, the Companys ability to pay cash to the Holders upon a repurchase may be limited by the Companys then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. See Risk Factors Risks Related to Our Indebtedness and the New Notes We may not be able to finance a change of control offer required by the Indenture. The provisions under the Indenture relating to the Companys obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes. As described above under Optional Redemption, the Company also has the right to redeem the Notes at specified prices, in whole or in part, upon a Change of Control or otherwise.
The definition of Change of Control includes a phrase relating to the sale or other transfer of all or substantially all of the assets of the Company and its Restricted Subsidiaries. Although there is a developing body of case law interpreting the phrase substantially all, there is no precise definition of the phrase under applicable law. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries and therefore it may be unclear as to whether a Change of Control has occurred and whether the Holders of the Notes have the right to require the Company to repurchase such Notes.
Suspension of Covenants
If on any day following the Issue Date (i) the Notes have Investment Grade Ratings from both Rating Agencies, and (ii) no Default has occurred and is continuing under the Indenture, then, beginning on that day subject to the provisions of the following paragraphs, the covenants described under the following captions in this Description of New Notes section of this prospectus (collectively, the Suspended Covenants) will be suspended:
| Limitation on Indebtedness; |
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| Limitation on Restricted Payments; |
| Limitation on Restrictions on Distributions from Restricted Subsidiaries; |
| Limitation on Sales of Assets and Subsidiary Stock; |
| Limitation on Transactions with Affiliates; |
| Future Subsidiary Guarantors; and |
| clause (iii) of the first paragraph of Merger and Consolidation. |
During any period that the foregoing covenants have been suspended, the Board of Directors may not designate any of its Subsidiaries as Unrestricted Subsidiaries unless such designation would have complied with the covenant described under Limitation on Restricted Payments as if such covenant would have been in effect during such period.
If on any subsequent date one or both of the Rating Agencies downgrade the ratings assigned to the Notes below an Investment Grade Rating, the foregoing covenants will be reinstated as of and from the date of such rating decline (any such date, a Reversion Date), subject to the Company obtaining the requisite ratings set forth in the first paragraph above under Suspension of Covenants at a subsequent date. The period of time between the suspension of covenants as set forth above and the Reversion Date is referred to as the Suspension Period. Upon such reinstatement, all Indebtedness Incurred during the Suspension Period will be deemed to have been Incurred under the exception provided by clause (b)(iii) of the covenant described under Limitation on Indebtedness. With respect to Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as if the covenant described under Limitation on Restricted Payments had been in effect prior to, but not during, the Suspension Period. For purposes of the covenant described under Limitation on Sales of Assets and Subsidiary Stock, upon the occurrence of a Reversion Date the amount of Net Available Cash not applied in accordance with such covenant will be deemed to be reset to zero. In addition, for purposes of the covenant described under Limitation on Transactions with Affiliates, all agreements and arrangements entered into by the Company or any Restricted Subsidiary with an Affiliate of the Company during the Suspension Period prior to such Reversion Date will be deemed to have been entered into on or prior to the Issue Date, and for purposes of the covenant described under Limitation on Restrictions and Distributions from Restricted Subsidiaries, all contracts entered into during the Suspension Period prior to such Reversion Date that contain any of the encumbrances or restrictions subject to such covenant will be deemed to have been existing on the Issue Date.
During the Suspension Period, any reference in the definitions of Permitted Liens and Unrestricted Subsidiary to the covenant described under Limitation on Indebtedness or any provision thereof shall be construed as if such covenant were in effect during the Suspension Period.
Notwithstanding that the Suspended Covenants may be reinstated, no Default or Event of Default will be deemed to have occurred as a result of any actions taken by the Company or any Subsidiary (including for the avoidance of doubt any failure to comply with the Suspended Covenants) or other events that occurred during any Suspension Period (or upon termination of the Suspension Period or after that time arising out of events that occurred or actions taken during the Suspension Period) and the Company and any Subsidiary will be permitted, without causing a Default or Event of Default or breach of any kind under the Indenture, to honor, comply with or otherwise perform any contractual commitments or obligations entered into during a Suspension Period following a Reversion Date and to consummate the transactions contemplated thereby.
There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Rating. The Trustee will have no duty to inquire or otherwise monitor the aforementioned ratings or the Companys compliance with any covenants under the Indenture.
Certain Covenants
Limitation on Indebtedness. The Indenture provides as follows:
(a) The Company will not, and will not permit any Restricted Subsidiary to, Incur any Indebtedness; provided, however, that the Company or any Restricted Subsidiary may Incur Indebtedness if on the date
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of the Incurrence of such Indebtedness, after giving effect to the Incurrence thereof, the Consolidated Coverage Ratio would be equal to or greater than 2.00:1.00; provided further, however, that the amount of Indebtedness that may be Incurred pursuant to the foregoing by Restricted Subsidiaries that are not Subsidiary Guarantors shall not exceed an amount at any time outstanding equal to the greater of $50 million and 2.5% of Consolidated Total Assets.
(b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness:
(i) Indebtedness Incurred pursuant to any Credit Facility (including in respect of letters of credit or bankers acceptances issued or created thereunder) and Indebtedness Incurred other than under any Credit Facility, and (without limiting the foregoing), in each case, any Refinancing Indebtedness in respect thereof, in a maximum principal amount at any time outstanding not exceeding in the aggregate the amount equal to (A) $700 million, plus (B) the amount equal to the greater of (x) $700 million and (y) an amount equal to (1) the Borrowing Base less (2) the aggregate principal amount of Indebtedness Incurred by Special Purpose Entities that are Restricted Subsidiaries and then outstanding pursuant to clause (ix) of this paragraph (b), plus (C) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with all such refinancings;
(ii) Indebtedness (A) of any Restricted Subsidiary to the Company or (B) of the Company or any Restricted Subsidiary to any Restricted Subsidiary; provided that, in the case of this clause (ii), (x) any subsequent issuance or transfer of any Capital Stock of such Restricted Subsidiary to which such Indebtedness is owed, or other event, that results in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of such Indebtedness (except to the Company or a Restricted Subsidiary) will be deemed, in each case, an Incurrence of such Indebtedness by the issuer thereof not permitted by this clause (ii), (y) if the Company is the obligor on such Indebtedness and the holder of such Indebtedness is not a Subsidiary Guarantor, such Indebtedness is expressly subordinated in right of payment to all obligations with respect to the Notes and (z) if a Subsidiary Guarantor is the obligor on such Indebtedness and the holder of such Indebtedness is neither the Company nor a Subsidiary Guarantor, such Indebtedness is expressly subordinated in right of payment to all obligations of such Subsidiary Guarantor with respect to its Subsidiary Guarantee; provided further, that nothing in the foregoing clauses (y) or (z) shall prohibit the periodic payment of interest thereon or the repayment of such Indebtedness at maturity or otherwise in compliance with the terms of the Indenture;
(iii) Indebtedness represented by the Notes (not including any Additional Notes) and the Subsidiary Guarantees, any Indebtedness (other than the Indebtedness Incurred pursuant to clause (i) or (ii) above) outstanding on the Issue Date and any Refinancing Indebtedness Incurred in respect of any Indebtedness Incurred pursuant to this clause (iii) or paragraph (a) above;
(iv) Purchase Money Obligations and Capitalized Lease Obligations, and in each case any Refinancing Indebtedness with respect thereto; provided that the aggregate principal amount of such Indebtedness at any time outstanding pursuant to this clause (iv) shall not exceed an amount equal to the greater of $100 million and 5.0% of Consolidated Total Assets;
(v) Indebtedness consisting of accommodation guarantees for the benefit of trade creditors of the Company or any of its Restricted Subsidiaries;
