Document:

ex10_07.htm

EXHIBIT 10.07

SIXTH AMENDMENT, dated as of March 15, 2011 (this “Amendment”), to and under that certain CREDIT AND SECURITY AGREEMENT, dated as of July 28, 2004 (as amended, modified, supplemented or restated from time to time from time to time, the “Credit Agreement”), among THE RAL SUPPLY GROUP, INC., a New York corporation (both in its original capacity as a party thereto and as successor-by-merger to American/Universal Supply, Inc., a New York corporation) (“RAL”), UNIVERSAL SUPPLY GROUP, INC., a New York corporation (“Universal”), and S&A SUPPLY, INC. (formerly known as S&A Purchasing Corp.), a New York corporation (“S&A”) (collectively, the “Borrowers”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division, as successor to Wells Fargo Business Credit, Inc. (the “Lender”).  Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Credit Agreement.

WHEREAS, Borrowers and Colonial have made in favor of Lender that certain Guaranty By Corporations, dated as of July 28, 2004 (as amended, modified, supplemented or restated from time to time, the “Guaranty”); and

WHEREAS, the Borrower has requested that the Lender modify certain other terms of the Credit Agreement, and the Lender has agreed to the foregoing request, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each party hereto, the Borrowers and the Lender hereby agree as follows:

Section One.  Amendments to Credit Agreement.  Effective upon satisfaction of the conditions precedent set forth in Section Four hereof, the Credit Agreement is hereby amended as follows:

(i)           Section 1.1.  Definitions.

(A)        The following defined terms are added to Section 1.1 of the Credit Agreement in its proper alphabetical order:

“Sixth Amendment” means that certain Sixth Amendment, dated as of March 15, 2011, among the Borrowers and the Lender.

“Free Cash Flow” means, for any period, with respect to the Borrowers on a combined basis, the amount equal to (a) earnings before interest, taxes, depreciation and amortization for such period, less (b) interest expense for such period, less (c) cash taxes paid during such period, less (d) Non-Financed Capital Expenditures made during such period, less (e) principal payments and prepayments in respect of long-term funded indebtedness paid during such period, plus (f) other income received during such period, all of the foregoing as determined in accordance with GAAP.

 

  

 

  

(B)         The following defined terms contained in Section 1.1 of the Credit Agreement are amended and restated as follows:

“Borrowing Base” means, with respect to any Borrower at any time, and subject to change from time to time in the Lender’s sole discretion, which discretion shall be exercised in a commercially reasonable manner, the lesser of:

(a)           the Maximum Line, minus the L/C Amount, minus the aggregate principal amount of outstanding Advances made to the other Borrowers; or

(b)           the sum of:

	
  

	
(i)

	
eighty-five percent (85%) of such Borrower’s Eligible Accounts, plus

	
  

	
(ii)

	
the lesser of:

(A) up to fifty-seven percent (57%) of the lower of the cost or fair market value, as determined in accordance with GAAP, of such Borrower’s Eligible Inventory, but in no event to exceed (x) Seven Million Five Hundred Thousand Dollars ($7,500,000.00), minus (y) the aggregate principal amount of outstanding Advances made to the other Borrowers pursuant to this paragraph (ii), or

(B) up to eighty-five percent (85%) of the liquidation value (the “NOLV Advance Rate”) of such Borrower’s Eligible Inventory, net of liquidation and other related expenses, as determined by the Lender in its sole discretion, which discretion shall be exercised in a commercially reasonable manner, but in no event to exceed (x) Seven Million Five Hundred Thousand Dollars ($7,500,000.00), minus (y) the aggregate principal amount of outstanding Advances made to the other Borrowers pursuant to this paragraph (ii); provided that, (I) each year, on the effective date of the Sixth Amendment (in case of calendar year 2011) or February 1st (in each of each calendar year thereafter) the NOLV Advance Rate under this clause (B) shall temporarily increase to up to one hundred percent (100%), which increased NOLV Advance Rate shall decrease beginning on the date that is one hundred twenty (120) days after the effective date of the Sixth Amendment (in case of calendar year 2011) or June 1st (in case of each calendar year thereafter) by one percent (1%) per week until such NOLV Advance Rate shall have been reduced to eighty-five percent (85%) and (II) the amount made available to each Borrower under this proviso as a result of the temporary increase to the NOLV Advance Rate under this clause (B) shall in no event exceed (x) Seven Hundred Fifty Thousand Dollars ($750,000) minus (y) the aggregate principal amount of outstanding Advances made to the other Borrowers pursuant to under this proviso to this clause (B), minus

	
  

	
(iii)

	
the amount of the Landlord Reserve then in effect, apportioned among the Borrowers in such manner as the Lender may determine from time to time in its sole discretion, which discretion shall be exercised in a commercially reasonable manner, minus

	
  

	
(iv)

	
the amount of the Availability Reserve then in effect, apportioned among the Borrowers in such manner as the Lender may determine from time to time in its sole discretion, which discretion shall be exercised in a commercially reasonable manner, minus

	
  

	
(v)

	
the portion of the L/C Amount relating to Letters of Credit issued for such Borrower’s account, plus, the aggregate L/C Amount relating to Letters of Credit  issued for the other Borrowers, minus

	
  

	
(vi)

	
such other reserves as the Lender may establish from time to time in its sole discretion, which discretion shall be exercised in a commercially reasonable manner.

