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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
Mark One
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-14649
Trex Company, Inc.
(Exact name of registrant as specified in its charter)
Delaware 54-1910453
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 South Cameron Street, Winchester, 22601
Virginia (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (540) 678-4070
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Name of each exchange
each class: on which registered:
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendments to this Form 10-K [_]
The aggregate market value of the registrant's voting stock held by non-
affiliates of the registrant at March 16, 2001, based on the closing price of
such stock on the New York Stock Exchange on such date, was approximately $211
million.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding on March 16, 2001 was 14,137,586.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in the proxy statement for the 2001 annual meeting of
stockholders of the registrant is incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business......................................................... 1
Item 2. Properties....................................................... 13
Item 3. Legal Proceedings................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.......................................................... 15
Item 6. Selected Financial Data......................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...... 23
Item 8. Financial Statements and Supplementary Data...................... 23
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 23
PART III
Item 10. Directors and Executive Officers of the Registrant.............. 24
Item 11. Executive Compensation.......................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and Management.. 26
Item 13. Certain Relationships and Related Transactions.................. 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................... 27
i
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend" and "plan" as they relate to Trex
Company, Inc. or our management are intended to identify these forward-looking
statements. All statements by Trex Company, Inc. regarding our expected future
financial position and operating results, our business strategy, our financing
plans, forecasted trends relating to the markets in which we operate and
similar matters are forward-looking statements. We cannot assure you that our
expectations expressed or implied in these forward-looking statements will turn
out to be correct. Our actual results could be materially different from our
expectations as a result of, among other factors, the factors discussed under
the caption "Business--Risk Factors" in this report.
Some of the information contained in this report concerning the markets and
industry in which we operate is derived from publicly available information and
from industry sources. Although we believe that this publicly available
information and the information provided by these industry sources are
reliable, we have not independently verified the accuracy of any of this
information.
ii
PART I
Item 1. Business
General
Trex Company, Inc., which we sometimes refer to as the "company" in this
report, is the nation's largest manufacturer of non-wood decking alternative
products, which are marketed under the brand name Trex. Trex Wood-Polymer(TM)
lumber is a wood/plastic composite that offers an attractive appearance and the
workability of wood without wood's on-going maintenance requirements and
functional disadvantages. Trex is manufactured in a proprietary process that
combines waste wood fibers and reclaimed polyethylene and is used primarily for
residential and commercial decking. We promote Trex among consumers and
contractors as a premium decking product. Net sales of Trex increased from $0.6
million in 1992 to $117.6 million in 2000. Our income from operations increased
from a loss of $5.6 million in 1992 to a profit of $31.9 million in 2000.
We seek to achieve sales growth in the decking market by converting demand
for wood decking products into demand for Trex. We intend to continue to
develop and promote the Trex brand name as a premium decking product and to
focus on the contractor-installed market segment. This segment represents
approximately 70% of the decking market, as measured by board feet of lumber,
and contractors generally build larger, more elaborate residential decks than
decks built by homeowners in the "do-it-yourself" market segment. We sell our
products through approximately 75 wholesale distribution locations, which in
turn sell Trex to approximately 2,600 dealer outlets across the United States.
Trex Company, Inc., which is a Delaware corporation, was incorporated on
September 4, 1998 for the purpose of acquiring 100% of the membership interests
and operating the business of TREX Company, LLC, a Delaware limited liability
company, in connection with the company's initial public offering of its common
stock. Trex Company, Inc. had no operations or activity until it completed a
reorganization on April 7, 1999 in which TREX Company, LLC became the company's
wholly owned subsidiary. The company completed its initial public offering on
April 13, 1999. See note 1 to the company's consolidated financial statements
appearing elsewhere in this report for information concerning the
reorganization and the company's initial public offering.
TREX Company, LLC initiated commercial activity on August 29, 1996. On that
date, TREX Company, LLC acquired substantially all of the assets and assumed
some of the liabilities of the Composite Products Division of Mobil Oil
Corporation for a cash purchase price of approximately $29.5 million. The
buyout was led by four senior Mobil executives who currently serve as members
of our senior management.
Decking Market Overview
The decking market is part of the substantial home improvement market.
Expenditures for residential improvements and repairs totaled approximately
$143 billion in 1999, according to the U.S. Census Bureau, and the home
improvement market grew at a compound annual growth rate of 4.0% for the five-
year period ended December 31, 1999. The primary market for Trex is residential
decking and, to a lesser extent, commercial decking. Annual factory sales in
1999 of residential decking totaled approximately $1.9 billion, or
approximately 2.3 billion board feet of lumber. This market includes all
decking products other than posts, beams and columns used for a deck's
substructure. For the four-year period ended December 31, 1999, factory sales
of all residential decking increased at a compound annual growth rate of
approximately 7%. In recent years, factory sales of non-wood alternative
decking products to the residential market have increased at a compound annual
growth rate of over 30%.
The growth in demand for residential decking reflects the increasing
popularity of decks as a means of extending living areas and providing outdoor
recreation and entertainment spaces. Residential decking purchases include the
installation of new and replacement decks for existing homes, construction of
decks for new homes and repair of existing decks. An industry study estimates
that more than three million decks are built each year. We expect that deck
repair, modernization and replacement will increase as existing decks age.
1
The majority of decks are built for existing homes as new additions or to
replace other decks. During periods of economic uncertainty, when spending on
discretionary items is reduced, many homeowners forego the purchase of new
homes and choose to improve their existing residences. Adding a deck has become
one of the most popular home improvement projects. Construction of decking is a
relatively low-cost means of adding livable space, and industry studies
indicate that decking improvements generally return a significant percentage of
their cost at the time of resale. We estimate that the installation cost of a
majority of decks ranges from $3,000 to $6,000. More than half of all decks are
constructed one to five years after a home is purchased. Accordingly, there is
typically an increased demand for decking in the five-year period following a
peak in home sales. We believe that, because residential deck construction is
not primarily tied to new home activity, the residential decking market
historically has not experienced the high level of cyclicality common to
businesses in the new home construction and building materials industries.
The following table shows, in board feet of lumber, our estimate of the
percentage of 1999 factory sales to the decking market generated by each
product category listed:
Percentage of
Product 1999 Factory Sales
------- ------------------
Wood...................................................... 95%
100% plastic.............................................. 1
Wood/plastic composites................................... 4
---
100%
===
More than 75% of the lumber used in wooden decks is southern yellow pine,
which is pressure-treated with pesticides and other chemicals to create
resistance to insect infestation and decay. The balance of the wood decking
segment is primarily divided between redwood and cedar products. The 100%
plastic decking products utilize polyethylene, fiberglass and polyvinyl
chloride, or PVC, as raw materials. Wood/plastic composites are produced from a
combination of wood fiber and polyethylene or other commonly used polymers.
Growing consumer awareness of the product attributes of non-wood decking
alternatives and the decline in lumber quality and quantity have contributed to
increased sales of 100% plastic lumber and wood/plastic composites for decking.
Distributors of wood decking materials typically supply lumber to lumber
yards and home center outlets, which in turn supply the materials to home
builders, contractors and homeowners. Manufacturers of non-wood decking
alternatives also generally use these distribution channels because many of
these alternative products can be stacked, stored and installed like wood
products. Some non-wood decking alternatives, however, are sold to specialty
dealers who provide the special selling support needed to build consumer
awareness of new products.
Wood decking products generally are not associated with brand
identification. The primary softwoods used for decking, which consist of
treated southern yellow pine, redwood and cedar, are sold as commodities graded
according to classifications established by the U.S. Department of Commerce.
Pricing is based on species, grade, size and level of chemical treatment, if
any. There generally is no pricing differentiation based on brand, although
some wood preservers have attempted to brand their treated wood products. We
believe that these companies, which we estimate represent less than 5% of the
treated wood market, have not established meaningful brand name recognition.
Growth Strategies
Our goals are to continue to be the leading producer of a superior non-wood
decking alternative product, to increase our market share of the decking market
and to expand into new products and geographic markets. To attain these goals,
we employ the following strategies:
. we plan to increase our investment in, and the resources devoted to,
development of the Trex brand;
. we intend to establish comprehensive national coverage for Trex by
increasing the number of dealer outlets selling Trex over the next year
from 2,600 to approximately 3,000;
2
. we plan to increase our output of Trex by increasing productivity and
adding production capacity in our existing facilities in Winchester,
Virginia and Fernley, Nevada and by constructing and operating a third
manufacturing facility near Knoxville, Tennessee;
. we will continue to make substantial investments in process and product
development to support new products and improve product consistency,
reduce manufacturing costs and increase operating efficiencies; and
. as part of our long-term growth strategy, we will continue to develop
opportunities for Trex in new products and product applications and in
geographic markets beyond our U.S. base.
We have signed an agreement to purchase approximately 100 acres of land near
Knoxville, Tennessee on which we intend to establish our third manufacturing
facility. We expect to purchase this site and begin engineering work in the
first half of 2001 and begin construction of the facility in 2002. We have
budgeted approximately $2.0 million in capital expenditures for this facility
in 2001. We will apply these expenditures primarily for site acquisition and
engineering work.
Products
We manufacture Trex Wood-Polymer lumber in a proprietary process that
combines waste wood fibers and reclaimed polyethylene. Trex is produced in
popular lumber sizes and is currently sold in four colors: Natural, Winchester
Grey, Madeira and Woodland Brown.
Trex offers a number of significant advantages over wood decking products.
Trex eliminates many of wood's major functional disadvantages, which include
warping, splitting and other damage from moisture. Trex requires no sealing to
protect against moisture damage, provides a splinter-free surface and needs no
chemical treatment against insect infestation. These features of Trex eliminate
the on-going maintenance requirements for a wood deck and make Trex less costly
than wood over the life of the deck. Like wood, Trex is slip-resistant, even
when wet, can be painted or stained and is not vulnerable to damage from
ultraviolet rays. The special characteristics of Trex, including resistance to
splitting, flexibility, and ease and consistency of machining and finishing,
facilitate deck installation, reduce contractor call-back and afford customers
a wide range of design options. Trex does not have the tensile strength of wood
and, as a result, is not used as a primary structural member in posts, beams or
columns used in a deck's substructure.
Trex has received product building code listings from the major U.S.
building code listing agencies. Our listings facilitate the acquisition of
building permits by residential consumers of Trex. We believe that our listings
promote customer and industry acceptance of Trex as a substitute for wood in
decking.
We derived approximately 98% of our 2000 net sales from sales of Trex to the
residential and commercial decking market. We also have a number of non-decking
product applications, which generated the remaining 2% of our 2000 net sales.
These applications currently include blocks to cover and protect concrete sub-
floors in heavy industrial plants; applications for parks and recreational
areas, including playground structures, picnic tables and benches, fencing and
theme park applications; floating and fixed docks and other marine
applications; and landscape edging.
Sales and Marketing
We have invested approximately $20 million during the last three years to
develop Trex as a recognized brand name in the residential and commercial
decking market. Our sales growth in the decking market will largely depend on
converting demand for wood products into demand for Trex. Accordingly, our
branding strategy will continue to emphasize the advantages of Trex over wood
decking products. We have implemented a two-pronged marketing program directed
at consumers and contractors. We seek to develop consumer brand awareness and
contractor preference to generate demand for Trex among dealers and
distributors, who then
3
recommend Trex to other contractors and consumers. We believe that our branding
strategy promotes product differentiation of Trex in a market which is not
generally characterized by brand identification and enables us both to command
premium prices and to maintain price stability for Trex.
The following are the key elements of our marketing program:
Consumer Advertising. We engage in extensive television advertising in which
we target cable channels such as HG-TV, the Discovery Channel, the Food
Network, and The Learning Channel which feature programs on home improvement
and remodeling. In a ten-week period during the spring of 2000, we ran an
intensive campaign of over 670 advertisements. Our investment in broadcast
advertising for 2000 increased more than 100% over 1999.
We also advertise Trex decking in popular home and garden consumer
publications, including Martha Stewart Living, Southern Living, House & Garden,
and Sunset. Several of these publications feature "idea" homes each year that
incorporate leading building materials. Trex decking was featured in five of
these idea homes in 2000.
Public Relations. We employ a public relations firm to stimulate interest in
Trex decking by the print and broadcast media. During 2000, print and broadcast
stories featuring Trex decking generated a total of 185 million "impressions,"
which represent potential viewings, compared to 182 million impressions in
1999. The increase in impressions was largely attributable to the inclusion of
Trex in several episodes of a well-known home improvement program on The
Learning Channel. The marketing of Trex also benefited from coverage by
consumer reporters on local television stations.
Trade Advertising and Promotion. To build a brand name for Trex with decking
contractors, we reach a professional building audience through advertisements
in leading building and remodeling magazines, including Builder, Building
Products, Fine Homebuilding, Journal of Light Construction, and other well-
known publications. In 1999, we initiated an incentive program for deck
builders which rewards contractors for their purchases of Trex decking. In
2000, over 3,800 new members enrolled in this program.
Model Home Program. We operate a program which is designed to provide
promotional allowances and display materials to homebuilders who use Trex for
their model home decks and agree to promote Trex. More than 180 builders have
participated in this program.
Homebuilder Focus. In 2000, we expanded our marketing program to target
major homebuilder groups in different regions of the country. A number of these
homebuilder groups, including David Weekley Homes, Pulte Homes, Royce Homes,
Ryan Homes and Toll Brothers, have agreed to offer Trex decking as their
standard decking material on major home developments.
Trade and Home Shows. We annually exhibit Trex decking at five major trade
shows for homebuilders, contractors, and specifiers that have a total
attendance of approximately 200,000. We also exhibit our product line at major
regional home and garden shows. Distributors, dealers and contractors
experienced in Trex decking provide additional support by exhibiting Trex
decking at smaller local home shows.
Showcase Projects. We also obtain brand name recognition through our
association with highly publicized showcase projects. Trex decking was used in
a number of new projects in 2000, including the Hammonasset Beach State Park in
Madison, Connecticut, the Gulf Islands National Seashore in Ocean Springs,
Mississippi, the 14th Street Pier in Hoboken, New Jersey and the Big Morongo
Canyon Preserve in Morongo Valley, California. Other showcase projects include
the Presidential Trail at Mount Rushmore, the Toronto Boardwalk on Lake Ontario
Shores, the Florida Everglades Walkways and the Grand Canyon Education Center.
Consumer Research. From time to time, we commission consumer research
studies to gain a better understanding of the needs of the decking market, our
ability to meet those needs relative to competitive products, and consumer
acceptance of Trex as a decking material.
4
Distribution
In 2000, we made approximately 99% of our net sales through our wholesale
distribution network. At December 31, 2000, we sold our Trex product line to 25
wholesale companies operating from approximately 75 distribution locations. At
the same date, our distributors marketed Trex to approximately 2,600 dealer
outlets across the United States. Although our dealers sell to both homeowners
and contractors, they primarily direct their sales at professional contractors,
remodelers and homebuilders. In 2000, we made the remaining 1% of our net sales
directly to industrial floor fabricators, playground material distributors and
other accounts.
Wholesale Distributors. We believe that attracting wholesale distributors
that are committed to Trex and the Trex marketing approach and that can
effectively sell Trex to contractor-oriented lumber yards is important to our
future growth. We believe our distributors are able to provide value-added
service in marketing Trex because they sell premium wood decking products and
other building supplies, which typically require product training and personal
selling efforts.
Under our agreement with each wholesale distributor, we appoint the
distributor on a non-exclusive basis to distribute Trex within a specified
area. The distributor generally purchases Trex at our prices in effect at the
time we ship the product to the distributor. The distributor is required to
maintain specified minimum inventories of Trex during designated portions of
each year. Upon the expiration of the initial one-year term, the agreement is
automatically renewed for additional one-year terms unless either party
provides notice of termination at least 60 days before the expiration of any
renewal term. The distributor may terminate the agreement at any time upon 60
or 90 days' notice, while we may terminate the agreement upon 60 or 90 days'
notice or immediately upon the happening of specified events, including a
failure by the distributor to maintain the required minimum inventories of
Trex.
We require our wholesale distributors to contribute significant resources to
support Trex. All wholesale distributors have appointed a Trex specialist,
regularly conduct dealer training sessions, fund demonstration projects and
participate in local advertising campaigns and home shows. We sponsor intensive
two-day training seminars to help train Trex specialists.
In 1998, 1999 and 2000, we generated in excess of 10% of our net sales to
each of five wholesale distribution companies: Capital Lumber Company, Boise
Cascade Corporation, Oregon Pacific Corporation, Parksite Inc. and Snavely
Forest Products. Distributors that individually accounted for more than 10% of
our annual net sales collectively accounted for approximately 74% of our net
sales in 1998, approximately 75% of our net sales in 1999, and approximately
75% of our net sales in 2000. None of such distributors individually accounted
for more than 20% of our net sales in any of these years.
To augment our dealer outlets, we plan to add new distributors and increase
the number of our wholesale distribution locations by December 31, 2001 to
approximately 85.
Retail Lumber Dealers. Of the approximately 25,000 retail outlets in the
United States that sell lumber, approximately 5,000 are independent lumber
yards that emphasize sales to contractors and are the primary market for Trex.
Although there is demand for Trex from both the "do-it-yourself" homeowner and
contractor, our sales efforts emphasize the contractor-installed market to
achieve premium product positioning for Trex and to ensure that the
installations will have professional craftsmanship. Our retail dealers
generally provide sales personnel trained in Trex, contractor training,
inventory commitment and point-of-sale display support. To establish
comprehensive national coverage for Trex, we plan to increase the number of our
dealer outlets over the next year from approximately 2,600 at December 31, 2000
to approximately 3,000 by December 31, 2001.
Contractor Training. We have provided training about Trex to over 32,000
contractors since 1995. Contractors receive a Trex Contractor Kit containing a
product handbook, sales literature and product samples as part of their
training. We have established a "Builders Club" to strengthen our relationship
with premium decking contractors.
5
Dealer Locator Service and Web Site. We maintain a toll-free telephone
service (1-800-BUY-TREX) for use by consumers and building professionals to
locate the closest dealer offering Trex and to obtain product information. We
use these calls to generate sales leads for contractors, dealers, distributors
and Trex sales representatives. We also analyze caller information to assess
the effectiveness of our promotional and advertising activities.
As an additional source of information to consumers, dealers and
distributors, we operate a web site (www.trex.com) which provides product
installation information, handling instructions, a dealer locator service,
photographs of showcase installations, technical reports and other information.
The contents of our web site are not part of this report.
Shipment. We ship Trex to distributors by truck and rail. Distributors pay
all shipping and delivery charges.
Manufacturing Process
Trex is manufactured at our 115,000-square foot facility in Winchester,
Virginia, which had eight production lines in operation at December 31, 2000,
and our 150,000-square foot facility in Fernley, Nevada, which had five
production lines in operation at the same date. Each production line is highly
automated and, on average, requires fewer than five employees to operate per
shift.
In 2000, our Winchester facility produced approximately $86.3 million sales
value of finished product and our Fernley facility produced approximately $52.6
million sales value of finished product. To support sales growth and improve
customer service, during 2000 we added three new production lines in our
Fernely facility.
Trex is manufactured from waste wood fiber and reclaimed polyethylene, or
"poly." The composition of Trex Wood-Polymer lumber is approximately 50% wood
fiber and 50% reclaimed poly material. We use wood fiber purchased from
woodworking factories, mills and pallet recyclers. Poly material used in the
production of Trex consists primarily of reclaimed grocery sacks and stretch
film.
The Trex manufacturing process involves mixing wood particles with plastic,
heating and finally extruding, or forcing, the highly viscous and abrasive
material through a profile die. We cool the extruded product in a water bath
and cut the product to its finished length. We recycle into the production
process the waste created during manufacturing. The finished boards are placed
on a cooling conveyor and proceed to finished goods inspection, packaging and
storage.
Production of a non-wood decking alternative like Trex requires significant
capital investment, special process know-how and time to develop. We have
invested approximately $123 million and nine years in expansion of our
manufacturing capacity, manufacturing process improvements, new product
development and product enhancements. As a result of these investments,
production line rates have increased over 200% since 1992. We also have
broadened the range of raw materials that can be used to produce Trex by
developing hardware capable of utilizing different forms of poly material to
produce a consistent final product. We have obtained a patent for a process of
preparing the raw materials for the manufacturing phase of production and a
second patent for another manufacturing process improvement. The patent
protection for both processes will extend until 2015. In the third quarter of
1998, we centralized our research and development operations in the Trex
technical center, a 30,000-square foot building adjacent to our Winchester
manufacturing facility.
In conjunction with our building code listings, we maintain a quality
control testing program that is monitored by an independent inspection agency.
Under this program, we test one board from every other production bundle to
determine whether it meets the detailed, published criteria for code listing.
Representatives of the inspection agency conduct unannounced monthly on-site
audits of these program records to assure conformity to testing and to check
test results. We believe that currently a minimum of 18 months would be
required for a manufacturer of a competitive product which has not yet started
the listing approval process to complete all phases of the process for its
product.
6
Suppliers
The production of Trex requires the supply of wood fiber and polyethylene
from reclaimed grocery sacks and stretch film. We are party to several short-
term and long-term supply contracts that require us to take or pay for raw
materials for periods of up to ten years. The quantities of raw materials to be
purchased under these contracts are not fixed or determinable.
Wood Fiber. In 2000, we consumed approximately $6.7 million of wood fiber.
Woodworking plants or mills are our preferred suppliers of wood fiber because
the waste wood fiber produced by these operations contains little contamination
and is low in moisture. These facilities generate wood fiber as a byproduct of
their manufacturing operations. To minimize our purchase costs, we seek to
provide the manufacturing facilities with prompt and reliable removal service
using equipment we provide.
Four suppliers accounted individually for more than 10% and collectively for
approximately 57% of our 2000 wood fiber purchases. We obtain our wood fiber
supplies for a fixed annual price under multi-year contracts that are
terminable by either party upon 30 days' notice. Based on our discussions with
wood fiber suppliers and our analysis of industry data, we believe that, if our
contracts with one or more of our current suppliers were terminated, we would
be able to obtain adequate supplies of wood fiber at an acceptable cost from
our other current suppliers or from new suppliers.
Poly. In 2000, we consumed approximately $27.5 million of poly material,
which was primarily composed of reclaimed grocery sacks and stretch film.
Approximately two billion pounds of poly film are used in the manufacture of
grocery sacks and stretch film in the United States each year. We will seek to
meet our future needs for poly material from expansion of our existing supply
sources and the development of new sources, including post-industrial waste and
plastic paper laminates.
We purchase plastic sacks primarily from large grocery supermarket chains,
which have recycling programs that facilitate and encourage plastic sack
returns. Approximately 5% of all grocery sacks nationwide are returned. The
existing industry practice is for reclaimed sack purchasers, such as the
company, to absorb freight and handling costs after the sacks are picked up
from the chains' distribution centers. We pick up the plastic grocery sacks at
the distribution centers and store the sacks in warehouses until we use them in
our production process.
Stretch film is used to stabilize pallet loads to avoid damage during
shipping and handling. We collect stretch film from distribution centers that
service the grocery and other industries, including the furniture, machinery,
parts and soft goods industries. Suppliers of stretch film save on waste
disposal costs by selling the bundled film to us.
No supplier sold 10% or more of the poly material we purchased in 2000. We
generally acquire poly material by purchase order at prices which are fixed
annually.
Competition
The residential and commercial decking market in which we principally
operate is highly competitive. As a wood/plastic composite product, Trex
competes with wood, other wood/plastic composites and 100% plastic lumber for
use as decking. The primary competition for Trex is wood decking, which
accounted for approximately 96% of 1999 decking sales, as measured by board
feet of lumber. The conventional lumber suppliers with which we compete in many
cases have established ties to the building and construction industry and have
well-accepted products. Many of our competitors in the decking market that sell
wood products have significantly greater financial, technical and marketing
resources than we do. We estimate that Trex currently represents over 60% of
the non-wood decking segment. We compete with other wood/plastic composites as
well as with 100% plastic products that utilize polyethylene, fiberglass and
PVC as raw materials. Our principal competitors in the non-wood decking
alternative market include Advanced Environmental Recycling Technologies, Inc.,
Crane Plastics, Louisiana-Pacific Corporation, CertainTeed Corporation and U.S.
Plastic Lumber Corporation.
7
Our ability to compete depends, in part, upon a number of factors outside
our control, including the ability of our competitors to develop new non-wood
decking alternatives which are competitive with Trex. We believe that the
principal competitive factors in the decking market include product quality,
price, maintenance cost and consumer awareness of product alternatives. We
believe we compete favorably with respect to these factors based on the low
maintenance requirements and other attributes of Trex compared to wood and 100%
plastic products, the Trex brand name and our extensive distribution network.
Of the wood lumber which we estimate constituted approximately 95% of the
total decking market in 1999, over 75% is pressure-treated southern yellow
pine. Southern yellow pine is used for decking because its porosity allows it
readily to accept the chemicals used in the treating process that creates
resistance to rotting and insect infestation. The chemical compound used to
treat wood is typically chromated copper arsenate, or CCA, an EPA-registered
pesticide. The same porosity makes southern yellow pine susceptible to taking
on moisture, which causes the lumber to warp, crack, splinter and expel
fasteners. The balance of the wood decking segment is primarily divided between
redwood and cedar, with some amounts of treated fir and exotic hardwoods.
Because old, slow-growth timber has been depleted, new, fast-growth varieties
predominate. These varieties do not have the natural decay resistance or close
rings of old, slow-growth timber, causing them to be more susceptible to rot,
insect infestation, splintering and warping.
Trex also competes with decks made from 100% plastic lumber. Although there
are several companies in the United States that manufacture 100% plastic
lumber, total factory sales to the decking market in 1999 are estimated at $15
million, or 20 million board feet. A number of factors have limited the success
of 100% plastic lumber manufacturers, including a less efficient manufacturing
process, inconsistent product quality, and physical properties not considered
suitable for decking, such as higher thermal expansion and contraction, poor
slip resistance and an appearance viewed by some homeowners as unattractive.
There are several manufacturers of wood/plastic composite lumber in addition
to the company. Some of these manufacturers participate in the decking market
only on a limited basis. We estimate that Trex accounted for approximately two
out of every three plastic/composite decks installed in the United States in
1999.
The following chart compares particular attributes of Trex to the
characteristics of treated wood and 100% plastic products:
Treated 100%
Characteristics Trex Wood Plastic
--------------- ---- ------- -------
Low thermal expansion/contraction....................... x x
Low thermal conductivity................................ x x
Good paint adhesion..................................... x x
Resistance to ultraviolet damage........................ x x
Easy to work with....................................... x x
Low moisture absorption................................. x x
Splinter-free........................................... x x
Resistant to insect damage.............................. x x x
No chemical preservatives............................... x x
No splitting............................................ x x
No rotting.............................................. x x x
No warping.............................................. x x
No sealant required..................................... x x
Slip resistant.......................................... x x
We believe that Trex offers cost advantages when compared with some of the
other types of decking materials. Although a contractor-installed Trex deck
built in 2000 using a pressure-treated wood substructure generally cost 15% to
20% more than a deck made entirely from pressure-treated wood, Trex eliminates
the on-going maintenance required for a pressure-treated deck and is,
therefore, less costly over the life of the deck. We believe that our
manufacturing process and utilization of relatively low-cost raw material
sources also provide Trex with a competitive cost advantage relative to other
wood/plastic composite products.
8
Government Regulation
We are subject to federal, state and local environmental regulation. The
emissions of particulates and other substances from our manufacturing
facilities must meet federal and state air quality standards implemented
through air permits issued to us by the Department of Environmental Quality of
the Commonwealth of Virginia and the Division of Environmental Protection of
Nevada's Department of Conservation and Natural Resources. Our facilities are
regulated by federal and state laws governing the disposal of solid waste and
by state and local permits and requirements with respect to waste water and
storm water discharge. Compliance with environmental laws and regulations has
not had a material adverse effect on our business, operating results or
financial condition.
Our operations also are subject to work place safety regulation by the U.S.
Occupational Safety and Health Administration, the Commonwealth of Virginia and
the State of Nevada. Our compliance efforts include safety awareness and
training programs for our production and maintenance employees.
Intellectual Property
Our success depends, in part, upon our intellectual property rights relating
to our production process and other operations. We rely upon a combination of
trade secret, nondisclosure and other contractual arrangements, and patent,
copyright and trademark laws, to protect our proprietary rights. We have made
substantial investments in manufacturing process improvements which have
enabled us to increase manufacturing line production rates, facilitated our
development of new products and produced improvements in the dimensional
consistency, surface texture and color uniformity of Trex. We have obtained a
patent for a process of preparing the raw materials for the manufacturing phase
of production and a second patent for another manufacturing process
improvement. The patent protection for both processes will extend until 2015.
We have been granted federal registrations for the Trex, Easy Care Decking and
No Sealing No Splinters No Hassles trademarks by the U.S. Patent and Trademark
Office and have filed an application for the federal registration of our Wood-
Polymer trademark. Federal registration of trademarks is effective for as long
as we continue to use the trademarks. We consider our trademarks to be of
material importance to our business plans. We have not registered any of our
copyrights with the U.S. Copyright Office, but rely on the protection afforded
to such copyrights by the U.S. Copyright Act. That law provides protection to
authors of original works, whether published or unpublished, and whether
registered or unregistered. We enter into confidentiality agreements with our
senior employees and limit access to and distribution of our proprietary
information.
In 1992, before our buyout of Mobil's Composite Products Division, Mobil
brought an action in the U.S. District Court for the District of Delaware
seeking a declaratory judgment that four patents issued to Advanced
Environmental Recycling Technologies, Inc., or AERT, a manufacturer of
wood/plastic composite products, were invalid, were not infringed by Mobil in
connection with its wood/plastic composite, now known as "Trex," and were
unenforceable. Mobil brought this action in response to statements by AERT that
Mobil infringed AERT's patents. AERT counterclaimed against Mobil for alleged
infringement of two of the AERT patents and for alleged violations of antitrust
and trade regulation laws.
Following a trial in early 1994, the district court held that Mobil did not
infringe either of the two AERT patents that were the subject of the
counterclaim and rendered a verdict for Mobil that each of the four AERT
patents was invalid and unenforceable. On an appeal of this judgment by AERT,
the U.S. Court of Appeals for the Federal Circuit affirmed the district court's
judgment that Mobil did not infringe the two AERT patents and that two of the
four AERT patents were invalid and unenforceable. The Federal Circuit vacated
the district court's judgment on the remaining two AERT patents on the grounds
that there was no case or controversy between the parties regarding
infringement of those patents. The district court also still has pending before
it AERT's non-patent counterclaims against Mobil. No proceedings on those
claims are currently scheduled.