(vi) (A) Guarantees by the Company or any Restricted Subsidiary of Indebtedness or any other obligation or liability of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under Limitation on Indebtedness), or (B) without limiting the covenant described under Limitation on Liens, Indebtedness of the Company or any Restricted Subsidiary arising by reason of any Lien granted by or applicable to such Person securing Indebtedness of the Company or any Restricted Subsidiary (other than any Indebtedness Incurred by
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the Company or such Restricted Subsidiary, as the case may be, in violation of the covenant described under Limitation on Indebtedness);
(vii) Indebtedness of the Company or any Restricted Subsidiary (A) arising from the honoring of a check, draft or similar instrument of such Person drawn against insufficient funds; provided that such Indebtedness is extinguished within five Business Days of its Incurrence, or (B) consisting of guarantees, indemnities, obligations in respect of earnouts or other purchase price adjustments, or similar obligations, Incurred in connection with the acquisition or disposition of any business, assets or Person;
(viii) Indebtedness of the Company or any Restricted Subsidiary in respect of (A) letters of credit, bankers acceptances or other similar instruments or obligations issued, or relating to liabilities or obligations Incurred, in the ordinary course of business (including those issued to governmental entities in connection with self-insurance under applicable workers compensation statutes), (B) completion guarantees, surety, judgment, appeal, bid or performance bonds, workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or other similar bonds, instruments or obligations, provided, or relating to liabilities or obligations Incurred, in the ordinary course of business, (C) Hedging Obligations (excluding Hedging Obligations entered into for speculative purposes), (D) Management Guarantees, (E) the financing of insurance premiums in the ordinary course of business, (F) take-or-pay obligations under supply arrangements incurred in the ordinary course of business, (G) netting, overdraft protection and other arrangements arising under standard business terms of any bank at which the Company or any Restricted Subsidiary maintains an overdraft, cash pooling or other similar facility or arrangement or (H) Bank Products Obligations;
(ix) Indebtedness (A) of a Special Purpose Subsidiary secured by a Lien on all or part of the assets disposed of in, or otherwise Incurred in connection with, a Financing Disposition or (B) otherwise Incurred in connection with a Special Purpose Financing; provided that (1) such Indebtedness is not recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), (2) in the event such Indebtedness shall become recourse to the Company or any Restricted Subsidiary that is not a Special Purpose Subsidiary (other than with respect to Special Purpose Financing Undertakings), such Indebtedness will be deemed to be, and must be classified by the Company as, Incurred at such time (or at the time initially Incurred) under one or more of the other provisions of this covenant for so long as such Indebtedness shall be so recourse and (3) in the event that at any time thereafter such Indebtedness shall comply with the provisions of the preceding subclause (1), the Company may classify such Indebtedness in whole or in part as Incurred under this clause (b)(ix) of this covenant;
(x) Indebtedness of (A) the Company or any Restricted Subsidiary Incurred to finance or refinance, or otherwise Incurred (including as consideration) in connection with, any acquisition of assets (including Capital Stock), business or Person, or any merger or consolidation of any Person with or into the Company or any Restricted Subsidiary, or (B) any Person that is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary (including Indebtedness thereof Incurred in connection with any such acquisition, merger or consolidation); provided that on the date of such acquisition, merger or consolidation, on a pro forma basis after giving effect thereto, either (1) the Company would be permitted to Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of this covenant or (2) the Consolidated Coverage Ratio of the Company would equal or be greater than the Consolidated Coverage Ratio of the Company immediately prior to giving effect thereto; and any Refinancing Indebtedness with respect to any Indebtedness Incurred pursuant to this clause (x);
(xi) Indebtedness issuable upon the conversion or exchange of shares of Disqualified Stock issued in accordance with paragraph (a) above, and any Refinancing Indebtedness with respect thereto; and
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(xii) Indebtedness of the Company or any Restricted Subsidiary in an aggregate principal amount, together with all other Indebtedness Incurred pursuant to this clause (xii) and then outstanding, not exceeding an amount equal to the greater of $100 million and 5.5% of Consolidated Total Assets.
(c) For purposes of determining compliance with, and the outstanding principal amount of any particular Indebtedness Incurred pursuant to and in compliance with, this covenant, (i) any other obligation of the obligor on such Indebtedness (or of any other Person who could have Incurred such Indebtedness under this covenant) arising under any Guarantee, Lien or letter of credit, bankers acceptance or other similar instrument or obligation supporting such Indebtedness shall be disregarded to the extent that such Guarantee, Lien or letter of credit, bankers acceptance or other similar instrument or obligation secures the principal amount of such Indebtedness, (ii) in the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in paragraph (b) above, the Company, in its sole discretion, shall classify or reclassify such item of Indebtedness and may include the amount and type of such Indebtedness in one or more of the clauses of paragraph (b) above (including in part under one such clause and in part under another such clause); provided that (if the Company shall so determine) any Indebtedness Incurred pursuant to clause (b)(xii) of this covenant shall cease to be deemed Incurred or outstanding for purposes of such clause but shall be deemed Incurred for the purposes of paragraph (a) of this covenant from and after the first date on which the Company or any Restricted Subsidiary could have Incurred such Indebtedness under paragraph (a) of this covenant without reliance on such clause, (iii) in the event that Indebtedness could be Incurred in part under paragraph (a) above, the Company, in its sole discretion, may classify a portion of such Indebtedness as having been Incurred under paragraph (a) above and thereafter the remainder of such Indebtedness as having been Incurred under paragraph (b) above, (iv) the amount of Indebtedness issued at a price that is less than the principal amount thereof shall be equal to the amount of the liability in respect thereof determined in accordance with GAAP and (v) the principal amount of Indebtedness outstanding under any clause of paragraph (b) above shall be determined on a pro forma basis giving effect to the application of proceeds of any such Indebtedness to refinance any such other Indebtedness. Notwithstanding anything herein to the contrary, Indebtedness outstanding or otherwise Incurred by the Company on the Issue Date under the Senior Credit Facilities shall be classified as Incurred under paragraph (b)(i) of this covenant, and not under paragraph (a) of this covenant.
(d) For purposes of determining compliance with any U.S. dollar-denominated restriction on the Incurrence of Indebtedness denominated in a foreign currency, the U.S. dollar equivalent principal amount of such Indebtedness Incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was Incurred, in the case of term Indebtedness, or first committed, in the case of revolving or deferred draw Indebtedness; provided that (i) the U.S. dollar equivalent principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date, (ii) if such Indebtedness is Incurred to refinance other Indebtedness denominated in a foreign currency (or in a different currency from such Indebtedness so being Incurred), and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such Refinancing Indebtedness does not exceed (x) the outstanding or committed principal amount (whichever is higher) of such Indebtedness being refinanced plus (y) the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing and (iii) the U.S. dollar equivalent principal amount of Indebtedness denominated in a foreign currency and Incurred pursuant to any Senior Credit Facility shall be calculated based on the relevant currency exchange rate in effect on, at the Companys option, (A) the Issue Date, (B) any date on which any of the respective commitments under the applicable Senior Credit Facility shall be reallocated between or among facilities or subfacilities thereunder, or on which such rate is otherwise calculated for any purpose thereunder, or (C) the date of such Incurrence. The principal amount of any Indebtedness Incurred to refinance other Indebtedness, if Incurred in a different currency from the Indebtedness being refinanced, shall be
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calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated in effect on the date of such refinancing.
