Document:

Exhibit 10.1

 

August 9, 2005

 

 

Beacon Sales Acquisition, Inc.

Beacon Roofing Supply Canada Company

50 Webster Ave.

Somerville, MA 02143

 

Attention:  David Grace

 

Re:                               Commitment
for Financing for a $310,000,000 Senior Secured US Credit Facility and a C$15,000,000
Senior Secured Canadian Credit Facility

 

Ladies and Gentlemen:

 

General
Electric Capital Corporation (“GE Capital” or “Agent”) has approved the terms
of a $310,000,000 US Senior Secured Credit Facility, and GE Canada Finance
Holding Company has approved the terms of a C$15,000,000 Canadian Senior
Secured Credit Facility (together with the US Senior Secured Credit Facility,
the “Credit Facility”), upon the general terms and conditions outlined in the
summary of terms attached to this commitment letter (the “Summary of Terms”).  This commitment is based upon our
understanding of the transactions described in the Summary of Terms and upon
the information that you have provided to us. 
The Credit Facility would be used to refinance existing senior indebtedness
of Beacon Sales Acquisition, Inc. (“Beacon”), provide financing for the
acquisition by Beacon of all of the issued and outstanding shares of capital
stock and outstanding warrants to purchase shares of capital stock of SDI
Holding, Inc., a Delaware corporation (“SDI Holding”), and, indirectly,
all of the issued and outstanding shares of capital stock of SDI Acquisition
Guarantor, Inc., a Delaware corporation (“SDI Acquisition”) and of Shelter
Distribution, Inc., a Delaware corporation (“Shelter”, together with SDI
Holding and SDI Acquisition, the “Target”), including the repayment of certain
indebtedness of the Target, and provide financing for future acquisitions,
ongoing working capital needs and expenses relating to the Credit
Facility.  Unless otherwise indicated,
dollar amounts indicated herein mean lawful currency of the United States of
America.

 

GE Capital’s
affiliate, GE Capital Markets, Inc. (“GECM”), will seek to syndicate a
portion of the loans and loan commitments under the Credit Facility to other
financial institutions identified by GECM on the terms and conditions more
fully described in the fee letter dated as of the date hereof between you, GE
Capital and GE Canada (the “Fee Letter”).

 

By your
acceptance of this Commitment Letter, you agree to pay all costs and expenses
incurred by GE Capital, GE Canada and GECM in connection with due diligence and
analysis, examination and appraisals, environmental analysis, documentation,
negotiation, syndication and closing of the Credit Facility including, but not
limited to, per diem charges of auditors, appraisers and consultants, legal
fees and other out-of-pocket expenses incurred by GE Capital, GE Canada and
GECM, whether or not GE Capital and GE Canada close the proposed Credit
Facility.

 

 

The Summary of
Terms is intended to be indicative of the principal terms of the Credit
Facility and does not purport to specify all of the terms, conditions,
representations and warranties, covenants and other provisions that will be
contained in the final loan documents for the Credit Facility.

 

GE Capital and
GE Canada are delivering this Commitment Letter to you in reliance upon the
accuracy of all information furnished to GE Capital and GE Canada by you or on
your behalf and with the understanding that you will not disclose the contents
of this letter or GE Capital’s, GE Canada’s or GECM’s involvement or interest
in providing financing for the proposed transaction to any third party
(including, without limitation, any financial institution or intermediary)
without GE Capital’s or GE Canada’s prior written consent other than to the
board of directors of Target, governmental and regulatory authorities and your
advisors and officers on a need-to-know basis. 
You agree to inform all such persons who receive information concerning
GE Capital, GE Canada, GECM or this commitment that such information is
confidential and may not be disclosed to any other person.  GE Capital and GE Canada reserve the right to
review and approve, in advance, all materials, press releases, advertisements
and disclosures that you or your affiliates prepare that contain GE Capital’s,
GE Canada’s or any affiliate’s name or describe GE Capital’s or GE Canada’s
financing commitment.

 

By executing
this Commitment Letter, you agree, whether or not GE Capital or GE Canada
closes the proposed Credit Facility, to indemnify GE Capital, GE Canada, GECM,
each other lender involved in the Credit Facility, and their respective
affiliates, and their respective directors, officers, employees, agents, auditors,
accountants, consultants and counsel (each, an “Indemnitee”) from, and hold
each of them harmless against, any and all losses, liabilities, claims,
actions, suits, proceedings, damages or expenses including amounts paid in
settlement, legal fees and defense costs, incurred by any of them arising out
of or by reason of any environmental matters, investigation, litigation or
other proceeding brought or threatened relating to any loan made or proposed to
be made hereunder or otherwise relating to any such loan made or proposed to be
made hereunder, provided, that you shall have no obligation to an Indemnitee
under this paragraph to the extent resulting from the gross negligence or
willful misconduct of that Indemnitee as determined by a court of competent
jurisdiction.  You agree that in any
action arising in connection with this letter or any transaction contemplated
hereby the only damages that may be sought from GE Capital, GE Canada, GECM,
their affiliates, each other lender or any Indemnitee are those which are
direct and reasonably foreseeable as the probable result of any breach hereof
and any right to indirect, special, exemplary, consequential, or punitive
damages or lost anticipated profits is hereby waived.