Employees
At December 31, 2000, we had 403 full-time employees, of whom 324 were
employed in our manufacturing operations. Our employees are not covered by
collective bargaining agreements. We believe that our relationships with our
employees are good.
9
Risk Factors
Our business is subject to a number of risks, including the following:
We will have to increase market acceptance of Trex to grow.
Our ability to grow will depend largely on our success in converting demand
for wood decking products, which we estimate accounted for approximately 95% of
the 1999 decking market when measured by board feet of lumber, into demand for
Trex. Failure to achieve increased market acceptance of Trex could have a
material adverse effect on our business, operating results and financial
condition. To increase our market share, we must overcome:
. the low consumer awareness of non-wood decking alternatives;
. the preference of many consumers for well-accepted wood products;
. the somewhat different appearance of Trex;
. the greater initial expense of installing a Trex deck; and
. the established relationships existing between suppliers of wood
decking products and contractors and homebuilders.
All of our sales result from one product.
All of our net sales are derived from sales of Trex. Although we have
developed new Trex products and new applications for Trex since 1992, and we
intend to continue this development, our product line is based exclusively on
the composite formula and manufacturing process for Trex Wood-Polymer lumber.
If we should experience any problems, real or perceived, with product quality
or acceptance of Trex, our lack of product diversification could have a
material adverse effect on our business, operating results and financial
condition.
We currently depend on two manufacturing facilities to meet the demand for
Trex.
We currently produce Trex in our manufacturing facilities in Winchester,
Virginia and Fernley, Nevada. Any interruption in the operations or decrease in
the production capacity of these facilities, whether because of equipment
failure, natural disaster or otherwise, would limit our ability to meet
existing and future customer demand for Trex and could have a material adverse
effect on our business, operating results and financial condition.
Our business is subject to risks in obtaining the raw materials we use to
produce Trex.
The production of Trex requires substantial amounts of wood fiber and
polyethylene. Our business is subject to the risks that we may be unable to
purchase sufficient quantities of these raw materials to meet our production
requirements or that we may have to pay higher prices for our supplies. In
2000, four suppliers accounted individually for more than 10% and collectively
for approximately 57% of our wood fiber purchases. No supplier sold 10% or more
of the poly material purchased in 2000. Our ability to obtain adequate supplies
of poly material depends on our success in developing new sources, entering
into long-term arrangements with suppliers and managing the collection of
supplies from geographically dispersed distribution centers. We generally
obtain our raw materials from existing suppliers at fixed prices that are
established annually. We cannot be sure that we will be successful in
maintaining such pricing policies to protect against fluctuations in raw
materials prices. The termination of significant sources of raw materials, the
payment of higher prices for raw materials or the failure to obtain sufficient
additional raw materials to meet planned increases in capacity could have a
material adverse effect on our business, operating results and financial
condition.
10
The demand for decking products is sensitive to general economic conditions
and could be adversely affected by economic downturns.
The demand for decking products is sensitive to changes in the level of
activity in home improvements and, to a lesser extent, new home construction.
These activity levels, in turn, are affected by such factors as consumer
spending habits, employment, interest rates and inflation. An economic downturn
could reduce consumer income available for spending on discretionary items such
as decking, which could have a material adverse effect on our business,
operating results and financial condition.
We face risks in implementing our plan to increase our manufacturing
capacity to meet customer demand for Trex.
To support sales growth and improve customer service, we plan to add one new
production line in 2001 in our Winchester, Virginia facility and to commence
engineering for a third manufacturing facility on land near Knoxville,
Tennessee subject to a purchase agreement. In augmenting the capacity of our
existing facilities and establishing a new facility, we will face risks:
. recruiting and training additions to our workforce;
. installing and operating new production equipment;
. purchasing raw materials for increased production requirements; and
. maintaining product quality.
These risks could result in substantial unanticipated delays or expense,
which could have a material adverse effect on our business, operating results
and financial condition.
The expansion and future profitability of our business could be adversely
affected if we do not manage our growth effectively.
Our recent growth has placed significant demands on our management and other
resources. If we are unable to manage our future growth effectively, our
inability to do so could have a material adverse effect on the quality of our
products and on our business, operating results and financial condition. Our
net sales increased to $117.6 million in 2000 from $77.6 million in 1999 and
$49.2 million in 1998. The number of dealer outlets selling Trex has increased
from approximately 1,200 at December 31, 1996 to approximately 2,600 at
December 31, 2000, and we expect further significant increases in the future.
We plan to support our geographic expansion by adding one new production line
in our Winchester, Virginia facility in 2001 and acquiring and commencing
engineering for a third manufacturing facility near Knoxville, Tennessee. To
manage our growth effectively, we will need to continue to develop and improve
our operational, financial, accounting and other internal systems. In addition,
our future success will depend in large part on our ability to recruit, train,
motivate and retain senior managers and other employees and to maintain product
quality.
We experience seasonal fluctuations in our sales and quarterly operating
results.
Our net sales and income from operations historically have varied from
quarter to quarter. These variations are principally attributable to seasonal
trends in the demand for Trex. We experience lower net sales levels during the
fourth quarter, in which holidays and adverse weather conditions in some
regions usually reduce the level of home improvement and new construction
activity. During the third quarter of 2000, our increased production capacity
enabled us to eliminate the allocation of product supply to our network of
wholesale distributors and retail dealers. Because customer stockpiling of
inventories resulting from this allocation policy affected seasonality during
1998 and 1999, our historical seasonality may not be a reliable indicator of
future seasonality. Income from operations and net income tend to be lower in
quarters with lower sales due to a lower gross margin which is not offset by a
corresponding reduction in selling, general and administrative expenses, in
part because we continue to make advertising expenditures throughout the year.
As a result of these factors, we believe period-to-period comparisons of our
operating results are not reliable indicators of future performance, and the
operating results for any quarterly period may not be indicative of operating
results to be expected for a full year.
11
We will have to make significant capital expenditures to increase our
manufacturing capacity.
We estimate that our capital requirements in 2001 will total approximately
$33 million. Our failure to generate sufficient funds to meet our capital
requirements could have a material adverse effect on our business, operating
results and financial condition. We will use capital expenditures primarily to
increase capacity at our two existing manufacturing facilities, to make process
and productivity improvements, to complete a plastic processing facility at our
Winchester, Virginia plant and to complete the site acquisition and begin
engineering work for a planned third manufacturing facility near Knoxville,
Tennessee. The actual amount and timing of our future capital requirements may
differ materially from our estimates, depending on the demand for Trex and as a
result of new market developments and opportunities. We may determine that it
is necessary or desirable to obtain financing for our capital requirements
through bank borrowings or the issuance of debt or equity securities. Debt
financing would increase our level of indebtedness, while equity financing may
dilute the ownership of our stockholders. We cannot be sure as to whether, or
as to the terms on which, we will be able to obtain this financing.
Our sales depend on a small number of significant distributors.
Our total net sales to our five largest wholesale distributors accounted for
approximately 75% of our net sales in 2000. Our contracts with these
distributors are terminable by the distributors upon notice at any time during
the contract term. A contract termination or significant decrease or
interruption in business from any of our five largest distributors or any other
significant distributor could cause a short-term disruption of our operations.
Such a disruption could have a material adverse effect on our business,
operating results and financial condition.
We face highly competitive conditions in the decking market.
The residential and commercial decking market in which we principally
operate is highly competitive. Our failure to compete successfully in this
market could have a material adverse effect on our business, operating results
and financial condition. As a wood/plastic composite product, Trex competes
with wood, other wood/plastic composites and 100% plastic lumber for use as
decking. The primary competition for Trex is wood decking, which we estimate
accounted for approximately 95% of 1999 decking sales when measured by board
feet of lumber. The conventional lumber suppliers with which we compete have
established ties, in many cases, to the building and construction industry and
have well-accepted products. Many of our competitors in the decking market that
sell wood products have significantly greater financial, technical and
marketing resources than we do. Our ability to compete depends, in part, upon a
number of factors outside our control, including the ability of our competitors
to develop new non-wood decking alternatives which are competitive with Trex.
We are subject to government regulation.
We are subject to federal, state and local environmental, occupational
health and safety, and other laws and regulations. The environmental laws and
regulations applicable to our operations establish air quality standards for
emissions from our manufacturing operations, govern the disposal of solid
waste, and regulate waste water and storm water discharge. As is the case with
manufacturers in general, we may be held liable for response costs and damages
to natural resources if a release or threat of release of hazardous materials
occurs on or from our properties or any associated offsite disposal location,
or if contamination from prior activities is discovered at any properties we
own or operate. A liability of this kind could have a material adverse effect
on our business, operating results and financial condition.
We cannot be sure we have adequately protected our intellectual property.
Our success depends, in part, on our intellectual property rights. Our
failure to protect adequately those rights could have a material adverse effect
on our business, operating results and financial condition. We rely
12
on a combination of trade secret, nondisclosure and other contractual
arrangements, and copyright and trademark laws to protect our proprietary
rights. We have also obtained patent protection for some of our production
processes. We enter into confidentiality agreements with our employees and
limit access to and distribution of our proprietary information. We cannot be
sure that the steps we have taken in this respect will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.
Our principal stockholders have a controlling influence over our business.
Our four principal stockholders beneficially own approximately 56% of our
outstanding common stock. As a result, these stockholders will collectively be
able to exercise control over our business and affairs by virtue of their
voting power with respect to the election of directors and other actions
requiring stockholder approval.
Item 2. Properties
We lease our corporate headquarters in Winchester, Virginia, which consists
of approximately 10,200 square feet of office space, on a month-to-month basis.
We have entered into a long-term lease for approximately 40,000 square feet of
office space in Winchester which will serve as our new headquarters. We expect
to occupy this facility in the third quarter of 2001.
We own approximately 74 contiguous acres of land in Winchester, Virginia and
the buildings on this land. These buildings include our first manufacturing
facility, which contains approximately 115,000 square feet of space, our
research and development technical facility, which contains approximately
30,000 square feet of space, a mixed-use building, which contains approximately
173,000 square feet of space, and an additional manufacturing facility, which
will contain approximately 150,000 square feet of space upon its expected
completion in the second quarter of 2001. We own the site and plant of our
manufacturing facility in Fernley, Nevada, which contains approximately 250,000
square feet of manufacturing space, including an 100,000 square foot addition
completed in 2000, and approximately 30 acres of outside open storage.
We lease a total of approximately 658,000 square feet of storage warehouse
space under leases with expiration dates from 2001 to 2015.
The equipment and machinery we use in our operations consist principally of
plastic and wood conveying and processing equipment. We own all of our
manufacturing equipment. At December 31, 2000, we operated approximately 100
wood trailers and approximately 50 forklift trucks under operating leases.
We regularly evaluate the capacity of our various facilities and equipment
and make capital investments to expand capacity where necessary. In 2000, we
spent a total of $60.1 million on capital expenditures, including $39.3 million
for process improvements, equipment and machinery to increase our production
capacity. We estimate that our capital expenditures in 2001 will total
approximately $33 million, most of which will be used to increase capacity at
our two existing manufacturing facilities, to make process and productivity
improvements, to complete a plastic processing facility at our Winchester,
Virginia plant and to complete the site acquisition and begin engineering work
for a planned third manufacturing facility near Knoxville, Tennessee.
Item 3. Legal Proceedings
Our operating subsidiary, TREX Company, LLC, filed a lawsuit on March 2,
1999 against a former distributor to collect unpaid invoices. The defendant
filed its response on July 30, 1999 and, in a counterclaim, alleged that TREX
Company, LLC had made various misrepresentations which resulted in, among other
items, loss of business and loss of reputation. On November 16, 2000, the
Circuit Court of Frederick County, Virginia, dismissed the entire case with
prejudice after TREX Company, LLC recovered all amounts of its outstanding
invoices from the former distributor.
13
From time to time, we are involved in litigation and proceedings arising out
of the ordinary course of our business. As of the date of this report, there
are no pending material legal proceedings to which we are a party or to which
our property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to our security holders in the fourth
quarter of 2000.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock has been listed on the New York Stock Exchange under the
symbol "TWP" since April 8, 1999. The table below shows the reported high and
low quarterly sale prices of our common stock on the NYSE composite tape since
that date:
2000 High Low
---- ----- ----
First Quarter........................................... $ 42 $24 1/4
Second Quarter.......................................... 53 5/8 32 1/4
Third Quarter........................................... 58 15/16 27 1/16
Fourth Quarter.......................................... 46 1/4 20 5/16
1999 High Low
---- ----- ----
$ 26
Second Quarter (from April 8)........................... 5/8 $ 10
Third Quarter........................................... 29 3/8 19 1/4
Fourth Quarter.......................................... 32 1/2 22 15/16
As of December 31, 2000, there were approximately 180 holders of record of
our common stock.
We have never paid cash dividends on our common stock. We intend to retain
future earnings, if any, to finance the development and expansion of our
business and, therefore, do not anticipate paying any cash dividends on the
common stock in the foreseeable future. Under the terms of our credit facility,
we may pay cash dividends only if, after payment of such dividends, the ratio
of our total consolidated debt to our total consolidated capitalization does
not exceed 50%.
15
Item 6. Selected Financial Data
The following table presents selected financial data as of December 31,
1996, 1997, 1998, 1999 and 2000, for the periods from January 1, 1996 to August
28, 1996 and from August 29, 1996 to December 31, 1996, and for the four years
ended December 31, 2000.
. The selected financial data as of December 31, 1999 and 2000 and for
each of the years in the three-year period ended December 31, 2000 are
derived from our audited consolidated financial statements appearing
elsewhere in this report.
. The selected financial data as of December 31, 1996, 1997 and 1998 and
for the period from August 29, 1996 to December 31, 1996 and the year
ended December 31, 1997 are derived from our financial statements,
which have been audited by Ernst & Young LLP, independent auditors.
. The selected financial data for the period from January 1, 1996 to
August 28, 1996 are derived from the financial statements of the
Composite Products Division of Mobil Oil Corporation, the company's
predecessor, which have been audited by Ernst & Young LLP, independent
auditors.
The selected financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements and related notes thereto appearing
elsewhere in this report.
16
The
Predecessor(1) The Company(2)
-------------- --------------------------------------------------------------
Aug. 29,
Jan. 1, 1996 1996 to Year Ended Dec. 31,
to Aug. 28, Dec. 31, ----------------------------------------------
1996 1996 1997 1998 1999 2000
-------------- --------- ---------- ---------- ---------- ----------
(In thousands, except per share and unit data)
Statement of Operations
Data:
Net sales(3)............ $18,071 $ 5,708 $ 34,137 $ 49,167 $ 77,570 $ 117,568
Cost of sales(3)........ 9,188 3,481 16,774 25,305 37,707 61,852
------- --------- ---------- ---------- ---------- ----------
Gross profit............ 8,883 2,227 17,363 23,862 39,863 55,716
Selling, general and
administrative
expenses............... 5,508 2,558 8,992 12,878 18,370 23,830
------- --------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 3,375 (331) 8,371 10,984 21,493 31,886
Interest expense, net... -- 934 2,777 2,526 1,476 902
------- --------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes and
extraordinary item..... 3,375 (1,265) 5,594 8,458 20,017 30,984
Income taxes............ -- -- -- -- 7,281 11,682
------- --------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item..... 3,375 (1,265) 5,594 8,458 12,736 19,302
Extraordinary loss on
the early
extinguishment of debt,
net.................... -- -- -- -- (1,056) --
------- --------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 3,375 $ (1,265) $ 5,594 $ 8,458 $ 11,680 $ 19,302
======= ========= ========== ========== ========== ==========
Basic (loss) earnings
per share.............. $ (0.15) $ 0.55 $ 0.85 $ 0.90 $ 1.37
========= ========== ========== ========== ==========
Weighted average basic
shares outstanding..... 9,500,000 9,500,000 9,500,000 12,848,571 14,129,652
========= ========== ========== ========== ==========
Historical income before
income tax expense(4).. $ 5,594 $ 8,458 $ 20,017
Pro forma income tax
expense(4)
(unaudited)............ 2,126 3,214 7,606
---------- ---------- ----------
Pro forma net income(4)
(unaudited)............ $ 3,468 $ 5,244 $ 12,411
---------- ---------- ----------
Pro forma net income per
share, basic(4)
(unaudited)............ $ 0.32 $ 0.55 $ 0.97
========== ========== ==========
Historical income from
operations(5).......... $ 8,371 $ 10,984 $ 21,493
Supplemental pro forma
interest income
(expense), net(5)...... 150 249 (691)
Supplemental pro forma
income tax expense(5).. 3,238 4,269 7,905
---------- ---------- ----------
Supplemental pro forma
net income(5).......... $ 5,283 $ 6,964 $ 12,897
========== ========== ==========
Supplemental pro forma
weighted average basic
shares outstanding(5).. 14,115,450 14,115,450 14,117,297
========== ========== ==========
Supplemental pro forma
basic earnings per
share(5)............... $ 0.37 $ 0.49 $ 0.91
========== ========== ==========
Cash Flow Data:
Cash flow (used in) from
operating activities... $ 2,848 $ (222) $ 6,521 $ 12,228 $ 21,405 $ 15,407
Cash flow (used in)
investing activities... (3,708) (30,253) (3,252) (17,140) (29,369) (60,114)
Cash flow (used in) from
financing activities... 860 34,216 (5,010) 4,112 6,764 44,707
Other Data (unaudited):
EBITDA(6)............... $ 4,492 $ 527 $ 11,013 $ 14,098 $ 25,937 $ 38,755
The Company(2)
------------------------------------------
As of December 31,
------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
(In thousands)
Balance Sheet Data:
Cash and cash equivalents.......... $ 3,741 $ 2,000 $ 1,200 $ -- $ --
Working capital.................... 3,974 4,156 (3,193) (4,181) 13,696
Total assets....................... 36,561 37,229 51,611 79,303 156,595
Total debt......................... 29,250 26,250 33,063 16,937 61,399
Total members'/stockholders'
equity............................ 3,950 7,534 13,291 49,401 69,041
17
- --------
(1) Through August 28, 1996, the company was a business unit of a subsidiary of
Mobil, which is referred to as the "predecessor." For the periods shown,
the predecessor was included in the consolidated tax return of its parent
and, accordingly, no tax provision was provided. Historical, pro forma and
supplemental basic earnings per share have been omitted for the predecessor
periods, since the operations for these periods were a component of Mobil.
(2) On August 29, 1996, TREX Company, LLC acquired substantially all of the
assets and assumed some of the liabilities of the predecessor for a
purchase price of approximately $29.5 million. TREX Company, LLC had no
operations before this date. On April 7, 1999, Trex Company, Inc. acquired
all of the membership interests of TREX Company, LLC in a series of
transactions referred to as the "reorganization." On April 13, 1999, Trex
Company, Inc. completed an initial public offering of its common stock. The
"company" refers to TREX Company, LLC through April 7, 1999 and to Trex
Company, Inc. thereafter. Before the reorganization, the company was taxed
as a partnership and accordingly did not record a provision for income
taxes. After the reorganization, the company is taxed as a corporation and
has provided for federal and state taxes at a combined effective rate of
38%. Weighted average shares outstanding assumes that the 9,500,000 shares
of common stock outstanding immediately after the reorganization were
outstanding for all periods through April 7, 1999, that 13,500,000 shares
were outstanding through May 2, 1999, that 14,115,450 shares were
outstanding through July 14, 1999, that 14,118,435 shares were outstanding
through October 14, 1999 and that 14,120,572 shares were outstanding
through December 31, 1999.
(3) The company implemented the consensus of the Emerging Issues Task Force
Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," or EITF
00-10, in the fourth quarter of 2000. This consensus requires that all
shipping and handling fees be recorded in net sales and that the related
costs be included in cost of sales. Previously, the company had classified
shipping and handling fees, net of shipping and handling costs, as cost of
sales. Sales and costs of sales for 1998, 1999 and 2000 have been
reclassified to conform to this new rule. The information required to
reclassify shipping and handling in sales and cost of sales for the period
from January 1, 1996 to August 28, 1996, the period from August 29, 1996 to
December 31, 1996 and for the year ended December 31, 1997 is not readily
available and, accordingly, these amounts have not been reclassified to
conform with this consensus. See Note 2 to the consolidated financial
statements included elsewhere in this report for more information.
(4) Pro forma income taxes and net income assume the company was taxed as a
corporation for all periods presented at a combined effective rate of 38%
and exclude one-time charges relating to the reorganization and initial
public offering, including (a) a net deferred tax liability of
approximately $2.6 million and (b) a $1.1 million extraordinary charge for
the extinguishment of debt repaid from the net proceeds of the initial
public offering. Pro forma earnings per share assume the same number of
shares outstanding as indicated in note (2) above.
(5) Supplemental pro forma interest income (expense), income taxes and net
income (a) exclude interest expense of $2.9 million, $2.8 million and $.8
million in 1997, 1998 and 1999, respectively, related to debt that was
repaid with a portion of the net proceeds of the initial public offering,
(b) assume the company was taxed as a corporation for all periods presented
at a combined effective rate of 38% and (c) exclude one-time charges
relating to the reorganization and initial public offering, including a net
deferred tax liability of approximately $2.6 million and a $1.1 million
extraordinary charge for the extinguishment of debt repaid from the net
proceeds of the initial public offering. Supplemental pro forma shares
outstanding assumes that the 14,115,450 shares outstanding after the
initial public offering were outstanding for all periods through July 14,
1999, that 14,118,435 shares were outstanding through October 14, 1999 and
that 14,120,572 shares were outstanding through December 31, 1999.
(6) Consists of income (loss) from operations plus depreciation and
amortization. EBITDA is presented because it is a commonly used measure of
performance by the financial community. Although management believes EBITDA
is a useful measure of the company's performance, EBITDA should not be
considered an alternative to net income (loss) as a measure of operating
performance or to cash provided by (used for) operating activities as a
measure of liquidity. In addition, this measure of EBITDA may not be
comparable to similarly titled measures reported by other companies.
18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Net sales consists of sales and freight, net of returns and discounts. The
company has experienced net sales growth each year since it began operations in
1992. The increase in net sales is primarily attributable to the growth in
sales volume. The company's branding and product differentiation strategy
enables the company both to command premium prices and to maintain price
stability for Trex. Prices for Trex over the last three years have increased at
a compound annual growth rate of approximately 5.6%.
From time to time since 1992, customer demand for Trex has exceeded the
company's manufacturing capacity. The constraints on the company's capacity in
these periods have limited the rate of the company's net sales growth. Such
constraints substantially ended during the third quarter of 2000.
The company's cost of sales consists of raw material costs, direct labor
costs, manufacturing costs, including depreciation, and freight. In the last
three years, the cost of raw materials has increased an average of
approximately 7.6% annually. Almost all of the increases were attributable to
higher costs of polyethylene and waste wood fiber, including shipping costs.
The positive effect on cost of sales in 2000 of productivity gains from the
company's investment in manufacturing process improvements and the addition of
production lines was offset by increases in raw material and direct labor
costs. Production line rates have increased over 200% since 1992 and the number
of production lines has increased from one line in 1992 to 13 lines in 2000.
The principal component of selling, general and administrative expenses is
branding and other sales and marketing costs, which have increased
significantly as the company has sought to build brand awareness of Trex in the
decking market. Sales and marketing costs consist primarily of salaries,
commissions and benefits paid to sales and marketing personnel, advertising
expenses and other promotional costs. General and administrative expenses
include salaries and benefits of personnel engaged in research and development,
procurement, accounting and other business functions and office occupancy costs
attributable to these functions, as well as amortization expense. As a
percentage of net sales, selling, general and administrative expenses have
varied from quarter to quarter, especially when the company has determined to
build inventory selectively and to continue expenditures for advertising.
In connection with its acquisition of Mobil's Composite Products Division in
August 1996, the company incurred indebtedness of $29.3 million, of which $26.3
million was outstanding at December 31, 1998, and recorded $10.6 million for
goodwill, substantially increasing its interest and amortization expense. In
April 1999, the company repaid its acquisition-related indebtedness with a
portion of the net proceeds of its initial public offering and recognized an
extraordinary cash charge against income of $1.5 million, on a pre-tax basis,
for early extinguishment of debt and an extraordinary $0.2 million non-cash
charge against income for the write-off of unamortized debt discount. The
company is amortizing its goodwill over a 15-year period in an amount of
approximately $0.7 million per year.
The company did not record an income tax provision for any period through
April 7, 1999, which was the date on which it completed the reorganization.
Before its acquisition of Mobil's Composite Products Division, the company was
included in the consolidated tax return of its parent company. In the period
between the acquisition and the reorganization, the company elected to be
treated as a partnership for federal and state income tax purposes, and the
company's income during that period was taxed directly to the company's
members, rather than to the company. As a result of the reorganization, the
company is subject to income tax as a corporation taxed in accordance with
Subchapter C of the Internal Revenue Code. In April 1999, as a result of its
conversion to C corporation status, the company recognized a $2.6 million non-
cash charge against income for income tax expense. The effect of this charge
was to increase substantially the company's effective tax rate for that quarter
and for the year ended December 31, 1999. The increased effective tax rate was
recognized only in such quarter and, accordingly, the company believes that its
effective tax rate for subsequent periods should not exceed approximately 38%.
19
Results of Operations
The following table shows, for the last three years, selected statement of
operations data as a percentage of net sales:
Year Ended
December 31,
-------------------
1998 1999 2000
----- ----- -----
Net sales............................................... 100.0% 100.0% 100.0%
Cost of sales........................................... 51.5 48.6 52.6
----- ----- -----
Gross profit............................................ 48.5 51.4 47.4
Selling, general and administrative expenses............ 26.2 23.7 20.3
----- ----- -----
Income from operations.................................. 22.3 27.7 27.1
Interest expense, net................................... 5.1 1.9 0.8
----- ----- -----
Income before taxes and extraordinary item.............. 17.2 25.8 26.4
Income taxes(1)......................................... -- 9.4 9.9
----- ----- -----
Income before extraordinary item........................ 17.2 16.4 16.4
Extraordinary loss, net of taxes........................ -- 1.4 --
----- ----- -----
Net income.............................................. 17.2% 15.1% 16.4%
===== ===== =====
- --------
(1) The company did not record an income tax provision for any period through
April 7, 1999, the date on which it completed the reorganization. The
company elected to be treated as a partnership for federal and state income
tax purposes for all periods from its inception through April 7, 1999. As a
result, during these periods, the company's income was taxed for such
purposes directly to the company's members, rather than to the company.
2000 Compared to 1999
Net Sales. Net sales increased 51.6% to $117.6 million in 2000 from $77.6
million in 1999. The increase in net sales was primarily attributable to a
growth in sales volume and, to a lesser extent, a price increase of
approximately 7.3%. Production line rate increases and the addition of two
production lines during 2000 significantly increased the company's production
capacity. To stimulate demand for Trex and continue its brand name development,
the company increased expenditures on cable television advertising and
emphasized incentive sales programs instituted in 2000. The number of dealer
outlets increased from approximately 2,000 at December 31, 1999 to
approximately 2,600 at December 31, 2000.
Cost of Sales. Cost of sales increased 64.0% to $61.9 million in 2000 from
$37.7 million in 1999. All components of cost of sales increased to support the
higher level of sales activity. Cost of sales as a percentage of net sales
increased to 52.6% in 2000 from 48.6% in 1999. The increase principally
reflected higher raw material costs, which were partially offset by operating
efficiencies from improved production line rates.
Gross Profit. Gross profit increased 39.8% to $55.7 million in 2000 from
$39.9 million in 1999, reflecting the higher sales volume in 2000. Gross profit
as a percentage of net sales decreased to 47.4% in 2000 from 51.4% in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 29.7% to $23.8 million in 2000 from $18.4
million in 1999. The increase was primarily attributable to higher branding
costs, including expenses of promotion, advertising, public relations, sales
literature, trade shows and cooperative advertising, which increased 17.0% to
$8.1 million in 2000 from $6.9 million in 1999. The increase in corporate
personnel, the upgrading of accounting and other systems to support growth, and
management bonuses contributed to a 40.1% increase in general and
administrative expenses. Selling, general and administrative expenses as a
percentage of net sales decreased to 20.3% in 2000 from 23.7% in 1999.
20
Interest Expense. Net interest expense decreased 38.9% to $0.9 million in
2000 from $1.5 million in 1999. The decrease resulted from the capitalization
of $1.1 million of interest during 2000 that was incurred in connection with
financing the company's production capacity expansion activities.
Provision for Income Taxes. For all periods through April 7, 1999, the
company was taxed as a partnership for federal and state income tax purposes
and, accordingly, did not record an income tax provision. In connection with
the reorganization, and its conversion to a corporation taxed in accordance
with Subchapter C of the Internal Revenue Code, the company recorded a one-time
deferred tax charge of $2.6 million. For all periods subsequent to April 7,
1999, the company has provided for federal and state taxes at a combined
effective rate of approximately 38%.
Extraordinary Loss on the Early Prepayment of Debt. In April 1999, the
company used a portion of the net proceeds of its initial public offering to
repay approximately $21.3 million principal amount of senior notes and
approximately $5.0 million principal amount of subordinated notes. In
connection with the repayment, the company incurred a prepayment penalty of
$1.5 million and wrote off unamortized debt discount of $0.2 million. The
company recorded an extraordinary charge of $1.1 million, net of taxes, to
reflect these two items.
1999 Compared to 1998
Net Sales. Net sales increased 57.8% to $77.6 million in 1999 from $49.2
million in 1998. The increase in net sales was primarily attributable to a
growth in sales volume and, to a lesser extent, a price increase of
approximately 5.7%. Production line rate increases and the addition of four
production lines during 1999 significantly increased the company's production
capacity. To stimulate demand for Trex and continue its brand name development,
the company increased expenditures on cable television advertising and
instituted incentive sales programs in 1999. The number of dealer outlets
remained at approximately 2,000 at both December 31, 1998 and December 31,
1999.
Cost of Sales. Cost of sales increased 49.0% to $37.7 million in 1999 from
$25.3 million in 1998. All components of cost of sales increased to support the
higher level of sales activity. Cost of sales as a percentage of net sales
decreased to 48.6% in 1999 from 51.5% in 1998. The decline principally
reflected operating efficiencies from improved production line rates.