Limitation on Restricted Payments. The Indenture provides as follows:
(a) The Company will not, and will not permit any Restricted Subsidiary, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock (including any such payment in connection with any merger or consolidation to which the Company is a party) except (x) dividends or distributions payable solely in its Capital Stock (other than Disqualified Stock) and (y) dividends or distributions payable to the Company or any Restricted Subsidiary (and, in the case of any such Restricted Subsidiary making such dividend or distribution, to other holders of its Capital Stock on no more than a pro rata basis, measured by value), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than the Company or a Restricted Subsidiary (other than any acquisition of Capital Stock deemed to occur upon the exercise of options if such Capital Stock represents a portion of the exercise price thereof or by reason of the Company retaining Capital Stock in respect of tax withholding obligations), (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than a purchase, repurchase, redemption, defeasance, satisfaction and discharge or other acquisition or retirement for value in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase, redemption, defeasance, satisfaction and discharge or other acquisition or retirement) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, repurchase, redemption, defeasance, satisfaction and discharge or other acquisition or retirement or Investment being herein referred to as a Restricted Payment), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment and after giving effect thereto:
(1) a Default shall have occurred and be continuing (or would result therefrom);
(2) the Company could not Incur at least an additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under Limitation on Indebtedness; or
(3) the aggregate amount of such Restricted Payment and all other Restricted Payments (the amount so expended, if other than in cash, to be as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of the Board of Directors) declared or made subsequent to the Issue Date and then outstanding would exceed, without duplication, the sum of:
(A) 50.0% of the Consolidated Net Income accrued during the period (treated as one accounting period) beginning on July 1, 2015 to the end of the most recent fiscal quarter ending prior to the date of such Restricted Payment for which internal consolidated financial statements of the Company are available (or, in case such Consolidated Net Income shall be a negative number, 100.0% of such negative number);
(B) the aggregate Net Cash Proceeds and the fair value (as determined in good faith by the Company) of property or assets received (x) by the Company as capital contributions to the Company after the Issue Date or from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than Disqualified Stock) after the Issue Date (other than Excluded Contributions) or (y) by the Company or any Restricted Subsidiary from the Incurrence by the Company or any Restricted Subsidiary after the Issue Date of Indebtedness that shall have been converted into or exchanged for Capital Stock of the Company (other than Disqualified Stock), plus the amount of any cash and the fair value (as determined in good faith by the Company) of any property or assets, received by the Company or any Restricted Subsidiary upon such conversion or exchange;
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(C) (i) the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received from dividends, distributions, interest payments, return of capital, repayments of Investments or other transfers of assets to the Company or any Restricted Subsidiary from any Unrestricted Subsidiary (including by merger or consolidation of an Unrestricted Subsidiary into the Company or any Restricted Subsidiary), including dividends or other distributions related to dividends or other distributions made pursuant to clause (vii) of the following paragraph (b), plus (ii) the aggregate amount resulting from the redesignation of any Unrestricted Subsidiary as a Restricted Subsidiary (valued in each case as provided in the definition of Investment); and
(D) in the case of any disposition or repayment of any Investment constituting a Restricted Payment (without duplication of any amount deducted in calculating the amount of Investments at any time outstanding included in the amount of Restricted Payments), the aggregate amount of cash and the fair value (as determined in good faith by the Company) of any property or assets received by the Company or a Restricted Subsidiary with respect to all such dispositions and repayments.
(b) The provisions of the foregoing paragraph (a) do not prohibit any of the following (each, a Permitted Payment):
(i) (x) any purchase, redemption, repurchase, defeasance, satisfaction and discharge or other acquisition or retirement of Capital Stock of the Company (Treasury Capital Stock) or Subordinated Obligations made by exchange (including any such exchange pursuant to the exercise of a conversion right or privilege in connection with which cash is paid in lieu of the issuance of fractional shares) for, or out of the proceeds of the issuance or sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary) (Refunding Capital Stock) or a capital contribution to the Company, in each case other than Excluded Contributions; provided that the Net Cash Proceeds from such issuance, sale or capital contribution shall be excluded in subsequent calculations under clause (3)(B) of the preceding paragraph (a) and (y) if immediately prior to such acquisition or retirement of such Treasury Capital Stock, dividends thereon were permitted pursuant to clause (ix) of this paragraph (b), dividends on such Refunding Capital Stock in an aggregate amount per annum not exceeding the aggregate amount per annum of dividends so permitted on such Treasury Capital Stock;
(ii) any dividend paid or redemption made within 60 days after the date of declaration thereof or of the giving of notice thereof, as applicable, if at such date of declaration or the giving of such notice, such dividend or redemption would have complied with the preceding paragraph;
(iii) Investments or other Restricted Payments in an aggregate amount outstanding at any time not to exceed the amount of Excluded Contributions;
(iv) payments by the Company to repurchase or otherwise acquire Capital Stock of the Company (including any options, warrants or other rights in respect thereof) from Management Investors (including any repurchase or acquisition by reason of the Company retaining any Capital Stock, option, warrant or other right in respect of tax withholding obligations, and any related payment in respect of any such obligation), such payments not to exceed in any calendar year an amount equal to $15 million; provided that any cancellation of Indebtedness owing to the Company or any Restricted Subsidiary by any Management Investor in connection with any repurchase or other acquisition of Capital Stock (including any options, warrants or other rights in respect thereof) from any Management Investor shall not constitute a Restricted Payment for purposes of this covenant or any other provision of the Indenture;
(v) Restricted Payments (including loans or advances) in an aggregate amount outstanding at any time not to exceed an amount (net of repayments of any such loans or advances) equal to the greater of $50 million and 3.0% of Consolidated Total Assets;
(vi) payments by the Company to holders of Capital Stock of the Company in lieu of issuance of fractional shares of such Capital Stock;
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(vii) dividends or other distributions of Capital Stock of, or Indebtedness owed to the Company or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than Unrestricted Subsidiaries, the primary assets of which are cash or Cash Equivalents);
(viii) any Restricted Payment pursuant to or in connection with the Transactions;
(ix) the declaration and payment of dividends to holders of any class or series of Disqualified Stock, or of any Preferred Stock of a Restricted Subsidiary, Incurred in accordance with the terms of the covenant described under Limitation on Indebtedness above;
(x) any purchase, redemption, repurchase, defeasance or other acquisition or retirement of Subordinated Obligations (w) made by exchange for, or out of the proceeds of the Incurrence of, Indebtedness of the Company or Refinancing Indebtedness Incurred in compliance with the covenant described under Limitation on Indebtedness, (x) from Net Available Cash or an equivalent amount to the extent permitted by the covenant described under Limitation on Sales of Assets and Subsidiary Stock, (y) following the occurrence of a Change of Control (or other similar event described therein as a change of control), but only if the Company shall have complied with the covenant described under Change of Control and, if required, repurchased all Notes tendered pursuant to the offer to repurchase all the Notes required thereby, prior to purchasing or repaying such Subordinated Obligations or (z) constituting Acquired Indebtedness;
(xi) Investments in Unrestricted Subsidiaries in an aggregate amount outstanding at any time not exceeding the greater of $50 million and 3.0% of Consolidated Total Assets; and
(xii) any purchase, repurchase, redemption, defeasance or other acquisition or retirement of Disqualified Stock of the Company or a Restricted Subsidiary made by exchange for or out of the proceeds of the substantially concurrent sale of Disqualified Stock of the Company or such Restricted Subsidiary, as the case may be, so long as such refinancing Disqualified Stock is permitted to be Incurred pursuant to the covenant described under Limitation on Indebtedness and would constitute Refinancing Indebtedness;
provided that (A) in the case of clauses (ii) and (vi), the net amount of any such Permitted Payment shall be included in subsequent calculations of the amount of Restricted Payments, (B) in the case of clause (iv), at the time of any calculation of the amount of Restricted Payments, the net amount of Permitted Payments that have then actually been made under clause (iv) that is in excess of 50.0% of the total amount of Permitted Payments then permitted under clause (iv) shall be included in such calculation of the amount of Restricted Payments, (C) in all cases other than pursuant to clauses (A) and (B) immediately above, the net amount of any such Permitted Payment shall be excluded in subsequent calculations of the amount of Restricted Payments, and (D) solely with respect to clause (v), no Default or Event of Default shall have occurred and be continuing at the time of any such Permitted Payment after giving effect thereto. The Company, in its sole discretion, may classify or reclassify any Investment or other Restricted Payment as being made in part under one of the clauses or subclauses of this covenant (or, in the case of any Investment, the clauses or subclauses of Permitted Investments) and in part under one or more other such clauses or subclauses (or, as applicable, clauses or subclauses).
Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock to the Company or any Restricted Subsidiary or pay any Indebtedness or other obligations owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company (provided that dividend or liquidation priority between classes of Capital Stock, or subordination of any obligation (including the application of any remedy bars thereto) to any other obligation, will not be deemed to constitute such an encumbrance or restriction), except any encumbrance or restriction:
(1) pursuant to an agreement or instrument in effect at or entered into on the Issue Date, any Credit Facility, the Indenture, the Notes or any Subsidiary Guarantee;
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(2) pursuant to any agreement or instrument of a Person, or relating to Indebtedness or Capital Stock of a Person, which Person is acquired by or merged or consolidated with or into the Company or any Restricted Subsidiary, or which agreement or instrument is assumed by the Company or any Restricted Subsidiary in connection with an acquisition from such Person (but not created in contemplation thereof), as in effect at the time of such acquisition, merger, consolidation or transaction (except to the extent that such Indebtedness was incurred to finance, or otherwise in connection with, such acquisition, merger, consolidation or transaction); provided that for purposes of this clause (2), if a Person other than the Company or a Restricted Subsidiary is the successor company with respect thereto, any Subsidiary thereof or agreement or instrument of such Person or any such Subsidiary shall be deemed acquired or assumed, as the case may be, by the Company or a Restricted Subsidiary, as the case may be, when such Person becomes such successor company;
(3) pursuant to an agreement or instrument (a Refinancing Agreement) effecting a refinancing of Indebtedness Incurred or outstanding pursuant or relating to, or that otherwise extends, renews, refunds, modifies or replaces, any agreement or instrument referred to in clause (1) or (2) of this covenant or this clause (3) (an Initial Agreement) or that is, or is contained in, any amendment, supplement or other modification to an Initial Agreement or Refinancing Agreement (an Amendment); provided, however, that the encumbrances and restrictions contained in any such Refinancing Agreement or Amendment taken as a whole are not materially less favorable to the Holders of the Notes than encumbrances and restrictions contained in the Initial Agreement or Initial Agreements to which such Refinancing Agreement or Amendment relates (as determined in good faith by the Company);
(4) (A) pursuant to any agreement or instrument that restricts in a customary manner the assignment or transfer thereof, or the subletting, assignment or transfer of any property or asset subject thereto, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness or other obligations of the Company or a Restricted Subsidiary to the extent restricting the transfer of the property or assets subject thereto, (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary, (E) pursuant to Purchase Money Obligations that impose encumbrances or restrictions on the property or assets so acquired, (F) on cash or other deposits, net worth or inventory imposed by customers or suppliers under agreements entered into in the ordinary course of business, (G) pursuant to customary provisions contained in agreements and instruments entered into in the ordinary course of business (including leases and licenses) in joint venture and other similar agreements or in shareholder, partnership, limited liability company and other similar agreements in respect of non-wholly owned Restricted Subsidiaries, (H) that arises or is agreed to in the ordinary course of business and does not detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or such Restricted Subsidiary or (I) pursuant to Hedging Obligations or Bank Products Obligations;
(5) with respect to any agreement for the direct or indirect disposition of Capital Stock, property or assets of any Person, imposing restrictions with respect to such Person, Capital Stock, property or assets pending the closing of such sale or disposition;
(6) by reason of any applicable law, rule, regulation or order, or required by any regulatory authority having jurisdiction over the Company or any Restricted Subsidiary or any of their businesses, including any such law, rule, regulation, order or requirement applicable in connection with such Restricted Subsidiarys status (or the status of any Subsidiary of such Restricted Subsidiary) as a Captive Insurance Subsidiary; or
(7) pursuant to an agreement or instrument (A) relating to any Indebtedness permitted to be Incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under Limitation on Indebtedness (i) if the encumbrances and restrictions contained in any such agreement or instrument taken as a whole are not materially less favorable to the Holders of the Notes than the encumbrances and restrictions contained in the Initial Agreements (as determined in good faith by the Company) or
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(ii) if such encumbrance or restriction is not materially more disadvantageous to the Holders of the Notes than is customary in comparable financings (as determined in good faith by the Company) and either (x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Companys ability to make principal or interest payments on the Notes or (y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness, (B) relating to any sale of receivables by or Indebtedness of a Foreign Subsidiary or (C) relating to Indebtedness of or a Financing Disposition by or to or in favor of any Special Purpose Entity.
Limitation on Sales of Assets and Subsidiary Stock. The Indenture provides as follows:
(a) The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless:
(i) the Company or such Restricted Subsidiary receives consideration (including by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise) at the time of such Asset Disposition at least equal to the fair market value of the shares and assets subject to such Asset Disposition, as such fair market value may be determined (and shall be determined, to the extent such Asset Disposition or any series of related Asset Dispositions involves aggregate consideration in excess of $30 million) in good faith by the Company, whose determination shall be conclusive (including as to the value of all noncash consideration), such determination being made on the date of contractual agreement to such Asset Disposition;
(ii) in the case of any Asset Disposition (or series of related Asset Dispositions) having a fair market value of $30 million or more, at least 75.0% of the consideration therefor (excluding, in the case of an Asset Disposition (or series of related Asset Dispositions), any consideration by way of relief from, or by any other Person assuming responsibility for, any liabilities, contingent or otherwise, that are not Indebtedness) received by the Company or such Restricted Subsidiary is in the form of cash; and
(iii) an amount equal to 100.0% of the Net Available Cash from such Asset Disposition is applied by the Company (or any Restricted Subsidiary, as the case may be) as follows:
(A) first, either (x) to the extent the Company elects (or is required by the terms of any Credit Facility Indebtedness, any Senior Indebtedness of the Company or any Subsidiary Guarantor or any Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor), to prepay, repay or purchase any such Indebtedness or (in the case of letters of credit, bankers acceptances or other similar instruments) cash collateralize any such Indebtedness (in each case other than Indebtedness owed to the Company or a Restricted Subsidiary) within 365 days after the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash, or (y) to the extent the Company or such Restricted Subsidiary elects, to invest in Additional Assets (including by means of an investment in Additional Assets by a Restricted Subsidiary with an amount equal to Net Available Cash received by the Company or another Restricted Subsidiary) within 365 days from the later of the date of such Asset Disposition and the date of receipt of such Net Available Cash; provided that the Company or such Restricted Subsidiary will be deemed to have complied with the provisions described in subclause (y) of this paragraph if and to the extent that, within 365 days after the later of the Asset Disposition that generated such Net Available Cash and the date of receipt of such Net Available Cash, the Company has entered into a binding agreement to invest in such Additional Assets with the good faith expectation that such Net Available Cash will be applied to satisfy such provisions (an Acceptable Commitment), and that investment is thereafter completed within 180 days after the end of such 365-day period, or in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Available Cash is applied in connection therewith, the Company or such Restricted Subsidiary has entered into another Acceptable Commitment (a Second Commitment) within 180 days of such cancellation or termination and such Net Available Cash is actually applied in such manner within 180 days from the date of the Second Commitment, it being understood that if a Second Commitment is later cancelled
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or terminated for any reason before such Net Available Cash is applied, then such Net Available Cash shall constitute Excess Proceeds (as defined below);
(B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A) above (such balance, the Excess Proceeds), to make an offer to purchase Notes and (to the extent the Company or such Restricted Subsidiary elects, or is required by the terms thereof) to purchase, redeem or repay any other Senior Indebtedness of the Company or a Restricted Subsidiary, pursuant and subject to the conditions of the Indenture and the agreements governing such other Indebtedness; and
(C) third, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A) and (B) above, to fund (to the extent consistent with any other applicable provision of the Indenture) any general corporate purpose (including the repurchase, repayment or other acquisition or retirement of any Subordinated Obligations);
provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A)(x) or (B) above, the Company or such Restricted Subsidiary will retire such Indebtedness and will cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased; provided further, however, that pending the final application of any such Net Available Cash in accordance with clause (A) or (B) above, the Company or such Restricted Subsidiary may temporarily invest such Net Available Cash in any manner not prohibited by the Indenture.