 

You, GE
Capital and GE Canada hereby expressly waive any right to trial by jury of any
claim, demand, action or cause of action arising in connection with this Commitment Letter, any transaction
relating hereto, or any other instrument, document or agreement executed or
delivered in connection herewith, whether sounding in contract, tort or
otherwise.  You, GE Capital and GE Canada
consent and agree that the state or federal courts located in Cook  County,
State of Illinois, shall have exclusive jurisdiction to hear and determine any
claims or disputes between or among any of the parties hereto pertaining to
this Commitment Letter,
any transaction relating hereto, any other financing related thereto, and any
investigation, litigation, or proceeding related to or arising out of any such
matters, provided, that you, GE Capital and GE Canada acknowledge that
any

 

2

 

appeals from those courts may have to be heard by a court located
outside of such jurisdiction.  You, GE
Capital and GE Canada expressly submit and consent in advance to such
jurisdiction in any action or suit commenced in any such court, and hereby
waive any objection which either of them may have based upon lack of personal
jurisdiction, improper venue or inconvenient forum.

 

This Commitment
Letter is governed by and shall be construed in accordance with the laws of the
State of Illinois applicable to contracts made and performed in that State.

 

GE Capital, GE
Canada and GECM shall have access to all relevant facilities, personnel and accountants,
and copies of all documents which GE Capital, GE Canada or GECM may request,
including business plans, financial statements (actual and pro forma), books,
records, and other documents.

 

This
Commitment Letter and the Fee Letter supersede all prior discussions, writings,
indications of interest and proposals with respect to the Credit Facility
previously delivered to you or your affiliates by GE Capital or any of its
affiliates.  Unless extended in writing by
GE Capital, in its discretion, the commitment contained herein shall expire
upon the first to occur of:  (a) 5:00 p.m.,
Chicago time on August 10, 2005, unless you shall have executed and
delivered a copy of this letter and the Fee Letter to the attention of the
undersigned prior to that date and time; or (b) 5:00 p.m., Chicago
time on November 1, 2005, unless the transactions contemplated and
described by this Commitment Letter are consummated on or before that date
pursuant to written credit documentation signed by GE Capital and GE
Canada.  Upon expiration of the
commitment contained herein, GE Capital, GE Canada GECM and their affiliates
shall have no liability or obligation hereunder.  Expiration of this commitment shall not
affect your obligations hereunder, including to pay any fees, costs or expenses
provided for herein or in any other agreements entered into between you and GE
Capital and GE Canada.

 

We appreciate
the opportunity you have given us to deliver a financing commitment and look
forward to working with you.

 

 

	
   

  	
  Sincerely,

  

  GENERAL ELECTRIC CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jill K.
  Carabelli

  	
   

  
	
   

  	
  Name:

  	
    Jill K. Carabelli

  	
   

  
	
   

  	
   

  	
    Its Duly Authorized Signatory

  
	
   

  	
   

  
	
   

  	
  GE CANADA FINANCE HOLDING COMPANY 

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jack F.
  Morrone

  	
   

  
	
   

  	
  Name:

  	
    Jack F. Morrone

  	
   

  
	
   

  	
  Its Duly
  Authorized Signatory

  
									

 

3

 

	
  Accepted and Agreed to 

  
	
  this 9th day of
  August, 2005:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Beacon Sales Acquisition, Inc.

  
	
   

  
	
   

  
	
  By:

  	
  /s/   David R. Grace

  	
   

  
	
  Name:

  	
  David R. Grace

  	
   

  
	
  Title: 

  	
  CFO

  	
   

  
	
   

  
	
  Accepted and Agreed to 

  
	
  this 9th day of
  August, 2005:

  
	
   

  
	
  Beacon Roofing Supply Canada Company

  
	
   

  
	
   

  
	
  By:

  	
  /s/   David R. Grace

  	
   

  
	
  Name:

  	
  David R. Grace

  	
   

  
	
  Title: 

  	
  CFO

  	
   

  
							

 

4

 

August 9, 2005

 

Summary of Terms

$310,000,000 Senior Secured US
Credit Facility

C$15,000,000 Senior Secured
Canadian Credit Facility

in Support of Beacon Sales
Acquisition, Inc.’s Acquisition of Target

 

	
  US Borrower:

  	
   

  	
  Beacon Sales Acquisition, Inc. (“US Borrower”), a company that
  will acquire all of the equity interests of Target (as defined in the
  Commitment Letter).

  
	
   

  	
   

  	
   

  
	
  Canadian Borrower:

  	
   

  	
  Beacon Roofing Supply Canada Company (“Canadian Borrower”; and
  together with the US Borrower “Borrowers”).