Gross Profit. Gross profit increased 67.1% to $39.9 million in 1999 from
$23.9 million in 1998, reflecting the higher sales volume in 1999. Gross profit
as a percentage of net sales increased to 51.4% in 1999 from 48.5% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 42.6% to $18.4 million in 1999 from $12.9
million in 1998. The increase was primarily attributable to higher branding
costs, including expenses of promotion, advertising, public relations, sales
literature, trade shows and cooperative advertising, which increased 44.8% to
$6.9 million in 1999 from $4.8 million in 1998. The increase in corporate
personnel, the upgrading of accounting and other systems to support growth, and
the expenses associated with being a publicly traded company contributed to a
62.0% increase in general and administrative expenses. Selling, general and
administrative expenses as a percentage of net sales decreased to 23.7% in 1999
from 26.2% in 1998.
Interest Expense. Net interest expense decreased 41.5% to $1.5 million in
1999 from $2.5 million in 1998. The decrease primarily resulted from lower
average borrowings attributable to the company's repayment of $26.3 million
principal amount of senior and subordinated notes in April 1999 with the net
proceeds of the company's initial public offering.
Provision for Income Taxes. For all periods through April 7, 1999, the
company was taxed as a partnership for federal and state income tax purposes
and, accordingly, did not record an income tax provision. In
21
connection with the reorganization, and its conversion to a corporation taxed
in accordance with Subchapter C of the Internal Revenue Code, the company
recorded a one-time deferred tax charge of $2.6 million. For all periods
subsequent to April 7, 1999, the company has provided for federal and state
taxes at a combined effective rate of 38%.
Extraordinary Loss on the Early Prepayment of Debt. In April 1999, the
company used a portion of the net proceeds of its initial public offering to
repay approximately $21.3 million principal amount of senior notes and
approximately $5.0 million principal amount of subordinated notes. In
connection with the repayment, the company incurred a prepayment penalty of
$1.5 million and wrote off unamortized debt discount of $0.2 million. The
company recorded an extraordinary charge of $1.1 million, net of taxes, to
reflect these two items.
Liquidity and Capital Resources
The company historically has financed its operations and growth primarily
with cash flow from operations, operating leases, normal trade credit terms,
mortgages for its real estate holdings and borrowings under its credit
facility.
The company's cash flow from operating activities was $12.2 million in 1998,
$21.4 million in 1999 and $15.4 million in 2000. Higher sales volume accounted
for the significant increases in cash flows in 1998 and 1999. The effect of a
higher sales volume in 2000 was more than offset by increases in receivables,
as the company offered some distributors extended payment terms in the fourth
quarter of 2000 to facilitate the addition of new distributors and the
introduction on a national basis of the newest Trex color, Madeira. In
addition, the company increased inventories in anticipation of continued sales
growth in 2001. An increase in trade accounts payable, resulting from the
company's increased operating activities and capital expenditures, had a
positive effect on cash flow from operating activities in 2000.
The company's total assets increased from $79.3 million at December 31, 1999
to $156.6 million at December 31, 2000. Most of this increase was attributable
to an increase of $54.1 million in property, plant and equipment, net. During
2000, the company purchased additional land and a mixed-use building adjacent
to its existing Winchester, Virginia facility and began construction of a
second manufacturing facility on the additional land. The company also
completed the expansion of its existing manufacturing plant in its Fernley,
Nevada facility and added three production lines, of which two were operating
at year-end.
The company currently maintains two revolving credit facilities which
together provide for borrowings of up to $90.0 million for working capital and
other general corporate purposes. Amounts drawn under the two facilities bear
interest at an annual rate equal to LIBOR plus 1.00%. Of borrowings under the
first facility, $25.0 million will be payable on September 30, 2001 and all
remaining outstanding amounts will be payable on June 30, 2003. The $15.0
million second facility, which became effective on January 31, 2001, will
mature on April 30, 2001. At December 31, 2000, borrowings of $44.7 million
were outstanding under the first facility and no borrowings were outstanding
under the second facility. The Company intends to use borrowings under the two
facilities primarily to finance the company's expansion activities.
The company financed its purchase of its Winchester, Virginia facility in
June 1998 with a ten-year term loan of $3.8 million. Under an interest rate
swap agreement, the company pays interest on this loan at an annual rate of
7.12%.
The company financed its purchase of the Trex technical center in November
1998 in part with the proceeds of a ten-year term loan of $1.0 million. Under
an interest rate swap agreement, the company pays interest on this loan at an
annual rate of 6.80%.
The company financed its acquisition of the site for its Fernley, Nevada
facility in December 1998 in part with a $2.1 million loan which was payable in
September 1999. The company partially financed construction of
22
the facility with proceeds of $4.6 million under a construction loan which was
payable in November 1999. The site acquisition and construction loans accrued
interest at an annual rate of 7.50%. The company refinanced both loans on
September 30, 1999 with a 15-year term loan in the original principal amount of
$6.7 million. Under an interest rate swap agreement, interest on this loan is
payable at an annual rate of 7.90%.
In May 2000, the company financed its purchase of a site adjacent to its
existing Winchester, Virginia manufacturing facility through borrowings under
its revolving credit facility. On August 14, 2000, the company refinanced the
borrowings with a 15-year term loan in the original principal amount of $5.9
million. An interest rate swap agreement effectively fixes the interest rate on
this loan at an annual rate of 8.10%.
On October 3, 2000, the company purchased an additional 11.83 acres of land
adjacent to its existing Winchester, Virginia manufacturing facility. The
company financed the purchase through borrowings under its revolving credit
facility.
As of December 31, 2000, the company's long-term indebtedness, excluding the
revolving credit facility, was $16.7 million, with an overall weighted average
interest rate of 7.75%.
Expansion of the company's production capacity will require significant
capital expenditures. The company currently estimates that its aggregate
capital requirements in 2001 will total approximately $33 million. Of this
amount, we will use approximately $13 million to increase capacity at our two
existing manufacturing facilities, approximately $5 million to make process and
productivity improvements, approximately $5 million to complete a plastic
processing facility at the company's existing Winchester, Virginia facility,
and $2.0 million to complete the site acquisition and begin engineering work
for the company's planned third manufacturing facility near Knoxville,
Tennessee. The company believes that cash flow from operations and borrowings
expected to be available under the company's credit agreements will provide
sufficient funds to enable the company to fund its capital expenditures and
expand its business as currently planned for at least the next 12 months. The
actual amount and timing of the company's future capital requirements may
differ materially from the company's estimate depending on the demand for Trex
and new market developments and opportunities. The company may determine that
it is necessary or desirable to obtain financing for such requirements through
bank borrowings or the issuance of debt or equity securities. Debt financing
would increase the company's level of indebtedness, while equity financing may
dilute the ownership of the company's stockholders. There can be no assurance
as to whether, or as to the terms on which, the company will be able to obtain
such financing.
Inflation
Inflation did not have a material impact on the company's operating results
in 1998, 1999 or 2000.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The company's major market risk exposure is to changing interest rates. The
company's policy is to manage interest rates through the use of a combination
of fixed and floating-rate debt. The company uses interest rate swap contracts
to manage its exposure to fluctuations in interest rates on its floating-rate
debt, substantially all of which is based on LIBOR. At December 31, 2000, the
company had effectively capped its interest rate exposure at approximately 7.7%
on approximately $16.7 million of its floating-rate debt through 2015. For
additional information, see note 6 to the company's consolidated financial
statements appearing elsewhere in this report.
Item 8. Financial Statements and Supplementary Data
The financial statements listed in Item 14 are filed as part of this report
and appear on pages F-2 through F-19.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
23
PART III
Item 10. Directors and Executive Officers of the Registrant
The table below sets forth information concerning our directors and
executive officers:
Name Age Positions with Company
---- --- ----------------------
Robert G. Matheny....... 55 President, Director
Anthony J. Cavanna...... 61 Executive Vice President and Chief Financial Officer, Director
Andrew U. Ferrari....... 54 Executive Vice President of Sales and Marketing, Director
Roger A. Wittenberg..... 52 Executive Vice President of Technical Operations and
Materials Sourcing, Director
Harold F. Monahan....... 55 Senior Vice President of Manufacturing and Distribution
William H. Martin, III.. 70 Director
William F. Andrews...... 69 Director
Patricia B. Robinson.... 48 Director
Robert G. Matheny has served as the President of TREX Company, LLC since
August 1996 and as the President and a director of the company since September
1998. From July 1992 to August 1996, he was the General Manager of the
Composite Products Division of Mobil Chemical Company, referred to below as
"Mobil Chemical," which was a division of Mobil Oil Corporation, referred to
below as "Mobil." From August 1987 to July 1992, he served as the General
Manager of the Chemical Specialties Group of Mobil Chemical and as a Vice
President of Mobil Chemical Products International. From 1970 to August 1987,
Mr. Matheny held various positions in sales, marketing and manufacturing at
Mobil. Mr. Matheny received a B.S. degree in Industrial Engineering and
Operations Research from Virginia Polytechnic Institute.
Anthony J. Cavanna has served as the Chief Financial Officer of TREX
Company, LLC since August 1996 and as Executive Vice President and Chief
Financial Officer and a director of the company since September 1998. From July
1994 to August 1996, he was a Group Vice President of Mobil Chemical. From July
1992 to July 1994, he was the Vice President-Planning and Finance for Mobil
Chemical. From November 1986 to July 1992, Mr. Cavanna served as a Vice
President of Mobil Chemical and the General Manager of its Films Division
Worldwide. From November 1981 to November 1986, he was the President and
General Manager of Mobil Plastics Europe. From January 1981 to November 1981,
he was the Vice President-Planning and Supply of the Films Division of Mobil
Chemical. Between 1962 and 1981, Mr. Cavanna held a variety of positions within
Mobil, including engineering, manufacturing and project/group leader positions.
Mr. Cavanna received a B.S. degree in Chemical Engineering from Villanova
University and an M.S. degree in Chemical Engineering from the Polytechnic
Institute of Brooklyn.
Andrew U. Ferrari has served as the Vice President of Sales and Marketing of
TREX Company, LLC since August 1996 and as Executive Vice President of Sales
and Marketing and a director of the company since September 1998. From April
1992 to August 1996, he was the Director of Sales and Marketing of the
Composite Products Division of Mobil Chemical. From February 1990 to April
1992, Mr. Ferrari served as the New Business Manager for Mobil Chemical. From
January 1984 to February 1990, he served as Marketing Director of the Consumer
Products Division of Mobil Chemical. Mr. Ferrari received a B.A. degree in
Economics from Whitman College and an M.B.A. degree from Columbia University.
Roger A. Wittenberg has served as the Vice President of Technical Operations
and Materials Sourcing of TREX Company, LLC since August 1996 and as Executive
Vice President of Technical Operations and Materials Sourcing and a director of
the company since September 1998. Mr. Wittenberg also serves as a director of
Elite Textiles Ltd., a textile manufacturer. From May 1992 to August 1996, he
was the Technical Manager of the Composite Products Division of Mobil Chemical.
Mr. Wittenberg founded Rivenite Corporation in 1987 and was its Chief Executive
Officer until April 1992, when Mobil Chemical acquired the assets of Rivenite
Corporation. Before 1987, Mr. Wittenberg founded and operated three companies
in the textile, food and animal feed supplements industries. Mr. Wittenberg
received a B.S. degree in Chemistry from High Point College.
24
Harold F. Monahan has served as the Senior Vice President for Manufacturing
and Distribution of TREX Company, LLC and the company since October 2000. From
1999 to 2000, he served as Operations Manager for North American Operations of
Exxon Mobil Corporation, an energy company. Prior to the merger of Exxon
Corporation and Mobil in 1999, Mr. Monahan served as Logistics Manager for
North American Operations of Mobil from 1997 to 1999, where he was responsible
for the distribution of Mobil's petroleum products throughout North America.
From 1971 to 1997, Mr. Monahan served in a variety of other positions with
Mobil, including Manager of U.S. Domestic Plant Operations, Asset Manager of
Domestic U.S. Operations, and Surface Transportations Manager for Domestic U.S.
Operations, Mr. Monahan received a B.S. degree in Economics from St. Norbert
College.
William H. Martin, III has served as a director of the company since April
1999. Mr. Martin has served as Chairman of the Board of Martin Industries,
Inc., a manufacturer and producer of gas grills, gas space heaters, gas logs
and pre-engineered fireplaces, since April 1994 and as a director of Martin
Industries since 1974. From 1971 to 1987, he served as President and Chief
Executive Officer of Martin Industries. From 1987 to 1993, Mr. Martin served as
Executive Assistant to the Rector of Trinity Church in New York City. Since
1993, Mr. Martin has been managing private investments and serving as a
director of Aluma Form, Inc., a manufacturing company. Mr. Martin is a graduate
of Vanderbilt University.
William F. Andrews has served as a director of the company since April 1999.
Mr. Andrews has served as Chairman of the Board of Directors of Scovill
Fasteners, Inc., a designer, manufacturer and distributor of apparel fasteners
and specialty industrial fasteners, since 1996. Mr. Andrews has been a director
and Chairman of Northwestern Steel and Wire Co. since 1998 and a director and
Chairman of Corrections Corporation of America since 2000. Mr. Andrews has been
a Principal of Kohlberg & Company, a venture capital firm, since 1994. From
1981 to 1986, Mr. Andrews served as the Chairman, President and Chief Executive
Officer of Scovill Manufacturing Co., where he worked for over 28 years. From
1995 to 1998, he served as the Chairman of Schrader-Bridgeport International,
Inc., a manufacturer of tire valves and pressure control devices. From 1993 to
1995, Mr. Andrews served as Chairman and Chief Executive Officer of Amdura
Corporation, a manufacturer of hardware and industrial equipment. From 1992 to
1994, he served as Chairman of Utica Corporation, a manufacturer of fan blades
for aerospace and land-based gas turbine engines. From 1986 to 1989, Mr.
Andrews served as President, Chairman and Chief Executive Officer of Singer
Sewing Company. Mr. Andrews also serves as a director of Black Box Corporation,
Johnson Controls, Inc., Katy Industries, Inc. and Navistar, Inc.
Patricia B. Robinson has served as a director of the company since November
2000. Ms. Robinson is an independent consultant and in 2000 served as Interim
Operating Officer of TruckBay.com, an Internet distributor of heavy duty truck
parts. From 1994 to 1998, she served as President of Mead School and Office
Products, the consumer products division of Mead Corporation. From 1977 to
1994, Ms. Robinson served in a variety of other positions with Mead
Corporation, including Vice President of Corporate Strategy and Planning,
President of Gilbert Paper, which makes premium correspondence papers, Plant
Manager of a specialty machinery facility and Product Manager for new packaging
product introductions. Ms. Robinson received a B.A. degree in economics from
Duke University and an M.B.A. degree from the Darden School at the University
of Virginia.
Other information responsive to this Item 10 is incorporated herein by
reference to the company's definitive proxy statement for its 2001 annual
meeting of stockholders.
Item 11. Executive Compensation
Information responsive to this Item 11 is incorporated herein by reference
to the company's definitive proxy statement for its 2001 annual meeting of
stockholders.
25
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information responsive to this Item 12 is incorporated herein by reference
to the company's definitive proxy statement for its 2001 annual meeting of
stockholders.
Item 13. Certain Relationships and Related Transactions
Information responsive to this Item 13 is incorporated herein by reference
to the company's definitive proxy statement for its 2001 annual meeting of
stockholders.
26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements of the company appear on pages F-2
through F-19 of this report and are incorporated by reference in Part II, Item
8:
Report of Independent Auditors
Consolidated Financial Statements
Consolidated Balance Sheets-December 31, 1999 and 2000
Consolidated Statements of Operations for the three years ended
December 31, 2000
Consolidated Statements of Changes in Members'/Stockholders' Equity
for the three years ended
December 31, 2000
Consolidated Statements of Cash Flows for the three years ended
December 31, 2000
Notes to Consolidated Financial Statements
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
2. Exhibits
3.1 Restated Certificate of Incorporation of Trex Company, Inc. (the
"Company"). Filed as Exhibit 3.1 to the Company's Registration Statement
on Form S-1 (No. 333-63287) and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed herewith.
4.1 Specimen certificate representing the Company's common stock. Filed as
Exhibit 4.1 of the Company's Registration Statement on Form S-1 (No.
333-63287) and incorporated herein by reference.
10.1 Registration Rights Agreement, dated as of April 7, 1999, among the
Company and each of the persons named on the schedule thereto. Filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999 and incorporated herein by
reference.
10.2 Trex Company, Inc. 1999 Stock Option and Incentive Plan. Filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-8 (No.
333-76847) and incorporated herein by reference.
10.3 Trex Company, Inc. 1999 Incentive Plan for Outside Directors, as
amended. Filed herewith.
10.4 Form of Distributor Agreement of TREX Company, LLC. Filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1 (No. 333-63287)
and incorporated herein by reference.
10.5 $3,780,000 Promissory Note, dated June 15, 1998, made by TREX Company,
LLC payable to First Union National Bank of Virginia. Filed as Exhibit
10.7 to the Company's Registration Statement on Form S-1 (No. 333-63287)
and incorporated herein by reference.
10.6 $1,035,000 Promissory Note, dated November 20, 1998, made by TREX
Company, LLC payable to First Union National Bank of Virginia. Filed as
Exhibit 10.8 to the Company's Registration Statement on Form S-1 (No.
333-63287) and incorporated herein by reference.
10.7 Amended and Restated Credit Agreement, dated as of August 3, 1999, among
the Company,
TREX Company, LLC and First Union National Bank of Virginia. Filed as
Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended
September 30, 1999 and incorporated herein by reference.
27
10.8 Standing Loan Agreement, dated as of September 28, 1999, between TREX
Company, LLC and Bank of America, N.A. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999 and incorporated herein by reference.
10.9 Promissory Note, dated September 28, 1999, made by TREX Company, LLC
payable to Bank of America, N.A. Filed as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1999 and incorporated herein by reference.
10.10 Payment Guaranty, dated as of September 28, 1999, made by the Company in
favor of Bank of America, N.A. Filed as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 1999 and incorporated herein by reference.
10.11 Second Amendment to Amended and Restated Credit Agreement, dated April
27, 2000, made by TREX Company, LLC and Trex Company, Inc. in favor of
First Union National Bank. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31,
2000 and incorporated herein by reference.
10.12 Third Amendment to Amended and Restated Credit Agreement, dated June 30,
2000, made by TREX Company, LLC and Trex Company, Inc. in favor of First
Union National Bank. Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2000 and
incorporated herein by reference.
10.13 Fourth Amendment to Amended and Restated Credit Agreement, dated October
27, 2000, made by TREX Company, LLC and Trex Company, Inc. in favor of
First Union National Bank. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September
30, 2000 and incorporated herein by reference.
10.14 Financing Agreement, dated January 31, 2001, between TREX Company, LLC
and Bank of America, N.A. Filed herewith.
10.15 Guaranty of Payment Agreement, dated January 31, 2001, between the
Company and Bank of America, N.A. Filed herewith.
10.16 Deed of Lease, dated June 15, 2000, between TREX Company, LLC and Space,
LLC. Filed herewith.
21 Subsidiaries of the Company. Filed herewith.
23 Consent of Ernst & Young LLP, Independent Auditors. Filed herewith.
28
TREX COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors............................................ F-2
Consolidated Financial Statements
Consolidated Balance Sheets-December 31, 1999 and 2000................... F-3
Consolidated Statements of Operations for the three years ended December
31, 2000................................................................ F-4
Consolidated Statements of Changes in Members'/Stockholders' Equity for
the three years ended December 31, 2000................................. F-5
Consolidated Statements of Cash Flows for the three years ended December
31, 2000................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trex Company, Inc.
We have audited the accompanying consolidated balance sheets of Trex
Company, Inc. (the "Company") as of December 31, 1999 and 2000, and the related
consolidated statements of operations, members'/ stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Trex Company, Inc. at December 31, 1999 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
McLean, Virginia,
February 7, 2001
F-2
TREX COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------
1999 2000
ASSETS ----------- ------------
Current Assets:
Cash and cash equivalents........................... $ -- $ --
Trade accounts receivable........................... 1,266,000 10,582,000
Inventories......................................... 8,668,000 23,017,000
Prepaid expenses and other assets................... 1,057,000 689,000
Deferred income taxes............................... 360,000 478,000
----------- ------------
Total current assets.............................. 11,351,000 34,766,000
----------- ------------
Property, plant and equipment, net.................... 59,489,000 113,635,000
Intangible assets, net................................ 8,252,000 7,544,000
Other................................................. 211,000 650,000
----------- ------------
Total Assets...................................... $79,303,000 $156,595,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable.............................. $ 6,416,000 $ 17,082,000
Accrued expenses.................................... 1,737,000 2,053,000
Income taxes payable................................ 117,000 574,000
Other current liabilities........................... 1,163,000 664,000
Line of credit...................................... 5,714,000 --
Current portion of long-term debt................... 385,000 697,000
----------- ------------
Total current liabilities......................... 15,532,000 21,070,000
Deferred income taxes................................. 3,532,000 5,782,000
Line of credit........................................ -- 44,748,000
Long-term debt........................................ 10,838,000 15,954,000
----------- ------------
Total Liabilities................................. 29,902,000 87,554,000
----------- ------------
Stockholders' Equity:
Preferred stock, $0.01 par value, 3,000,000 shares
authorized; none issued and outstanding............ -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized; 14,120,572 and 14,135,060 shares issued
and outstanding at December 31, 1999 and 2000,
respectively....................................... 141,000 141,000
Additional capital.................................. 40,992,000 41,330,000
Retained earnings................................... 8,268,000 27,570,000
----------- ------------
Total stockholders' equity........................ 49,401,000 69,041,000
----------- ------------
Total Liabilities and Stockholders' Equity........ $79,303,000 $156,595,000
=========== ============
See accompanying notes to financial statements.
F-3
TREX COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
--------------------------------------
1998 1999 2000
----------- ----------- ------------
Net sales.............................. $49,167,000 $77,570,000 $117,568,000
Cost of sales.......................... 25,305,000 37,707,000 61,852,000
----------- ----------- ------------
Gross profit........................... 23,862,000 39,863,000 55,716,000
Selling, general, and administrative
expenses.............................. 12,878,000 18,370,000 23,830,000
----------- ----------- ------------
Income from operations................. 10,984,000 21,493,000 31,886,000
Interest income........................ 411,000 83,000 5,000
Interest (expense)..................... (2,937,000) (1,559,000) (907,000)
----------- ----------- ------------
Income before income taxes and
extraordinary item.................... 8,458,000 20,017,000 30,984,000
Income taxes........................... -- 7,281,000 11,682,000
----------- ----------- ------------
Income before extraordinary item....... 8,458,000 12,736,000 19,302,000
Extraordinary loss on the early
extinguishment of debt, net of
$704,000 of income tax benefit........ -- (1,056,000) --
----------- ----------- ------------
Net income............................. $ 8,458,000 $11,680,000 $ 19,302,000
=========== =========== ============
Basic earnings per common share:
Income before extraordinary item..... $ 0.85 $ 0.98 $ 1.37
Extraordinary item................... -- (0.08) --
----------- ----------- ------------
Net income........................... $ 0.85 $ 0.90 $ 1.37
=========== =========== ============
Weighted average basic shares
outstanding........................... 9,500,000 12,848,571 14,129,652
=========== =========== ============
Diluted earnings per common share:
Income before extraordinary item..... $ 0.85 $ 0.98 $ 1.36
Extraordinary item................... -- (0.08) --
----------- ----------- ------------
Net income........................... $ 0.85 $ 0.90 $ 1.36
=========== =========== ============
Weighted average diluted shares
outstanding........................... 9,500,000 12,892,784 14,179,475
=========== =========== ============
Pro Forma Data (unaudited, see Note
12):
Historical income before taxes and
extraordinary item.................. $ 8,458,000 $20,017,000
Pro forma income taxes............... (3,214,000) (7,606,000)
----------- -----------
Pro forma net income................. $ 5,244,000 $12,411,000
=========== ===========
Pro forma basic earnings per share... $ 0.55 $ 0.97
=========== ===========
Pro forma weighted average basic
common shares outstanding........... 9,500,000 12,848,571
=========== ===========
Pro forma diluted earnings per
share............................... $ 0.55 $ 0.96
=========== ===========
Pro forma weighted average diluted
common shares outstanding........... 9,500,000 12,892,784
=========== ===========
See accompanying notes to financial statements.
F-4
TREX COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS'/ STOCKHOLDERS' EQUITY
For The Three Years Ended December 31, 2000
Undistributed
Income/
Preferred Junior Preferred Common Additional Retained
Units Units Stock Stock Capital Earnings Total
---------- ----------- --------- -------- ----------- ------------- ------------
Balance, December 31, 1997.. $3,000,000 $ 2,350,000 $ -- $ -- $ -- $ 2,184,000 $ 7,534,000
Net income.................. -- -- -- -- -- 8,458,000 8,458,000
Distributions declared...... -- -- -- -- -- (405,000) (405,000)
Tax distributions........... -- -- -- -- -- (2,296,000) (2,296,000)
---------- ----------- ------- -------- ----------- ------------ ------------
Balance, December 31, 1998.. 3,000,000 2,350,000 -- -- -- 7,941,000 13,291,000
Net income.................. -- -- -- -- -- 11,680,000 11,680,000
Preferred redemption........ (3,000,000) -- -- -- -- (115,000) (3,115,000)
Common distributions........ -- (2,350,000) -- -- -- (11,238,000) (13,588,000)
Reorganization.............. -- -- -- 95,000 (95,000) -- --
Initial public offering..... -- -- -- 46,000 41,009,000 -- 41,055,000
Employee stock purchase
plan....................... -- -- -- -- 78,000 -- 78,000
---------- ----------- ------- -------- ----------- ------------ ------------
Balance, December 31, 1999.. -- -- -- 141,000 40,992,000 8,268,000 49,401,000
Net income.................. -- -- -- -- -- 19,302,000 19,302,000
Employee stock purchase and
options plans.............. -- -- -- -- 245,000 -- 245,000
Tax benefit of stock
options.................... -- -- -- -- 93,000 -- 93,000
---------- ----------- ------- -------- ----------- ------------ ------------
Balance, December 31, 2000.. $ -- $ -- $ -- $141,000 $41,330,000 $ 27,570,000 $ 69,041,000
========== =========== ======= ======== =========== ============ ============
See accompanying notes to financial statements.
F-5
TREX COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------
1998 1999 2000
------------ ------------ ------------
Operating Activities
Net income.......................... $ 8,458,000 $ 11,680,000 $ 19,302,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Extraordinary loss on early
prepayment of debt............... -- 1,760,000 --
Deferred income taxes............. -- 3,172,000 2,132,000
Tax benefit of stock options...... -- -- 93,000
Depreciation and amortization..... 3,164,000 4,457,000 6,869,000
Loss on disposal of property,
plant and equipment.............. 187,000 157,000 18,000
Changes in operating assets and
liabilities:
Trade accounts receivable....... 977,000 (1,232,000) (9,316,000)
Inventories..................... (1,532,000) (2,661,000) (14,349,000)
Prepaid expenses and other
assets......................... (558,000) (384,000) (282,000)
Trade accounts payable.......... 1,096,000 3,839,000 10,666,000
Accrued expenses................ 287,000 651,000 316,000
Income taxes payable............ -- 117,000 457,000
Other........................... 149,000 (151,000) (499,000)
------------ ------------ ------------
Net cash provided by operating
activities......................... 12,228,000 21,405,000 15,407,000
------------ ------------ ------------
Investing Activities
Expenditures for property, plant and
equipment.......................... (17,140,000) (29,369,000) (60,114,000)
------------ ------------ ------------
Net cash used in investing
activities......................... (17,140,000) (29,369,000) (60,114,000)
------------ ------------ ------------
Financing Activities
Borrowings under mortgages and
notes.............................. 6,886,000 11,298,000 5,940,000
Principal payments under mortgages
and notes.......................... (73,000) (34,678,000) (512,000)
Borrowings under line of credit..... 162,000 10,793,000 57,249,000
Principal payments under line of
credit............................. (162,000) (5,079,000) (18,215,000)
Proceeds from initial public
offering........................... -- 41,055,000 --
Proceeds from employee stock
purchase and option plans.......... -- 78,000 245,000
Preferred distributions paid........ (405,000) (3,115,000) --
Common distributions paid........... (2,296,000) (13,588,000) --
------------ ------------ ------------
Net cash provided by financing
activities......................... 4,112,000 6,764,000 44,707,000
------------ ------------ ------------
Net decrease in cash and cash
equivalents........................ (800,000) (1,200,000) --
Cash and cash equivalents at
beginning of year.................. 2,000,000 1,200,000 --
------------ ------------ ------------
Cash and cash equivalents at end of
year............................... $ 1,200,000 $ -- $ --
============ ============ ============
See accompanying notes to financial statements.
F-6
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Trex Company, Inc. (the "Company"), a Delaware corporation, was incorporated
on September 4, 1998 for the purpose of acquiring 100% of the membership
interests and operating the business of TREX Company, LLC, a Delaware limited
liability company, in connection with an initial public offering ("IPO") of the
Company's common stock. The Company had no operations or activity from
inception on September 4, 1998 through April 7, 1999, immediately prior to the
Reorganization described below. The IPO was consummated on April 13, 1999. On
March 22, 1999, the Company amended its certificate of incorporation to
increase its authorized capital to 40,000,000 shares of $0.01 par value common
stock (the "Common Stock") and 3,000,000 shares of preferred stock. All
references in the accompanying consolidated balance sheets have been restated
to reflect the increase in the Company's authorized capital.
Through its subsidiary, TREX Company, LLC, the Company manufactures and
distributes wood/plastic composite products primarily for residential and
commercial decking applications. Trex Wood-Polymer(TM) lumber ("Trex") is
manufactured in a proprietary process that combines waste wood fibers and
reclaimed polyethylene. TREX Company, LLC is a limited liability company formed
under the laws of the State of Delaware on July 1, 1996 (inception). It
initiated commercial activity on August 29, 1996. On August 29, 1996, TREX
Company, LLC acquired substantially all of the assets and assumed certain
liabilities of the Composite Products Division of Mobil Corporation (the "Mobil
Composite Products Division") for a cash purchase price of approximately $29.5
million. The acquisition was accounted for using the purchase accounting
method.