Notwithstanding the foregoing, in the event that dilution for all Accounts during any ninety (90) consecutive day period, expressed as a percentage, as determined by the Lender in its sole discretion, exercised in a commercially reasonable manner, pursuant to its periodic examination of the Borrowers’ collateral reports and/or books and records, exceeds four percent (4%), then the Lender, in its sole discretion, may implement and maintain such reserves and/or reduce the advance percentages used in determining the Borrowing Base to adjust for such excess.  Further notwithstanding anything to the contrary contained in the foregoing, unless a Default or Event of Default shall have occurred and be continuing, Lender shall not decrease any of the advance rates used in calculating the Borrowing Base without giving at least thirty (30) days prior notice to Borrowers of such reduction.

 

  

 

  

“Change of Control” means the failure, at any time after the Closing Date of Colonial to own 100% of the issued and outstanding shares of stock of any Borrower. 

“Default Rate” means an annual rate equal to three percent (3.00%) over the LIBOR Advance Rate, which rate shall change when and as the LIBOR Advance Rate changes

“LIBOR Advance Rate” means, with respect to all LIBOR Advances, an annual interest rate equal to the sum of LIBOR plus three percent (3.00%).

“Original Maturity Date” means August 1, 2015.

(ii)          Section 7.18.  Tangible Net Worth.  Section 7.18 of the Credit Agreement is amended and restated as follows:

Section 7.18  Tangible Net Worth.  The Borrowers shall maintain a Tangible Net Worth at the end of the fiscal quarter ending on the date set forth below of not less than the amount set forth opposite such date, provided, that in determining compliance with this covenant, there shall be excluded from the calculation of Tangible Net Worth audit adjustments for goodwill impairment and deferred tax adjustments:

	
Quarter Ending

	 	
Tangible Net Worth

	 
	  	 	 	 
	
3/31/2011

	 	$	2,469,000	 
	 	 	 	 	 
	
6/30/2011

	 	$	2,833,000	 
	 	 	 	 	 
	
9/30/2011

	 	$	3,638,000	 
	 	 	 	 	 
	
12/31/2011

	 	$	4,193,000	 

(iii)           Section 7.19.  Net Income (or Net Loss).  Section 7.19 of the Credit Agreement is amended and restated as follows:

 Section 7.19  Net Income (or Net Loss).

 (a)         Cumulative Year-to Date Net Income (or Net Loss).  The Borrowers shall have Net Income (or Net Loss) for the fiscal year to date ending on the date set forth below of no worse than the amount set forth opposite such date, provided, that in determining compliance with this covenant, there shall be excluded from the calculation of Net Income or Net Loss, as the case may be, audit adjustments for goodwill impairment and deferred tax adjustments:

  

 

  

 

	
Quarter Ending

	 	
Net Loss

	 
	  	 	 	 
	
3/31/2011

	 	$	(1,684,000	)
	 	 	 	 	 
	
6/30/2011

	 	$	(946,000	)
	 	 	 	 	 
	
9/30/2011

	 	$	(150,000	)
	 	 	 	 	 
	
12/31/2011

	 	$	495,000	 

(b)           Monthly Net Income (or Net Loss).  The Borrowers shall have Net Income (or Net Loss) for any month during fiscal year ending December 31, 2011 of no worse than (x) $(700,000) for any month from January 2011 through March 2011 or (y) $(175,000) for any month from April 2011 through December 2011, provided, that in determining compliance with this covenant, there shall be excluded from the calculation of Net Income or Net Loss, as the case may be, audit adjustments for goodwill impairment and deferred tax adjustments:

(iv)           Section 7.20.  Free Cash Flow.  Section 7.20 of the Credit Agreement is amended and restated as follows:

Section 7.20   Free Cash Flow.  The Borrowers shall have Free Cash Flow for the fiscal year to date ending on the date set forth below of not less than the amount set forth opposite such date, provided, that in determining compliance with this covenant, there shall be excluded from the calculation of Free Cash Flow audit adjustments for goodwill impairment and deferred tax adjustments:

	
Quarter Ending

	 	
Free Cash Flow

	 
	 	 	 	 
	
3/31/2011

	 	$	345,000	 
	 	 	 	 	 
	
6/30/2011

	 	$	867,000	 
	 	 	 	 	 
	
9/30/2011

	 	$	1,624,000	 
	 	 	 	 	 
	
12/31/2011

	 	$	2,116,000	 

(v)           Section 7.21.  Capital Expenditures.  Section 7.21 of the Credit Agreement is amended and restated as follows:

Section 7.21  Capital Expenditures.  The Borrowers, on a combined basis, will not make or incur or contract to make or incur Capital Expenditures of more than Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate during the fiscal year ending on or about December 31, 2011.