  
	
   

  	
   

  	
   

  
	
  Guarantors:

  	
   

  	
  Beacon Roofing Supply, Inc. and/or any other holding company formed
  to hold US Borrower’s equity interests (“US Holdings”) and each of US
  Borrower’s subsidiaries would be required to unconditionally guaranty
  Borrowers’ indebtedness to Agents and Lenders, and each Borrower would be
  required to unconditionally guaranty the other Borrower’s indebtedness to
  Agents and Lenders. US Holdings will be a single purpose entity whose sole
  business will be to hold its equity position in US Borrower.

  
	
   

  	
   

  	
   

  
	
  Sponsor:

  	
   

  	
  Code, Hennessy & Simmons (“CHS”).

  
	
   

  	
   

  	
   

  
	
  Administrative Agent:

  	
   

  	
  General
  Electric Capital Corporation (“GE Capital”) would serve as agent (“Agent”).

  
	
   

  	
   

  	
   

  
	
  Canadian Agent:

  	
   

  	
  GE Canada Finance Holding Company (“GE Canada”) or an affiliate
  thereof designated by GE Canada would serve as Canadian agent (“Canadian
  Agent, together with Agent, “Agents”)

  
	
   

  	
   

  	
   

  
	
  Sole Lead Arranger and Sole
  Bookrunner:

  	
   

  	
  GE Capital Markets, Inc. (“GECM”).

  
	
   

  	
   

  	
   

  
	
  Lenders:

  	
   

  	
  A syndicate of financial institutions (including GE Capital
  individually) assembled by GECM to provide the Credit Facility.

  
	
   

  	
   

  	
   

  
	
  Use of Proceeds:

  	
   

  	
  i. Acquire the capital stock of Target and refinance existing
  indebtedness of Target.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ii. Refinance and/or restate existing indebtedness under US Borrower’s
  existing credit facilities agented by US Agent (the “Existing US Credit
  Facility”) and under Canadian Borrower’s existing credit facilities agented
  by Canadian Agent (the “Existing Canadian Credit Facility” and, together with
  the Existing US Credit Facility, the “Existing Credit Facility”).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  iii. Provide for Borrowers’ ongoing working capital requirements.

  

 

1

 

	
   

  	
   

  	
  iv. Provide for costs and expenses associated with the transaction.

  
	
   

  	
   

  	
   

  
	
  Credit Facility:

  	
   

  	
  A $310,000,000 US senior secured credit facility (the “US Credit
  Facility”) provided by GE Capital and other Lenders to US Borrower consisting
  of a revolving credit facility of $230,000,000 (the “US Revolving Credit
  Facility”), which includes a subfacility for $10,000,000 of letters of credit
  issued by GE Capital or an affiliate of GE Capital or by one or more banks or
  other legally authorized persons acceptable to GE Capital and guaranteed or
  otherwise backed by GE Capital and the other Lenders participating in the
  Revolving Credit Facility (the “US LC Subfacility”), a $25,000,000 term loan
  A (“US Term Loan A”), and a $55,000,000 term loan B (“US Term Loan B” and,
  together with US Term Loan A, the “US Term Loans”).

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A C$15,000,000
  senior secured credit facility provided by GE Canada to the Canadian Borrower
  consisting of a revolving credit facility of up to C$15,000,000 (the “Canadian
  Revolving Credit Facility”; and together with the US Credit Facility, the “Credit
  Facility”).

  
	
   

  	
   

  	
   

  
	
  Revolving Credit Facility:

  	
   

  	
  The US Revolving Credit Facility and Canadian Revolving Credit
  Facility are referred to collectively as the “Revolving Credit Facility”. The
  Revolving Credit Facility will be used to finance Borrowers’ working capital
  needs and to finance future acquisitions of companies which are in the same
  line of business of Borrowers and subject to the satisfaction of criteria to
  be specified in the Credit Facility documentation. The Revolving Credit
  Facility would have a term of five years.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Availability under the Revolving Credit Facility would be limited to
  a borrowing base which, based upon GE Capital’s and GE Canada’s due diligence
  to date, is expected to be up to 85% of the net amount of “eligible accounts
  receivable” and up to the lesser of 64.5% of the net amount of “eligible
  inventory” (to be defined in the Credit Facility documentation) or 85% of net
  orderly liquidation value of eligible inventory and would be subject to
  discretionary reserves. A seasonal advance rate of up to the lesser of 69.5%
  of eligible inventory or 95% of net orderly liquidation value of eligible
  inventory would also be provided. Agents will retain the right from time to
  time to establish or modify advance rates, standards of eligibility and
  reserves against availability.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Availability under the US Credit Facility will be subject to a
  $5,000,000 minimum availability reserve at all times during the term of the
  US Credit Facility.

  
	
   

  	
   

  	
   

  
	
  LC Subfacility:

  	
   

  	
  The US LC Subfacility would provide for the issuance of letters of
  credit for the account of US Borrower or risk participation agreements or guaranties with respect to US
  Borrower’s reimbursement obligations to other letter of credit issuers. A
  reserve would be established against availability under the US Revolving
  Credit Facility for the face amount of outstanding letters of credit, risk
  participation agreements and guaranties.