Notwithstanding the foregoing provisions of this covenant, the Company and the Restricted Subsidiaries shall not be required to apply any Net Available Cash or equivalent amount in accordance with this covenant except to the extent that the aggregate Net Available Cash from all Asset Dispositions or equivalent amount that is not applied in accordance with this covenant exceeds $20 million. If the aggregate principal amount of Notes and/or other Indebtedness of the Company or a Restricted Subsidiary validly tendered and not withdrawn (or otherwise subject to purchase, redemption or repayment) in connection with an offer pursuant to clause (B) above exceeds the Excess Proceeds, the Excess Proceeds will be apportioned between such Notes and such other Indebtedness of the Company or a Restricted Subsidiary, with the portion of the Excess Proceeds payable in respect of such Notes to equal the lesser of (x) the Excess Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of such Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount of the relevant other Indebtedness of the Company or a Restricted Subsidiary, and (y) the aggregate principal amount of Notes validly tendered and not withdrawn.
For the purposes of clause (ii) of paragraph (a) above, the following are deemed to be cash: (1) Temporary Cash Investments and Cash Equivalents; (2) the assumption of Indebtedness of the Company (other than Disqualified Stock of the Company) or any Restricted Subsidiary and the release of the Company or such Restricted Subsidiary from all liability on payment of the principal amount of such Indebtedness in connection with such Asset Disposition; (3) Indebtedness of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Disposition, to the extent that the Company and each other Restricted Subsidiary are released from any Guarantee of payment of the principal amount of such Indebtedness in connection with such Asset Disposition; (4) securities received by the Company or any Restricted Subsidiary from the transferee that are converted by the Company or such Restricted Subsidiary into Cash Equivalents within 180 days following the closing of such Asset Disposition; (5) consideration consisting of Indebtedness of the Company or any Restricted Subsidiary; (6) Additional Assets; and (7) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in an Asset Disposition having an aggregate Fair Market Value, taken together with all other Designated Noncash Consideration received pursuant to this clause (7), not to exceed an aggregate amount at any time outstanding equal to the greater of $50 million and 2.5% of Consolidated Total Assets (with the Fair Market Value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value).
(b) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (iii)(B) of paragraph (a) above, the Company will be required to purchase Notes validly tendered and not withdrawn
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pursuant to an offer by the Company for the Notes (the Offer) at a purchase price of 100.0% of their principal amount plus accrued and unpaid interest to the date of purchase in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the Notes validly tendered and not withdrawn pursuant to the Offer is less than the Net Available Cash allotted to the purchase of Notes, the remaining Net Available Cash will be available to the Company for use in accordance with clause (iii)(B) of paragraph (a) above (to repay other Senior Indebtedness of the Company or a Restricted Subsidiary) or clause (iii)(C) of paragraph (a) above, and the amount of Excess Proceeds shall be reset at zero. The Company will not be required to make an Offer for Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clause (iii)(A) of paragraph (a) above) is less than $30 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition), and the Company will commence such Offer within 20 days after such Net Available Cash equals or exceeds $30 million. No Note will be repurchased in part if less than the Minimum Denomination in principal amount of such Note would be left outstanding.
(c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. The Indenture provides as follows:
(a) The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or conduct any transaction or series of related transactions (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an Affiliate Transaction) involving aggregate consideration in excess of $10 million unless (i) the terms of such Affiliate Transaction are not materially less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time in a transaction with a Person who is not such an Affiliate and (ii) if such Affiliate Transaction involves aggregate consideration in excess of $20 million, the terms of such Affiliate Transaction have been approved by a majority of the Board of Directors. For purposes of this paragraph, any Affiliate Transaction shall be deemed to have satisfied the requirements set forth in this paragraph if (x) such Affiliate Transaction is approved by a majority of the Disinterested Directors or (y) in the event there are no Disinterested Directors, a fairness opinion is provided by a nationally recognized appraisal or investment banking firm with respect to such Affiliate Transaction.
(b) The provisions of the preceding paragraph (a) will not apply to:
(i) any Restricted Payment Transaction;
(ii) (1) the entering into, maintaining or performance of any employment or consulting contract, collective bargaining agreement, benefit plan, program or arrangement, related trust agreement or any other similar arrangement for or with any current or former employee, officer, director, manager or consultant of or to the Company or any Restricted Subsidiary heretofore or hereafter entered into in the ordinary course of business, including vacation, health, insurance, deferred compensation, severance, retirement, savings or other similar plans, programs or arrangements, (2) payments, compensation, performance of indemnification or contribution obligations, the making or cancellation of loans in the ordinary course of business to any such employees, officers, directors, managers or consultants, (3) any issuance, grant or award of stock, options, other equity-related interests or other securities, to any such employees, officers, directors, managers or consultants, (4) the payment of reasonable fees to directors of the Company or any of its Subsidiaries (as determined in good faith by the Company or such Subsidiary) or (5) Management Advances and payments in respect thereof (or in reimbursement of any expenses referred to in the definition of such term);
(iii) any transaction between or among any of the Company, one or more Restricted Subsidiaries or one or more Special Purpose Entities;
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(iv) any transaction arising out of agreements or instruments in existence on the Issue Date, as such agreements or instruments may be amended, modified, supplemented, extended or renewed from time to time (provided that any such amendment, modification, supplement, extension or renewal taken as a whole is not materially less favorable to the Holders of the Notes than the terms of such agreement or instrument in existence on the Issue Date (as determined in good faith by the Company)); and any payments made pursuant thereto;
(v) any transaction in the ordinary course of business on terms that are fair to the Company and its Restricted Subsidiaries in the reasonable determination of the Board of Directors or senior management of the Company, or are not materially less favorable to the Company or the relevant Restricted Subsidiary than those that could be obtained at the time in a transaction with a Person who is not an Affiliate of the Company;
(vi) any transaction in the ordinary course of business, or approved by a majority of the Board of Directors, between the Company or any Restricted Subsidiary and any Affiliate of the Company controlled by the Company that is a joint venture or similar entity;
(vii) the execution, delivery and performance of the CD&R Investment Agreement and the CD&R Registration Rights Agreement;
(viii) the Transactions, all transactions in connection therewith (including the financing thereof), and all fees and expenses paid or payable in connection with the Transactions; and
(ix) any issuance or sale of Capital Stock (other than Disqualified Stock) of the Company or any capital contribution to the Company.