 

(vi)          Section 7.22.   Financial Covenants.  Section 7.22 of the Credit Agreement is amended and restated as follows:

  

  

  

 

Section 7.22  Financial Covenants.  The financial covenants required to be maintained pursuant to Sections 7.18, 7.19, 7.20 and 7.21 for periods during Borrowers’ fiscal years after the fiscal year ending December 31, 2011 shall be negotiated for each year (or more than one year, if Lender and Borrowers shall so mutually agree each in their discretion) in good faith among the Lender and the Borrowers,  shall be memorialized pursuant to an amendment to this Agreement to be entered into no later than January 31st of each such year (or the last such year, if Lender and Borrowers shall have agreed on an amendment setting covenants for a multi-year period), and shall be based upon the projected levels of financial and business performance as set forth in the Borrowers’ projections required to be delivered to the Lender pursuant to Section 6.1(d) (provided that such projections are acceptable to the Lender, in its sole discretion); provided however that, if Lender and Borrowers acting in good faith shall be unable to agree upon such an amendment establishing the covenants for the periods during any subsequent fiscal year prior to January 31st of any such year, the covenants in effect under this Agreement (as amended from time to time) for the last year for which covenants have been established shall remain in effect for the applicable periods during such subsequent year until such time as Lender and the Borrowers shall mutually agree in good faith on an amendment updating such covenants

 

Section Two.  Covenant Regarding Anticipated Change of Management.  To induce the Lender to enter into this Amendment, Borrower hereby covenants and agrees that in the event that William Pagano ceases to serve as the President of Universal or Executive Vice President of RAL or President of S&A, then, within thirty (30) days following such event, Borrowers shall execute and deliver, and cause another senior executive officer of Borrower satisfactory to Lender in its sole discretion to execute and deliver, a Support Agreement in form and substance essentially similar to the Support Agreement dated as of July 28, 2004 executed by Universal, RAL and William Pagano in favor of Lender.

Section Three.  Representations and Warranties.  To induce the Lender to enter into this Amendment, each Loan Party warrants and represents to the Lender as follows:

(i)           all of the representations and warranties contained in the Credit Agreement and each other Loan Document, in each case, after giving effect to this Amendment, continue to be true and correct in all material respects as of the date hereof, as if repeated as of the date hereof, except for such representations and warranties which, by their terms, are only made as of a previous date;

 

(ii)           the execution, delivery and performance of this Amendment by each Borrower is within its corporate powers, has been duly authorized by all necessary corporate action on its part, and each Borrower has received all necessary consents and approvals (if any shall be required) for the execution and delivery of this Amendment;

  

  

  

 

(iii)           the execution, delivery and performance by each Borrower of this Amendment, the consummation of the transactions herein contemplated and the compliance with the provisions hereof have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of such Borrower’s stockholders; (ii) require any authorization, consent, license, permit or approval by, or registration, declaration or filing with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, license, permit, approval, registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof and such filings with the Securities and Exchange Commission as are required by applicable law; (iii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to such Borrower or of such Borrower’s articles of incorporation or bylaws; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which such Loan Party is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than in favor of the Lender) upon or with respect to any of the properties now owned or hereafter acquired by such Loan Party;

(iv)           upon its execution, this Amendment shall constitute the legal, valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with its terms; and

(v)           no Default or Event of Default has occurred and is continuing;

Section Four.  Conditions Precedent.  This Amendment shall become effective upon the date on which all of the following events shall have occurred:

(i)           the Lender shall have received this Amendment, duly executed by each Borrower and acknowledged by Colonial and William Pagano; and

(ii)           Lender shall have received payment of all fees, costs and expenses (including without limitation any and all legal fees and expenses) incurred by the Lender in connection with the preparation, negotiation and closing of this Amendment and the transactions contemplated to occur hereunder (collectively, the “Amendment Fees and Expenses”), and Borrowers hereby authorize Lender to charge the Borrowers’ loan account with Lender with the aggregate amount of such Amendment Fees and Expenses, and requests that Lender make one or more Advance(s) on or after the date hereof in an aggregate amount not to exceed the aggregate amount of such Amendments Fees and Expenses and that Lender disburse the proceeds of such Advance(s) in satisfaction thereof.

 

  

 

  

Section Five.  General Provisions.

(i)           Except as herein expressly amended, the Credit Agreement and all of the other Loan Documents are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms as so amended.  Each Borrower hereby confirms its existing pledge, assignment and grant to the Lender of a security interest and a Lien upon all of the Collateral, as security for the payment and performance of all of the Obligations.  The Borrower hereby confirms that all security interests at any time granted by it to the Lender in any and all of the Borrower’s property and assets, including the security interest and a Lien upon all of the Collateral, continue in full force and effect and secure and shall continue to secure the Obligations and the “Indebtedness” (as defined in the Guaranty) so long as any such Obligations and Indebtedness remain outstanding and that all Collateral subject thereto remain free and clear of any liens or encumbrances other than (i) those in favor of the Lender provided for under the Loan Documents, and (ii) other Permitted Liens.  Nothing herein contained is intended to in any manner impair or limit the validity, priority and extent of the Lender’s existing security interest and Lien in and upon the Collateral.

(ii)           All references to the Credit Agreement in the Loan Documents shall mean the Credit Agreement as amended as of the effective date hereof, and as amended hereby and as hereafter amended, supplemented and modified from time to time.  This Amendment is and shall be deemed included as one of the Loan Documents for all purposes under the Credit Agreement and all other Loan Documents.