  

 

2

 

	
  US Term Loan A:

  	
   

  	
  US Term Loan A would have a term of five years and would be repayable
  in quarterly principal installments commencing on the last day of the first
  quarter ending after the closing in accordance with the following
  amortization schedule:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Quarter

  	
   

  	
  Amount

  	
   

  	
   

  
	
   

  	
   

  	
  1-19

  	
   

  	
  $

  	
  750,000

  	
   

  	
   

  
	
   

  	
   

  	
  20

  	
   

  	
  $

  	
  10,750,000

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notwithstanding the foregoing, the outstanding principal balance of
  US Term Loan A would always be repayable in full on the date on which the
  Revolving Credit Facility terminates.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Amounts repaid on US Term Loan A may not be reborrowed.

  
	
   

  	
   

  	
   

  
	
  US Term Loan B:

  	
   

  	
  US Term Loan B would have a term of three years and would be
  repayable in quarterly principal installments commencing on the last day of
  the first quarter ending after the closing in accordance with the following
  amortization schedule:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Quarter

  	
   

  	
  Amount

  	
   

  	
   

  
	
   

  	
   

  	
  1-12

  	
   

  	
  $

  	
  4,583,334

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Amounts repaid on US Term Loan B may not be reborrowed.

  
	
   

  	
   

  	
   

  
	
  Incremental Facility:

  	
   

  	
  US Borrower shall have the right to increase the size of the US
  Revolving Credit Facility at the Agent’s and the Borrower’s mutual agreement,
  in minimum increments of $10,000,000 up to an aggregate amount of $50,000,000
  (the “Incremental Facility”) at any time on or before the date which is four
  years after the closing date, from existing Lenders and/or new Lenders
  mutually acceptable to Agent and Borrower; provided, that (i) no default
  or event of default shall have occurred and be continuing and (ii) no
  commitment of any Lender shall be increased without the consent of such
  Lender. The Incremental Facility shall become part of the Revolving Credit
  Facility, subject to appropriate mark to market pricing for the Incremental
  Facility as well as the existing Revolving Credit Facility.

  
	
   

  	
   

  	
   

  
	
  Interest:

  	
   

  	
  Interest would be payable on the daily outstanding principal balance
  of all loans under the US Credit Facility initially at a floating rate per
  annum equal to the “Index Rate” plus the “Applicable Margin”. US Borrower
  would also be entitled to request, upon three business days prior notice,
  that all or a portion of the outstanding principal balance of the loans under
  the US Credit Facility bear interest at a per annum rate equal to “LIBOR”
  plus the Applicable Margin. The Applicable Margins may be increased by up to
  2.0% and the LIBOR option may be suspended after the occurrence of a default
  under the US Credit Facility documentation.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  US Borrower would be required to pay interest monthly in arrears on
  the daily outstanding principal balance of the loans on which interest has
  been 

  
									

 

3

 

	
   

  	
   

  	
  calculated using the Index Rate. When selecting the LIBOR option, US
  Borrower would be entitled to choose one, two, three or six month interest
  periods, provided that no more than eight interest periods may be in effect
  at any one time. US Borrower would be required to pay interest on LIBOR loans
  in arrears on the last day of the interest period and, in the case of
  interest periods of longer than three months, on the last day of each three
  month period. In the event US Borrower repays any LIBOR loan on a day other
  than the last day of an interest period for such loan or fails to borrow a
  requested LIBOR loan on the date funding was requested, US Borrower would be
  required to pay a LIBOR breakage fee to Lenders.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  All interest under the US Credit Facility on LIBOR loans and other
  obligations (other than Index Rate loans) will be calculated based on a 360-day
  year and actual days elapsed. Interest on Index Rate loans will be calculated
  based on a 365-day year or 366-day year, as applicable and actual
  days elapsed.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Interest would be payable on the daily outstanding principal balance
  of all loans under the Canadian Credit Facility initially at a floating rate
  per annum equal to the “C$ Index Rate” plus the Applicable Margin. Canadian
  Borrower would also be entitled to require, upon three business days prior
  notice, that all or a portion of the outstanding principal balance of the
  loans under the Canadian Credit Facility bear interest at a per annum rate
  equal to the “BA Rate” plus the Applicable Margin. The Applicable Margins
  under the Canadian Credit Facility may be increased by up to 2.0% and the BA Rate
  options may be suspended after the occurrence of an event of default under
  the Canadian Credit Facility documentation.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Canadian Borrower would be required to pay interest monthly in
  arrears on the daily outstanding principal balance of the loans under the
  Canadian Credit Facility on which interest has been calculated using the C$ Index Rate. When selecting a BA Rate option, Canadian Borrower would be
  entitled to choose a 30, 60 or 90 days BA Rate provided that no more than
  five BA periods may be in effect at any one time. Canadian Borrower would be
  required to pay interest on BA Rate loans in arrears on the last day of the
  applicable BA period. BA Rate loan breakage fees will be set forth in the
  final Canadian Credit Facility documentation. All interest under the Canadian
  Credit Facility will be calculated based on a 365-day year and actual
  days elapsed.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Index Rate” means a floating rate of interest per annum equal to the
  higher of the rate publicly quoted from time to time by The Wall Street
  Journal as the “base rate on corporate loans posted by at least 75% of
  the nation’s 30 largest banks” or the Federal Funds Rate plus 50 basis
  points. “LIBOR” means, for each interest period, the offered rate for
  deposits in U.S. dollars in the London interbank market for the relevant
  interest period which is published by the British Bankers’ Association, and
  currently appears on Telerate Page 3750, as of 11:00 a.m. (London
  time) on the day which is two business days prior to the first day of such
  interest period adjusted for reserve requirements.