Limitation on Liens. The Indenture provides that the Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create or permit to exist any Lien (other than Permitted Liens) on any of its property or assets (including Capital Stock of any other Person), whether owned on the date of the Indenture or thereafter acquired, securing any Indebtedness (the Initial Lien), unless contemporaneously therewith effective provision is made to secure the Indebtedness due under the Indenture and the Notes or, in respect of Liens on any Restricted Subsidiarys property or assets, any Subsidiary Guarantee of such Restricted Subsidiary, equally and ratably with (or on a senior basis to, in the case of Subordinated Obligations) such obligation for so long as such obligation is so secured by such Initial Lien. Any such Lien thereby created in favor of the Notes or any such Subsidiary Guarantee will be automatically and unconditionally released and discharged upon (i) the release and discharge of the Initial Lien to which it relates, (ii) in the case of any such Lien in favor of any such Subsidiary Guarantee, upon the termination and discharge of such Subsidiary Guarantee in accordance with the terms of the Indenture or (iii) any sale, exchange or transfer (other than a transfer constituting a transfer of all or substantially all of the assets of the Company or a Subsidiary Guarantor that is governed by the provisions of the covenant described under Merger and Consolidation below) to any Person not an Affiliate of the Company of the property or assets secured by such Initial Lien, or of all of the Capital Stock held by the Company or any Restricted Subsidiary in, or all or substantially all the assets of, any Restricted Subsidiary creating such Initial Lien.
Future Subsidiary Guarantors. As set forth more particularly under Subsidiary Guarantees, the Indenture provides that the Company will cause each Restricted Subsidiary (other than a Foreign Subsidiary) that Incurs (including by Guarantee) any Indebtedness under the Senior Term Facility (or any Refinancing Indebtedness in respect thereof) or any capital market Indebtedness to execute and deliver to the Trustee, within 30 days thereafter, a supplemental indenture or other instrument pursuant to which such Restricted Subsidiary will guarantee payment of the Notes, whereupon such Restricted Subsidiary will become a Subsidiary Guarantor for all purposes under the Indenture. The Company will also have the right to cause any other Subsidiary so to guarantee payment of the Notes. Subsidiary Guarantees will be subject to release and discharge under certain circumstances prior to payment in full of the Notes. See Subsidiary Guarantees.
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SEC Reports. The Indenture provides that so long as any Notes are outstanding:
(a) Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with or furnish to the SEC, and furnish to the Trustee and, upon request, Holders and prospective investors in the Notes, within 15 days after it files them with the SEC, copies of its annual report and the information, documents and other reports that are specified in Sections 13 and 15(d) of the Exchange Act. In addition, the Company shall furnish to the Trustee and, upon request, Holders, promptly upon their becoming available, copies of the annual report to shareholders and any other information provided by the Company to its public shareholders generally. The Company also will comply with the other provisions of Section 314(a) of the TIA. In addition, to the extent not satisfied by the foregoing, the Company will furnish to Holders and prospective investors in the Notes, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act (as in effect on the Issue Date).
(b) Notwithstanding paragraph (a) above, if the Company has filed or furnished the reports and information referred to in such paragraph with the SEC via mail or the EDGAR filing system (or any successor thereto) and such reports and information are publicly available, then the Company will be deemed to have provided and furnished such reports and information to the Trustee and the Holders in satisfaction of the requirement to furnish such applicable reports or information as referred to in such paragraph. Delivery of such reports, information and documents to the Trustee hereunder is for informational purposes only and the Trustees receipt of such reports, information and documents does not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Companys compliance with any of its covenants under the Indenture or the Notes (as to which the Trustee is entitled to rely exclusively on Officers Certificates delivered pursuant to the Indenture). The Trustee shall not be obligated to monitor or confirm, on a continuing basis or otherwise, the Companys compliance with its covenants under the Indenture or with respect to any reports or other documents filed by the Company with the SEC, the EDGAR filing system (or any successor thereto) or any website.
Merger and Consolidation
The Indenture provides that the Company will not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the Successor Company) will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) will expressly assume all the obligations of the Company under the Notes and the Indenture by executing and delivering to the Trustee an Officers Certificate and a supplemental indenture or one or more other documents or instruments in form reasonably satisfactory to the Trustee;
(ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing;
(iii) immediately after giving effect to such transaction, either (A) the Company (or, if applicable, the Successor Company with respect thereto) could Incur at least $1.00 of additional Indebtedness pursuant to paragraph (a) of the covenant described under Certain Covenants Limitation on Indebtedness, or (B) the Consolidated Coverage Ratio of the Company (or, if applicable, the Successor Company with respect thereto) would equal or exceed the Consolidated Coverage Ratio of the Company immediately prior to giving effect to such transaction;
(iv) each Subsidiary Guarantor (other than (x) any Subsidiary Guarantor that will be released from its obligations under its Subsidiary Guarantee in connection with such transaction and (y) any party to any such consolidation or merger, which, in the case of this clause (y), the fifth paragraph of this Merger and Consolidation shall apply) shall have delivered an Officers Certificate and a supplemental indenture or other document or instrument in form reasonably satisfactory to the Trustee,
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confirming its Subsidiary Guarantee (other than any Subsidiary Guarantee that will be discharged or terminated in connection with such transaction); and
(v) the Company will have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer complies with the provisions described in this paragraph; provided that (x) in giving such opinion such counsel may rely on an Officers Certificate as to compliance with the foregoing clauses (ii) and (iii) and as to any matters of fact, and (y) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the fourth paragraph of this covenant.
Any Indebtedness that becomes an obligation of the Successor Company or any Restricted Subsidiary (or that is deemed to be Incurred by any Restricted Subsidiary that becomes a Restricted Subsidiary) as a result of any such transaction undertaken in compliance with the above paragraph, and any Refinancing Indebtedness with respect thereto, shall be deemed to have been Incurred in compliance with the covenant described under Certain Covenants Limitation on Indebtedness.
Upon any transaction involving the Company in accordance with the first paragraph of this Merger and Consolidation in which the Company is not the Successor Company, the Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture, and thereafter the predecessor Company shall be relieved of all obligations and covenants under the Indenture, except that the predecessor Company in the case of a lease of all or substantially all its assets will not be released from the obligation to pay the principal of and interest on the Notes.
Clauses (ii) and (iii) of the first paragraph of this Merger and Consolidation covenant will not apply to any transaction in which the Company consolidates or merges with or into or transfers all or substantially all its properties and assets to (x) an Affiliate incorporated or organized for the purpose of reincorporating or reorganizing the Company in another jurisdiction or changing its legal structure to an entity other than a corporation or (y) a Restricted Subsidiary of the Company so long as all assets of the Company and the Restricted Subsidiaries immediately prior to such transaction (other than Capital Stock of such Restricted Subsidiary) are owned by such Restricted Subsidiary and its Restricted Subsidiaries immediately after the consummation thereof. The first paragraph of this Merger and Consolidation covenant will not apply to (1) any transaction in which any Restricted Subsidiary consolidates with, merges into or transfers all or part of its assets to the Company or (2) the Transactions.
The Indenture further provides that no Subsidiary Guarantor will, and the Company will not permit any Subsidiary Guarantor to, consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless either:
(I)
(i) the resulting, surviving or transferee Person (the Successor Subsidiary) will be a Person organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Subsidiary (if not the Subsidiary Guarantor) will expressly assume all the obligations of the Subsidiary Guarantor under the Indenture and such Subsidiary Guarantors related Subsidiary Guarantee by executing and delivering to the Trustee an Officers Certificate and a supplemental indenture or one or more other documents or instruments in form reasonably satisfactory to the Trustee;
(ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Subsidiary or any Restricted Subsidiary as a result of such transaction as having been Incurred by the Successor Subsidiary or such Restricted Subsidiary at the time of such transaction), no Default will have occurred and be continuing; and
(iii) the Company will have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each to the effect that such consolidation, merger or transfer complies with the provisions described in this paragraph, provided that (x) in giving such opinion such counsel may rely on an
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Officers Certificate as to compliance with the foregoing clause (ii) and as to any matters of fact, and (y) no Opinion of Counsel will be required for a consolidation, merger or transfer described in the last paragraph of this covenant; or
(II) such transaction is made in compliance with the covenant described under Certain Covenants Limitation on Sales of Assets and Subsidiary Stock.