Reorganization
Trex Company, Inc., TREX Company, LLC and the holders of membership
interests in TREX Company, LLC completed certain transactions (the
"Reorganization") on April 7, 1999, prior to the consummation of the IPO. In
the Reorganization, the junior members of TREX Company, LLC contributed their
membership interests to Trex Company, Inc. in exchange for 9,500,000 shares of
Common Stock of Trex Company, Inc. Concurrently with such exchange, the
preferred member of TREX Company, LLC exchanged its preferred membership
interest for a $3.1 million note of Trex Company, Inc. As a result of such
exchanges, TREX Company, LLC became a wholly owned subsidiary of Trex Company,
Inc. The Company has accounted for the Reorganization as an exchange of shares
between entities under common control at historical cost in a manner similar to
a pooling of interests. After the Reorganization, the ownership percentage of
each Trex Company, Inc. common stockholder was the same as its ownership
percentage in the junior membership interests of TREX Company, LLC.
As part of the Reorganization, the Company made a special cash distribution
(the "LLC Distribution") to its junior members in the amount of $12.6 million,
of which $6.7 million was paid prior to the consummation of the IPO. The
Company finalized its determination of amounts due to the junior members as
part of the LLC Distribution in July 1999 and distributed an additional
$822,000 in the third quarter of 1999. A deferred income tax liability of $2.6
million was recognized as a result of the conversion of TREX Company, LLC in
the Reorganization from a partnership for federal income tax purposes to a
corporation taxed in accordance with Subchapter C of the Internal Revenue Code
(a "C corporation").
Immediately prior to the Reorganization, TREX Company, LLC exercised an
option to repurchase 667 units of junior membership interest from certain
members at a price of $0.01 per unit.
Initial Public Offering
In the IPO, the Company sold 4,615,450 shares of Common Stock at a public
offering price of $10.00 per share. Of such shares, the Company sold 4,000,000
shares on April 13, 1999 and 615,450 shares on May 6,
F-7
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 pursuant to the underwriters' exercise in full of their over-allotment
option. The net proceeds from the IPO, after deducting underwriting discounts
and commissions and offering expenses payable by the Company, totaled
approximately $41.1 million. The net proceeds of approximately $35.5 million
from the sale of shares on April 13, 1999 were used as follows: approximately
$28.1 million was used to repay approximately $26.3 million principal amount of
senior and subordinated notes, accrued interest thereon and a related
prepayment premium of approximately $1.5 million; approximately $3.1 million
was used to repay the note issued to the preferred member of TREX Company, LLC
in the Reorganization; and approximately $4.3 million was used to fund a
portion of the LLC Distribution. The net proceeds of approximately $5.6 million
from the over-allotment exercise were used as follows: approximately $4.4
million was used to repay borrowings under the Company's revolving credit
facility and approximately $1.2 million was used for working capital and
general corporate purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
and include the accounts of the Company and its wholly-owned subsidiary, TREX
Company, LLC. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments purchased with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost (last-in, first-out) or market
value.
Long Lived Assets
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost. The costs of
additions and improvements are capitalized, while maintenance and repairs are
expensed as incurred. Depreciation is provided using the straight line method
over the following estimated useful lives:
Machinery and equipment.......................................... 11 years
Furniture and equipment.......................................... 10 years
Forklifts and tractors........................................... 5 years
Data processing equipment........................................ 5 years
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the asset.
Intangible Assets
Intangible assets consist of goodwill representing the excess of cost over
net assets acquired resulting from the purchase of the Mobil Composite Products
Division. Goodwill is amortized using the straight line method over a period of
15 years.
F-8
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company assesses long-lived assets including intangible assets for
impairment in accordance with Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to be Disposed of ("SFAS 121"). SFAS 121 requires impairment losses to
be recognized for long-lived assets when indicators of impairment are present
and the undiscounted cash flows are not sufficient to recover the assets'
carrying amounts. Intangibles are also evaluated for recoverability by
estimating the projected undiscounted cash flows, excluding interest, of the
related business activities. The impairment loss of these assets, including
goodwill, is measured by comparing the carrying amount of the asset to its fair
value less disposal costs, with any excess of carrying value over fair value
written off. Fair value is based on market prices where available, an estimate
of market value, or various valuation techniques including discounted cash
flow.
Revenue Recognition
The Company recognizes revenue at the point of sale, which is at the time of
shipment to the customer from the Company's manufacturing facilities.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 allows companies to account for
stock-based compensation under the provisions of SFAS No. 123 or under the
provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25"), but
requires pro forma disclosures in the footnotes to the financial statements as
if the measurement provisions of SFAS No. 123 had been adopted. The Company
accounts for its stock-based compensation in accordance with APB No. 25.
Income Taxes
For all periods prior to the Reorganization, the Company was a partnership
for income tax purposes. Accordingly, during these periods, no provision for
income taxes has been included in these financial statements, as taxable income
or loss passed through to, and was reported by, members individually. The
Company accounts for income taxes and the related accounts under the liability
method. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted rates expected to be in effect during the year in
which the differences reverse. In connection with the Reorganization, and its
conversion for income tax purposes from a partnership to a C corporation, the
Company recorded a one-time deferred tax charge of $2.6 million. Subsequent to
the Reorganization, the Company has provided for federal and state income taxes
at a combined effective rate of 38%.
Research and Development Costs
Research and development costs are expensed as incurred. For the years ended
December 31, 1998, 1999 and 2000, research and development costs were
approximately $946,000, $1,238,000 and $1,440,000, respectively.
Advertising Costs
Branding costs including advertising are expensed as incurred. For the years
ended December 31, 1998, 1999 and 2000, branding costs were approximately
$4,775,000, $6,915,000 and $8,092,000, respectively.
F-9
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and the accompanying notes. Actual results could differ
from those estimates.
Fair Value of Financial Statements
The Company considers the recorded value of its financial assets and
liabilities, consisting primarily of cash and cash equivalents, accounts
receivable, inventory, accounts payable, accrued liabilities and other current
liabilities, and long term debt to approximate the fair value of the respective
assets and liabilities at December 31, 1999 and 2000.
Recent Pronouncements
The Company implemented the consensus of the Emerging Issues Task Force
Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," or EITF 00-
10, in the fourth quarter of 2000. This rule requires that all shipping and
handling fees be recorded in net sales and that the related costs be included
in cost of sales. Previously, the Company had classified shipping and handling
fees, net of shipping and handling costs, as cost of sales. The effect of this
reclassification was to increase net sales and cost of sales by approximately
$2.3 million in 1998, $3.2 million in 1999, and $3.0 million in 2000. This
reclassification had no effect on net income in any period.
Effective January 1, 2001, the Company will adopt Statement of Financial
Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended by Statement of Financial Accounting Standard No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
SFAS No. 133, as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company's use of derivatives is currently limited to interest rate swaps on
its floating rate mortgage debt. The Company estimates that the transition
adjustment to implement this new standard will increase liabilities by
approximately $800,000 with a corresponding reduction in stockholders' equity
through other comprehensive income (approximately $500,000, net of tax).
3. INVENTORIES
Inventories consist of the following as of December 31:
1999 2000
---------- -----------
Finished goods........................................ $7,599,000 $19,523,000
Raw materials......................................... 1,069,000 3,494,000
---------- -----------
$8,668,000 $23,017,000
========== ===========
F-10
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following as of December 31:
1999 2000
----------- ------------
Building and improvements......................... $12,505,000 $ 18,893,000
Machinery and equipment........................... 46,054,000 61,848,000
Furniture and equipment........................... 417,000 753,000
Forklifts and tractors............................ 149,000 159,000
Data processing equipment......................... 867,000 1,171,000
Construction in process........................... 4,268,000 39,985,000
Land.............................................. 3,437,000 4,934,000
----------- ------------
67,697,000 127,743,000
Accumulated depreciation.......................... (8,208,000) (14,108,000)
----------- ------------
$59,489,000 $113,635,000
=========== ============
Depreciation expense for the years ended December 31, 1998, 1999 and 2000
totaled $2,280,000, $3,610,000, and $5,950,000, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31:
1999 2000
----------- -----------
Goodwill........................................... $10,609,000 $10,609,000
Accumulated amortization........................... (2,357,000) (3,065,000)
----------- -----------
$ 8,252,000 $ 7,544,000
=========== ===========
Amortization expense was $707,000 for each of the years ended December 31,
1998, 1999 and 2000.
6. DEBT
The Company maintains a revolving credit facility with a bank that provides
for borrowings of up to $75.0 million on an unsecured basis for working capital
and general corporate purposes through September 30, 2001 and $50.0 million
thereafter. Amounts drawn under the revolving credit facility bear interest at
an annual rate equal to LIBOR plus 1.00%. The facility will mature on June 30,
2003. The facility agreement contains restrictive and financial covenants and
is subject to a commitment fee on the unused balance. As of December 31, 1999
and 2000, $5,714,000 and $44,748,000, respectively, were outstanding under the
revolving credit facility.
In April 1999, with a portion of the proceeds of the IPO, the Company repaid
$21,250,000 of its 10.00% Senior Notes and $5,000,000 of its 12.00%
Subordinated Notes. In connection with the repayment, the Company recorded an
extraordinary loss on the early prepayment of debt in the amount of $1,056,000,
net of taxes, consisting of a prepayment premium and the related unamortized
debt discount at the time of repayment.
In May 2000, the Company financed its purchase of a site adjacent to its
existing Winchester, Virginia manufacturing facility through borrowings under
its revolving credit facility. In August 2000, the Company refinanced the
borrowings with a 15-year term loan in the original principal amount of $5.9
million. Pursuant to an interest rate swap, interest on this loan is payable at
an annual rate of 8.10%.
F-11
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In September 1999, the Company refinanced two loans incurred in connection
with the site acquisition and construction of the Company's second
manufacturing facility with a 15-year term loan in the original principal
amount of approximately $6.7 million. Pursuant to an interest rate swap
agreement, interest on this loan is payable at an effective annual rate of
7.90%.
During the year ended December 31, 1998, the Company borrowed $4,815,000
under two mortgages to fund, in part, the acquisition of the site of its second
manufacturing facility and the site of its research and development facility.
The mortgages provide for monthly amortization of principal and interest over a
15-year amortization schedule, with all remaining principal due on the tenth
anniversary of the mortgage dates. The mortgages bear interest at an annual
rate equal to LIBOR plus 1.00%. The Company has entered into interest rate swap
agreements, as discussed below, at the notional amounts of the amortizing
principal balances, that effectively fix the interest rates paid by the Company
at 7.12% and 6.80%, respectively.
Long-term debt consists of the following as of December 31:
1999 2000
----------- -----------
Mortgage, due June 16, 2008, 7.12%................. $ 3,563,000 $ 3,404,000
Mortgage, due November 28, 2008, 6.80%............. 991,000 948,000
Mortgage, due September 30, 2014, 7.90%............ 6,669,000 6,426,000
Mortgage, due August 31, 2015, 8.10%............... -- 5,873,000
----------- -----------
11,223,000 16,651,000
Less current portion............................... (385,000) (697,000)
----------- -----------
Long-term debt..................................... $10,838,000 $15,954,000
=========== ===========
Maturities of long-term debt are as follows:
Years ending December 31,
-------------------------
2001.......................................................... $ 697,000
2002.......................................................... 752,000
2003.......................................................... 813,000
2004.......................................................... 879,000
2005.......................................................... 950,000
Thereafter.................................................... 12,560,000
-----------
$16,651,000
===========
The mortgages are secured by the Company's various real estate holdings and
are held by various financial institutions.
The Company made interest payments in the aggregate amounts of approximately
$2,875,000, $1,532,000 and $1,779,000 for the years ended December 31, 1998,
1999 and 2000, respectively. During 2000, the company capitalized approximately
$1,143,000 of interest.
During 1998, 1999 and 2000, the Company entered into interest-rate swap
agreements to eliminate the impact of increases and decreases in interest rates
on its floating-rate mortgages. At December 31, 2000, the Company had four
interest-rate swap agreements outstanding. The agreements effectively entitle
the Company to receive from (pay to) the bank the amount, if any, by which the
Company's interest payments on its $3,780,000, $1,035,000, $6,728,000 and
$5,940,000 floating-rate mortgages due in June 2008, November 2008, September
2014 and August 2015 exceed (fall below) 7.12%, 6.80%, 7.90% and 8.10%,
respectively. The Company has not incurred a premium or other fee for these
interest-rate swap agreements. Payments received
F-12
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(made) as a result of the agreements are accrued as a reduction of (increase
to) interest expense on the floating-rate mortgage debt. The notional amounts
of these agreements correspond to the outstanding balances of the mortgage
debt.
The Company is exposed to credit loss in the event of nonperformance by the
counter-party on interest-rate swap agreements, but the Company does not
anticipate nonperformance by the counter-party. The amount of such exposure is
generally the unrealized gains, if any, in such agreements.
7. STOCKHOLDERS' EQUITY
The predecessor of Trex Company, Inc., TREX Company, LLC, was initially
capitalized by the sale of 3,000 Class A units for $2,000,000 and 1,000 Class B
units for $350,000. The Class A and Class B units are collectively known as
junior units. In connection with the acquisition of substantially all of the
assets and assumption of certain liabilities of the Mobil Composite Products
Division, the Company issued Mobil Oil Corporation 1,000 preferred units in
exchange for $3,000,000.
In the Reorganization, the Company issued 9,500,000 shares of its Common
Stock in exchange for the outstanding junior units and a note in the principal
amount of $3,100,000 in exchange for the preferred units. In the IPO, the
Company sold 4,615,450 previously unissued shares of its Common Stock for net
proceeds of $41,055,000. In connection with the Reorganization and IPO, the
Company repaid the note it exchanged for the preferred units, and made payments
totaling $13,588,000 to the original Class A and Class B unitholders,
representing a distribution of previously undistributed earnings and a return
of capital. See Note 1 herein for a discussion of the Reorganization and IPO
transactions.
Through the Company's employee stock purchase and option plans, 5,122 and
14,488 previously unissued shares of Common Stock were issued to employees
and/or non-employee directors for a total of $78,000 and $245,000 during 1999
and 2000, respectively.
F-13
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of basic and diluted earnings
per share:
Year Ended December 31,
------------------------------------
1998 1999 2000
---------- ----------- -----------
Numerator:
Income before extraordinary item.... $8,458,000 $12,736,000 $19,302,000
Preferred dividends................. (405,000) (115,000) --
---------- ----------- -----------
8,053,000 12,621,000 19,302,000
Extraordinary item.................. -- (1,056,000) --
---------- ----------- -----------
Net income available to common
shareholders....................... $8,053,000 $11,565,000 $19,302,000
========== =========== ===========
Denominator:
Denominator for basic earnings per
share--weighted average shares
outstanding........................ 9,500,000 12,848,571 14,129,652
========== =========== ===========
Basic earnings per share:
Income before extraordinary item.... $ 0.85 $ 0.98 $ 1.37
Extraordinary item.................. -- (0.08) --
---------- ----------- -----------
Net income.......................... $ 0.85 $ 0.90 $ 1.37
========== =========== ===========
Denominator:
Denominator for diluted earnings per
share--weighted average shares
outstanding........................ 9,500,000 12,892,784 14,179,475
========== =========== ===========
Diluted earnings per share:
Income before extraordinary item.... $ 0.85 $ 0.98 $ 1.36
Extraordinary item.................. -- (0.08) --
---------- ----------- -----------
Net income.......................... $ 0.85 $ 0.90 $ 1.36
========== =========== ===========
The earnings per share amounts shown above for 1998 and 1999 have been
adjusted to reflect the Reorganization and the issuance of 9,500,000 shares of
Trex Company, Inc. Common Stock in exchange for the junior units in TREX
Company, LLC. The diluted weighted average shares outstanding for 1999 and 2000
reflect the dilutive effect of the exercise of stock options outstanding.
On March 12, 1999, the Company adopted the 1999 Stock Option and Incentive
Plan (the "Plan"). The Plan authorizes the granting of options to purchase up
to 1,400,000 shares of Common Stock. The exercise price per share under each
option granted under the Plan may not be less than 100% of the fair market
value of the Common Stock on the option grant date. Vesting of the options is
determined by the Compensation Committee of the Board of Directors, with a
maximum vesting period of 10 years.
F-14
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock option activity from inception of the Plan through December 31, 2000
is as follows:
Weighted Average
Exercise Price
Options Per Share
------- ----------------
Outstanding March 12, 1999 (inception)............. -- --
1999
Granted.......................................... 111,160 $10.53
Exercised........................................ (7,160) $10.00
Canceled......................................... -- --
-------
Outstanding at December 31, 1999................... 104,000 $10.53
2000
Granted.......................................... 141,358 $28.20
Exercised........................................ (8,018) $10.00
Canceled......................................... (14,309) $15.04
-------
Outstanding at December 31, 2000................... 223,031 $21.27
=======
Exercisable at December 31, 2000................... 29,494 $18.77
=======
At December 31, 2000, the price range of options outstanding was as follows:
Average
Weighted Remaining Weighted
Average Contractual Average
Options Exercise Life Options Exercise
Outstanding Price (Years) Exercisable Price
----------- -------- ----------- ----------- --------
$10.00-19.99.......... 85,029 $10.13 8.1 16,329 $10.17
20.00-29.99.......... 108,219 27.15 9.2 13,165 29.43
30.00-39.99.......... 28,138 30.63 9.7 -- --
40.00 and over....... 1,645 50.00 9.5 -- --
------- ------
223,031 21.27 8.9 29,494 18.77
The grant date weighted average fair value of options granted in 1999 and
2000 was $7.14 and $19.35, respectively. Options generally vest with respect to
25% of the shares subject to the option on each of the first, second, third and
fourth anniversaries of the grant date. The options are forfeitable upon
termination of an option holder's service as an employee or director under
certain circumstances.
At December 31, 2000, 1,384,822 shares of Common Stock are reserved for
issuance under the Plan.
In accordance with SFAS 123, the fair value was estimated at the grant date
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999 and 2000: risk-free interest rate of 6%; no dividends; and
a weighted-average expected life of the options of approximately five years. A
volatility factor of the expected market price of the Company's Common Stock of
.551 and .810 was used for 1999 and 2000, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-15
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of the pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The pro forma
effect of applying SFAS 123 for the years ended December 31, 1999 and 2000
would have reduced income by approximately $111,000 and $384,000, respectively,
and resulted in basic earnings per share of $0.89 and $1.34, respectively.
8. LEASES
The Company leases office space, storage warehouses and certain office and
plant equipment under various operating leases. Minimum annual payments under
these non-cancelable leases as of December 31, 2000 were as follows :
Year ending December 31,
------------------------
2001........................................................... $ 3,397,000
2002........................................................... 2,640,000
2003........................................................... 2,360,000
2004........................................................... 1,832,000
2005........................................................... 1,582,000
Thereafter..................................................... 9,971,000
-----------
$21,782,000
===========
For the years ended December 31, 1998, 1999 and 2000, the Company recognized
rental expenses of approximately $1,024,000, $1,516,000 and $2,650,000,
respectively.
9. FRINGE BENEFIT PLANS
The Company has a 401(k) Profit Sharing Plan and a Money Purchase Pension
Plan for the benefit of all employees who meet certain eligibility
requirements. These plans cover substantially all of the Company's full time
employees. The plan documents provide for the Company to make defined
contributions as well as matching and other discretionary contributions, as
determined by the Board of Directors. The Company recognized contribution
expense totaling $639,000, $1,142,000 and $677,000 to the 401(k) Profit Sharing
Plan and $256,000, $303,000 and $326,000 to the Money Purchase Pension Plan
during the years ended December 31, 1998, 1999 and 2000, respectively. As of
December 31, 1999 and 2000, the Company's accrued expenses included
approximately $1,425,000 and $760,000, respectively, for contributions due in
respect of the 401(k) Profit Sharing Plan and Money Purchase Pension Plan.
The Company has a long-term incentive plan for the benefit of certain
employees. The plan provides up to one year's annual base compensation to
participants who have completed four years of continuous service to the
Company.
10. INCOME TAXES
The Company's provision for income taxes is as follows:
Year ended December 31,
-------------------------------
1998 1999 2000
-------- ---------- -----------
Current provisions:
Federal................................... $ -- $3,465,000 $ 8,616,000
State..................................... -- 644,000 1,019,000
Federal deferred tax expense.............. -- 2,866,000 1,854,000
State deferred tax expense................ -- 306,000 193,000
-------- ---------- -----------
$ -- $7,281,000 $11,682,000
======== ========== ===========
F-16
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes resulted in effective tax rates that varied
from the combined federal and state statutory income tax rates as follows:
Year ended December 31,
-------------------------------------
1998 1999 2000
----------- ----------- -----------
Expected federal income tax
provision.......................... $ 2,876,000 $ 6,806,000 $10,854,000
Permanent........................... -- 30,000 (58,000)
State income taxes, net of federal
benefit............................ 338,000 797,000 793,000
Non-deductible charge for stock
option compensation................ -- -- 93,000
Effect of income taxed directly to
LLC members........................ (3,214,000) (2,961,000) --
Deferred taxes arising from
Reorganization..................... -- 2,609,000 --
----------- ----------- -----------
$ -- $ 7,281,000 $11,682,000
=========== =========== ===========
The significant items constituting the Company's deferred tax assets and
liabilities as of December 31, 1999 and 2000 were as follows:
As of December 31,
------------------------
1999 2000
----------- -----------
Deferred tax assets-current:
Reserves........................................ $ 360,000 $ 478,000
----------- -----------
Deferred tax asset-current........................ $ 360,000 $ 478,000
=========== ===========
Deferred tax liabilities-non-current:
Book versus tax depreciation.................... $(3,532,000) $(5,782,000)
----------- -----------
Deferred tax liability-non-current................ $(3,532,000) $(5,782,000)
=========== ===========
Cash paid for income taxes during the years ended December 31, 1998, 1999
and 2000 was $0, $3,287,000 and $9,088,000 respectively.
11. COMMITMENTS AND CONTINGENCIES
The Company from time to time is party to litigation arising in the ordinary
course of its business. The Company believes that such litigation will not have
a material impact on the Company's financial position or results of operations.
The Company is a party to several short-term and long-term supply contracts
that require the Company to take or pay for raw materials for periods of up to
ten years. The quantities of raw materials to be purchased under these
contracts are not fixed or determinable.
Approximately 74%, 75% and 75% of the Company's sales for the years ended
December 31, 1998, 1999 and 2000, respectively, were from its five largest
customers, each of which exceeded 10% of sales. Approximately 22%, 24% and 20%
of the Company's raw materials for the years ended December 31, 1998, 1999 and
2000, respectively, were purchased from its four largest suppliers.
F-17
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. PRO FORMA DATA (Unaudited)
The pro forma statement of operations data give effect to the Reorganization
as if the Reorganization had occurred on January 1, 1998. The pro forma net
income taxes and pro forma net income reflect federal and state income taxes
(assuming a 38% combined effective tax rate) as if the Company had been taxed
as a C corporation for each of the two years ended December 31, 1999. The pro
forma consolidated statements of operations data exclude one-time charges
relating to the Reorganization and IPO, including (i) a net deferred tax
liability of approximately $2.6 million and (ii) a $1.1 million extraordinary
charge for the extinguishment of debt repaid from the net proceeds of the IPO.
Pro forma weighted average shares outstanding reflect 9,500,000 shares of Trex
Company, Inc. Common Stock outstanding through April 7, 1999, 13,500,000 shares
outstanding from April 8, 1999 through May 2, 1999, 14,115,450 shares
outstanding from May 3 through July 14, 1999, 14,118,435 shares outstanding
from July 15 through October 14, 1999 and 14,120,572 shares outstanding through
December 31, 1999.
The following table sets forth the computation of basic earnings per common
share on a supplemental pro forma basis:
Year ended December 31,
------------------------
1998 1999
----------- -----------
Numerator:
Historical income from operations.................. $10,984,000 $21,493,000
Supplemental pro forma interest income (expense),
net............................................... 249,000 (691,000)
Pro forma income tax provision..................... (4,269,000) (7,905,000)
----------- -----------
Supplemental pro forma net income available to
common shareholders............................... $ 6,964,000 $12,897,000
=========== ===========
Denominator:
Denominator for supplemental pro forma basic
earnings per common share--weighted average shares
outstanding....................................... 14,115,450 14,117,297
=========== ===========
Supplemental pro forma basic earnings per common
share............................................. $ 0.49 $ 0.91
=========== ===========
The foregoing supplemental pro forma basic earnings per common share amounts
have been adjusted to reflect the Reorganization (see Note 1) as if the
Reorganization had occurred on January 1, 1998. The supplemental pro forma
interest expense gives effect to the repayment of the Senior and Subordinated
Notes, and related debt issuance and discount amortization, from the net
proceeds of the IPO as if such repayment had been made as of January 1, 1998.
The supplemental pro forma income tax provision reflects federal and state
income taxes (assuming a 38% combined effective tax rate) as if the Company had
been taxed as a C corporation as of January 1, 1998. Supplemental pro forma net
income available to common shareholders assumes the preferred units were
exchanged as of January 1, 1998. Supplemental pro forma weighted average shares
outstanding assumes that the shares resulting from the Reorganization and the
consummation of the IPO were outstanding for the entire period. Supplemental
pro forma fully diluted earnings per share is the same as supplemental pro
forma basic earnings per share and, therefore, is not separately presented.
F-18
TREX COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. INTERIM FINANCIAL DATA (Unaudited)
Three Months Ended
-------------------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1999 1999 1999 1999 2000 2000 2000 2000
----------- ----------- ------------- ------------ ----------- ------------ ------------- ------------
Net sales........ $23,448,000 $20,684,000 $20,780,000 $12,658,000 $39,053,000 $36,449, 000 $25,806,000 $16,260,000
Gross profit..... 12,423,000 11,521,000 10,597,000 5,322,000 18,162,000 18,013,000 13,103,000 6,438,000
Income before
extraordinary
item............ 7,559,000 50,000 4,137,000 990,000 7,057,000 6,081,000 5,196,000 968,000
Net income
(loss).......... 7,559,000 (1,006,000) 4,137,000 990,000 7,057,000 6,081,000 5,196,000 968,000
Basic income
before
extraordinary
item per share.. $ 0.78 $ -- $ 0.29 $ 0.07 $ 0.50 $ 0.43 $ 0.37 $ 0.07
Basic net income
(loss) per
share........... $ 0.78 $ (0.07) $ 0.29 $ 0.07 $ 0.50 $ 0.43 $ 0.37 $ 0.07
Diluted income
before
extraordinary
item per share.. $ 0.78 $ -- $ 0.29 $ 0.07 $ 0.50 $ 0.43 $ 0.37 $ 0.07
Diluted net
income (loss)
per share....... $ 0.78 $ (0.07) $ 0.29 $ 0.07 $ 0.50 $ 0.43 $ 0.37 $ 0.07
The Company implemented the consensus of the Emerging Issues Task Force
Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," or EITF 00-
10, in the fourth quarter of 2000. This rule requires that all shipping and
handling fees be recorded in net sales and that the related costs be included
in cost of sales. Previously, the Company had classified shipping and handling
fees, net of shipping and handling costs, as cost of goods sold. The effect of
this reclassification was to increase net sales and cost of goods sold
previously reported by approximately $1,083,000, $909,000, $825,000 and
$408,000 for the first, second, third and fourth quarters of 1999, respectively
and $989,000, $893,000 and $728,000 for the first, second and third quarters of
2000, respectively.
F-19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TREX COMPANY, INC.
/s/ Anthony J. Cavanna
By: _________________________________
Anthony J. Cavanna
Executive Vice President and Chief
Financial Officer
(Duly Authorized Officer)
Date: March 26, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed as of March 26, 2001 by the following persons on behalf
of the registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Robert G. Matheny President and Director
________________________________________ (Principal Executive
Robert G. Matheny Officer)
/s/ Anthony J. Cavanna Executive Vice President
________________________________________ and Chief Financial
Anthony J. Cavanna Officer and Director
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ Andrew U. Ferrari Director
________________________________________
Andrew U. Ferrari
/s/ Roger A. Wittenberg Director
________________________________________
Roger A. Wittenberg
/s/ William H. Martin, III Director
________________________________________
William H. Martin, III
/s/ William F. Andrews Director
________________________________________
William F. Andrews
/s/ Patricia B. Robinson Director
________________________________________
Patricia B. Robinson
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
TREX COMPANY, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware is 1013 Centre Road, in the City of
Wilmington, Delaware 19805, in the County of New Castle. The name of its
registered agent at such address is Corporation Service Company.
Section 2. Other Offices. The Corporation may also have offices at
-------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS MEETINGS
Section 1. Places of Meetings. All meetings of stockholders shall be
------------------
held at such place or places in or outside of the State of Delaware as shall be
designated from time to time by the Board of Directors and stated in the notice
of meeting or waiver of notice thereof, subject to any provisions of the laws of
the State of Delaware.
Section 2. Annual Meetings. Unless otherwise determined from time to
---------------
time by the Board of Directors, the annual meeting of stockholders shall be held
each year for the election of directors and the transaction of such other
business as may properly come before the meeting at such date and time as may be
designated by the Board of Directors. Written notice of the time and place of
the annual meeting shall be given by mail to each stockholder entitled to vote
at such meeting, at the stockholder's address as it appears on the records of
the Corporation, not less than ten (10) nor more than sixty (60) days prior to
the scheduled date thereof.
Section 3. Special Meetings. A special meeting of the stockholders
----------------
of the Corporation may be called at any time by the Chairman of the Board or by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors which the Corporation would have if there were no
vacancies, but such special meeting may not be called by any other person or
persons. Written notice of the date, time, place and specific purpose or
purposes for which such meeting is called shall be given by mail to each
stockholder entitled to vote thereat at such stockholder's address as it appears
on the records of the Corporation not less
than ten (10) nor more than sixty (60) days prior to the scheduled date thereof.
Business transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice.
Section 4. Voting. At all meetings of stockholders, each stockholder
------
entitled to vote on the record date as determined under these By-Laws or, if not
so determined, as prescribed under the laws of the State of Delaware, shall be
entitled to one vote for each share of stock standing on record in such
stockholder's name, subject to any voting powers, restrictions or qualifications
set forth in the Restated Certificate of Incorporation of the Corporation or any
amendment thereto (the "Restated Certificate of Incorporation").
Section 5. Quorum; Voting. At any stockholders meeting, a majority
--------------
of the voting power of the shares of stock outstanding and entitled to vote
thereat, present in person or by proxy, shall constitute a quorum, but a smaller
interest may adjourn any meeting from time to time, and the meeting may be held
as adjourned without further notice, subject to such limitations as may be
imposed under the laws of the State of Delaware. When a quorum is present at any
meeting, the affirmative vote of the holders of a majority of the voting power
of the shares of stock entitled to vote thereon, present in person or by proxy,
shall decide any question brought before such meeting unless such question is
one upon which a different vote is required by express provision of the Restated
Certificate of Incorporation, these By-Laws, the rules or regulations of the New
York Stock Exchange, Inc. or any law or other rule or regulation applicable to
the Corporation, in which case such express provision shall govern.