  

 

4

 

	
   

  	
   

  	
  “C$ Index Rate” means a floating rate of interest per annum equal to
  the higher of (i) the annual rate of interest quoted from time to time
  in the “Report on Business” section of The Globe and Mail as
  being “Canadian prime”, “chartered bank prime rate” or words of similar
  description and (ii) the BA Rate in respect of a BA period for 30 days,
  plus, 1.75%. “BA Rate” means a rate per annum determined by Canadian Agent by
  reference to the average rate quoted on the Reuters Monitor Screen Page CDOR
  (displaying Canadian interbank bid rates for Canadian dollar bankers’
  acceptances) applicable to bankers’ acceptances for the applicable term as of
  11:00 a.m. (Toronto time) two (2) business days prior the beginning
  of such term.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The definitions of “Index Rate”, “LIBOR”, “C$ Index Rate” and “BA
  Rate” and used in this summary have been abbreviated and the Credit Facility
  documentation would set forth appropriate detail describing the exact method
  of calculation and relevant reserve requirements. The Credit Facility
  documentation will contain LIBOR and BA breakage provisions, LIBOR and BA
  borrowing mechanics and other LIBOR and BA definitions.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Solely for purposes of calculating interest, good funds will be
  credited to the outstanding principal balance of the Revolving Credit
  Facility one day after receipt thereof.

  
	
   

  	
   

  	
   

  
	
  Default Rate:

  	
   

  	
  The Applicable Margins may be increased by up to 2.0% and the LIBOR
  option and BA Rate option may be suspended after the occurrence of a default.

  
	
   

  	
   

  	
   

  
	
  Applicable Margins:

  	
   

  	
  The “Applicable Margin” (on a per annum basis) for each type of loan
  and for purposes of calculating certain fees will be as specified and
  described below:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US
  Revolver Index Margin: 0.50%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US Revolver LIBOR Margin: 1.75%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable Canadian Revolver C$ Index Margin: 0.50%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable Canadian Revolver BA Margin: 1.75%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US Term Loan A Index Margin: 0.50%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US Term Loan A LIBOR Margin: 1.75%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US Term Loan B Index Margin: 1.50%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Applicable US Term Loan B LIBOR Margin: 2.75%

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  On March 1, 2006, and thereafter on the first day of each fiscal
  quarter (commencing July 1, 2006) (each such date, an “adjustment date”),
  the Applicable US Revolver Index Margin, the Applicable US Revolver LIBOR
  Margin, the Applicable Canadian Revolver C$ Index Margin and 

  

 

5

 

	
   

  	
   

  	
  the Applicable Canadian Revolver BA Margin would be percentages that
  are determined on a prospective basis based on the Interest Rate Excess
  Availability as set forth on Schedule I (Applicable Margins)
  attached hereto. “Interest Rate Excess Availability” means, for any
  adjustment date, the average daily excess availability (to be defined in the
  Credit Facility documentation) for the three-month period preceding such
  date, as determined by the Agents.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Credit Facility documentation will contain other provisions
  regarding the timing and mechanics of subsequent prospective adjustments in
  Applicable Margins. If a default is continuing at the time that a reduction
  in Applicable Margins is to be implemented, the reduction will be deferred
  until the first month commencing after the cure or waiver thereof.

  
	
   

  	
   

  	
   

  
	
  Fees:

  	
   

  	
  In addition to the fees payable to GE Capital and GE Canada as
  specified in the fee letter between Borrowers, GE Capital and GE Canada dated
  on or about the date hereof (the “Fee Letter”), the following fees would be
  payable by Borrowers in connection with the Credit Facilities:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A fee (calculated on the basis of a 360 day year) of 0.375% per annum
  of the average daily balance of the unused portion of the Revolving Credit
  Facility would be payable monthly in arrears.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  With respect to the US LC Subfacility, a fee equal to the product of
  the average daily undrawn face amount of all letters of credit issued,
  guaranteed or supported by risk participation agreements multiplied by a per
  annum rate equal to the Applicable LIBOR Margin for the US Revolving Credit
  Facility would be due and payable monthly in arrears, together with any bank
  fees and charges incurred by Agent to a letter of credit issuer.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The out-of-pocket cost (including fees and expenses) paid to third
  party auditors, or a fee of $800 per audit day per in-house auditor plus
  out-of-pocket expenses, would be payable by Borrowers to Agents.