(iii)           The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Lender under the Credit Agreement or any of the other Loan Documents, nor constitute a waiver of any other provision of the Credit Agreement or any of the other Loan Documents.

(iv)           This Amendment embodies the entire agreement between the parties hereto with respect to the subject matter hereof and supercedes all prior agreements, commitments, arrangements, negotiations or understandings, whether written or oral, of the parties with respect thereto.

(v)           This Amendment shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of New York.  The provisions of Section 9.15 of the Credit Agreement regarding consents to jurisdiction and venue, consents and waivers regarding service of process and waivers of rights to jury trial, of Section 9.7 of the Credit Agreement regarding costs and expenses and of Section 9.8 of the Credit Agreement regarding indemnities are incorporated herein by reference.

(vi)           This Amendment shall be binding upon and inure to the benefit of each Borrower and Lender and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the Lender’s prior written consent.

  

  

  

 

(vii)           Any provision of this Amendment which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof

(viii)           Each Borrower hereby confirms and agrees, and represents and warrants, that all Obligations (whether representing outstanding principal, accrued and unpaid interest, accrued and unpaid fees or any other Obligations of any kind or nature) currently owing by each and all Borrowers under the Credit Agreement and the other Loan Documents, as reflected in the books and records of Lender as of the date hereof, are unconditionally owing from and payable by each and all Borrowers to Lender and that Borrowers are jointly and severally indebted to Lender with respect thereto, all without any set-off, deduction, counterclaim or defense.  Each Borrower acknowledges and agrees that it has no actual or potential claim or cause of action against Lender relating to the Credit Agreement or any Loan Document and/or the Obligations arising thereunder or related thereto, in any such case arising on or before the date hereof.As further consideration for Lender’s agreements to grant the amendments and accommodations set forth herein, each Borrower hereby waives and releases and forever discharges Lender and each of its officers, directors, attorneys, agents, professionals and employees (the “Released Parties”) from any liability, damage, claim, loss or expense of any kind that such Borrower had, may now have or may hereafter haveagainst any one or more of the Released Parties arising out of or relating to (a) this Amendment (and any documents, agreements being executed in connection herewith), the Credit Agreement, or any other Loan Document, (b) any and all loans, Advances, letters of credit or other extensions of credit made or issued thereunder through the date hereof, (c) any other Obligations heretofore made and/or outstanding under the Credit Agreement or any other Loan Document, (d) any transactions pursuant to or contemplated by or arising from or entered into in connection with this Amendment (and any documents, agreements being executed in connection herewith), the Credit Agreement, any other Loan Documents, any such loans, Advances, letters of credit or extensions of creditor or any other Obligation and/or (e) any action (or failure to act) taken (or, as applicable, not taken or taken only after any delay or after satisfaction of any conditions) by any of the Released Parties either in connection with any of the foregoing, or as contemplated by the Credit Agreement or by any Loan Documents, or in connection with the negotiation or administration of the Credit Agreement, this Amendment (and any documents, agreements being executed in connection herewith) or any other Loan Document or the credit facilities made available by Lender to Borrowers thereunder, in each such case to the extent such liability, damage, claim, loss or expense arises out of an event or circumstance that has occurred, arisen or is in existence as of the date hereof.

Section Six.  Acknowledgement of Guarantors. By executing this Amendment, each Borrower and Colonial (by its signature below), each in its capacity as a “Guarantor” under the Guaranty, hereby acknowledges and agrees to all the terms and provisions of this Amendment, and agrees that its obligations under the Guaranty are unaffected, undiminished and unmodified hereby, and also hereby ratifies, reaffirms and restates all of the provisions, terms and conditions, covenants, representations and warranties made and all of the obligations undertaken by such Guarantor in the Guaranty.  Each Guarantor further acknowledges and agrees that the foregoing acknowledgements, agreements, ratifications and reaffirmations are being given in an abundance of caution and for the avoidance of any doubt, and that nothing contained in the foregoing is intended to limit or contradict the provisions of and agreements and waivers contained in Section 7 and 8 of the Guaranty, and further that the giving by such Guarantor of the foregoing acknowledgements, agreements, ratifications and reaffirmations shall not be interpreted or construed under any circumstances as having established a course of dealing or course of conduct binding upon the Lender in the future or otherwise creating any future obligations on the Lender to obtain any similar acknowledgements, agreements, ratifications and reaffirmations in connection with any future amendments to the Credit Agreement and/or any other Loan Document.

 

  

 

  

Section Seven.  Acknowledgment of Liens by Colonial.  Colonial (by its signature below), in its capacity as the “Guarantor” under the General Security Agreement dated as of July 28, 2004 (as amended, modified, supplemented or restated from time to time, the “Colonial Security Agreement”) by Colonial in favor of Lender and as the “Pledgor” under the Securities Pledge Agreement dated as of July 28, 2004 (as amended, modified, supplemented or restated from time to time, the “Colonial Pledge Agreement”), hereby confirms that all security interests at any time granted by it to the Lender in any and all of Colonial’s property and assets, including the security interest and a Lien upon all of the “Collateral” (as defined under the Colonial Security Agreement) and the “Pledged Collateral” (as defined under the Colonial Pledge Agreement) (collectively, the “Colonial Collateral”), continue in full force and effect and secure and shall continue to secure the Obligations and the “Indebtedness” (as defined under the Guaranty) and the “Indebtedness” (as defined under the Colonial Security Agreement) so long as any such Obligations and Indebtedness remain outstanding and that all Colonial Collateral subject thereto remain free and clear of any liens or encumbrances other than (i) those in favor of the Lender provided for under the Loan Documents and (ii) other Liens expressly permitted under the Colonial Security Agreement and the Colonial Pledge Agreement.  Nothing herein contained is intended to in any manner impair or limit the validity, priority and extent of the Lender’s existing security interest and Lien in and upon the Colonial Collateral.