Section 6. Inspectors of Election; Opening and Closing the Polls. The
-----------------------------------------------------
Board of Directors may, by resolution, appoint one or more inspectors, which
inspector or inspectors may include individuals who serve the Corporation in
other capacities, including, without limitation, as officers, employees, agents
or representatives of the Corporation, to act at a meeting of stockholders and
make a written report thereof. One or more persons may be designated as
alternative inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at the meeting.
-2-
Section 7. List of Stockholders. At least ten (10) days before every
--------------------
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order and showing the address and the
number of shares registered in the name of each stockholder, shall be prepared
by the secretary or the transfer agent in charge of the stock ledger of the
Corporation. Such list shall be open for examination by any stockholder as
required by the laws of the State of Delaware. The stock ledger shall be the
only evidence as to who are the stockholders entitled to examine such list or
the books of the Corporation or to vote in person or by proxy at such meeting.
Section 8. Written Consent in Lieu of Meeting. Except as otherwise
----------------------------------
provided for or fixed pursuant to the provisions of the Restated Certificate of
Incorporation relating to the rights of the holders of any series of preferred
stock, no action that is required or permitted to be taken by the stockholders
of the Corporation at any annual or special meeting of stockholders may be
effected by written consent of stockholders in lieu of a meeting of
stockholders, unless the action to be effected by written consent of the
stockholders and the taking of such action by written consent have been
expressly approved in advance by the Board of Directors.
Section 9. Conduct of Meetings. The date and time of the opening and
-------------------
the closing of the polls for each matter upon which the stockholders will vote
at a meeting shall be announced at the meeting by the person presiding over the
meeting. The Board of Directors may, to the extent not prohibited by law, adopt
by resolution such rules and regulations for the conduct of the meeting of
stockholders as it shall deem appropriate. Except to the extent inconsistent
with such rules and regulations as adopted by the Board of Directors, the
chairman of any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations and procedures and to do all such acts as, in
the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board of
Directors or prescribed by the chairman of the meeting, may to the extent not
prohibited by law include, without limitation, the following: (i) the
establishment of an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. Unless and to the extent determined by the Board of
Directors or the chairman of the meeting, meetings of stockholders shall not be
required to be held in accordance with the rules of parliamentary procedure.
-3-
Section 10. Notice of Stockholder Business and Nominations.
-----------------------------------------------
(a) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders only (i) pursuant to the Corporation's notice of
meeting (or any supplement thereto), (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who was a stockholder
of record of the Corporation at the time the notice provided for in this Section
10 is delivered to the Secretary of the Corporation, who is entitled to vote at
the meeting and who complies with the notice procedures set forth in this
Section 10.
(b) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of
this Section 10, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the preceding year's
annual meeting (provided, however, that in the event that the date of the annual
meeting is more than thirty (30) days before or more than seventy (70) days
after such anniversary date, notice by the stockholder must be so delivered not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such annual meeting or the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the Corporation). In no event shall the public
announcement of an adjournment or postponement of an annual meeting commence a
new time period (or extend any time period) for the giving of a stockholder's
notice as described above. Such stockholder's notice shall set forth: (i) as to
each person whom the stockholder proposes to nominate for election or reelection
as a director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest or is otherwise required, in each case pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected; (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the text of the proposal or
business (including the text of any resolutions proposed for consideration and
in the event that such business includes a proposal to amend the By-Laws, the
language of the proposed amendment), the reasons for conducting such business at
the meeting and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as
to the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (a) the name and address of such
-4-
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, (b) the class and number of shares of capital stock of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, (c) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear, in person or by proxy, at the meeting to propose such business or
nomination and (d) a representation whether the stockholder or the beneficial
owner, if any, intends or is part of a group which intends to (A) deliver a
proxy statement and/or form of proxy to holders of at least the percentage of
the Corporation's outstanding capital stock required to approve or adopt the
proposal or elect the nominee and/or (B) otherwise solicit proxies from
stockholders in support of such proposal or nomination. The Corporation may
require any proposed nominee to furnish such other information as it may
reasonably require to determine the eligibility of such proposed nominee to
serve as a director of the Corporation.
(c) Notwithstanding anything in the second sentence of paragraph (b)
of this Section 10 to the contrary, in the event that the number of directors to
be elected to the Board of Directors at an annual meeting is increased and there
is no public announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of Directors at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 10 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation no later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the Corporation.
(d) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (i)
by or at the direction of the Board of Directors or (ii) provided that the Board
of Directors has determined that directors shall be elected at such meeting, by
any stockholder of the Corporation who is a stockholder of record at the time
the notice provided for in this Section 10 is delivered to the Secretary of the
Corporation, who shall be entitled to vote at the meeting and upon such
election, and who complies with the notice procedures set forth in this Section
10. In the event the Corporation calls a special meeting of stockholders for the
purpose of electing one or more directors to the Board of Directors, any such
stockholder entitled to vote in such election of directors may nominate a person
or persons (as the case may be) for election to such position or positions as
specified in the Corporation's notice of meeting, if the stockholder's notice
required by paragraph (b) of this Section 10 shall be delivered to the Secretary
at the principal executive offices of the Corporation not earlier than the
-5-
close of business on the one hundred twentieth (120th) day prior to such special
meeting and not later than the close of business on the later of the ninetieth
(90th) day prior to such special meeting, or the tenth (10th) day following the
day on which public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of Directors to be elected at
such meeting. In no event shall the public announcement of an adjournment or
postponement of a special meeting commence a new time period (or extend any time
period) for the giving of a stockholder's notice as described above.
(e) Only such persons who are nominated in accordance with the procedures
set forth in this Section 10 shall be eligible to be elected at an annual or
special meeting of stockholders of the Corporation to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section 10. Except as otherwise provided by law or the Restated Certificate
of Incorporation, the chairman of the meeting shall have the power and duty to
(i) determine whether a nomination or any business proposed to be brought before
the meeting was made or proposed, as the case may be, in accordance with the
procedures set forth in this Section 10 and (ii) if any proposed nomination or
business is not in compliance with this Section 10 (including whether the
stockholder or beneficial owner, if any, on whose behalf the nomination or
proposal is made solicits (or is part of a group which solicits), or fails to so
solicit (as the case may be), proxies in support of such stockholder's proposal
in compliance with such stockholder's representation as required by clause
(iii)(d) of paragraph (b) of this Section 10, to declare that such defective
nomination shall be disregarded or that such proposed business shall not be
transacted.
(f) For purposes of this Section 10, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(g) Notwithstanding the foregoing provisions of this Section 10, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rule and regulations thereunder with respect to the matters set
forth in this Section 10. Nothing in this Section 10 shall be deemed to affect
any rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
-6-
ARTICLE III
BOARD OF DIRECTORS
Section 1. Number and Qualification. The authorized number of
------------------------
directors that shall constitute the full Board of Directors of the Corporation
shall be fixed from time to time as provided in the Restated Certificate of
Incorporation. Directors need not be stockholders of the Corporation.
Section 2. Powers. The business and affairs of the Corporation shall
------
be carried on by or under the direction of the Board of Directors, which shall
have all the powers authorized by the laws of the State of Delaware, subject to
such limitations as may be provided by the Restated Certificate of Incorporation
or these By-Laws. Except as otherwise expressly provided herein or in the
Restated Certificate of Incorporation, the vote of the majority of directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
The Chairman of the Board, when present, shall preside at all meetings
of the stockholders and of the Board of Directors.
Section 3. Compensation. The Board of Directors may from time to
------------
time by resolution authorize the payment of fees or other compensation to the
directors for services as such to the Corporation, including, but not limited
to, fees for attendance at all meetings of the Board or of the executive or
other committees, and determine the amount of such fees and compensation.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor in amounts authorized or otherwise approved from time to time by the
Board.
Section 4. Meetings and Quorum. Meetings of the Board of Directors
-------------------
may be held either in or outside of the State of Delaware. At all meetings of
the Board, a majority of the then authorized number of directors shall
constitute a quorum. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
The first meeting of the Board of Directors after the election of a
new class of directors shall be held immediately after the annual meeting of
stockholders and at the same place, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at such time and place, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all the directors.
-7-
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board. Notice of special meetings shall be given to each director on 24 hours
notice to each director, either personally, by mail, telegram, facsimile,
personal delivery or similar means. Special meetings may be called by the
president or the Chairman of the Board of Directors and shall be called by the
president or secretary in the manner and on the notice set forth above upon the
written request of a majority of the total number of directors which the
Corporation would have if there were no vacancies.
Notice of any meeting shall state the time and place of such meeting,
but need not state the purposes thereof unless otherwise required by the laws of
the State of Delaware, the Restated Certificate of Incorporation, these By-Laws
or the Board of Directors.
Section 5. Executive Committee. The Board of Directors may designate
-------------------
an Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board in the management of the business and affairs of the
Corporation when the Board is not in session, including without limitation the
power to declare dividends and to authorize the issuance of the Corporation's
capital stock, and may, by resolution similarly adopted, designate one or more
other committees, including such committees specified in Section 6 of this
Article III. The Executive Committee shall consist of two or more directors of
the Corporation. The Board may designate one or more directors as alternate
members of the Executive Committee, who may replace any absent member at any
meeting of the Executive Committee. The members of the Executive Committee
present at any meeting, whether or not constituting a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of any
such absent member. The Executive Committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.
A majority of the Executive Committee may determine its action and fix
the time and place of its meetings, unless the Board shall otherwise provide.
Notice of such meetings shall be given to each member of the Executive Committee
in the manner provided for in Section 4 of this Article III. The Board shall
have power at any time to fill vacancies in, to change the membership of, or to
dissolve the Executive Committee.
Section 6. Other Committees.
----------------
(a) The Board may appoint the following standing committees, the
members of which shall serve at the pleasure of the Board: a Nominating
Committee, a Compensation Committee and an Audit Committee. The Board may
appoint such other committees among the directors of the Corporation as it deems
necessary and appropriate for the proper conduct of the Corporation's business
and
-8-
may appoint such officers, agents or employees of the Corporation to assist the
committees of the Board as it deems necessary and appropriate. Meetings of
committees may be called by the chairman of the committee on 24 hours notice to
each committee member, either personally, by mail, telegram, facsimile or
similar means and shall be called by the chairman of the committee in like
manner and on like notice on the written request of a committee member. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required.
(b) One or more directors of the Corporation shall be appointed to
act as a Nominating Committee. The Nominating Committee shall be responsible for
proposing to the Board nominees for election as directors and shall possess and
may exercise such additional powers and authority as may be delegated to it by
the Board from time to time. The Nominating Committee shall report its actions
to the Board at the next meeting of the Board following such actions. Vacancies
in the membership of the Nominating Committee shall be filled by the Board of
Directors.
(c) One or more directors of the Corporation shall be appointed to
act as a Compensation Committee, each of whom shall be directors who are not
also officers or employees of the Corporation or its subsidiaries or any other
individual having a relationship which, in the opinion of the Board of
Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director (each such director, an "Unaffiliated
Director"). The Compensation Committee shall be responsible for establishing
salaries, bonuses and other compensation for the executive officers of the
Corporation and for administering the Corporation's benefit plans, and shall
possess and may exercise such additional powers and authority as may be
delegated to it by the Board from time to time. The Compensation Committee shall
report its actions to the Board at the next meeting of the Board following such
actions. Vacancies in the membership of the Compensation Committee shall be
filled by the Board of Directors.
(d) One or more Unaffiliated Directors of the Corporation shall be
appointed to act as an Audit Committee. The Audit Committee shall have general
oversight responsibility with respect to the Corporation's financial reporting.
In performing its oversight responsibility, the Audit Committee shall make
recommendations to the Board of Directors as to the selection, retention, or
change in the independent accountants of the Corporation, review with the
independent accountants the scope of their examination and other matters
(relating to both audit and non-audit activities), and review generally the
internal auditing procedures of the Corporation. In undertaking the foregoing
responsibilities, the Audit Committee shall have unrestricted access, if
necessary, to personnel of the Corporation and documents and shall be provided
with the resources and assistance necessary to discharge its responsibilities,
including periodic reports from management assessing the impact of regulation,
accounting, and reporting of other significant matters that may affect the
Corporation. The Audit Committee shall
-9-
review the financial reporting and adequacy of internal controls of the
Corporation, consult with the internal auditors and certified public
accountants, and from time to time, but not less than annually, report to the
Board. Vacancies in the membership of the Audit Committee shall be filled by the
Board of Directors.
Section 7. Conference Telephone Meetings. Any one or more members of
-----------------------------
the Board of Directors or any committee thereof may participate in meetings by
means of a conference telephone or similar communications equipment and such
participation in a meeting shall constitute presence in person at the meeting.
Section 8. Action Without Meetings. Any action required or permitted
-----------------------
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken by unanimous written consent without a meeting to the extent and in
the manner authorized by the laws of the State of Delaware.
ARTICLE IV
OFFICERS
Section 1. Titles and Election. The officers of the Corporation
-------------------
shall be the president, a secretary and a treasurer, who shall initially be
elected as soon as convenient by the Board of Directors and thereafter, in the
absence of earlier resignations or removals, shall be elected at the first
meeting of the Board following the annual meeting of stockholders. Each officer
shall hold office at the pleasure of the Board except as may otherwise be
approved by the Board, or until such officer's earlier resignation, removal
under these By-Laws or other termination of employment. Any person may hold more
than one office if the duties can be consistently performed by the same person,
to the extent permitted by the laws of the State of Delaware.
The Board of Directors, in its discretion, may also at any time elect
or appoint a Chairman of the Board of Directors, who shall be a director, and
one or more vice presidents, assistant secretaries and assistant treasurers and
such other officers as it may deem advisable, each of whom shall hold office at
the pleasure of the Board, except as may otherwise be approved by the Board, or
until such officer's earlier resignation, removal or other termination of
employment, and shall have such authority and shall perform such duties as shall
be prescribed or determined from time to time by the Board or, if not so
prescribed or determined by the Board, as the chief executive officer or the
then senior executive officer may prescribe or determine. The Board of Directors
may require any officer or other employee or agent to give bond for the faithful
performance of duties in such form and with such sureties as the Board may
require.
Section 2. Duties. Subject to such extension, limitations, and other
------
provisions as the Board of Directors or these By-Laws may from time to time
-10-
prescribe or determine, the following officers shall have the following powers
and duties:
(a) President. The president shall be charged with general
---------
supervision of the management and policy of the Corporation, and shall have such
other powers and perform such other duties as the Board of Directors may
prescribe from time to time. The president shall be the chief executive officer
of the Corporation, shall exercise the powers and authority and perform all of
the duties commonly incident to such office and shall perform such other duties
as chief executive officer as the Board of Directors shall specify from time to
time. The president shall, in the absence at a meeting of stockholders of the
Corporation or of the Board, or because of the inability to act, of the Chairman
of the Board, perform all duties of the Chairman of the Board and preside at all
meetings of the stockholders and of the Board of Directors, if he is a director.
(b) Vice President. The vice president or vice presidents shall
--------------
perform such duties as may be assigned to them from time to time by the Board of
Directors or by the president if the Board does not do so. In the absence or
disability of the president, the vice presidents in order of seniority may,
unless otherwise determined by the Board, exercise the powers and perform the
duties pertaining to the office of president, except that if one or more
executive vice presidents has been elected or appointed, the person holding such
office in order of seniority shall exercise the powers and perform the duties of
the office of president.
(c) Secretary. The secretary, or in the secretary's absence, an
---------
assistant secretary shall keep the minutes of all meetings of stockholders and
of the Board of Directors, give and serve all notices, attend to such
correspondence as may be assigned to such officer, keep in safe custody the seal
of the Corporation, and affix such seal to all such instruments properly
executed as may require it, and shall have such other duties and powers as may
be prescribed or determined from time to time by the Board of Directors or by
the president if the Board does not do so.
(d) Treasurer. The treasurer, subject to the order of the Board of
---------
Directors, shall have the care and custody of the moneys, funds, valuable papers
and documents of the Corporation (other than such officer's own bond, if any,
which shall be in the custody of the president), and shall have, under the
supervision of the Board of Directors, all the powers and duties commonly
incident to such office. The treasurer shall deposit all funds of the
Corporation in such bank or banks, trust company or trust companies, or with
such firm or firms doing a banking business as may be designated by the Board of
Directors or by the president if the Board does not do so. The treasurer may
endorse for deposit or collection all checks, notes and similar instruments
payable to the Corporation or to its order. The treasurer shall keep accurate
books of account of the Corporation's transactions, which shall be the property
of the Corporation and, together with all of the property of the Corporation
-11-
in such officer's possession, shall be subject at all times to the inspection
and control of the Board of Directors. The treasurer shall be subject in every
way to the order of the Board of Directors, and shall render to the Board of
Directors and/or the president of the Corporation, whenever they may require it,
an account of all transactions and of the financial condition of the
Corporation. In addition to the foregoing, the treasurer shall have such duties
as may be prescribed or determined from time to time by the Board of Directors
or by the president if the Board does not do so.
(e) Delegation of Authority. The Board of Directors may at any time
------------------------
delegate the powers and duties of any officer for the time being to any other
officer, director or employee.
ARTICLE V
RESIGNATIONS AND VACANCIES
Section 1. Resignations. Any director or officer may resign at any
------------
time by giving written notice thereof to the Board of Directors, the president
or the secretary. Any such resignation shall take effect at the time specified
therein or, if the time be not specified, upon receipt thereof; and unless
otherwise specified therein, the acceptance of any resignation shall not be
necessary to make it effective.
Section 2. Vacancies.
---------
(a) Directors. Except for the rights of the holders of any series of
---------
preferred stock to elect additional directors, newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal, or other cause shall be filled only by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or in which the vacancy occurred and until such director's successor is
duly elected and has been qualified. The directors also may reduce the
authorized number of directors by the number of vacancies on the Board. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
(b) Officers. The Board of Directors may at any time or from time to
--------
time fill any vacancy among the officers of the Corporation.
-12-
ARTICLE VI
CAPITAL STOCK
Section 1. Certificate of Stock. Every stockholder shall be entitled
--------------------
to a certificate or certificates for shares of the capital stock of the
Corporation in such form as may be prescribed or authorized by the Board of
Directors, duly numbered and setting forth the number and kind of shares
represented thereby. Such certificates shall be signed by the Chairman of the
Board, the president or a vice president and by the treasurer or an assistant
treasurer or by the secretary or an assistant secretary. Any or all of such
signatures may be in facsimile if and to the extent authorized under the laws of
the State of Delaware.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before the certificate has been issued,
such certificate may nevertheless be issued and delivered by the Corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
Section 2. Transfer of Stock. Shares of the capital stock of the
-----------------
Corporation shall be transferable only upon the books of the Corporation upon
the surrender of the certificate or certificates properly assigned and endorsed
for transfer. If the Corporation has a transfer agent or agents or transfer
clerk and registrar of transfers acting on its behalf, the signature of any
officer or representative thereof may be in facsimile.
The Board of Directors may appoint a transfer agent and one or more
co-transfer agents and a registrar and one or more co-registrars of transfer and
may make or authorize the transfer agents to make all such rules and regulations
deemed expedient concerning the issue, transfer and registration of shares of
stock.
Section 3. Record Dates.
------------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix in advance a record date
which, in the case of a meeting, shall not be less than ten (10) nor more than
sixty (60) days prior to the scheduled date of such meeting and which, in the
case of any other action, shall be not more than the maximum or less than the
minimum number of days prior to any such action permitted by the laws of the
State of Delaware.
(b) If no such record date is fixed by the Board, the record date
shall be that prescribed by the laws of the State of Delaware.
-13-
(c) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 4. Lost Certificates. In case of loss or mutilation or
-----------------
destruction of a stock certificate, a duplicate certificate may be issued upon
such terms as may be determined or authorized by the Board of Directors or by
the president if the Board does not do so.
ARTICLE VII
FISCAL YEAR, BANK DEPOSITS, CHECK, ETC.
Section 1. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence or end at such time as the Board of Directors may designate.
Section 2. Bank Deposits, Checks, etc. The funds of the Corporation
--------------------------
shall be deposited in the name of the Corporation or of any division thereof in
such banks or trust companies in the United States or elsewhere as may be
designated from time to time by the Board of Directors, or by such officer or
officers as the Board may authorize to make such designations.
All checks, drafts or other orders for the withdrawal of funds from
any bank account shall be signed by such person or persons as may be designated
from time to time by the Board of Directors. The signatures on checks, drafts or
other orders for the withdrawal of funds may be in facsimile if authorized in
the designation.
ARTICLE VIII
BOOKS AND RECORDS
Section 1. Place of Keeping Books. Unless otherwise expressly
----------------------
required by the laws of the State of Delaware, the books and records of the
Corporation may be kept outside of the State of Delaware.
Section 2. Examination of Books. Except as may otherwise be provided
--------------------
by the laws of the State of Delaware, the Restated Certificate of Incorporation
or these By-Laws, the Board of Directors shall have power to determine from time
to time whether and to what extent and at what times and places and under what
conditions any of the accounts, records and books of the Corporation are to be
open to the inspection of any stockholder. No stockholder shall have any right
to inspect any account or book or document of the Corporation except as
prescribed by the laws of the State of Delaware or authorized by express
resolution of the Board of Directors.
-14-
ARTICLE IX
NOTICES
Section 1. Requirements of Notice. Whenever notice is required to be
----------------------
given by the laws of the State of Delaware, the Restated Certificate of
Incorporation or these By-Laws, it shall not mean personal notice unless so
specified, but such notice may be given in writing by depositing the same in a
post office, letter box, or mail chute postpaid and addressed to the person to
whom such notice is directed at the address of such person on the records of the
Corporation, and such notice shall be deemed given at the time when the same
shall be thus mailed.
Section 2. Waivers. Any stockholder, director or officer may, in
-------
writing or by telegram or cable, at any time waive any notice or other formality
required by statute, the Restated Certificate of Incorporation or these By-Laws.
Such waiver of notice, whether given before or after any meeting or action,
shall be deemed equivalent to notice. Presence of a stockholder either in
person or by proxy at any stockholders meeting and presence of any director at
any meeting of the Board of Directors shall constitute a waiver of such notice
as may be required by any statute, the Restated Certificate of Incorporation or
these By-Laws.
ARTICLE X
SEAL
The corporate seal of the Corporation shall consist of two concentric
circles between which shall be the name of the Corporation and the date of its
incorporation, and in the center of which shall be inscribed "Corporate Seal,
Delaware."
ARTICLE XI
POWERS OF ATTORNEY
The Board of Directors may authorize one or more of the officers of
the Corporation to execute powers of attorney delegating to named
representatives or agents power to represent or act on behalf of the
Corporation, with or without power of substitution.
In the absence of any action by the Board, the president, any vice
president, the secretary or the treasurer of the Corporation may execute for and
on behalf of the Corporation waivers of notice of stockholders meetings and
proxies for such meetings in any company in which the Corporation may hold
voting securities.
-15-
ARTICLE XII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Definitions. As used in this article, the term "person"
-----------
means any past, present or future director or officer of the Corporation or any
subsidiary or operating division thereof.
Section 2. Indemnification Granted. The Corporation shall indemnify,
-----------------------
to the full extent and under the circumstances permitted by the General
Corporation Law of the State of Delaware in effect from time to time, any person
as defined above, made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Corporation or a subsidiary or operating
division thereof, or is or was serving at the specific request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, against costs,
charges, expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person or on such
person's behalf in connection with such action, suit or proceeding and any
appeal therefrom, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his or her conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such conduct was unlawful.
Section 3. Requirements for Indemnification Relating to an Action or
---------------------------------------------------------
Suit by or in the Right of the Corporation. The Corporation shall indemnify any
- ------------------------------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director or officer of the Corporation, or a subsidiary
thereof or a designated officer of an operating division of the Corporation, or
is or was serving at the specific request of the Corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorneys' fees)
actually and reasonably incurred by such person or on such person's behalf in
connection with the defense or settlement of such action or suit and any appeal
therefrom, if such person acted in good faith and in a manner that such person
reasonably believed to be in or not opposed to the best interest of the
-16-
Corporation except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such costs, charges and expenses which the
Court of Chancery or such other court shall deem proper.
Section 4. Success on Merits of Any Action. Notwithstanding any
-------------------------------
other provision of this Article XII, to the extent that a director or officer of
the Corporation or any subsidiary or operating division thereof has been
successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in this Article XII, or in defense of any claim, issue or
matter therein, such person shall be indemnified against all costs, charges and
expenses (including attorneys' fees) actually and reasonably incurred by such
person or on such person's behalf in connection therewith.
Section 5. Determination of Standard of Conduct. Any indemnification
------------------------------------
under Sections 2 and 3 of this Article XII (unless ordered by a court) shall be
paid by the Corporation only after a determination has been made (1) by the
directors who were not parties to such action, suit or proceeding, or (2) if
such quorum is not obtainable, or even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders, that indemnification of the director or officer is proper
in the circumstances of the specific case because such person has met the
applicable standard of conduct set forth in Sections 2 and 3 of this Article
XII.
Section 6. Advance Payment; Representation by Corporation. Costs,
----------------------------------------------
charges and expenses (including attorneys' fees) incurred by a person referred
to in Sections 2 and 3 of this Article XII in defending a civil or criminal
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding; provided, however, that
the payment of such costs, charges and expenses incurred by a director or
officer in such capacity as officer or director (and not in any other capacity
and which service was or is rendered by such person while a director or officer)
in advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article XII. Such costs, charges and
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors deems appropriate. The
Corporation may, in the manner set forth above, and upon approval of such
director or officer, authorize the Corporation's counsel to represent such
person, in any
-17-
action, suit or proceeding, whether or not the Corporation is a party to such
action, suit or proceeding.
Section 7. Procedure for Obtaining Indemnity. Any indemnification
---------------------------------
under Sections 2, 3 and 4, or advance of costs, charges and expenses under
Section 6, of this Article XII shall be made promptly, and in any event within
sixty (60) days, of the written notice of the director or officer. The right to
indemnification or advances as granted by this Article XII shall be enforceable
by the director or officer in any court of competent jurisdiction if the
Corporation denies such request, in whole or in part, or if no disposition
thereof is made within sixty (60) days. Such person's costs and expenses
incurred in connection with successfully establishing a right to indemnification
or advancement of expenses, in whole or in part, in any action shall also be
indemnified by the Corporation. It shall be a defense to any such action (other
than an action brought to enforce a claim for the advance of costs, charges and
expenses under Section 6 of this Article XII where the required undertaking, if
any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Section 2 or 3 of this Article XII, but the
burden of proving such defense shall be on the Corporation. Neither failure of
the Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) to have made a determination that indemnification
of the claimant is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 2 or 3 of this Article XII,
nor the fact that there has been an actual determination by the Corporation
(including its directors, its independent legal counsel and its stockholders)
that the claimant has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the claimant has not met the
applicable standard of conduct.
Section 8. Indemnification Not Exclusive. This right of
-----------------------------
indemnification shall not be deemed exclusive of any other rights to which a
person indemnified herein may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise, and shall continue as to a
person who has ceased to be a director, officer, designated officer, employee or
agent and shall inure to the benefit of the heirs, executors, administrators and
other legal representatives of such person. It is not intended that the
provisions of this Article XII be applicable to, and they are not to be
construed as granting indemnity with respect to, matters as to which
indemnification would be in contravention of the laws of Delaware or of the
United States of America, whether as a matter of public policy or pursuant to
statutory provision.
Section 9. Invalidity of Certain Provisions. If this Article XII or
--------------------------------
any portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each director,
officer, employee and agent of the Corporation or any subsidiary or operating
division thereof as to costs, charges and expenses (including attorneys' fees),
-18-
judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including any action by or in the right of the Corporation, to the full extent
permitted by any applicable portion of this Article XII that shall not have been
invalidated and to the full extent permitted by applicable law.
Section 10. Miscellaneous. The Board of Directors may also on behalf
-------------
of the Corporation grant indemnification to any individual other than a person
defined herein to such extent and in such manner as the Board in its sole
discretion may from time to time and at any time determine.
ARTICLE XIII
AMENDMENTS
These By-Laws may be altered, amended or repealed, and new By-Laws may
be made, by the affirmative vote of a majority of the directors then in office.
-19-
EXHIBIT 10.3
TREX COMPANY, INC.
AMENDED AND RESTATED
1999 INCENTIVE PLAN
FOR OUTSIDE DIRECTORS
Amended and Restated as of
January 1, 2001
TABLE OF CONTENTS
Page
----
1. DEFINITIONS....................................................... 1
2. PURPOSE........................................................... 2
3. SHARES SUBJECT TO THE PLAN........................................ 2
4. ANNUAL DIRECTOR FEES.............................................. 2
4.1. General..................................................... 2
4.2. Form of Annual Fee.......................................... 3
4.3. Valuation of Options........................................ 3
5. GRANT DATE........................................................ 3
6. OPTION PRICE...................................................... 3
7. TERM OF OPTIONS................................................... 3
8. VESTING OF OPTIONS................................................ 3
9. SERVICE TERMINATION............................................... 4
10. RIGHTS IN THE EVENT OF DEATH OR DISABILITY........................ 4
10.1. Death...................................................... 4
10.2. Disability................................................. 4
11. ELECTION TO RECEIVE ADDITIONAL OPTIONS............................ 5
11.1. Election Form.............................................. 5
11.2. Time for Filing Election Form.............................. 5
11.3. Modification of the Election Form.......................... 5
12. ADMINISTRATION.................................................... 5
12.1. Committee.................................................. 5
12.2. Rules for Administration................................... 5
12.3. Committee Action........................................... 6
12.4. Delegation................................................. 6
12.5. Services................................................... 6
12.6. Indemnification............................................ 6
13. AMENDMENT AND TERMINATION......................................... 6
14. GENERAL PROVISIONS................................................ 6
14.1. Limitation of Rights....................................... 6
14.2. No Rights as Stockholders.................................. 7
14.3. Rights as a Non-Employee Director.......................... 7
14.4. Assignment, Pledge or Encumbrance.......................... 7
14.5. Binding Provisions......................................... 7
14.6. Notices.................................................... 7
14.7. Governing Law.............................................. 7
14.8. Withholding................................................ 7
14.9. Effective Date............................................. 8
i
1. DEFINITIONS
To the extent any capitalized words used in this Plan are not defined,
they shall have the definitions stated for them in the Trex Company, Inc. 1999
Stock Option and Incentive Plan
1.1 "Annual Director Fee" means an annual fee earned by an Eligible Director
-------------------
for service on the Board of Directors.