  
	
   

  	
   

  	
   

  
	
  Prepayment Requirements/Commitment
  Reductions:

  	
   

  	
  To be consistent with Existing Credit Facility documentation.

  
	
   

  	
   

  	
   

  
	
  Collateral:

  	
   

  	
  To be consistent with Existing Credit Facility documentation. In
  connection therewith, Agent shall have received lien searches with respect to
  Target, with results satisfactory to Agent.

  
	
   

  	
   

  	
   

  
	
  Insurance:

  	
   

  	
  Agent shall have received policies or binders for property and
  casualty, liability, business interruption and other insurance satisfying the
  requirements of the Credit Facility documentation with appropriate
  endorsements or assignments naming Agent as loss payee, assignee, mortgagee
  and additional insured, as appropriate, and
  non-renewal/cancellation/amendment riders to provide 30 days advance notice
  to Agent.

  

 

6

 

	
  Cash Management:

  	
   

  	
  Cash management system acceptable to Agent. Agent will require
  Borrower to use commercially reasonable efforts to obtain springing blocked
  account agreements for all deposit accounts of Borrower and its subsidiaries
  within 120 days following the closing date, and if Borrower is unable to
  obtain such agreements within such period (or such longer period as may be
  agreed to by Agent), Agent may require that Borrower and its subsidiaries
  replace such deposit accounts with deposit accounts at banks subject to such
  agreements with Agent.

  
	
   

  	
   

  	
   

  
	
  Equity Structure:

  	
   

  	
  The equity structure of Borrower and Holdings shall remain unchanged
  with Holdings owning 100% of Borrower.

  
	
   

  	
   

  	
   

  
	
  Documentation:

  	
   

  	
  Documentation
  evidencing the Credit Facilities contemplated herein shall be satisfactory to
  Agent and Lenders. Without limiting the generality of the foregoing, payment
  of the “earn-out” under the SDI Acquisition (as defined in the Commitment
  Letter) documentation shall be permitted only if before and after giving
  effect to such payment (i) no Event of Default shall have occurred and
  be continuing under the Credit Facility documentation, and (ii) Excess
  Availability shall exceed $[TBD].

  
	
   

  	
   

  	
   

  
	
  Conditions to Funding:

  	
   

  	
  The Credit Facility documentation would contain such conditions to
  funding as are described herein. All extensions of credit under the Credit
  Facility will be subject to the continuing accuracy of representations and
  warranties and the absence of defaults.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The conditions to the initial funding will include the following and
  those set forth elsewhere herein and in the Commitment Letter and Fee Letter,
  each of which must be satisfied to Agent’s satisfaction:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  •                  Satisfactory inventory appraisals of
  Borrowers and their subsidiaries, and Target, conducted by auditors and
  appraisers acceptable to Agents, which appraisals are expected to be received
  by August 10, 2005.

   

  •                  No material adverse change with respect to
  the financial condition, collateral, operations, industry, business or
  prospects of Borrowers, their subsidiaries and Target, taken as a whole; no
  litigation commenced which could reasonably be expected to have a material
  adverse effect upon any of the foregoing.

   

  •                  The acquisition of Target shall have closed
  contemporaneously with the Credit Facility on substantially the terms set
  forth in the draft acquisition documents previously delivered to the Agents.

   

  •                  No material adverse change with respect to
  the business plan, including financial projections, previously provided to
  Agents and Lenders.

   

  •                  Receipt by Agents of audited financial
  statements of Target for the six-month period ending June 30, 2005.

  

 

7

 

	
   

  	
   

  	
  •                  Agents and Lenders shall be satisfied,
  based on financial statements (actual and pro forma), projections and other
  evidence provided by Borrowers, or requested by Agents, that Borrowers after
  incurring the indebtedness contemplated by the Credit Facility, will be
  solvent, able to satisfy their obligations as they mature and adequately
  capitalized.

   

  •                  The ownership, capital, corporate, tax,
  organizational and legal structure of Borrowers and their subsidiaries shall
  remain unchanged except for Target becoming a Subsidiary of Borrower.

   

  •                  Any third-party and regulatory approvals
  and consents necessary to consummate the proposed transactions shall have been
  obtained and shall be final and non-appealable.

   

  •                  After giving effect to the payment of, or
  the creation of a reserve for, all fees and expenses related to the closing,
  Borrowers shall have unused availability of at least $35 million under the
  Revolving Credit Facility for working capital needs on the closing date.

   

  •                  Leverage (including all funded debt and
  letters of credit) will be less than or equal to 3.6x. The foregoing numbers
  are based on a closing date of not later than August 31, 2005 and, in the
  event of a later closing date, such numbers shall be adjusted in a manner
  satisfactory to Agents and consistent with the business plan previously
  provided to the Agents.