Section Eight.   Acknowledgement of Support Party. By executing this Amendment, each Borrower and William Pagano (by his signature below), each in its/its capacity as a party (in such capacity, a “Support Party”) to that certain Support Agreement dated as of July 28, 2004 (as amended, modified, supplemented or restated from time to time, the “Support Agreement”) among Borrowers, Mr. Pagano and Lender, hereby acknowledges and agrees to all the terms and provisions of this Amendment, and agrees that its obligations under the Support Agreement are unaffected, undiminished and unmodified hereby, and also hereby ratifies, reaffirms and restates all of the provisions, terms and conditions, covenants, representations and warranties made and all of the obligations undertaken by such Support Party under the Support Agreement.  Each Support Party further acknowledges and agrees that the foregoing acknowledgements, agreements, ratifications and reaffirmations are being given in an abundance of caution and for the avoidance of any doubt, and that nothing contained in the foregoing is intended to limit or contradict the provisions of and agreements and waivers contained in the Support Agreement, and further that the giving by such Support Party of the foregoing acknowledgements, agreements, ratifications and reaffirmations shall not be interpreted or construed under any circumstances as having established a course of dealing or course of conduct binding upon the Lender in the future or otherwise creating any future obligations on the Lender to obtain any similar acknowledgements, agreements, ratifications and reaffirmations in connection with any future amendments to the Credit Agreement and/or any other Loan Document.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

  

 

  

IN WITNESS WHEREOF, the Loan Parties and the Lender have signed below to indicate their agreement with the foregoing and their intent to be bound thereby.

	  	
THE RAL SUPPLY GROUP, INC.

	 	 
	  	
By:

	
/s/ William Pagano

	  	  	
William Pagano

	  	  	
Executive Vice President

	  	  	  
	  	
UNIVERSAL SUPPLY GROUP, INC.

	 	 
	  	
By:

	
/s/ William Pagano

	  	  	
William Pagano

	  	  	
President

	  	  	  
	  	
S&A SUPPLY, INC.

	 	 
	  	
By:

	
/s/ William Pagano

	  	  	
William Pagano

	  	  	
President

	  	  	  
	  	
WELLS FARGO BANK, NATIONAL ASSOCIATION, acting through its Wells Fargo Business Credit operating division

	 	 
	  	
By:

	
/s/ Joseph Mullen

	  	  	
Joseph Mullen

	  	  	
Vice President

ACKNOWLEDGED AND AGREED TO:

	
COLONIAL COMMERCIAL CORP.

	  
	  	  	  
	  	  	  
	
By:

	
/s/ William Pagano

	  
	  	
William Pagano

	  
	  	
Chief Executive Officer

	  
	  	  	  
	  	  	  
	
/s/ William Pagano

	  
	
WILLIAM PAGANO

	  

 

 

Signature Page to Sixth Amendmentex10_1.htm

EXHIBIT 10.1

 

	 	Award Number:	 	 

 

HEELYS, INC. 2006 STOCK INCENTIVE PLAN

(As Amended and Restated Effective May 20, 2010)

RESTRICTED STOCK UNIT AGREEMENT

 

	
Grantee:

	  	
 

	 
	  	  	  	 
	
Address:

	  	  	 
	  	  	  	 
	
Total Units Subject to Restricted Stock Unit Award:

	  	 	 
	  	  	  	 
	
Date of Grant:

	  	
 

	 
	  	  	  	 
	
Vesting Commencement Date:

	  	 	 

1.           Issuance of Restricted Stock Units.  Heelys, Inc., a Delaware corporation (the “Company”), hereby agrees to issue to the Grantee named above, and the Grantee hereby accepts, an award (the “Restricted Stock Unit Award”) of the number of restricted stock units set forth above as the “Total Units Subject to Restricted Stock Unit Award” (the “Units”), with one Unit entitling the Grantee to one share of Common Stock (each a “Share”) in accordance with this Restricted Stock Unit Agreement and subject to the terms and conditions of the Heelys, Inc. 2006 Stock Incentive Plan, as amended and restated effective May 20, 2010, and as amended from time to time (the “Plan”), which are incorporated herein by reference.  Unless otherwise defined herein, capitalized terms used herein shall have the respective meanings ascribed to them in the Plan.

2.           Eligibility for Earned Performance Units.  A Grantee will be eligible to receive Units in which the Grantee has a vested interest pursuant to the terms and conditions of this Restricted Stock Unit Award Agreement only if:

	
  

	
(a)

	
The Grantee was approved as a grantee for the Performance Period; and

	
  

	
(b)

	
The Grantee:

	
  

	
(A)

	
continues to be employed by the Company through the end of the Performance Period; or

 

Heelys, Inc.