1.2 "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
1.3 "Committee" means the Administrative Committee which administers the Plan.
---------
1.4 "Common Stock" means the common stock, par value $0.01 per share, of the
------------
Company.
1.5 "Company" means Trex Company, Inc., a Delaware corporation, or any
-------
successor thereto.
1.6 "Election Form" means the form used by an Eligible Director to elect to
-------------
receive all or a portion of his Annual Director Fee for a Plan Year in the
form of Options.
1.7 "Eligible Director" for each Plan Year means a member of the Board of
-----------------
Directors who is not an employee of the Company or any Subsidiary.
1.8 "Fair Market Value" means the closing price of a share of Common Stock
-----------------
reported on the New York Stock Exchange (the "NYSE") on the date Fair
Market Value is being determined, provided that if there is no closing
price reported on such date, the Fair Market Value of a share of Common
Stock on such date shall be deemed equal to the closing price as reported
by the NYSE for the last preceding date on which sales of shares of Common
Stock were reported. Notwithstanding the foregoing, in the event that the
shares of Common Stock are listed upon more than one established stock
exchange, "Fair Market Value" means the closing price of the shares of
Common Stock reported on the exchange that trades the largest volume of
shares of Common Stock on the date Fair Market Value is being determined.
If the Common Stock is not at the time listed or admitted to trading on a
stock exchange, Fair Market Value means the mean between the lowest
reported bid price and highest reported asked price of the Common Stock on
the date in question in the over-the-counter market, as such prices are
reported in a publication of general circulation selected by the Board and
regularly reporting the market price of Common Stock in such market. If
the Common Stock is not listed or admitted to trading on any stock exchange
or traded in
-1-
the over-the-counter market, Fair Market Value shall be as determined in
good faith by the Board.
1.9 "Grant Date" has the meaning set forth in Section 5 hereof.
----------
1.10 "Option" means a non-qualified Option granted pursuant to the Trex Company,
------
Inc. 1999 Stock Option and Incentive Plan.
1.11 "Option Agreement" means the written agreement between the Company and the
----------------
Participant that evidences and sets out the terms and conditions of the
Option.
1.12 "Option Price" has the meaning set forth in Section 6 hereof.
------------
1.13 "Participant" for any Plan Year means an Eligible Director who participates
-----------
in the Plan for that Plan Year in accordance with Section 11.1 hereof.
1.14 "Plan" means the Trex Company, Inc. Amended and Restated 1999 Incentive
----
Plan for Outside Directors as set forth herein and as amended from time to
time.
1.15 "Plan Year" means each fiscal year of the Company.
---------
1.16 "Subsidiary" means any "subsidiary corporation" of the Company within the
----------
meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended.
2. PURPOSE
The purpose of the Plan is to provide an incentive for Eligible
Directors to increase their equity holdings in the Company so that the financial
interests of the Eligible Directors shall be more closely aligned with the
financial interests of the Company's stockholders.
3. SHARES SUBJECT TO THE PLAN
The shares of Common Stock issuable under the Plan shall be issued
pursuant to the Trex Company, Inc. 1999 Stock Option and Incentive Plan.
4. ANNUAL DIRECTOR FEES
4.1. General
Each Eligible Director shall be entitled to an Annual Director Fee
which is equal in value to forty thousand dollars ($40,000); provided, however,
-------- -------
that such Annual Director Fee may be adjusted by the Board. The Cash Portion of
the
2
Annual Director Fee as defined in Section 4.2 hereof (after reduction pursuant
to Section 4.2 hereof) shall be paid to an Eligible Director in four equal
quarterly installments in arrears on the first business day of each quarter of
the Plan Year in which the Eligible Director is providing services to the
Company.
4.2. Form of Annual Fee
The Annual Director Fee shall be paid in the form of: (i) an Option
representing fifty percent (50%) of the value of the Annual Director Fee and
(ii) cash representing fifty percent (50%) of the value of the Annual Director
Fee (the "Cash Portion of the Annual Director's Fee"); provided, however, that
-------- -------
pursuant to Section 11 hereof, the Eligible Director may elect to receive all or
a portion of the Cash Portion of the Annual Director's Fee in the form of an
Option of equal value.
4.3. Valuation of Options
The value of all Options to be issued under the Plan shall be
determined pursuant to the Black-Scholes stock option valuation model.
5. GRANT DATE
The date of grant for Options granted under the Plan (the "Grant
Date") shall be the first day of the Plan Year.
6. OPTION PRICE
The Option Price of the Common Stock covered by each Option granted
under the Plan shall be the Fair Market Value of such Common Stock on the Grant
Date.
7. TERM OF OPTIONS
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Common Stock thereunder shall cease, upon the expiration of
ten years from the date such Option is granted.
8. VESTING OF OPTIONS
The Eligible Director may exercise the Option at any time and from
time to time after the Grant Date and prior to termination of the Option in
installments as follows: on the first anniversary of the Grant Date, the Option
shall be exercisable in respect of twenty five percent (25%) of the number of
shares covered by the grant, and on each of the next three anniversaries of the
Grant Date, the Option shall be exercisable in respect of an additional twenty
five percent (25%) of the number of shares covered by the grant. Any limitation
on the exercise of an Option contained in any Option Agreement may be rescinded,
modified or waived by the Committee, in its sole discretion, at any time and
from time to time after the
3
date of grant of such Option. The foregoing installments, to the extent not
exercised, shall accumulate and be exercisable, in whole or in part, at any time
and from time to time, after becoming exercisable and prior to the termination
of the Option; provided, that no single exercise of the Option shall be for less
--------
than 100 shares, unless the number of shares purchased is the total number at
the time available for purchase under the Option.
9. SERVICE TERMINATION
Except as otherwise provided in the Option Agreement, upon the
termination of service (a "Service Termination") of the Participant as a
director of the Company, other than by reason of the death or permanent and
total disability of such Participant, any Option granted to a Participant
pursuant to the Plan shall terminate to the extent unvested and the vested
portion of the Option shall terminate ninety (90) days after such Service
Termination, and such Participant shall have no further right to purchase shares
of Common Stock pursuant to such Option.
10. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
10.1. Death
If a Participant dies while in service as a director of the Company,
the executors or administrators or legatees or distributees of such
Participant's estate shall have the right at any time within one year after the
date of such Participant's death and prior to termination of the Option pursuant
to Section 7 hereof, to exercise any Option held by such Participant at the date
of such Participant's death whether or not such Option was exercisable
immediately prior to such Optionee's death.
10.2. Disability
If there is a Service Termination by reason of the permanent and total
disability of the Participant, then such Participant shall have the right at any
time within one year after such Service Termination and prior to termination of
the Option pursuant to Section 7 hereof, to exercise, in whole or in part, any
Option held by such Participant at the date of such Service Termination whether
or not such Option was exercisable immediately prior to such Optionee's Service
Termination. Whether a Service Termination is to be considered by reason of
permanent and total disability for purposes of this Plan shall be determined by
the Committee, which determination shall be final and conclusive.
4
11. ELECTION TO RECEIVE ADDITIONAL OPTIONS
11.1. Election Form
A Participant who wishes to receive all or part of the Cash Portion of
the Annual Director Fee in the form of Options shall file an Election Form with
the Company, in the form and manner prescribed by the Committee. Filing of a
completed Election Form will authorize the Company to issue Options to the
Participant in lieu of all or part of the Cash Portion of the Annual Director
Fee, in accordance with the Participant's instructions on the Election Form.
Options issued pursuant to an election made under this Section 11 shall vest in
accordance with the schedule set forth in Section 8 hereof.
11.2. Time for Filing Election Form
An Election Form shall be completed and filed by each newly elected
Eligible Director within thirty (30) days after the Participant's election to
the Board, and elections under the Plan made by newly elected Eligible Directors
shall apply to the Participant's Annual Director Fee for the remainder of the
Plan Year. Continuing Directors shall complete an Election Form prior to the
last day of the Plan Year for an Annual Director Fee earned in the next
succeeding Plan Year.
11.3. Modification of the Election Form
An election made by an Eligible Director pursuant to Section 111
hereof shall be irrevocable for the Plan Year for which such election is made.
12. ADMINISTRATION
12.1. Committee
The general administration of the Plan and the responsibility for
carrying out its provisions shall be placed in an Administrative Committee. The
Committee shall consist of at least two members appointed from time to time by
the Board of Directors to serve at the pleasure thereof. The initial
Administrative Committee shall consist of the President and the Chief Financial
Officer of the Company. Any member of the Committee may resign by delivering a
written resignation to the Company, and may be removed at any time by action of
the Board of Directors.
12.2. Rules for Administration
Subject to the limitations of the Plan, the Committee may from time to
time establish such rules and procedures for the administration and
interpretation of the Plan and the transaction of its business as the Committee
may deem necessary or appropriate. The determination of the Committee as to any
disputed
5
question relating to the administration and interpretation of the Plan shall be
conclusive.
12.3. Committee Action
Any act which the Plan authorizes or requires the Committee to do may
be done by a majority of its members. The action of such majority, expressed
from time to time by a vote at a meeting (i) in person, (ii) by telephone or
other means by which all members can hear one another or (iii) in writing
without a meeting shall constitute the action of the Committee and shall have
the same effect for all purposes as if assented to by all members of the
Committee at the time in office.
12.4. Delegation
The members of the Committee may authorize one or more of their number
to execute or deliver any instrument, make any payment or perform any other act
which the Plan authorizes or requires the Committee to do.
12.5. Services
The Committee may employ or retain agents to perform such clerical,
accounting and other services as it may require in carrying out the provisions
of the Plan.
12.6. Indemnification
The Company shall indemnify and save harmless each member of the
Committee against all expenses and liabilities arising out of membership on the
Committee, other than expenses and liabilities arising from the such member's
own gross negligence or willful misconduct, as determined by the Board of
Directors.
13. AMENDMENT AND TERMINATION
The Company, by action of the Board of Directors or the Administrative
Committee, may at any time or from time to time modify or amend any or all of
the provisions of the Plan, or may at any time terminate the Plan. No such
action shall adversely affect the accrued rights of any Participant hereunder
without the Participant's consent thereto.
14. GENERAL PROVISIONS
14.1. Limitation of Rights
No Participant shall have any right to any payment or benefit
hereunder except to the extent provided in the Plan.
6
14.2 No Rights as Stockholders
Nothing contained in this Plan shall be construed as giving any
Participant rights as a stockholder of the Company.
14.3. Rights as a Non-Employee Director
Nothing contained in this Plan shall be construed as giving any
Participant a right to be retained as a non-employee director of the Company.
14.4. Assignment, Pledge or Encumbrance
No assignment, pledge or other encumbrance of any payments or benefits
under the Plan shall be permitted or recognized and, to the extent permitted by
law, no such payments or benefits shall be subject to legal process or
attachment for the payment of any claim of any person entitled to receive the
same, except to the extent such assignment, pledge or other encumbrance is in
favor of the Company to secure a loan or other extension of credit from the
Company to the Participant.
14.5. Binding Provisions
The provisions of this Plan shall be binding upon each Participant as
a consequence of the Participant's election to participate in the Plan, upon the
Company, upon the Participant's heirs, executors and administrators and upon the
successors and assigns of the Participant and the Company.
14.6. Notices
Any election made or notice given by a Participant pursuant to the
Plan shall be in writing to the Committee or to such representative thereof as
may be designated by the Committee for such purpose and shall be deemed to have
been made or given on the date received by the Committee or its representative.
14.7. Governing Law
The validity and interpretation of the Plan and of any of its
provisions shall be construed under the laws of the State of Delaware without
giving effect to the choice of law provisions thereof.
14.8. Withholding
The Company shall have the right to deduct from the amounts
distributable hereunder any federal, state or local taxes required by law to be
withheld with respect to such distributions, and such additional amounts of
withholding as are reasonably requested by the Participant.
7
14.9. Effective Date
This Plan shall be effective as of March 12, 1999.
8
Exhibit 10.14
FINANCING AGREEMENT
Dated
January 31, 2001
By and Between
TREX COMPANY, LLC,
Borrower
And
BANK OF AMERICA, N. A.,
Lender
TABLE OF CONTENTS
-----------------
ARTICLE I DEFINITIONS 1
Section 1.1 Certain Defined Terms. 1
Section 1.2 Accounting Terms and Other Definitional Provisions. 10
ARTICLE II THE CREDIT FACILITIES 10
Section 2.1 The Revolving Credit Facility. 10
2.1.1 Revolving Credit Facility. 10
2.1.2 Procedure for Making Advances Under the Revolving Loan; Lender Protection Loans. 11
2.1.3 Revolving Credit Note. 11
2.1.4 Optional Prepayments of Revolving Loan. 11
2.1.5 Revolving Loan Account. 11
Section 2.2 General Financing Provisions. 12
2.2.1 Borrower's Representatives. 12
2.2.2 Use of Proceeds of the Loan. 12
2.2.3 Origination Fee. 12
2.2.4 Computation of Interest and Fees. 12
2.2.5 Payments. 13
2.2.6 Setoff. 13
2.2.7 Requirements of Law. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES 14
Section 3.1 Representations and Warranties. 14
3.1.1 Subsidiaries. 14
3.1.2 Good Standing. 14
3.1.3 Power and Authority. 14
3.1.4 Binding Agreements. 14
3.1.5 No Conflicts. 14
3.1.6 No Defaults, Violations. 15
3.1.7 Compliance with Laws. 15
3.1.8 Margin Stock. 15
3.1.9 Investment Company Act; Margin Securities. 15
3.1.10 Litigation. 16
3.1.11 Financial Condition. 16
3.1.12 Full Disclosure. 16
3.1.13 Indebtedness for Borrowed Money. 16
3.1.14 Taxes. 16
3.1.15 ERISA. 17
3.1.16 Title to Properties. 17
3.1.17 Employee Relations. 17
3.1.18 Presence of Hazardous Materials or Hazardous Materials Contamination. 18
3.1.19 Intellectual Property. 18
Section 3.2 Survival; Updates of Representations and Warranties. 18
ARTICLE IV CONDITIONS PRECEDENT 19
Section 4.1 Conditions to the Initial Advance. 19
4.1.1 Organizational Documents - Borrower. 19
4.1.2 Organizational Documents - Corporate Guarantor. 19
4.1.3 Consents, Licenses, Approvals, Etc. 20
4.1.4 Note. 20
4.1.5 Financing Documents. 20
4.1.6 Other Financing Documents. 20
i
4.1.7 Other Documents, Etc. 20
4.1.8 Payment of Fees. 20
4.1.9 Information Sheet. 21
4.1.10 Insurance Certificate. 21
Section 4.2 Conditions to all Extensions of Credit. 21
4.2.1 Compliance. 21
4.2.2 Default. 21
4.2.3 Representations and Warranties. 21
4.2.4 Adverse Change. 21
ARTICLE V COVENANTS OF THE BORROWER 21
Section 5.1 Affirmative Covenants. 21
5.1.1 Financial Statements. 22
5.1.2 Reports to SEC and to Stockholders. 23
5.1.3 Recordkeeping, Rights of Inspection, Field Examination, Etc. 23
5.1.4 Existence. 23
5.1.5 Compliance with Laws. 24
5.1.6 Preservation of Properties. 24
5.1.7 Line of Business. 24
5.1.8 Insurance. 24
5.1.9 Taxes. 24
5.1.10 ERISA. 25
5.1.11 Notification of Events of Default and Adverse Developments. 25
5.1.12 Hazardous Materials; Contamination. 26
5.1.13 Financial Covenants. 26
Section 5.2 Negative Covenants. 27
5.2.1 Capital Structure, Merger, Acquisition or Sale of Assets. 27
5.2.2 Acquisitions. 27
5.2.3 Purchase or Redemption of Securities, Dividend Restrictions. 27
5.2.4 Indebtedness. 28
5.2.5 Investments, Loans and Other Transactions. 28
5.2.6 Operating Lease Obligations. 29
5.2.7 Stock of Subsidiaries. 29
5.2.8 Subordinated Indebtedness. 29
5.2.9 Liens. 30
5.2.10 Transactions with Affiliates. 30
5.2.11 Other Businesses. 30
5.2.12 ERISA Compliance. 30
5.2.13 Prohibition on Hazardous Materials. 30
5.2.14 Amendments. 30
5.2.15 Method of Accounting; Fiscal Year. 31
ARTICLE VI DEFAULT AND RIGHTS AND REMEDIES 31
Section 6.1 Events of Default. 31
6.1.1 Failure to Pay. 31
6.1.2 Breach of Representations and Warranties. 31
6.1.3 Failure to Comply with Covenants. 31
6.1.4 Default Under Other Financing Documents or Obligations. 31
6.1.5 Receiver; Bankruptcy. 32
6.1.6 Involuntary Bankruptcy, etc. 32
6.1.7 Judgment. 32
6.1.8 Default Under Other Borrowings. 32
6.1.9 Challenge to Agreements. 33
6.1.10 Material Adverse Change. 33
6.1.11 Impairment of Position. 33
ii
6.1.12 Liquidation, Termination, Dissolution, etc. 33
6.1.13 Default under First Union Credit Agreement. 33
6.1.14 Default under other Indebtedness owed to Lender. 33
6.1.15 Change of Control. 33
Section 6.2 Remedies. 33
6.2.1 Acceleration. 33
6.2.2 Further Advances. 34
6.2.3 Performance by Lender. 34
6.2.4 Other Remedies. 34
ARTICLE VII MISCELLANEOUS 35
Section 7.1 Notices. 35
Section 7.2 Amendments; Waivers. 35
Section 7.3 Cumulative Remedies. 35
Section 7.4 Severability. 36
Section 7.5 Assignments by Lender. 36
Section 7.6 Participations by Lender. 36
Section 7.7 Disclosure of Information by Lender. 37
Section 7.8 Successors and Assigns. 37
Section 7.9 Continuing Agreements. 37
Section 7.10 Enforcement Costs. 37
Section 7.11 Applicable Law; Jurisdiction. 38
7.11.1 Applicable Law. 38
7.11.2 Submission to Jurisdiction. 38
Section 7.12 Duplicate Originals and Counterparts. 38
Section 7.13 Headings. 38
Section 7.14 No Agency. 38
Section 7.15 Date of Payment. 39
Section 7.16 Entire Agreement. 39
Section 7.17 Waiver of Trial by Jury. 39
Section 7.18 Indemnification. 39
Section 7.19 Termination of Agreement. 40
LIST OF SCHEDULES 42
iii
FINANCING AGREEMENT
-------------------
THIS FINANCING AGREEMENT (this "Agreement") is made this 31st day of
January, 2001, by and between TREX COMPANY, LLC, a limited liability company
organized under the laws of the State of Delaware (the "Borrower"); and BANK OF
AMERICA, N. A., a national banking association (the "Lender").
RECITALS
--------
A. The Borrower has applied to the Lender for a revolving credit
facility in the maximum principal amount of $15,000,000 to be used by the
Borrower for the Permitted Uses described in this Agreement.
B. The Lender is willing to make those credit facilities available to
the Borrower upon the terms and subject to the conditions set forth in this
Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Certain Defined Terms.
----------------------
As used in this Agreement, the terms defined in the Preamble and Recitals
hereto shall have the respective meanings specified therein, and the following
terms shall have the following meanings:
"Account" individually and "Accounts" collectively mean all presently
existing or hereafter acquired or created accounts, accounts receivable,
contract rights, notes, drafts, instruments, acceptances, chattel paper, leases
and writings evidencing a monetary obligation or a security interest in, or a
lease of, goods, all rights to receive the payment of money or other
consideration under present or future contracts (including, without limitation,
all rights to receive payments under presently existing or hereafter acquired or
created letters of credit), or by virtue of merchandise sold or leased, services
rendered, loans and advances made or other considerations given, by or set forth
in or arising out of any present or future chattel paper, note, draft, lease,
acceptance, writing, bond, insurance policy (including, without limitation, the
right to receive refunds of unearned insurance premiums), instrument, document
or general intangible, and all extensions and renewals of any thereof, all
rights under or arising out of present or future contracts, agreements or
general interest in merchandise which gave rise to any or all of the foregoing,
including all goods, all claims or causes of action now existing or hereafter
arising in connection with or under any agreement or document or by operation of
law or otherwise, all collateral security of any kind (including, without
limitation, real property mortgages and deeds of trust) and letters of credit
given by any Person with respect to any of the foregoing, all books and records
in whatever media (paper, electronic or otherwise) recorded or stored, with
respect to any or all of the foregoing and all equipment and general intangibles
necessary or beneficial to
retain, access and/or process the information contained in those books and
records, and all proceeds (cash and non-cash) of the foregoing.
"Acquisition," by any Person (herein called the "Acquiror"), means any
transaction involving the purchase, lease or other acquisition by such Acquiror
of any or all of the capital stock or assets of another Person that, for
purposes of preparing a statement of cash flows for such Acquiror prepared in
accordance with GAAP, would be considered "investing activity".
"Affiliate" means, with respect to any designated Person, any other Person,
(a) directly or indirectly controlling, directly or indirectly controlled by, or
under direct or indirect common control with the Person designated, (b) directly
or indirectly owning or holding five percent (5%) or more of any equity interest
in such designated Person, or (c) five percent (5%) or more of whose stock or
other equity interest is directly or indirectly owned or held by such designated
Person. For purposes of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities or other equity interests or by
contract or otherwise.
"Agreement" means this Financing Agreement, as amended, restated,
supplemented or otherwise modified in writing in accordance with the provisions
of Section 7.2 (Amendments; Waivers).
"Assets" means at any date all assets that, in accordance with GAAP
consistently applied, should be classified as assets on a consolidated balance
sheet of the Borrower and its Subsidiaries.
"Assignee" means any Person to which the Lender assigns all or any portion
of its interests under this Agreement, any Commitment, and any Loan, in
accordance with the provisions of Section 7.5 (Assignments by Lender), together
with any and all successors and assigns of such Person; "Assignees" means the
collective reference to all Assignees.
"Bankruptcy Code" means Title 11 of the United States Code, as amended from
time to time, and any successor Laws.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the State are authorized or required to close.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditure" means an expenditure (whether payable in cash or
other property or accrued as a liability) for Fixed or Capital Assets,
including, without limitation, the entering into of a Capital Lease.
2
"Capital Lease" means with respect to any Person any lease of real or
personal property, for which the related Lease Obligations have been or should
be, in accordance with GAAP consistently applied, capitalized on the balance
sheet of that Person.
"Cash Equivalents" means (a) securities with maturities of one year or less
from the date of acquisition issued or fully guaranteed or insured by the United
States Government or any agency thereof, (b) certificates of deposit with
maturities of one (1) year or less from the date of acquisition of, or money
market accounts maintained with, the Lender, any Affiliate of the Lender, or any
other domestic commercial bank having capital and surplus in excess of One
Hundred Million Dollars ($100,000,000.00) or such other domestic financial
institutions or domestic brokerage houses to the extent disclosed to, and
approved by, the Lender and (c) commercial paper of a domestic issuer rated at
least either A-1 by Standard & Poor's Corporation (or its successor) or P-1 by
Moody's Investors Service, Inc. (or its successor) with maturities of six (6)
months or less from the date of acquisition.
"Change of Control" means any event or any event or condition, a result of
which is that (i) Anthony J. Cavanna, Roger A. Wittenberg, Robert G. Matheny and
Andrew U. Ferrari cease, as a group, to own beneficially 25% of the voting
common stock of Corporate Guarantor; or (ii) Corporate Guarantor ceases to own
beneficially less than all of the membership interests in the Borrower.
"Closing Date" means the Business Day, in any event not later than _____,
2001, on which the Lender shall be satisfied that the conditions precedent set
forth in Section 4.1 (Conditions to Initial Advance) have been fulfilled or
otherwise waived by the Lender.
"Commitment" the Lender's Revolving Credit Commitment.
"Committed Amount" means the Lender's Revolving Loan Committed Amount.
"Compliance Certificate" means a periodic Compliance Certificate described
in Section 5.1.1 (Financial Statements).
"Commonly Controlled Entity" means an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of Section
414(b) or (c) of the Internal Revenue Code.
"Consolidated EBITDA" means, for any period, the sum of (a) Consolidated
Net Income for such period plus (b) an amount which, in the determination of
Consolidated Net Income for such period, has been deducted for (i) interest
expense, (ii) total federal, state, local and foreign income, value added and
similar taxes and (iii) depreciation and amortization expense.
"Consolidated Net Income" means, for any period, net income after taxes for
such period of the Borrower and its consolidated Subsidiaries.
"Consolidated Net Worth" means, as of the date of determination, the total
assets of the Borrower and its Subsidiaries which would be shown as assets on a
consolidated balance sheet of the Borrower and its Subsidiaries as of such time
prepared in accordance with GAAP, after eliminating all amounts properly
attributable to minority interests, if any, in the stock and surplus
3
of Subsidiaries, minus the total liabilities of the Borrower and its
-----
Subsidiaries which would be shown as liabilities on a consolidated balance sheet
of the Borrower and its Subsidiaries as of such time prepared in accordance with
GAAP.
"Corporate Guarantor" means Trex Company, Inc., a corporation organized and
existing under the laws of the State of Delaware and its successors and assigns.
"Corporate Guaranty" means that certain guaranty of payment for the benefit
of the Lender dated the date hereof to the Lender from the Corporate Guarantor,
as the same may from time to time be amended, restated, supplemented or
otherwise modified.
"Credit Facility" means the Revolving Credit Facility and "Credit
Facilities" means collectively the Revolving Credit Facility and any and all
other credit facilities now or hereafter extended under or secured by this
Agreement.
"Default" means an event which, with the giving of notice or lapse of time,
or both, could or would constitute an Event of Default under the provisions of
this Agreement.
"Enforcement Costs" means all reasonable expenses, charges, costs and fees
whatsoever (including, without limitation, reasonable outside and allocated in-
house counsel attorney's fees and expenses) of any nature whatsoever paid or
incurred by or on behalf of the Lender in connection with (a) any or all of the
Obligations, this Agreement and/or any of the other Financing Documents, (b) the
creation, collection, maintenance, preservation, defense, protection,
realization upon, this Agreement or any of the other Financing Documents, and
(c) the monitoring, administration, processing and/or servicing of any or all of
the Obligations and/or the Financing Documents.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" has the meaning described in ARTICLE VI (Default and
Rights and Remedies).
"Facilities" means the collective reference to the loan, letter of credit,
interest rate protection, foreign exchange risk, cash management, and other
credit facilities now or hereafter provided to the Borrower by the Lender under
this Agreement.
"Fees" means the collective reference to each fee payable to the Lender
under the terms of this Agreement or under the terms of any of the other
Financing Documents.
"Financing Documents" means at any time collectively this Agreement, the
Note and any other instrument, agreement or document previously, simultaneously
or hereafter executed and delivered by the Borrower and/or any other Person,
singly or jointly with another Person or Persons, evidencing, securing,
guarantying or in connection with this Agreement, any Note, any of the
Facilities, and/or any of the Obligations.
"First Union Credit Agreement" has the meaning described in Section 5.2.14
(Amendments).
4
"Fixed or Capital Assets" of a Person at any date means all assets which
would, in accordance with GAAP consistently applied, be classified on the
balance sheet of such Person as property, plant or equipment at such date.
"GAAP" means generally accepted accounting principles in the United States
of America in effect from time to time.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any department, agency or instrumentality thereof.
"Hazardous Materials" means (a) any "hazardous waste" as defined by the
Resource Conservation and Recovery Act of 1976, as amended from time to time,
and regulations promulgated thereunder; (b) any "hazardous substance" as defined
by the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder;
(c) any substance the presence of which on any property now or hereafter owned,
acquired or operated by the Borrower is prohibited by any Law similar to those
set forth in this definition; and (d) any other substance which by Law requires
special handling in its collection, storage, treatment or disposal.
"Hazardous Materials Contamination" means the contamination (whether
presently existing or occurring after the date of this Agreement) by Hazardous
Materials of any property owned, operated or controlled by the Borrower or for
which the Borrower has responsibility, including, without limitation,
improvements, facilities, soil, ground water, air or other elements on, or of,
any property now or hereafter owned, acquired or operated by the Borrower, and
any other contamination by Hazardous Materials for which the Borrower is, or is
claimed to be, responsible.
"Hedge Transaction" means any transaction between the Borrower and Lender
or any affiliate of Lender now existing or hereafter entered into, which
provides for an interest rate or commodity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross-currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Borrower's exposure to fluctuations in
interest rates, currency valuations or commodity prices.
"Indebtedness" of a Person means at any date the total liabilities of such
Person at such time determined in accordance with GAAP consistently applied.
"Indebtedness for Borrowed Money" of a Person means at any time the sum at
such time of (a) Indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) Lease
Obligations of such Person with respect to Capital Leases, (d) all liabilities
secured by any Lien on any property owned by such Person, to the extent attached
to such Person's interest in such property, even though such Person has not
assumed or become personally liable for the payment thereof, (e) obligations of
third parties which are being guarantied or indemnified against by such Person
or which are secured by the property of such Person; (f) any obligation of
5
such Person under an employee stock ownership plan or other similar employee
benefit plan; (g) any obligation of such Person or a Commonly Controlled Entity
to a Multi-employer Plan; and (h) any obligations, liabilities or indebtedness,
contingent or otherwise, under or in connection with, any Hedge Transaction; but
excluding trade and other accounts payable in the ordinary course of business in
accordance with customary trade terms and which are not overdue (as determined
in accordance with customary trade practices) or which are being disputed in
good faith by such Person and for which adequate reserves are being provided on
the books of such Person in accordance with GAAP.
"Indemnified Parties" has the meaning set forth in Section 7.18
(Indemnification).
"Information Sheet" has the meaning described in 4.1.9 (Information Sheet).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the Income Tax Regulations issued and proposed to be
issued thereunder.
"Inventory" means all inventory of the Borrower and all right, title and
interest of the Borrower in and to all of its now owned and hereafter acquired
goods, merchandise and other personal property furnished under any contract of
service or intended for sale or lease, including, without limitation, all raw
materials, work-in-process, finished goods and materials and supplies of any
kind, nature or description which are used or consumed in the Borrower's
business or are or might be used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise and other
licenses, warranties, franchises, general intangibles, personal property and all
documents of title or documents relating to the same and all proceeds (cash and
non-cash) of the foregoing.