Upon any transaction involving a Subsidiary Guarantor in accordance with the immediately preceding paragraph of this Merger and Consolidation (other than a transaction described in clause (II) thereof) in which such Subsidiary Guarantor is not the Successor Subsidiary, the Successor Subsidiary will succeed to, and be substituted for, and may exercise every right and power of, the Subsidiary Guarantor under the Indenture and the related Subsidiary Guarantee, and thereafter the predecessor Subsidiary Guarantor shall be relieved of all obligations and covenants under the Indenture and the related Subsidiary Guarantee, except that the predecessor Subsidiary Guarantor in the case of a lease of all or substantially all its assets will not be released from the Subsidiary Guaranteed Obligations.
Clause (I)(ii) of the fifth paragraph of this Merger and Consolidation covenant will not apply to any transaction in which the Subsidiary Guarantor consolidates or merges with or into or transfers all or substantially all its properties and assets to an Affiliate incorporated or organized for the purpose of reincorporating or reorganizing the Subsidiary Guarantor in another jurisdiction or changing its legal structure to a corporation or other entity. The fifth paragraph of this Merger and Consolidation covenant will not apply to any transaction in which any Subsidiary Guarantor consolidates with, merges into or transfers all or part of its assets to the Company or any Subsidiary Guarantor.
Defaults
An Event of Default is defined in the Indenture as:
(i) a default in any payment of interest on any Note when due, continued for 30 days;
(ii) a default in the payment of principal of any Note when due, whether at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration of acceleration or otherwise;
(iii) the failure by the Company or any Subsidiary Guarantor to comply with its respective obligations under the covenant described under Merger and Consolidation above;
(iv) the failure by the Company to comply for 30 days after notice with any of its obligations under the covenant described under Change of Control above (other than a failure to repurchase Notes);
(v) the failure by the Company or any Subsidiary Guarantor to comply for 60 days after notice with its respective other agreements contained in the Notes or the Indenture;
(vi) the failure by the Company or any Restricted Subsidiary to pay any Indebtedness for borrowed money (other than Indebtedness owed to the Company or any Restricted Subsidiary) within any applicable grace period after final maturity or the acceleration of any such Indebtedness by the holders thereof because of a default, if the total amount of such Indebtedness so unpaid or accelerated exceeds $30 million or its foreign currency equivalent; provided that this Default and Event of Default each shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders if, within 20 days after such Event of Default arose the Indebtedness that is the basis for such Event of Default has been discharged, the holders of such Indebtedness have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default or the default that is the basis for such Event of Default has been cured (the cross-acceleration provision);
(vii) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the bankruptcy provisions);
(viii) the rendering of any judgment or decree for the payment of money in an amount (net of amounts paid or fully covered by independent third party insurance as to which the relevant insurance company does not dispute coverage) in excess of $30 million or its foreign currency equivalent against the Company or a Significant Subsidiary that is not discharged, or bonded or insured by a third Person, if
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such judgment or decree remains outstanding for a period of 90 days following such judgment or decree and is not discharged, waived or stayed (the judgment default provision); or
(ix) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor that is a Significant Subsidiary to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any Subsidiary Guarantor that is a Significant Subsidiary of its obligations under the Indenture or any Subsidiary Guarantee (other than by reason of the termination of the Indenture or such Subsidiary Guarantee or the release of such Subsidiary Guarantee in accordance with such Subsidiary Guarantee or the Indenture).
The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.
However, a Default under clause (iv) or (v) will not constitute an Event of Default until the Trustee or the Holders of at least 30.0% in principal amount of the outstanding Notes notify the Company in writing of the Default and the Company does not cure such Default within the time specified in such clause after receipt of such notice.
If an Event of Default (other than a Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of at least 30.0% in principal amount of the outstanding Notes by written notice to the Company and the Trustee, may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. Upon the effectiveness of such a declaration, such principal and interest will be due and payable immediately.
Notwithstanding the foregoing, if an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued but unpaid interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee written notice that an Event of Default is continuing, (ii) Holders of at least 30.0% in principal amount of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee security or indemnity satisfactory to it against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.
The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, subject to the following sentence, the Trustee must mail to each Holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, or premium, if any, or interest on, any Note, the Trustee may withhold notice if and so long as its Trust Officer in good faith determines that withholding notice is in the interest of the Noteholders. In addition, the Company is required to deliver to the
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Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default occurring during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event that would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof.
Amendments and Waivers
Amendments and Waivers With the Consent of Holders
Subject to certain exceptions, the Indenture (including the Subsidiary Guarantees) and the Notes may be amended or supplemented with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding and any past default or compliance with any provisions may be waived with the consent of the Holders of not less than a majority in principal amount of the Notes then outstanding (including in each case, consents obtained in connection with a tender offer or exchange offer for Notes). However, without the consent of each Holder of an outstanding Note affected, no amendment, supplement or waiver may: (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (ii) reduce the rate of or extend the time for payment of interest on any Note; (iii) reduce the principal of or extend the Stated Maturity of any Note; (iv) reduce the premium payable upon the redemption or repurchase of any Note; or change the date on which any Note may be redeemed as described under Optional Redemption above; (v) make any Note payable in money other than that stated in such Note; (vi) impair the right of any Holder to receive payment of principal of and interest on such Holders Notes on or after the due dates therefor or to institute suit for the enforcement of any such payment on or with respect to such Holders Notes; or (vii) make any change in the amendment, supplement or waiver provisions described in this sentence.
Amendments and Waivers Without the Consent of Holders
Without the consent of any Holder, the Company, the Trustee and (as applicable) any Subsidiary Guarantor may amend or supplement the Indenture (including the Subsidiary Guarantees) or any Note (i) to cure any ambiguity, mistake, omission, defect or inconsistency; (ii) to provide for the assumption by a successor of the obligations of the Company or a Subsidiary Guarantor under the Indenture, any Note or any Subsidiary Guarantee; (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; (iv) to add Guarantees with respect to the Notes; (v) to secure the Notes and any Subsidiary Guarantee; (vi) to evidence a successor Trustee; (vii) to confirm and evidence the release, termination or discharge of any Subsidiary Guarantee or any Lien securing the Notes or any Subsidiary Guarantee when such release, termination or discharge is provided for under the Indenture or the Notes; (viii) to add to the covenants of the Company for the benefit of the Noteholders or to surrender any right or power conferred upon the Company or any Subsidiary Guarantor; (ix) to provide for or confirm the issuance of Additional Notes; (x) to conform the text of the Indenture, the Notes or any Subsidiary Guarantee to any provision of this Description of New Notes; (xi) to increase the minimum denomination of Notes to equal the U.S. dollar equivalent of €1,000 rounded up to the nearest $1,000 (including for purposes of redemption or repurchase of any Note in part); (xii) to make any change that does not materially adversely affect the rights of any Holder; (xiii) to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA or otherwise or (xiv) to comply with the rules of any applicable depositary.