2006 Stock Incentive Plan – Restricted Stock Unit Agreement

  

Page 1

  

	
  

	
(B)

	
experiences a termination of Grantee’s Continuous Service during the Performance Period due to death, Disability, Retirement or Early Retirement.  For the purposes of this Agreement, “Retirement” shall mean a termination of Grantee’s Continuous Service with the Company solely due to retirement upon (or after) attainment of age 65, and “Early Retirement” shall mean a termination of Grantee’s Continuous Service with the Company solely due to retirement: (i) after attainment of age 55, but before attainment of age 65; and (ii) after completion of 15 “years of service” (as defined under the Heeling Companies 401(k) Plan), provided, however, that the Grantee’s termination of Continuous Service in either case must be a “separation from service” with the Company, as that term is defined in Treasury Regulation Section 1.409A-1(h), and any successor provision thereto (“Separation from Service”).

In the event of the Grantee’s death, the Grantee’s beneficiary or estate shall be entitled to the Units to which the Grantee otherwise would have been entitled under the same conditions as would have been applicable to the Grantee.

3.  Forfeiture; Company’s Cancellation Right.  Except as specifically provided otherwise in this Restricted Stock Unit Agreement, upon the date of any termination of the Grantee’s Continuous Service (the “Termination Date”) for any reason before all of the Units are released from the Forfeiture Restrictions described in Section 4 of this Restricted Stock Unit Agreement, all of the Units in which the Grantee is not, as of the Termination Date, vested in accordance with the provisions of this Restricted Stock Unit Agreement and that are subject to the Forfeiture Restrictions on that Termination Date (the “Unvested Units”) shall automatically be forfeited by the Grantee on the Termination Date and the Company shall cancel, without any additional consideration, such Unvested Units.

4.  Forfeiture Restrictions; Vesting.

(a)  The Grantee may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of any of the Unvested Units, or any right or interest therein, before the lapse of the Forfeiture Restrictions under this Restricted Stock Unit Agreement.

(b)  The “Vesting Commencement Date” set forth on the first page of this Restricted Stock Unit Agreement is the date on which the vesting period for the Restricted Stock Unit Award begins.  The vesting period continues until the date the Forfeiture Restrictions lapse as provided in Exhibit A attached hereto.

(c)  The Forfeiture Restrictions under this Restricted Stock Unit Agreement may lapse, and the Unvested Units may become vested and released from the Forfeiture Restrictions, earlier than the times stated above (or identified in Exhibit A) in accordance with Section 14(c) of the Plan, but only if the Change in Control constitutes a “change in control” within the meaning of Section 409A of the Code.

 

Heelys, Inc.

2006 Stock Incentive Plan – Restricted Stock Unit Agreement

  

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(d)  The Company shall, except as provided below with respect to a payment delay required by Section 409A of the Code, issue and deliver or cause the issuance and deliverance of, in the name of the Grantee or the Grantee’s legal representative, one or more stock certificates representing the corresponding number of Shares equal to the number of vested Units, free of Forfeiture Restrictions, not more than 90 days following the date the Forfeiture Restrictions lapse or expire, with the exact date of issuance and delivery to be determined by the Company in its sole discretion.  Alternatively, upon written request of the Grantee, the Company may direct that the Shares be transferred to a broker designated by the Grantee.  Notwithstanding the preceding, with respect to Units that become payable upon a lapse of the Forfeiture Restrictions in connection with Retirement or Early Retirement, if the Grantee is deemed at the time of the Grantee’s Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, then to the extent delayed commencement of any payment is required in order to avoid a prohibited payment under Section 409A(a)(2)(B)(i) of the Code, the Shares with respect to such Units shall not be issued or delivered to the Grantee prior to the earlier of (i) the expiration of the six-month period measured from the date of the Grantee’s Separation from Service or (ii) the date of the Grantee’s death.  Upon the earlier of such dates, all Shares deferred pursuant to this Section 4(d) shall be issued and delivered to the Grantee (or the Grantee’s estate).

(e)  The determination of whether the Grantee is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of the Grantee’s Separation from Service shall be made by the Company in accordance with the terms of Section 409A of the Code, and applicable guidance thereunder (including without limitation Treasury Regulation Section 1.409A-1(i) and any successor provision thereto).

5.  Representations of the Grantee.  The Grantee represents and warrants to the Company that the Grantee has received, read, and understood the Plan and this Restricted Stock Unit Agreement and agrees to abide by and be bound by their terms and conditions.

6.  Stockholder Rights.  The Grantee shall not have the right to dividends with respect to any of the Shares that may become issuable pursuant to the Restricted Stock Unit Award upon vesting of the Units, to vote any such Shares, or to enjoy any other stockholder rights with respect to any such Shares until the Forfeiture Restrictions expire and those Shares are actually issued and delivered in settlement of the Restricted Stock Unit Award, as evidenced by an appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company.  No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to such date of issuance and delivery of Shares, except as provided in the Plan.