   

  •                  Agent shall have received such resolutions,
  consents, certificates, legal opinions and other documents as it shall have
  reasonably requested with respect to the execution and delivery of the Credit
  Facility documentation, the related transactions and performance of the
  obligations created thereunder and which are customary for transactions of
  this type.

  
	
   

  	
   

  	
   

  
	
  Permitted Acquisitions:

  	
   

  	
  To be consistent with Existing Credit Facility documentation.

  
	
   

  	
   

  	
   

  
	
  Third
  Party Assistance:

  	
   

  	
  Borrower shall reimburse
  Agent for the fees and expenses of all accountants, appraisers, industry
  consultants, environmental engineering firms and other professionals that
  Agent has engaged to assist in conducting due diligence for the transaction.

  
	
   

  	
   

  	
   

  
	
  Assignments/Participations:

  	
   

  	
  Lenders would have the
  right at any time to sell and assign interests and sell participations under
  the Credit Facility to other financial institutions with the consent of Agent
  in accordance with customary terms.

  
	
   

  	
   

  	
   

  
	
  Requisite
  Lenders:

  	
   

  	
  Lenders having more than
  50% of the commitments of all Lenders, subject to certain supermajority
  provisions as Agent may determine.

  

 

8

 

	
  Governing
  Law:

  	
   

  	
  Illinois.

  

 

9

 

SCHEDULE I (APPLICABLE MARGINS)

 

	
  If Interest Rate Excess Availability is:

  	
   

  	
  Level of Applicable Margins:

  
	
  < $25,000,000

  	
   

  	
  Level I

  
	
  > $25,000,000,
  but < $50,000,000

  	
   

  	
  Level II

  
	
  > $50,000,000

  	
   

  	
  Level III

  

 

	
   

  	
   

  	
  Applicable Margins

  	
   

  
	
   

  	
   

  	
  Level I

  	
   

  	
  Level II

  	
   

  	
  Level III

  	
   

  
	
  Applicable
  Revolver Index Margin

  	
   

  	
  0.50%

  	
   

  	
  0.375%

  	
   

  	
  0.25%

  	
   

  
	
  Applicable
  Revolver LIBOR Margin

  	
   

  	
  1.75%

  	
   

  	
  1.625%

  	
   

  	
  1.50%Exhibit 10.17

 

BUSINESS
FINANCING MODIFICATION AGREEMENT

 

This Business Financing Modification
Agreement is entered into as of July 27, 2005, by and between AML
Communications, Inc. (the “Borrower”) and Bridge Bank, National
Association (“Lender”).

 

1.             DESCRIPTION OF
EXISTING INDEBTEDNESS: Among other indebtedness which may be owing by
Borrower to Lender, Borrower is indebted to Lender pursuant to, among other
documents, a Business Financing Agreement, dated July 8, 2004 by and
between Borrower to Lender, as may be amended from time to time, (the “Business
Financing Agreement”). Capitalized terms used without definition herein shall
have the meanings assigned to them in the Business Financing Agreement.

 

Hereinafter, all
indebtedness owing by Borrower to Lender shall be referred to as the “Indebtedness”
and the Business Financing Agreement and any and all other documents executed
by Borrower in favor of Lender shall be referred to as the “Existing Documents.”

 

2.             DESCRIPTION OF
CHANGE IN TERMS.

 

A.            Modification(s)
to Business Financing Agreement:

 

1)             The
following defined terms are hereby amended to read as follows:

 

“Credit Limit” means $2,000,000.00, of
which up to $1,000,000 may be used for Formula Advances, and up to $1,000,000
may be used for Equipment Advances, subject to Section 2.2 and 2.3.

 

“Debt Service Coverage” means a ratio
of (a) the sum of net profit after tax, interest expense, and depreciation
and amortization divided by (b) the sum of interest expense and current
portion of long-term debt divided by 4.

 

“Finance Charge Percentage” means a
rate per year equal to (a) the Prime Rate plus .25% with respect to
Formula Advances, and (b) the Prime Rate plus 2.00% with respect to
Equipment Advances.

 

“Facility
Fee” means a fee equal to $5,000.00.

 

“Prime Rate” means for any day, a
variable rate of interest, per annum, most recently published by the Wall
Street Journal, as the “prime rate,” provided that if such day is not a
business day, the Prime Rate for such day shall be such rate on such
transactions on the next preceding business day as so published in the Wall
Street Journal on the next succeeding business day. The Prime Rate shall at no
event be less than 5.50%.

 

“Termination Date” means the earlier
of (a) July 27, 2006, or (b) the date on which Lender elects to
terminate this Agreement pursuant to the terms herein.

 

2)             The
defined term “Minimum Utilization Fee” is hereby deleted in its entirety.