The consent of the Noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment, supplement or waiver. It is sufficient if such consent approves the substance of the proposed amendment, supplement or waiver. Until an amendment, supplement or waiver becomes effective, a consent to it by a Noteholder is a continuing consent by such Noteholder and every subsequent Holder of all or part of the related Note. Any such Noteholder or subsequent holder may revoke such consent as to its Note by written notice to the Trustee or the Company, received thereby before the date on which the Company certifies to the Trustee that the Holders of the requisite principal amount of Notes have consented to such amendment, supplement or waiver. After an amendment, supplement or waiver that requires the consent of the Noteholders under the Indenture becomes effective, the Company is required to deliver to Noteholders a notice briefly describing such amendment, supplement or waiver. However, the failure to give such notice to all Noteholders, or any defect therein, will not impair or affect the validity of the amendment, supplement or waiver.
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Defeasance
The Company at any time may terminate all obligations of the Company under the Notes and the Indenture (legal defeasance), except for certain obligations, including those relating to the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate the Companys obligations under certain covenants under the Indenture, including the covenants described under Certain Covenants and Change of Control, the operation of the default provisions relating to such covenants described under Defaults above, the operation of the cross-acceleration provision, the bankruptcy provisions with respect to Subsidiaries and the judgment default provision described under Defaults above, and the limitations contained in clauses (iii), (iv) and (v) of the first paragraph and all limitations contained in the fifth paragraph under Merger and Consolidation above (covenant defeasance). If the Company exercises its legal defeasance option or its covenant defeasance option, each Subsidiary Guarantor will be released from all of its obligations with respect to its Subsidiary Guarantee.
The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iv), (v) (as it relates to the covenants described under Certain Covenants above), (vi), (vii) (but only with respect to events of bankruptcy, insolvency or reorganization of a Subsidiary), (viii) or (ix) under Defaults above or because of the failure of the Company to comply with clause (iii), (iv) or (v) of the first paragraph or any limitations contained in the fifth paragraph under Merger and Consolidation above.
Either defeasance option may be exercised to any Redemption Date or to the maturity date for the Notes. In order to exercise either defeasance option, the Company must irrevocably deposit or cause to be deposited in trust (the defeasance trust) with the Trustee cash in U.S. dollars or U.S. Government Obligations, or a combination thereof, sufficient (without reinvestment) to pay principal of (and premium, if any) and interest on, the Notes to redemption or maturity, as the case may be (provided that, if such redemption is made pursuant to the provisions described in the fourth paragraph under Optional Redemption, (x) the amount of cash or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, as calculated by a nationally recognized firm of independent public accountants, and (y) the Company must irrevocably deposit or cause to be deposited additional cash in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date), and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that Holders of the Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel (1) must be based on a ruling of the Internal Revenue Service or other change in applicable U.S. Federal income tax law since the Issue Date and (2) need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation have become due and payable, will become due and payable at their Stated Maturity within one year, or have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company).
Satisfaction and Discharge
The Indenture and the Notes will be discharged and cease to be of further effect (except as to surviving rights of registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) when (i) either (a) all Notes previously authenticated and delivered (other than certain lost, stolen or destroyed Notes, and certain Notes for which provision for payment was previously made and thereafter the funds have been released to the Company) have been cancelled or delivered to the Trustee for cancellation or (b) all Notes not previously cancelled or delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable at their Stated Maturity within one year or (z) have been or are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of
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notice of redemption by the Trustee in the name, and at the expense, of the Company, (ii) the Company has irrevocably deposited or caused to be deposited with the Trustee cash in U.S. dollars, U.S. Government Obligations or a combination thereof, sufficient (without reinvestment) to pay and discharge the entire Indebtedness on the Notes not previously cancelled or delivered to the Trustee for cancellation, for principal, premium, if any, and interest to the date of such deposit (in the case of Notes that have become due and payable), redemption or their Stated Maturity, as the case may be (provided that, if such redemption is made pursuant to the provisions described in the fourth paragraph under Optional Redemption, (x) the amount of cash or U.S. Government Obligations, or a combination thereof, that the Company must irrevocably deposit or cause to be deposited will be determined using an assumed Applicable Premium calculated as of the date of such deposit, as calculated by a nationally recognized firm of independent public accountants, and (y) the Company must irrevocably deposit or cause to be deposited additional cash in trust on the redemption date as necessary to pay the Applicable Premium as determined on such date), (iii) the Company has paid or caused to be paid all other sums payable under the Indenture by the Company and (iv) the Company has delivered to the Trustee an Officers Certificate and an Opinion of Counsel each to the effect that all conditions precedent under the Satisfaction and Discharge section of the Indenture relating to the satisfaction and discharge of the Indenture have been complied with; provided that any such counsel may rely on any Officers Certificate as to matters of fact (including as to compliance with the foregoing clauses (i), (ii) and (iii)).
No Personal Liability of Directors, Managers, Officers, Employees, Incorporators and Stockholders
No past, present or future director, manager, officer, employee, incorporator, member, partner or stockholder of the Company, any Subsidiary Guarantor or any Subsidiary thereof, as such, shall have any liability for any obligation of the Company or any Subsidiary Guarantor (other than the Company in respect of the Notes and each Subsidiary Guarantor in respect of its Subsidiary Guarantee) under the Notes, the Subsidiary Guarantees or the Indenture or for any claim based on, in respect of or by reason of, any such obligation or its creation. Each Noteholder, by accepting a Note, waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities law.
Concerning the Trustee
U.S. Bank National Association is the Trustee under the Indenture and is appointed by the Company as initial Registrar and Paying Agent with regard to the Notes. The paying agent will make payments on the Notes on behalf of the Company. The Company also maintains a registrar with respect to the Notes. The initial registrar for the Notes is the Trustee. The registrar maintains a register reflecting ownership of the Notes outstanding from time to time and facilitate transfers of Notes on behalf of the Company.
The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are expressly set forth in the Indenture. During the existence of an Event of Default that shall not have been cured or waived, the Trustee will exercise such of the rights and powers vested in it under the Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs. The Trustee shall not be required to expend or risk its own funds in the performance of any of its duties under the Indenture, if it shall have reasonable grounds to believe that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
The Indenture and the TIA impose certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided that if it acquires any conflicting interest as described in the TIA, it must eliminate such conflict, apply to the SEC for permission to continue as Trustee with such conflict (if the Indenture is then qualified under the TIA) or resign. fpara
Transfer and Exchange
A Noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Note registrar and the Trustee may require such Noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require such Noteholder to pay any
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taxes or other governmental charges required by law or permitted by the Indenture. The Company is not required to transfer or exchange any Note selected for redemption or repurchase to transfer or exchange any Note for a period of 15 Business Days prior to the day of the mailing of the notice of redemption or repurchase. No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other governmental charge payable in connection with the transfer or exchange. The Notes will be issued in registered form and the registered Holder of a Note will be treated as the owner of such Note for all purposes.
Governing Law
The Indenture provides that it, the Notes and the Subsidiary Guarantees will be governed by, and construed in accordance with, the laws of the State of New York.
Certain Definitions
Acquired Indebtedness means Indebtedness of a Person (i) existing at the time such Person becomes a Restricted Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person, in each case other than Indebtedness Incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be Incurred on the date of the related acquisition of assets from any Person or the date the acquired Person becomes a Restricted Subsidiary.
Additional Assets means (i) any property or assets that replace the property or assets that are the subject of an Asset Disposition, (ii) any property or assets (other than Indebtedness and Capital Stock) used or to be used by the Company or a Restricted Subsidiary or otherwise useful in a Related Business, and any capital expenditures in respect of any property or assets already so used, (iii) the Capital Stock of any Person that is engaged in a Related Business and becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or another Restricted Subsidiary or (iv) the Capital Stock of any Person that at such time is a Restricted Subsidiary acquired from a third party.
Affiliate of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, control when used with respect to any Person means possession of the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Asset Disposition means any sale, lease, transfer or other disposition of shares of Capital Stock of a Restricted Subsidiary (other than directo