7.  Refusal to Transfer.  The Company shall not be required (i) to transfer on its books any Units that have been sold or otherwise transferred in violation of any of the provisions of this Restricted Stock Unit Agreement or the Plan, or (ii) to treat as owner of such Units, or accord the right to vote or pay or deliver dividends or other distributions to, any purchaser or other transferee to whom or which such Units shall have been purported to be so transferred.

8.  Tax Withholding Obligations.  No Shares will be delivered to the Grantee or any other person upon the lapse or expiration of the Forfeiture Restrictions regarding any of the Units until the Grantee or such other person has made arrangements acceptable to the Committee for the satisfaction of applicable federal, state or local income tax, employment tax, and social security tax withholding obligations, including obligations incident to the receipt of Shares.  In connection with the lapse or expiration of the Forfeiture Restrictions regarding any of the Units and the issuance and deliverance of the corresponding number of Shares equal to those Units, the Company or other Grantee’s employer may offset or withhold (from any amount owed by the Company or the Grantee’s employer to the Grantee) or collect from the Grantee or such other person an amount sufficient to satisfy such tax obligations and/or the employer’s withholding obligations.

 

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9.  Capital Adjustments and Corporate Events.  If, from time to time during the term of this Restricted Stock Unit Agreement, there is (i) any capital adjustment with respect to the Shares which may become issuable with respect to the Unvested Units, the Unvested Units shall be adjusted in accordance with the provisions of Section 14(a) of the Plan, or (ii) any Change in Control which constitutes a “change in control” of the Company within the meaning of Section 409A of the Code, the Shares which may become issuable with respect to the Unvested Units shall be subject to the provisions of Sections 14(b) and 14(c) of the Plan.  Any and all new, substituted or additional securities to which the Grantee may be entitled by reason of the Grantee’s ownership of the Unvested Units hereunder and such capital adjustment or such corporate event shall be immediately subject to the forfeiture and cancellation provisions of this Restricted Stock Unit Agreement and included thereafter as “Unvested Units” for purposes of this Restricted Stock Unit Agreement.

10.  Nontransferability of Restricted Stock Unit Award.  None of the Grantee’s rights under this Restricted Stock Unit Agreement may be transferred or assigned in any manner other than by will or by the laws of descent and distribution; the Grantee’s rights under this Restricted Stock Unit Agreement may be exercised during the lifetime of the Grantee only by the Grantee.

11.  Tax Consequences.  The issuance and deliverance of Shares upon the lapse or expiration of the Forfeiture Restrictions regarding any of the Units will have tax consequences to the Grantee under the Code.  The Grantee has reviewed with the Grantee’s own tax advisors the federal, state and local tax consequences that may arise under this Restricted Stock Unit Agreement. The Grantee is relying solely on such advisors and not on any statements or representations of the Company or any of its agents. The Grantee understands that the Grantee (and not the Company) shall be responsible for the Grantee’s own tax liability that may arise under this Restricted Stock Unit Agreement.  The Grantee understands that the Shares to be issued and delivered upon the lapse or expiration of the Forfeiture Restrictions regarding any of the Units shall be taxed under Section 83 of the Code as ordinary income in an amount equal to the Fair Market Value of the Shares on the date those Shares are actually issued and delivered.

12.  Successors and Assigns.  The Company may assign any of its rights under this Restricted Stock Unit Agreement and this Restricted Stock Unit Agreement shall inure to the benefit of the successors and assigns of the Company.  Subject to the restrictions on transfer herein set forth, this Restricted Stock Unit Agreement shall be binding upon the Grantee and his heirs, executors, administrators, successors, and permitted assigns.

 

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13.  Entire Agreement; Governing Law.  The Plan and this Restricted Stock Unit Agreement constitute the entire agreement of the Company and the Grantee (collectively the “Parties”) with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Parties with respect to the subject matter hereof, and may not be modified adversely to the Grantee’s interest except by means of a writing signed by the Parties.  Nothing in the Plan and this Restricted Stock Unit Agreement (except as expressly provided therein or herein) is intended to confer any rights or remedies on any person other than the Parties.  The Plan and this Restricted Stock Unit Agreement are to be construed in accordance with and governed by the internal laws of the State of Texas without giving effect to any choice-of-law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of Texas to the rights and duties of the Parties.

14.  Severability and Reformation.  The Company and the Grantee intend all provisions of the Plan and this Restricted Stock Unit Agreement to be enforced to the fullest extent permitted by law.  Accordingly, should a court of competent jurisdiction determine that the scope of any provision of the Plan or this Restricted Stock Unit Agreement is too broad to be enforced as written, the court should reform the provision to such narrower scope as it determines to be enforceable.  If, however, any provision of the Plan or this Restricted Stock Unit Agreement is held to be wholly illegal, invalid, or unenforceable under present or future law, such provision shall be fully severable and severed, and the Plan and this Restricted Stock Unit Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part thereof or hereof, and the remaining provisions of the Plan and this Restricted Stock Unit Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance.

15.  Interpretive Matters.  Whenever required by the context, pronouns and any variation thereof shall be deemed to refer to the masculine, feminine, or neuter, and the singular shall include the plural, and vice versa.  The term “include” or “including” does not denote or imply any limitation.  The term “business day” means any Monday through Friday other than such a day on which banks are authorized to be closed in the State of Texas.  The captions and headings used in this Restricted Stock Unit Agreement are inserted for convenience and shall not be deemed a part of the Restricted Stock Unit Award or this Restricted Stock Unit Agreement for construction or interpretation.