 

3)             Section 2.3
is hereby amended in its entirety to read as follows:

 

2.3           Equipment
Advances. Subject to the terms and conditions of this Agreement, from the
date of this Agreement through the earlier of December 31, 2005 or the
Termination Date, Borrower may request Equipment Advances of up to an aggregate
principal amount of $1,000,000 to finance the acquisition of Equipment. Each
Equipment Advance shall not exceed 100% of the invoice price of Equipment
approved by Lender from time to time. On the last day of each month, Borrower
shall pay Lender all accrued Finance Charges on all outstanding Equipment Advances
during such month. Any Equipment Advances outstanding on the earlier of (i) December 31,
2005 or (ii) the date that Borrower has requested Equipment Advances in an
aggregate principal amount of $1,000,000 (the “Term Out Date”) shall be payable
in thirty-six (36) equal monthly installments of principal, plus all accrued
Finance Charges, beginning the last day of the month after the Term Out Date
(or on the Term Out Date if it is the last day of the month) and continuing on
the same day of each

 

1

 

month thereafter until all of the Equipment
Advances have been repaid in full, provided, if this Agreement is terminated
prior to all Equipment Advances are paid in full, all outstanding principal
balance plus all accrued Finance Charges of Equipment Advances shall be due at
the time of the termination. Once the Equipment Advances are termed out, the
Finance Charge Percentage for Equipment Advances shall be fixed at such rate
effective as of the Term Out Date. Equipment Advances may be prepaid, but may
not be reborrowed.

 

4)             The
following subsections in Section 3.3 are hereby amended to read as
follows:

 

(a)           Facility
Fee. On each anniversary of the date of this Business Financing
Modification Agreement and prior to the termination of this Agreement, Borrower
shall pay to Lender the Facility Fee; provided, Borrower is allowed to pay each
annual Facility Fee in four equal quarterly installments, with the first
payment to be made upon execution of this Business Financing Modification
Agreement, and the remaining payments due every three months thereafter. In the
event this Agreement is terminated prior to an anniversary of the date of this
Business Financing Modification Agreement, any unpaid portion of the Facility Fee
shall be paid at the time of termination.

 

(b)           Termination
Fee. In the event this Agreement is terminated prior to July 27, 2006,
Borrower shall pay the Termination Fee to Lender; provided that such
Termination Fee shall be waived if this Agreement is terminated on terms
acceptable to Lender in connection with Borrower’s entry into a financing
agreement with an affiliate of Lender.

 

5)             Subsection 7
(p) is hereby amended to read as follows:

 

(p)           Effective
as of the quarter ending September 30, 2005, and each quarter thereafter
and while any Equipment Advances remains unpaid, maintain a Debt Service
Coverage ratio of at least 1.25 to 1.00.

 

6)             Section 7
is hereby amended to include the following subsection:

 

(r)            Provide
to Lender, within 60 days prior to the start of Borrower’s each fiscal year,
annual projections acceptable to Lender.

 

3.             CONSISTENT CHANGES.
The Existing Documents are each hereby amended wherever necessary to reflect
the changes described above.

 

4.             INTENTIONALLY
OMITTED.

 

5.             NO DEFENSES OF BORROWER.
Borrower agrees that, as of this date, it has no defenses against the
obligations to pay any amounts under the Indebtedness.

 

6.             CONTINUING
VALIDITY. Borrower understands and agrees that in modifying the existing
Indebtedness, Lender is relying upon Borrower’s representations, warranties,
and agreements, as set forth in the Existing Documents. Except as expressly
modified pursuant to this Business Financing Modification Agreement, the terms
of the Existing Documents remain unchanged and in full force and effect. Lender’s
agreement to modifications to the existing Indebtedness pursuant to this
Business Financing Modification Agreement in no way shall obligate Lender to
make any future modifications to the Indebtedness. Nothing in this Business
Financing Modification Agreement shall constitute a satisfaction of the
Indebtedness. It is the intention of Lender and Borrower to retain as liable
parties all makers and endorsers of Existing Documents, unless the party is
expressly released by Lender in writing. No maker, endorser, or guarantor will
be released by virtue of this Business Financing Modification Agreement. The
terms of this paragraph apply not only to this Business Financing Modification
Agreement, but also to any subsequent Business Financing modification
agreements.

 

7.             CONDITIONS.
The effectiveness of this Business Financing Modification Agreement is
conditioned upon Lender’s receipt of this Business Financing Modification
Agreement executed by Borrower in original.

 

2

 

8.             COUNTERSIGNATURE.
This Business Financing Modification Agreement shall become effective only when
executed by Lender and Borrower.

 

	
  BORROWER:

  	
  LENDER:

  
	
   

  	
   

  
	
  AML COMMUNICATIONS, INC.

  	
  BRIDGE BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
  By:

  	
  /s/: Jacob Inbar

  	
   

  	
  By:

  	
  /s/: Lee Shodiss

  	
   

  
	
   

  	
   

  
	
  Name:

  	
   Jacob Inbar

  	
  Name:

  	
   Lee Shodiss

  
	
   

  	
   

  
	
  Title:

  	
  CEO & President

  	
  Title:

  	
  Senior Vice President

  
								

 

3

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