"Investment" means any investment in any Person, whether by means of share
purchase, capital contribution, loan, time deposit or otherwise
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs, or decrees of any Governmental Authority.
"Lease Obligations" of a Person means for any period the rental commitments
of such Person for such period under leases for real and/or personal property
(net of rent from subleases thereof, but including taxes, insurance, maintenance
and similar expenses which such Person, as the lessee, is obligated to pay under
the terms of said leases, except to the extent that such taxes, insurance,
maintenance and similar expenses are payable by sublessees), including rental
commitments under Capital Leases.
"Liabilities" means at any date all liabilities that in accordance with
GAAP consistently applied should be classified as liabilities on a consolidated
balance sheet of the Borrower and its Subsidiaries.
"Lien" means any mortgage, deed of trust, deed to secure debt, grant,
pledge, security interest, assignment, encumbrance, judgment, lien, financing
statement, hypothecation, provision in any instrument or other document for
confession of judgment, cognovit or other similar right or other remedy, claim,
charge, control over or interest of any kind in real or personal property
securing any indebtedness, duties, obligations, and liabilities owed to, or a
claimed to be owed
6
to, a Person, all whether perfected or unperfected, avoidable or unavoidable,
based on the common law, statute or contract or otherwise, including, without
limitation, any conditional sale or other title retention agreement, any lease
in the nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction, excluding the
precautionary filing of any financing statement by any lessor in a true lease
transaction, by any bailor in a true bailment transaction or by any consignor in
a true consignment transaction under the Uniform Commercial Code of any
jurisdiction or the agreement to give any financing statement by any lessee in a
true lease transaction, by any bailee in a true bailment transaction or by any
consignee in a true consignment transaction.
"Loan" means each of the Revolving Loan.
"Loan Notice" has the meaning described in Section 2.1.2 (Procedure for
Making Advances).
"Multi-employer Plan" means a Plan that is a Multi-employer plan as defined
in Section 4001(a)(3) of ERISA.
"Note" means any Revolving Credit Note and "Notes" means collectively each
Revolving Credit Note and any other promissory note which may from time to time
evidence all or any portion of the Obligations.
"Obligations" means all present and future indebtedness, duties,
obligations, and liabilities, whether now existing or contemplated or hereafter
arising, of the Borrower to the Lender under, arising pursuant to, in connection
with and/or on account of the provisions of this Agreement, each Note, each
Security Document, and/or any of the other Financing Documents, the Loan, any
Hedge Transaction and/or any of the Facilities including, without limitation,
the principal of, and interest on, each Note, late charges, the Fees,
Enforcement Costs, and prepayment fees (if any), letter of credit reimbursement
obligations, letter of credit fees or fees charged with respect to any guaranty
of any letter of credit; also means all other present and future indebtedness,
duties, obligations, and liabilities, whether now existing or contemplated or
hereafter arising, of the Borrower to the Lender or its Affiliates of any nature
whatsoever, regardless of whether such indebtedness, duties, obligations, and
liabilities be direct, indirect, primary, secondary, joint, several, joint and
several, fixed or contingent; and also means any and all renewals, extensions,
substitutions, amendments, restatements and rearrangements of any such
indebtedness, duties, obligations, and liabilities.
"Origination Fee" has the meaning described in Section 2.2.3 (Origination
Fee).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means: (a) Liens for Taxes which are not delinquent or
which the Lender has determined in the exercise of its sole and absolute
discretion (i) are being diligently contested in good faith and by appropriate
proceedings, and such contest operates to suspend collection of the contested
Taxes and enforcement of a Lien, (ii) the Borrower has the financial ability to
pay, with all penalties and interest, at all times without materially and
adversely affecting the Borrower, and (iii) are not, and will not be with
appropriate filing, the giving of notice and/or the passage of time, entitled to
priority over any Lien of the Lender; (b) deposits or
7
pledges to secure obligations under workers' compensation, social security or
similar laws, or under unemployment insurance in the ordinary course of
business; (c) judgment Liens to the extent the entry of such judgment does not
constitute a Default or an Event of Default under the terms of this Agreement
and (d) Liens on real property or equipment securing Indebtedness for Borrowed
Money for the purchase or refinance of such real property or equipment.
"Permitted Uses " means the payment of expenses incurred in the ordinary
course of the Borrower's business and other lawful corporate purposes.
"Person" means and includes an individual, a corporation, a partnership, a
joint venture, a limited liability company or partnership, a trust, an
unincorporated association, a Governmental Authority, or any other organization
or entity.
"Plan" means any pension plan that is covered by Title IV of ERISA and in
respect of which the Borrower or a Commonly Controlled Entity is an "employer"
as defined in Section 3 of ERISA.
"Post-Default Rate" means the Prime Rate in effect from time to time, plus
three percent (3%) per annum.
"Prepayment" means a Revolving Loan Optional Prepayment and "Prepayments"
means collectively all Revolving Loan Optional Prepayments.
"Prime Rate" means the rate of interest publicly announced from time to
time by the Lender as its prime rate. It is a rate set by the Lender based upon
various factors including the Lender's costs and desired return, general
economic conditions, and other factors, and is used as a reference point for
pricing some loans. However, the Lender may price loans at, above, or below
such announced rate. Any changes in the Prime Rate shall take effect on the day
specified in the public announcement of such change.
"Reportable Event" means any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder.
"Responsible Officer" means for the Borrower, its chief executive officer
or president or, with respect to financial matters, its chief financial officer.
"Revolving Credit Commitment" means the agreement of the Lender relating to
the making the Revolving Loan and advances thereunder subject to and in
accordance with the provisions of this Agreement.
"Revolving Credit Commitment Period" means the period of time from the
Closing Date to the Business Day preceding the Revolving Credit Termination
Date.
"Revolving Credit Committed Amount" has the meaning described in Section
2.1.1 (Revolving Credit Facility).
"Revolving Credit Expiration Date" means April 30, 2001.
8
"Revolving Credit Facility" means the facility established by the Lender
pursuant to Section 2.1 (Revolving Credit Facility).
"Revolving Credit Note" has the meaning described in Section 2.1.3
(Revolving Credit Notes).
"Revolving Credit Termination Date" means the earlier of (a) the Revolving
Credit Expiration Date, or (b) the date on which the Revolving Credit Commitment
is terminated pursuant to Section 6.2 (Remedies) or otherwise.
"Revolving Loan" has the meaning described in Section 2.1.1 (Revolving
Credit Facility).
"Revolving Loan Account" has the meaning described in Section 2.1.5
(Revolving Loan Account).
"Revolving Loan Optional Prepayment" and "Revolving Loan Optional
Prepayments" have the meanings described in Section 2.1.4 (Optional Prepayment
of Revolving Loan).
"Security Documents" means collectively any assignment, pledge agreement,
security agreement, mortgage, deed of trust, deed to secure debt, financing
statement and any similar instrument, document or agreement under or pursuant to
which a Lien is now or hereafter granted to, or for the benefit of, the Lender
on any real or personal property of any Person to secure all or any portion of
the Obligations, all as the same may from time to time be amended, restated,
supplemented or otherwise modified.
"State" means the Commonwealth of Virginia.
"Subordinated Indebtedness" means all Indebtedness incurred at any time by
the Borrower, which is in amounts, subject to repayment terms, and subordinated
to the Obligations, as set forth in one or more written agreements, all in form
and substance satisfactory to the Lender in its sole and absolute discretion.
"Subsidiary" means any corporation the majority of the voting shares of
which at the time are owned directly by the Borrower and/or by one or more
Subsidiaries of the Borrower.
"Taxes" means all taxes and assessments whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, of every character
(including all penalties or interest thereon), which at any time may be
assessed, levied, confirmed or imposed by any Governmental Authority on the
Borrower or any of its or their properties or assets or any part thereof or in
respect of any of its or their franchises, businesses, income or profits.
"Total Consolidated Debt" means, as of the date of determination, the total
of all Debt of the Borrower and its Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between the Borrower and its
Subsidiaries and all other items required to be eliminated in the course of the
preparation of consolidated financial statements of the Borrower and its
Subsidiaries in accordance with GAAP.
9
"Total Consolidated Capitalization" means, as of any date of determination
with respect to the Borrower, the sum of Total Consolidated Debt and
Consolidated Net Worth.
"Uniform Commercial Code" means, unless otherwise provided in this
Agreement, the Uniform Commercial Code as adopted by and in effect from time to
time in the State or in any other jurisdiction, as applicable.
"Wholly Owned Subsidiary" means any domestic United States corporation all
the shares of stock of all classes of which (other than directors' qualifying
shares) at the time are owned directly or indirectly by a Borrower and/or by one
or more Wholly Owned Subsidiaries of a Borrower.
Section 1.2 Accounting Terms and Other Definitional Provisions.
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Unless otherwise defined herein, as used in this Agreement and in any
certificate, report or other document made or delivered pursuant hereto,
accounting terms not otherwise defined herein, and accounting terms only partly
defined herein, to the extent not defined, shall have the respective meanings
given to them under GAAP, as consistently applied to the applicable Person. All
terms used herein which are defined by the Uniform Commercial Code shall have
the same meanings as assigned to them by the Uniform Commercial Code unless and
to the extent varied by this Agreement. The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, subsection, schedule and exhibit references are
references to articles, sections or subsections of, or schedules or exhibits to,
as the case may be, this Agreement unless otherwise specified. As used herein,
the singular number shall include the plural, the plural the singular and the
use of the masculine, feminine or neuter gender shall include all genders, as
the context may require. Reference to any one or more of the Financing
Documents shall mean the same as the foregoing may from time to time be amended,
restated, substituted, extended, renewed, supplemented or otherwise modified.
ARTICLE II
THE CREDIT FACILITIES
---------------------
Section 2.1 The Revolving Credit Facility.
------------------------------
2.1.1 Revolving Credit Facility.
--------------------------
Subject to and upon the provisions of this Agreement, the
Lender agrees to establish a revolving credit facility in favor of the Borrower.
The aggregate of all advances under the Revolving Credit Facility is sometimes
referred to in this Agreement collectively as the "Revolving Loan".
The principal amount of Fifteen Million Dollars ($15,000,000)
is the "Revolving Credit Committed Amount".
During the Revolving Credit Commitment Period, the Borrower
may request advances under the Revolving Credit Facility in accordance with the
provisions of this Agreement.
10
2.1.2 Procedure for Making Advances Under the Revolving Loan;
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Lender Protection Loans.
------------------------
The Borrower may borrow under the Revolving Credit Facility on
any Business Day. Advances under the Revolving Loan shall be deposited to a
demand deposit account of the Borrower with the Lender or shall be otherwise
applied as directed by the Borrower, which direction the Lender may require to
be in writing. Not later than 10:00 a.m. (Eastern Time) on the date of the
requested borrowing, the Borrower shall give the Lender oral or written notice
(a "Loan Notice") of the amount and (if requested by the Lender) the purpose of
the requested borrowing. Any oral Loan Notice shall be confirmed in writing by
the Borrower within three (3) Business Days after the making of the requested
advance under the Revolving Loan. Each Loan Notice shall be irrevocable.
In addition, the Borrower hereby irrevocably authorizes the
Lender at any time and from time to time, without further request from or notice
to the Borrower, to make advances under the Revolving Loan which the Lender, in
its sole and absolute discretion, deems necessary or appropriate to protect the
interests of the Lender.
2.1.3 Revolving Credit Note.
----------------------
The obligation of the Borrower to pay the Revolving Loan, with
interest, shall be evidenced by a promissory note (as from time to time
extended, amended, restated, supplemented or otherwise modified, the "Revolving
Credit Note") substantially in the form of EXHIBIT A attached hereto and made a
---------
part hereof, with appropriate insertions. The Revolving Credit Note shall be
dated as of the Closing Date, shall be payable to the order of the Lender at the
times provided in the Revolving Credit Note, and shall be in the principal
amount of the Revolving Credit Committed Amount. The Borrower acknowledges and
agrees that, if the outstanding principal balance of the Revolving Loan
outstanding from time to time exceeds the face amount of the Revolving Credit
Note, the excess shall bear interest at the rates provided from time to time for
advances under the Revolving Loan evidenced by the Revolving Credit Note and
shall be payable, with accrued interest, ON DEMAND. The Revolving Credit Note
shall not operate as a novation of any of the Obligations or nullify, discharge,
or release any such Obligations or the continuing contractual relationship of
the parties hereto in accordance with the provisions of this Agreement.
2.1.4 Optional Prepayments of Revolving Loan.
---------------------------------------
The Borrower shall have the option at any time and from time
to time to prepay (each a "Revolving Loan Optional Prepayment" and collectively
the "Revolving Loan Optional Prepayments") the Revolving Loan, in whole or in
part without premium or penalty.
2.1.5 Revolving Loan Account.
-----------------------
The Lender will establish and maintain a loan account on its
books (the "Revolving Loan Account") to which the Lender will (a) debit (i)
-----
the principal amount of each advance under the Revolving Loan made by the Lender
hereunder as of the date made, (ii) the amount of any interest accrued on the
Revolving Loan as and when due, and (iii) any other amounts due and payable by
the Borrower to the Lender from time to time under the provisions of this
Agreement in connection with the Revolving Loan, including, without limitation,
Enforcement Costs, Fees, late charges, and service, collection and audit fees,
as and when due
11
and payable, and (b) credit all payments made by the Borrower to the Lender on
------
account of the Revolving Loan as of the date made. The Lender may debit the
Revolving Loan Account for the amount of any payment that is returned to the
Lender unpaid. All credit entries to the Revolving Loan Account are conditional
and shall be readjusted as of the date made if final and indefeasible payment is
not received by the Lender in cash or solvent credits. The Borrower hereby
promises to pay to the order of the Lender, ON DEMAND, an amount equal to the
excess, if any, of all debit entries over all credit entries recorded in the
Revolving Loan Account under the provisions of this Agreement. Any and all
periodic or other statements or reconciliations, and the information contained
in those statements or reconciliations, of the Revolving Loan Account shall be
presumed conclusively to be correct, and shall constitute an account stated
between the Lender and the Borrower unless the Lender receives specific written
objection thereto from the Borrower within thirty (30) Business Days after such
statement or reconciliation shall have been sent by the Lender.
Section 2.2 General Financing Provisions.
-----------------------------
2.2.1 Borrower's Representatives.
---------------------------
The Lender is hereby irrevocably authorized by the Borrower to
make advances under the Loan to the Borrower pursuant to the provisions of this
Agreement upon the written, oral or telephone request of any one of the Persons
who is from time to time a Responsible Officer of the Borrower under the
provisions of the most recent "Certificate" of corporate resolutions of the
Borrower on file with the Lender or who is an officer or employee of the
Borrower whom a Responsible Officer from time to time authorizes in writing to
do so. The Lender does not and shall not assume any responsibility or liability
for any errors, mistakes, and/or discrepancies in the oral, telephonic, written
or other transmissions of any instructions, orders, requests and confirmations
between the Lender and the Borrower in connection with the Credit Facility, any
advance of the Loan or any other transaction in connection with the provisions
of this Agreement other than errors, mistakes and/or discrepancies due to the
Lender's gross negligence or willful misconduct.
2.2.2 Use of Proceeds of the Loan.
----------------------------
The proceeds of each advance under the Loan shall be used by
the Borrower for Permitted Uses, and for no other purposes except as may
otherwise be agreed by the Lender in writing. The Borrower shall use the
proceeds of the Loan promptly.
2.2.3 Origination Fee.
----------------
The Borrower shall pay to the Lender a loan origination fee
(the "Origination Fee") in the amount of Thirty Five Thousand Dollars ($35,000),
which fee has been fully earned and is non-refundable and shall be payable as
follows: on or before the Closing Date, the sum of $10,000 and on or before June
30, 2001, if the Borrower has not entered into a syndicated credit facility in
which the Lender is a co-agent or the sole agent, the sum of $25,000. The
obligation to pay the Origination Fee in its entirety shall survive the
repayment of the Loan.
2.2.4 Computation of Interest and Fees.
---------------------------------
All applicable Fees and interest shall be calculated on the
basis of a year of 360 days for the actual number of days elapsed. Any change in
the interest rate on any of the
12
Obligations resulting from a change in the Prime Rate shall become effective as
of the opening of business on the day on which such change in the Prime Rate is
announced.
2.2.5 Payments.
---------
All payments of the Obligations, including, without
limitation, principal, interest, Prepayments, and Fees, shall be paid by the
Borrower without setoff or counterclaim to the Lender (except as otherwise
provided herein) at the Lender's office specified in Section 7.1 (Notices) in
immediately available funds not later than noon (Eastern Time) on the due date
of such payment. All payments received by the Lender after such time shall be
deemed to have been received by the Lender for purposes of computing interest
and Fees and otherwise as of the next Business Day. Payments shall not be
considered received by the Lender until such payments are paid to the Lender in
immediately available funds.
2.2.6 Setoff.
-------
Without implying any limitation on any other rights the Lender
may have under the Financing Documents or applicable Laws, during the
continuance of an Event of Default, the Lender is hereby authorized by the
Borrower at any time and from time to time, without notice to the Borrower, to
set off, appropriate and apply any or all monies, securities, and other property
of the Borrower and the proceeds thereof, now or hereafter held or received by
or in transit to, the Lender, and/or any Affiliate of the Lender, from or for
the Borrower, and also any and all deposit accounts (general or special) and
credits of the Borrower, if any, with the Lender or any Affiliate of the Lender,
at any time existing, excluding any deposit accounts held by the Borrower in
their capacity as trustee for Persons who are not Affiliates of the Borrower
against all Obligations then outstanding (whether or not then due), all in such
order and manner as shall be determined by the Lender in its sole and absolute
discretion.
2.2.7 Requirements of Law.
--------------------
In the event that the Lender shall have determined in good
faith that (a) the adoption of any Capital Adequacy Regulation, or (b) any
change in any Capital Adequacy Regulation or application thereof or (c)
compliance by the Lender or any corporation controlling the Lender with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or Governmental Authority, does or shall have the
effect of reducing the rate of return on the capital of the Lender or any
corporation controlling the Lender, as a consequence of the obligations of the
Lender hereunder to a level below that which the Lender or any corporation
controlling the Lender would have achieved but for such adoption, change or
compliance (taking into consideration the policies of the Lender and the
corporation controlling the Lender, with respect to capital adequacy) by an
amount deemed by the Lender to be material, then from time to time, after
submission by the Lender to the Borrower of a written request therefor and a
statement of the basis for such determination, the Borrower shall pay to the
Lender such additional amount or amounts in order to compensate for such
reduction.
13
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.1 Representations and Warranties.
-------------------------------
The Borrower represents and warrants to the Lender, as follows:
3.1.1 Subsidiaries.
-------------
The Borrower has the Subsidiaries listed on the Information
Sheet attached hereto as EXHIBIT B and made a part hereof and no others. Each
---------
of the Subsidiaries is a Wholly Owned Subsidiary except as shown on the
Information Sheet, which correctly indicates the nature and amount of the
Borrower's ownership interests therein.
3.1.2 Good Standing.
--------------
The Borrower and each of its Subsidiaries (a) is duly
organized, existing and in good standing under the laws of the jurisdiction of
its formation, (b) has the power to own its property and to carry on its
business as now being conducted, and (c) is duly qualified to do business and is
in good standing in each jurisdiction in which the character of the properties
owned by it therein or in which the transaction of its business makes such
qualification necessary.
3.1.3 Power and Authority.
--------------------
The Borrower has full power and authority to execute and
deliver this Agreement, and the other Financing Documents to which it is a
party, to make the borrowings under this Agreement and to incur and perform the
Obligations whether under this Agreement, the other Financing Documents or
otherwise, all of which have been duly authorized by all proper and necessary
corporate action. No consent or approval of shareholders or any creditors of the
Borrower, and no consent, approval, filing or registration with or notice to any
Governmental Authority on the part of the Borrower, is required as a condition
to the execution, delivery, validity or enforceability of this Agreement, or any
of the other Financing Documents, the performance by the Borrower of the
Obligations.
3.1.4 Binding Agreements.
-------------------
This Agreement and the other Financing Documents executed and
delivered by the Borrower have been properly executed and delivered and
constitute the valid and legally binding obligations of the Borrower and are
fully enforceable against the Borrower in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties, and general principles of equity regardless of whether applied
in a proceeding in equity or at law.
3.1.5 No Conflicts.
-------------
Neither the execution, delivery and performance of the terms
of this Agreement or of any of the other Financing Documents executed and
delivered by the Borrower nor the consummation of the transactions contemplated
by this Agreement will conflict with,
14
violate or be prevented by (a) the Borrower's organizational documents, (b) any
existing mortgage, indenture, contract or agreement binding on the Borrower or
affecting its property, or (c) any Laws.
3.1.6 No Defaults, Violations.
------------------------
(a) No Default or Event of Default has occurred and is
continuing.
(b) Neither the Borrower nor any of its Subsidiaries is
in default beyond any applicable grace or cure period under or with respect to
any obligation under any existing mortgage, indenture, contract or agreement
binding on it or affecting its property in any respect which could be materially
adverse to the business, operations, property or financial condition of the
Borrower, or which could materially adversely affect the ability of the Borrower
to perform its obligations under this Agreement or the other Financing
Documents, to which the Borrower is a party.
3.1.7 Compliance with Laws.
---------------------
To the best of the Borrower's knowledge, information and
belief, neither the Borrower nor any of its Subsidiaries is in violation of any
applicable Laws (including, without limitation, any Laws relating to employment
practices, to environmental, occupational and health standards and controls) or
order, writ, injunction, decree or demand of any court, arbitrator, or any
Governmental Authority affecting the Borrower or any of its properties, the
violation of which, considered in the aggregate, could materially adversely
affect the business, operations or properties of the Borrower and/or its
Subsidiaries.
3.1.8 Margin Stock.
-------------
None of the proceeds of the Loan will be used, directly or
indirectly, by the Borrower or any Subsidiary for the purpose of purchasing or
carrying, or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry, any "margin stock" within the meaning
of Regulation U (12 CFR Part 221), of the Board of Governors of the Federal
Reserve System or for any other purpose which might make the transactions
contemplated in this Agreement a "purpose credit" within the meaning of
Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes.
3.1.9 Investment Company Act; Margin Securities.
------------------------------------------
Neither the Borrower nor any of its Subsidiaries is an
investment company within the meaning of the Investment Company Act of 1940, as
amended, nor is it, directly or indirectly, controlled by or acting on behalf of
any Person which is an investment company within the meaning of said Act.
Neither the Borrower nor any of its Subsidiaries is engaged principally, or as
one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U (12 CFR Part 221), of the Board of Governors of the Federal Reserve
System.
15
3.1.10 Litigation.
-----------
Except as otherwise disclosed on Schedule 3.1.10 attached
---------------
hereto and made a part hereof, there are no proceedings, actions or
investigations pending or, so far as the Borrower knows, threatened before or by
any court, arbitrator or any Governmental Authority which, in any one case or in
the aggregate, if determined adversely to the interests of the Borrower or any
Subsidiary, would have a material adverse effect on the business, properties,
condition (financial or otherwise) or operations, present or prospective, of the
Borrower.
3.1.11 Financial Condition.
--------------------
The consolidated financial statements of the Borrower dated
September 30, 2000, are complete and correct and fairly present the financial
position of the Borrower and its Subsidiaries and the results of their
operations and transactions in their surplus accounts as of the date and for the
period referred to and have been prepared in accordance with GAAP applied on a
consistent basis throughout the period involved. There are no liabilities,
direct or indirect, fixed or contingent, of the Borrower or any Subsidiary as of
the date of such financial statements that are not reflected therein or in the
notes thereto. There has been no adverse change in the financial condition or
operations of the Borrower or any Subsidiary since the date of such financial
statements and to the Borrower's knowledge no such adverse change is pending or
threatened. Neither the Borrower nor any Subsidiary has guaranteed the
obligations of, or made any investment in or advances to, any Person, except as
disclosed in such financial statements.
3.1.12 Full Disclosure.
----------------
The financial statements referred to in Section 3.1.11
(Financial Condition) of this Agreement, the Financing Documents (including,
without limitation, this Agreement), and the statements, reports or certificates
furnished by the Borrower in connection with the Financing Documents (a) do not
contain any untrue statement of a material fact and (b) when taken in their
entirety, do not omit any material fact necessary to make the statements
contained therein not misleading. There is no fact known to the Borrower which
the Borrower has not disclosed to the Lender in writing prior to the date of
this Agreement with respect to the transactions contemplated by the Financing
Documents which materially and adversely affects or in the future could, in the
reasonable opinion of the Borrower, materially adversely affect the condition,
financial or otherwise, results of operations, business, or assets of the
Borrower or of any Subsidiary.
3.1.13 Indebtedness for Borrowed Money.
--------------------------------
Except for the Obligations and except as set forth in Schedule
--------
3.1.13 attached hereto and made a part hereof, the Borrower has no Indebtedness
- ------
for Borrowed Money. The Lender has received photocopies of all promissory notes
evidencing any Indebtedness for Borrowed Money set forth in Schedule 3.1.13,
---------------
together with any and all subordination agreements, other agreements, documents,
or instruments securing, evidencing, guarantying or otherwise executed and
delivered in connection therewith.
3.1.14 Taxes.
------
The Borrower and its Subsidiaries has filed all returns,
reports and forms for Taxes which, to the knowledge of the Borrower, are
required to be filed, and has paid all
16
Taxes as shown on such returns or on any assessment received by it, to the
extent that such Taxes have become due, unless and to the extent only that such
Taxes, assessments and governmental charges are currently contested in good
faith and by appropriate proceedings by a Borrower, such Taxes are not the
subject of any Liens other than Permitted Liens, and adequate reserves therefor
have been established as required under GAAP. All tax liabilities of the
Borrower were as of the date of audited financial statements referred to in
Section 3.1.11 (Financial Condition), and are now, adequately provided for on
the books of the Borrower and its Subsidiaries, as appropriate. No tax liability
has been asserted by the Internal Revenue Service or any state or local
authority against the Borrower for Taxes in excess of those already paid.
3.1.15 ERISA.
------
With respect to any Plan that is maintained or contributed to
by the Borrower and/or by any Commonly Controlled Entity or as to which the
Borrower retains material liability: (a) no "accumulated funding deficiency" as
defined in Code (S)412 or ERISA (S)302 has occurred, whether or not that
accumulated funding deficiency has been waived; (b) no Reportable Event has
occurred other than events for which reporting has been waived or that are
unlikely to result in material liability for the Borrower; (c) no termination of
any plan subject to Title IV of ERISA has occurred; (d) neither the Borrower nor
any Commonly Controlled Entity has incurred a "complete withdrawal" within the
meaning of ERISA (S)4203 from any Multi-employer Plan that is likely to result
in material liability for one or more of the Borrower; (e) neither the Borrower
nor any Commonly Controlled Entity has incurred a "partial withdrawal" within
the meaning of ERISA (S)4205 with respect to any Multi-employer Plan that is
likely to result in material liability for one or more of the Borrower; (f) no
Multi-employer Plan to which the Borrower or any Commonly Controlled Entity has
an obligation to contribute is to the knowledge of the Borrower, in
"reorganization" within the meaning of ERISA (S)4241 nor has notice been
received by the Borrower or any Commonly Controlled Entity that such a Multi-
employer Plan will be placed in "reorganization."
3.1.16 Title to Properties.
--------------------
The Borrower has good and marketable title to all of its
properties, including, without limitation, the properties and assets reflected
in the balance sheets described in Section 3.1.11 (Financial Condition). The
Borrower has legal, enforceable and uncontested rights to use freely such
property and assets.
3.1.17 Employee Relations.
-------------------
Except as disclosed on Schedule 3.1.17 attached hereto and
---------------
made a part hereof, (a) no Borrower nor any Subsidiary thereof nor any of the
Borrower's or Subsidiary's employees is subject to any collective bargaining
agreement, (b) no petition for certification or union election is pending with
respect to the employees of the Borrower or any Subsidiary and no union or
collective bargaining unit has sought such certification or recognition with
respect to the employees of a Borrower, (c) there are no strikes, slowdowns,
work stoppages or controversies pending or, to the best knowledge of the
Borrower after due inquiry, threatened between the Borrower and its employees,
and (d) no Borrower nor any Subsidiaries is subject to an employment contract,
severance agreement, commission contract, consulting agreement or bonus
agreement. Hours worked and payments made to the employees of the Borrower has
not been in violation of the Fair Labor Standards Act or any other applicable
law dealing with such
17
matters. All payments due from the Borrower or for which any claim may be made
against a Borrower, on account of wages and employee and retiree health and
welfare insurance and other benefits have been paid or accrued as a liability on
its books. The consummation of the transactions contemplated by the Financing
Agreement or any of the other Financing Documents, will not give rise to a right
of termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower is a party or by which it
is bound.
3.1.18 Presence of Hazardous Materials or Hazardous
--------------------------------------------
Materials Contamination.
------------------------
To the best of Borrower's knowledge, (a) no Hazardous
Materials are located on any real property owned, controlled or operated by of
the Borrower or for which the Borrower is, or is claimed to be, responsible,
except for reasonable quantities of necessary supplies for use by a Borrower in
the ordinary course of its current line of business and stored, used and
disposed in accordance with applicable Laws; and (b) no property owned,
controlled or operated by the Borrower or for which the Borrower has, or is
claimed to have, responsibility has ever been used as a manufacturing, storage,
or dump site for Hazardous Materials nor is affected by Hazardous Materials
Contamination at any other property.
3.1.19 Intellectual Property.
----------------------
The Borrower and its Subsidiaries owns or possesses or holds
under valid non-cancelable licenses all patents, trademarks, service marks,
trade names, copyrights, licenses and other intellectual property rights that
are necessary for the operation of its properties and businesses, and neither
the Borrower nor any of its Subsidiaries is in violation of any provision
thereof. The Borrower and its Subsidiaries conduct their business without
infringement or claim of infringement of any material license, patent,
trademark, trade name, service mark, copyright, trade secret or any other
intellectual property right of others and there is no infringement or claim of
infringement by others of any material license, patent, trademark, trade name,
service mark, copyright, trade secret or other intellectual property right of
the Borrower and its Subsidiaries.
Section 3.2 Survival; Updates of Representations and Warranties.