16.  Dispute Resolution.  Unless provided otherwise in a then-effective written employment agreement, the provisions of this Section 16 shall be the exclusive means of resolving disputes of the Parties (including any other persons claiming any rights or having any obligations through the Company or the Grantee) arising out of or relating to the Plan and this Restricted Stock Unit Agreement.  The Parties shall attempt in good faith to resolve any disputes arising out of or relating to the Plan and this Restricted Stock Unit Agreement by negotiation between individuals who have authority to settle the controversy.  Negotiations shall be commenced by either Party by a written statement of the Party’s position and the name and title of the individual who will represent the Party.  Within thirty (30) days of the written notification, the Parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to resolve the dispute.  If either Party determines that the dispute cannot be resolved by negotiation, such Party shall notify the other Party and the Parties agree that any suit, action, or proceeding arising out of or relating to the Plan or this Restricted Stock Unit Agreement shall be brought in the United States District Court for the Northern District of Texas (or should such court lack jurisdiction to hear such action, suit or proceeding, in a Texas state court in Dallas County, Texas) and that the Parties shall submit to the jurisdiction of such court.  The Parties irrevocably waive, to the fullest extent permitted by law, any objection a Party may have to the laying of venue for any such suit, action or proceeding brought in such court.  THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING.  If any one or more provisions of this Section 16 shall for any reason be held invalid or unenforceable, it is the specific intent of the Parties that such provisions shall be modified to the minimum extent necessary to make it or its application valid and enforceable.

 

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17.  Notice.  Any notice or other communication required or permitted hereunder shall be given in writing and shall be deemed given, effective, and received upon prepaid delivery in person or by courier or upon the earlier of delivery or the third business day after deposit in the United States mail if sent by certified mail, with postage and fees prepaid, addressed to the other Party at its address as shown beneath its signature in this Restricted Stock Unit Agreement, or to such other address as such Party may designate in writing from time to time by notice to the other Party in accordance with this Section 17.

18.  Further Instruments.  Each Party agrees to execute such further instruments and to take such further action as may be necessary or reasonably appropriate to carry out the purposes and intent of this Restricted Stock Unit Agreement.

	  	
HEELYS, INC.

	  	  	  
	  	
By:

	  
	  	  	  
	  	
Title:

	  
	  	  	  
	  	
Address:

	
3200 Belmeade Drive, Suite 100 Carrollton, Texas 75006

 

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THE GRANTEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED OTHERWISE HEREIN, THE FORFEITURE RESTRICTIONS ON THE UNITS SUBJECT TO THE RESTRICTED STOCK UNIT AWARD SHALL LAPSE, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE’S CONTINUOUS SERVICE (NOT THROUGH THE ACT OF BEING HIRED, ELECTED OR APPOINTED, BEING GRANTED THE RESTRICTED STOCK UNIT AWARD OR BEING ISSUED SHARES HEREUNDER).  THE GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS RESTRICTED STOCK UNIT AGREEMENT OR THE PLAN SHALL CONFER UPON THE GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR CONTINUATION OF THE GRANTEE’S CONTINUOUS SERVICE, NOR SHALL IT INTERFERE IN ANY WAY WITH THE GRANTEE’S RIGHT OR THE RIGHT OF THE COMPANY OR ANY AFFILIATE (OR THE GRANTEE’S EMPLOYER) TO TERMINATE THE GRANTEE’S CONTINUOUS SERVICE, WITH OR WITHOUT CAUSE, AND WITH OR WITHOUT NOTICE.  THE GRANTEE ACKNOWLEDGES THAT UNLESS THE GRANTEE HAS A WRITTEN EMPLOYMENT AGREEMENT WITH THE COMPANY TO THE CONTRARY, THE GRANTEE’S EMPLOYMENT IS “AT WILL.”

The Grantee acknowledges receipt of a copy of the Plan, represents that he is familiar with the terms and provisions thereof, and hereby accepts the Restricted Stock Unit Award subject to all of the terms and provisions hereof and thereof.  The Grantee has reviewed this Restricted Stock Unit Agreement and the Plan in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Restricted Stock Unit Agreement, and fully understands all provisions of this Restricted Stock Unit Agreement and the Plan.  The Grantee hereby agrees that all disputes arising out of or relating to this Restricted Stock Unit Agreement and the Plan shall be resolved in accordance with Section 16 of this Restricted Stock Unit Agreement.  The Grantee further agrees to notify the Company upon any change in the address for notice indicated in this Restricted Stock Unit Agreement.

	
Dated:

	 	 	
Signed:

	
 

	  	 	 	  	
, Grantee

	  	 	 	  	  
	  	 	 	
Address:

	  
	  	 	 	  

 

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EXHIBIT A

HEELYS, INC. 2006 STOCK INCENTIVE PLAN

(As Amended and Restated Effective May 20, 2010)

RESTRICTED STOCK UNIT AGREEMENT

[VESTING AND OTHER INDIVIDUALIZED TERMS TO BE PLACED HERE]

 

 

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