----------------------------------------------------
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Loan and extension of
credit made hereunder, and the incurring of any other Obligations and shall be
deemed to have been made at the time of each request for, and again at the time
of the making of, each advance under the Loan, except that the representations
and warranties which relate to the financial statements which are referred to in
Section 3.1.11 (Financial Condition), shall also be deemed to cover financial
statements furnished from time to time to the Lender pursuant to Section 5.1.1
(Financial Statements).
18
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
Section 4.1 Conditions to the Initial Advance.
----------------------------------
The making of the initial advance under the Loan is subject to the
fulfillment on or before the Closing Date of the following conditions precedent
in a manner satisfactory in form and substance to the Lender and its counsel:
4.1.1 Organizational Documents - Borrower.
------------------------------------
The Lender shall have received for the Borrower:
(a) a certificate of good standing certified by the
Secretary of State, or other appropriate Governmental Authority, of the
state of formation of the Borrower;
(b) a certificate of qualification to do business for
the Borrower certified by the Secretary of State or other Governmental
Authority of each state in which the Borrower conducts business;
(c) a certificate dated as of the Closing Date by the
Secretary or an Assistant Secretary of the Borrower covering:
(i) true and complete copies of the Borrower's
organizational documents, and all amendments thereto;
(ii) true and complete copies of the resolutions
of its Board of Directors authorizing (A) the execution, delivery and
performance of the Financing Documents to which it is a party, (B) the
borrowings hereunder, and (C) the granting of the Liens contemplated by
this Agreement and the Financing Documents to which the Borrower is a
party;
(iii) the incumbency, authority and signatures of
the officers of the Borrower authorized to sign this Agreement and the
other Financing Documents to which the Borrower is a party; and
4.1.2 Organizational Documents - Corporate Guarantor.
-----------------------------------------------
The Lender shall have received for the Corporate Guarantor:
(a) a certificate of good standing certified by the
Secretary of State, or other appropriate Governmental Authority, of the
state of formation of the Corporate Guarantor;
(b) a certificate of qualification to do business for
the Corporate Guarantor certified by the Secretary of State or other
Governmental Authority of each state in which the Corporate Guarantor
conducts business;
19
(c) a certificate dated as of the Closing Date by the
Secretary or an Assistant Secretary of the Corporate Guarantor covering:
(i) true and complete copies of that Corporate
Guarantor's organizational documents, and all amendments thereto;
(ii) true and complete copies of the resolutions
of its Board of Directors authorizing (A) the execution, delivery and
performance of the Financing Documents to which it is a party and (B) the
borrowings hereunder; and
(iii) the incumbency, authority and signatures of
the officers of the Borrower authorized to sign this Agreement and the
other Financing Documents to which the Borrower is a party.
4.1.3 Consents, Licenses, Approvals, Etc.
-----------------------------------
The Lender shall have received copies of all consents,
licenses and approvals, required in connection with the execution, delivery,
performance, validity and enforceability of the Financing Documents, and such
consents, licenses and approvals shall be in full force and effect.
4.1.4 Note.
-----
The Lender shall have received the Revolving Credit Note
conforming to the requirements hereof and executed by a Responsible Officer of
the Borrower and attested by a duly authorized representative of the Borrower.
4.1.5 Financing Documents.
--------------------
The Borrower shall have executed and delivered the Financing
Documents to be executed by it.
4.1.6 Other Financing Documents.
--------------------------
In addition to the Financing Documents to be delivered by the
Borrower, the Lender shall have received the Financing Documents duly executed
and delivered by Persons other than the Borrower.
4.1.7 Other Documents, Etc.
---------------------
The Lender shall have received such other certificates,
opinions, documents and instruments confirmatory of or otherwise relating to the
transactions contemplated hereby as may have been reasonably requested by the
Lender.
4.1.8 Payment of Fees.
----------------
The Lender shall have received payment of any Fees due on or
before the Closing Date.
20
4.1.9 Information Sheet.
------------------
The Borrower shall have delivered the Information Sheet
attached hereto as EXHIBIT B and made a part hereof (the "Information Sheet")
---------
duly executed by a Responsible Officer of the Borrower.
4.1.10 Insurance Certificate.
----------------------
The Lender shall have received an insurance certificate in
accordance with the provisions of Section 5.1.8 (Insurance).
Section 4.2 Conditions to all Extensions of Credit.
---------------------------------------
The making of all advances under the Loan is subject to the fulfillment of
the following conditions precedent in a manner satisfactory in form and
substance to the Lender and its counsel:
4.2.1 Compliance.
-----------
The Borrower shall have complied and shall then be in
compliance with all terms, covenants, conditions and provisions of this
Agreement and the other Financing Documents that are binding upon it.
4.2.2 Default.
--------
There shall exist no Event of Default or Default hereunder.
4.2.3 Representations and Warranties.
-------------------------------
The representations and warranties of the Borrower contained
among the provisions of this Agreement shall be true and with the same effect as
though such representations and warranties had been made at the time of the
making of, and of the request for, each advance under the Loan, except that the
representations and warranties which relate to financial statements which are
referred to in Section 3.1.11 (Financial Condition), shall also be deemed to
cover financial statements furnished from time to time to the Lender pursuant to
Section 5.1.1 (Financial Statements).
4.2.4 Adverse Change.
---------------
No adverse change shall have occurred in the condition
(financial or otherwise), operations or business of the Borrower that would, in
the good faith judgment of the Lender, materially impair the ability of that
Borrower to pay or perform any of the Obligations.
ARTICLE V
COVENANTS OF THE BORROWER
-------------------------
Section 5.1 Affirmative Covenants.
----------------------
So long as any of the Obligations (or the Commitment therefor) shall be
outstanding hereunder, the Borrower agrees with the Lender as follows:
21
5.1.1 Financial Statements.
---------------------
The Borrower shall furnish to the Lender:
(a) Annual Statements and Certificates. The Borrower
----------------------------------
shall furnish to the Lender as soon as available, but in no event more than
ninety (90) days after the close of the Borrower's fiscal years, (i) a copy of
the annual financial statement in reasonable detail satisfactory to the Lender
relating to the Borrower and its Subsidiaries, prepared in accordance with GAAP
and examined and certified by independent certified public accountants
satisfactory to the Lender, which financial statement shall include a
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and consolidated and
consolidating statements of income, cash flows and changes in shareholders
equity of the Borrower and its Subsidiaries for such fiscal year, and (ii) a
Compliance Certificate, in substantially the form attached to this Agreement
as EXHIBIT C, containing a detailed computation of each financial covenant
---------
in this Agreement which is applicable for the period reported, a certification
that no change has occurred to the information contained in the Information
Sheet (except as set forth in any schedule attached to the certification), and a
cash flow projection report, each prepared by a Responsible Officer of the
Borrower in a format acceptable to the Lender and (iii) a management letter in
the form prepared by the Borrower's independent certified public accountants.
(b) Annual Opinion of Accountant. The Borrower shall
----------------------------
furnish to the Lender as soon as available, but in no event more than ninety
(90) days after the close of the Borrower's fiscal years, a letter or opinion of
the accountant who examined and certified the annual financial statement
relating to the Borrower and its Subsidiaries (i) stating whether anything in
such accountant's examination has revealed the occurrence of a Default or an
Event of Default hereunder, and, if so, stating the facts with respect thereto
and (ii) acknowledging that the Lender will rely on the statement and that the
Borrower knows of the intended reliance by the Lender.
(c) Quarterly Statements and Certificates. The Borrower
-------------------------------------
shall furnish to the Lender as soon as available, but in no event more than
thirty (30) days after the close of the Borrower's fiscal quarters, consolidated
and consolidating balance sheets of the Borrower and its Subsidiaries as of the
close of such period, consolidated and consolidating income, cash flows and
changes in shareholders equity statements for such period, projected cash flow
on a month to month basis and projected income statements, and a Compliance
Certificate, in substantially the form attached to this Agreement as EXHIBIT B,
containing a detailed computation of each financial covenant which is applicable
for the period reported, a certification that no change has occurred to the
information contained in the Collateral Disclosure List (except as set forth on
any schedule attached to the certification), and a cash flow projection report,
each prepared by a Responsible Officer of the Borrower in a format acceptable to
the Lender, all as prepared and certified by a Responsible Officer of the
Borrower and accompanied by a certificate of that officer stating whether any
event has occurred which constitutes a Default or an Event of Default hereunder,
and, if so, stating the facts with respect thereto.
22
(d) Additional Reports and Information. The Borrower
----------------------------------
shall furnish to the Lender promptly, such additional information, reports or
statements as the Lender may from time to time reasonably request.
5.1.2 Reports to SEC and to Stockholders.
-----------------------------------
The Borrower will furnish to the Lender, promptly upon the
filing or making thereof, at least one (1) copy of all financial statements,
reports, notices and proxy statements sent by the Borrower to its stockholders,
and of all regular and other reports filed by the Borrower with any securities
exchange or with the Securities and Exchange Commission.
5.1.3 Recordkeeping, Rights of Inspection, Field Examination,
-------------------------------------------------------
Etc.
----
(a) The Borrower shall, and shall cause each of its
Subsidiaries to, maintain (i) a standard system of accounting in accordance with
GAAP, and (ii) proper books of record and account in which full, true and
correct entries are made of all dealings and transactions in relation to its
properties, business and activities.
(b) The Borrower shall, and shall cause each of its
Subsidiaries to, permit authorized representatives of the Lender to visit and
inspect the properties of the Borrower and its Subsidiaries, to review, audit,
check and inspect the Borrower's books of record at any time with or without
notice and to make abstracts and photocopies thereof, and to discuss the
affairs, finances and accounts of the Borrower and its Subsidiaries, with the
officers, directors, employees and other representatives of the Borrower and its
Subsidiaries and their respective accountants, all at such times during normal
business hours and other reasonable times and as often as the Lender may
reasonably request.
(c) The Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by the Borrower and/or any of its
Subsidiaries at any time prior to the repayment in full of the Obligations to
exhibit and deliver to the Lender copies of any and all of the financial
statements, trial balances, management letters, or other accounting records of
any nature of the Borrower and/or any or all of its Subsidiaries in the
accountant's or auditor's possession, and to disclose to the Lender any
information they may have concerning the financial status and business
operations of the Borrower and/or any or all of its Subsidiaries. Further, the
Borrower hereby authorizes all Governmental Authorities to furnish to the Lender
copies of reports or examinations relating to any and all of the Borrower and/or
any or all Subsidiaries, whether made by the Borrower or otherwise.
(d) Any and all costs and expenses incurred by, or on
behalf of, the Lender in connection with the conduct of any of the foregoing,
shall be part of the Enforcement Costs and shall be payable to the Lender upon
demand.
5.1.4 Existence.
----------
The Borrower shall maintain, and cause each of its
Subsidiaries to maintain, its existence in good standing in the jurisdiction in
which it is formed and in each other jurisdiction where it is required to
register or qualify to do business if the failure to do so in such other
jurisdiction might have a material adverse effect on the ability of the Borrower
to perform
23
the Obligations, on the conduct of the Borrower's operations, or on the
Borrower's financial condition.
5.1.5 Compliance with Laws.
---------------------
The Borrower shall comply, and cause each of its Subsidiaries
to comply, with all applicable Laws and observe the valid requirements of
Governmental Authorities, the noncompliance with or the non-observance of which
might have a material adverse effect on the ability of the Borrower to perform
the Obligations, on the conduct of the Borrower's operations, on the Borrower's
consolidated financial condition.
5.1.6 Preservation of Properties.
---------------------------
The Borrower will, and will cause each of its Subsidiaries to,
at all times (a) maintain, preserve, protect and keep its properties, whether
owned or leased, in good operating condition, working order and repair (ordinary
wear and tear excepted), and from time to time will make all proper repairs,
maintenance, replacements, additions and improvements thereto needed to maintain
such properties in good operating condition, working order and repair, and (b)
do or cause to be done all things necessary to preserve and to keep in full
force and effect its material franchises, leases of real and personal property,
trade names, patents, trademarks and permits which are necessary for the orderly
continuance of its business.
5.1.7 Line of Business.
-----------------
The Borrower will continue to engage substantially only in the
business of manufacturing.
5.1.8 Insurance.
----------
The Borrower will, and will cause each of its Subsidiaries to,
at all times maintain with "A" or better rated insurance companies such
insurance as is required by applicable Laws and such other insurance, in such
amounts, of such types and against such risks, hazards, liabilities, casualties
and contingencies as are usually insured against in the same geographic areas by
business entities engaged in the same or similar business. Within thirty (30)
days after notice in writing from the Lender, the Borrower will obtain such
additional insurance as the Lender may reasonably request.
5.1.9 Taxes.
------
Except to the extent that the validity or amount thereof is
being contested in good faith and by appropriate proceedings, the Borrower will,
and will cause each of its Subsidiaries, to pay and discharge all Taxes prior to
the date when any interest or penalty would accrue for the nonpayment thereof.
The Borrower shall furnish to the Lender at such times as the Lender may require
proof satisfactory to the Lender of the making of payments or deposits required
by applicable Laws including, without limitation, payments or deposits with
respect to amounts withheld by the Borrower from wages and salaries of employees
and amounts contributed by the Borrower on account of federal and other income
or wage taxes and amounts due under the Federal Insurance Contributions Act, as
amended.
24
5.1.10 ERISA.
------
The Borrower will, and will cause each of its Commonly
Controlled Entities to, comply with the funding requirements of ERISA with
respect to Plans for its respective employees. The Borrower will not permit with
respect to any Plan (a) any prohibited transaction or transactions under ERISA
or the Internal Revenue Code, which results, or may result, in any material
liability of the Borrower, or (b) any Reportable Event if, upon termination of
the plan or plans with respect to which one or more such Reportable Events shall
have occurred, there is or would be any material liability of the Borrower to
the PBGC. Upon the Lender's request, the Borrower will deliver to the Lender a
copy of the most recent actuarial report, financial statements and annual report
completed with respect to any Plan.
5.1.11 Notification of Events of Default and Adverse
---------------------------------------------
Developments.
-------------
The Borrower shall promptly notify the Lender upon obtaining
knowledge of the occurrence of:
(a) any Event of Default;
(b) any Default;
(c) any litigation instituted or threatened against
the Borrower or any of its Subsidiaries and of the entry of any judgment or
Lien (other than any Permitted Liens) against any of the assets or
properties of the Borrower or any Subsidiary where the claims against the
Borrower or any Subsidiary exceed Ten Thousand Dollars ($10,000) and are
not covered by insurance;
(d) any event, development or circumstance whereby the
financial statements furnished hereunder fail in any material respect to
present fairly, in accordance with GAAP, the financial condition and
operational results of the Borrower or any of its Subsidiaries;
(e) any judicial, administrative or arbitral
proceeding pending against the Borrower or any of its Subsidiaries and any
judicial or administrative proceeding known by the Borrower to be
threatened against the Borrower or any Subsidiary which, if adversely
decided, could materially adversely affect the financial condition or
operations (present or prospective) of the Borrower or any Subsidiary;
(f) the receipt by the Borrower or any Subsidiary of
any notice, claim or demand from any Governmental Authority which alleges
that the Borrower or any Subsidiary is in violation of any of the terms of,
or has failed to comply with any applicable Laws regulating its operation
and business, including, but not limited to, the Occupational Safety and
Health Act and the Environmental Protection Act; and
(g) any other development in the business or affairs
of the Borrower or any of its Subsidiaries which may be materially adverse;
25
in each case describing in detail satisfactory to the Lender the nature
thereof and the action the Borrower proposes to take with respect thereto.
5.1.12 Hazardous Materials; Contamination.
-----------------------------------
The Borrower agrees to:
(a) give notice to the Lender immediately upon
acquiring knowledge of the presence of any Hazardous Materials or any
Hazardous Materials Contamination on any property owned, operated or
controlled by the Borrower or for which the Borrower is, or is claimed to
be, responsible (provided that such notice shall not be required for
Hazardous Materials placed or stored on such property in accordance with
applicable Laws in the ordinary course (including, without limitation,
quantity) of a Borrower's line of business expressly described in this
Agreement), with a full description thereof;
(b) promptly comply with any Laws requiring the
removal, treatment or disposal of Hazardous Materials or Hazardous
Materials Contamination and provide the Lender with satisfactory evidence
of such compliance;
(c) provide the Lender, within thirty (30) days after
a demand by the Lender, with a bond, letter of credit or similar financial
assurance evidencing to the Lender's satisfaction that the necessary funds
are available to pay the cost of removing, treating, and disposing of such
Hazardous Materials or Hazardous Materials Contamination and discharging
any Lien which may be established as a result thereof on any property
owned, operated or controlled by the Borrower or for which the Borrower is,
or is claimed to be, responsible; and
(d) as part of the Obligations, defend, indemnify and
hold harmless the Lender and its agents, employees, trustees, successors
and assigns from any and all claims which may now or in the future (whether
before or after the termination of this Agreement) be asserted as a result
of the presence of any Hazardous Materials or any Hazardous Materials
Contamination on any property owned, operated or controlled by the Borrower
for which the Borrower is, or is claimed to be, responsible. The Borrower
acknowledges and agrees that this indemnification shall survive the
termination of this Agreement and the Commitment and the payment and
performance of all of the other Obligations.
5.1.13 Financial Covenants.
--------------------
(a) Funded Debt Coverage Ratio. The Borrower will not,
as of the end of any fiscal quarter ending on or after the dates indicated
below, permit the ratio of (a) the Indebtedness for Borrowed Money of the
Borrower and their consolidated Subsidiaries as of the end of such fiscal
quarter, to (b) Consolidated EBITDA for the four (4) quarter period ended as of
the end of such fiscal quarter, to be more than:
Period Ratio
------ -----
December 31, 2000 2.0 to 1.0
March 31, 2001 2.5 to 1.0
26
(b) Limitations on Debt. The Borrower will not at any
-------------------
time permit the ratio of Total Consolidated Debt to Total Consolidated
Capitalization, as a percentage, to exceed fifty five percent (55%).
Section 5.2 Negative Covenants.
-------------------
So long as any of the Obligations or the Commitment therefor shall be
outstanding hereunder, the Borrower agrees with the Lender that without the
prior written consent of the Lender, which consent shall not be unreasonably
withheld, conditioned or delayed:
5.2.1 Capital Structure, Merger, Acquisition or Sale of
-------------------------------------------------
Assets.
-------
The Borrower will not alter or amend its capital structure,
authorize any additional class of equity, issue any stock or equity of any
class, enter into any merger or consolidation or amalgamation, windup or
dissolve itself (or suffer any liquidation or dissolution) or sell, lease or
otherwise dispose of any of its assets (except Inventory disposed of in the
ordinary course of business prior to an Event of Default). Any consent of the
Lender to the disposition of any assets may be conditioned on a specified use of
the proceeds of disposition. Notwithstanding the foregoing, the Borrower may
merge with another Person if (a) the Borrower is the entity surviving such
merger and (b) after giving effect thereto, no Default or Event of Default shall
have occurred.
5.2.2 Acquisitions.
-------------
The Borrower will not, and will not permit any of its
Subsidiaries to, enter into any Acquisition transaction except:
(a) the Borrower and any Subsidiary may acquire assets
in the ordinary course of business for fair consideration;
(b) the Borrower and any Subsidiary may enter into any
Acquisition transaction with respect to which the purchase price consists
of capital stock of the
acquiring Person; and
(c) the Borrower and any Subsidiary may enter into any
other Acquisition transaction, but only to the extent (i) the purchase
price (including any assumption of liabilities in connection therewith, but
excluding any portion of the purchase price for any such Acquisition
consisting of capital stock or other securities of the purchaser) of all
such Acquisitions occurring during any fiscal year of the Borrower does not
exceed $10,000,000 and (ii) after giving effect on a pro forma basis to
such Acquisition (including but not limited to any Debt to be incurred or
assumed by the purchaser in connection therewith), no Default would exist
hereunder.
5.2.3 Purchase or Redemption of Securities, Dividend
----------------------------------------------
Restrictions.
-------------
The Borrower will not purchase, redeem or otherwise
acquire any shares of its capital stock or warrants now or hereafter
outstanding, declare or pay any dividends thereon (other than stock dividends),
apply any of its property or assets to the purchase,
27
redemption or other retirement of, set apart any sum for the payment of any
dividends on, or for the purchase, redemption, or other retirement of, make any
distribution by reduction of capital or otherwise in respect of, any shares of
any class of capital stock of the Borrower, or any warrants, permit any
Subsidiary to purchase or acquire any shares of any class of capital stock of,
or warrants issued by, the Borrower, make any distribution to stockholders or
set aside any funds for any such purpose, and not prepay, purchase or redeem any
Indebtedness for Borrowed Money other than the Obligations except that any
Subsidiary may pay dividends to the Borrower.
5.2.4 Indebtedness.
-------------
The Borrower will not create, incur, assume or suffer to exist
any Indebtedness for Borrowed Money or permit any Subsidiary to do so, except:
(a) the Obligations;
(b) current accounts payable arising in the ordinary
course;
(c) Indebtedness secured by Permitted Liens; and
(d) Indebtedness of the Borrower existing on the date
hereof and reflected on the financial statements furnished pursuant to
Section 3.1.11 (Financial Condition).
5.2.5 Investments, Loans and Other Transactions.
------------------------------------------
Except as otherwise provided in this Agreement, the Borrower
will not, and will not permit any of its Subsidiaries to, (a) make, assume,
acquire or continue to hold any investment in any real property (unless used in
connection with its business and treated as a Fixed or Capital Asset of the
Borrower or any Subsidiary) or any Person, whether by stock purchase, capital
contribution, acquisition of indebtedness of such Person or otherwise
(including, without limitation, investments in any joint venture or
partnership), (b) guaranty or otherwise become contingently liable for the
Indebtedness or obligations of any Person, or (c) make any loans or advances, or
otherwise extend credit to any Person, except:
(i) any advance to an officer or employee of the
Borrower or any Subsidiary for travel or other business expenses in the
ordinary course of business, provided that the aggregate amount of all such
advances by all of the Borrower and its Subsidiaries (taken as a whole)
outstanding at any time shall not exceed Fifty Thousand Dollars ($50,000);
(ii) the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business;
(iii) any investment in real property which is
secured by a Permitted Lien;
(iv) guarantees of any Person in excess of
$250,000 in the aggregate at any time;
28
(v) trade credit extended to customers in the
ordinary course of business; and
(vi) any other Investment transaction, but only
to the extent (A) the purchase price (including any assumption of
liabilities in connection therewith, but excluding any portion of the
purchase price for any such Investment consisting of capital stock or other
securities of the purchaser) of all such Investments occurring during any
fiscal year of the Borrower does not exceed $10,000,000 and (B) after
giving effect on a pro forma basis to such Investment (including but not
limited to any Indebtedness for Borrowed Money to be incurred or assumed by
the purchaser in connection therewith), no Default would exist hereunder.
5.2.6 Operating Lease Obligations.
----------------------------
The Borrower will not incur or permit to exist any Lease
Obligations except Capital Leases expressly permitted by this Agreement or
permit any Subsidiary to do so, if the pro forma Fixed Charge Coverage Ratio
after giving effect to such operating lease during the most recent period used
to determine compliance under Section 5.1.13 (Financial Covenants) would be less
than 2.0:1.0.
5.2.7 Stock of Subsidiaries.
----------------------
The Borrower will not sell or otherwise dispose of any shares
of capital stock of any Subsidiary (except in connection with a merger or
consolidation of a Wholly Owned Subsidiary into the Borrower or another Wholly
Owned Subsidiary of the Borrower or with the dissolution of any Subsidiary) or
permit any Subsidiary to issue any additional shares of its capital stock except
pro rata to its stockholders.
- --- ----
5.2.8 Subordinated Indebtedness.
--------------------------
The Borrower will not, nor will it permit any Subsidiary to
make:
(a) any payment of principal of, or interest on, any of
the Subordinated Indebtedness, including, without limitation, the
Subordinated Debt, if a Default or an Event of Default then exists
hereunder or would result from such payment;
(b) any payment of the principal or interest due on the
Subordinated Indebtedness as a result of acceleration thereunder or a
mandatory prepayment thereunder;
(c) any amendment or modification of or supplement to
the documents evidencing or securing the Subordinated Indebtedness; and
(d) payment of principal or interest on the
Subordinated Indebtedness other than when due (without giving effect to any
acceleration of maturity or mandatory prepayment).
29
5.2.9 Liens.
------
The Borrower agrees that it (a) will not create, incur, assume
or suffer to exist any Lien upon any of its Accounts, Inventory or proceeds
thereof, or sell any Accounts, Inventory or proceeds thereof subject to an
understanding or agreement, contingent or otherwise, to repurchase such
Accounts, Inventory or proceeds thereof (including sales of accounts receivable
or notes with recourse to the Borrower or any of its Subsidiaries) or assign any
right to receive income, or file or permit the filing of any financing statement
under the Uniform Commercial Code as in effect in any applicable jurisdiction or
any other similar notice of Lien under any similar recording or notice statute;
provided that the provisions of this Section 5.2.9 shall not prevent the
creation, incurrence, assumption or existence of Permitted Liens.
5.2.10 Transactions with Affiliates.
-----------------------------
Neither the Borrower nor any of its Subsidiaries will enter
into or participate in any transaction with any Affiliate or, except in the
ordinary course of business, with the officers, directors, employees and other
representatives of the Borrower and/or any Subsidiary.
5.2.11 Other Businesses.
-----------------
Neither the Borrower nor any of its Subsidiaries will engage
directly or indirectly in any business other than its current line of business
described elsewhere in this Agreement.
5.2.12 ERISA Compliance.
-----------------
Neither the Borrower nor any Commonly Controlled Entity shall:
(a) engage in or permit any "prohibited transaction" (as defined in ERISA);
(b) cause any "accumulated funding deficiency" as defined in ERISA and/or the
Internal Revenue Code; (c) terminate any pension plan in a manner which could
result in the imposition of a lien on the property of the Borrower pursuant to
ERISA; (d) terminate or consent to the termination of any Multi-employer Plan;
or (e) incur a complete or partial withdrawal with respect to any Multi-employer
Plan.
5.2.13 Prohibition on Hazardous Materials.
-----------------------------------
The Borrower shall not place, manufacture or store or permit
to be placed, manufactured or stored any Hazardous Materials on any property
owned, operated or controlled by the Borrower or for which the Borrower is
responsible other than Hazardous Materials placed or stored on such property in
accordance with applicable Laws in the ordinary course of the Borrower's
business expressly described in this Agreement.
5.2.14 Amendments.
-----------
Other than amendments of provisions consistent with the terms
of this Agreement, the Borrower will not amend or agree to amend the Amended and
Restated Credit Agreement dated as of August 3, 1999 by and among Trex, LLC and
First Union National Bank, as amended by the First Amendment to Amended and
Restated Credit Agreement dated as of December 15, 1999, the Second Amendment to
Amended and Restated Credit Agreement dated as of April 27, 2000, the Third
Amendment to Amended and Restated Credit Agreement dated as
30
of June 30, 2000 and the Fourth Amendment to Amended and Restated Credit
Agreement dated as of October 27, 2000 (as amended, supplemented, modified or
restated from time to time the collectively, the "First Union Credit Agreement")
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld, conditioned or delayed.
5.2.15 Method of Accounting; Fiscal Year.
----------------------------------
The Borrower agrees that:
(a) it shall not change the method of accounting
employed in the preparation of any financial statements furnished to the
Lender under the provisions of Section 5.1.1 (Financial Statements), unless
required to conform to GAAP and on the condition that the Borrower's
accountants shall furnish such information as the Lender may request to
reconcile the changes with the Borrower's prior financial statements
(b) it will not change its fiscal year from a year
ending on December 31.
ARTICLE VI
DEFAULT AND RIGHTS AND REMEDIES
-------------------------------
Section 6.1 Events of Default.
------------------
The occurrence of any one or more of the following events shall constitute
an "Event of Default" under the provisions of this Agreement:
6.1.1 Failure to Pay.
---------------
The failure of the Borrower to pay any of the Obligations as
and when due and payable in accordance with the provisions of this Agreement,
the Notes and/or any of the other Financing Documents.
6.1.2 Breach of Representations and Warranties.
-----------------------------------------
Any representation or warranty made in this Agreement or in
any report, statement, schedule, certificate, opinion (including any opinion of
counsel for the Borrower), financial statement or other document furnished in
connection with this Agreement, any of the other Financing Documents, or the
Obligations, shall prove to have been false or misleading when made (or, if
applicable, when reaffirmed) in any material respect.
6.1.3 Failure to Comply with Covenants.
---------------------------------
The failure of the Borrower to perform, observe or comply with
any covenant, condition or agreement contained in this Agreement.
6.1.4 Default Under Other Financing Documents or Obligations.
-------------------------------------------------------
A default shall occur under any of the other Financing
Documents or under any other Obligations, and such default is not cured within
any applicable grace period provided therein.
31
6.1.5 Receiver; Bankruptcy.
---------------------
The Borrower or any Subsidiary shall (a) apply for or consent
to the appointment of a receiver, trustee or liquidator of itself or any of its
property, (b) admit in writing its inability to pay its debts as they mature,
(c) make a general assignment for the benefit of creditors, (d) be adjudicated a
bankrupt or insolvent, (e) file a voluntary petition in bankruptcy or a petition
or an answer seeking or consenting to reorganization or an arrangement with
creditors or to take advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or an answer
admitting the material allegations of a petition filed against it in any
proceeding under any such law, or take corporate action for the purposes of
effecting any of the foregoing, (f) by any act indicate its consent to, approval
of or acquiescence in any such proceeding or the appointment of any receiver of
or trustee for any of its property, or suffer any such receivership, trusteeship
or proceeding to continue undischarged for a period of ninety (90) days, or (g)
by any act indicate its consent to, approval of or acquiescence in any order,
judgment or decree by any court of competent jurisdiction or any Governmental
Authority enjoining or otherwise prohibiting the operation of a material portion
of the Borrower's or any Subsidiary's business or the use or disposition of a
material portion of the Borrower's or any Subsidiary's assets.
6.1.6 Involuntary Bankruptcy, etc.
----------------------------
(a) An order for relief shall be entered in any involuntary
case brought against the Borrower or any Subsidiary under the Bankruptcy Code,
or (b) any such case shall be commenced against the Borrower or any Subsidiary
and shall not be dismissed within ninety (90) days after the filing of the
petition, or (c) an order, judgment or decree under any other Law is entered by
any court of competent jurisdiction or by any other Governmental Authority on
the application of a Governmental Authority or of a Person other than the
Borrower or any Subsidiary (i) adjudicating the Borrower, or any Subsidiary
bankrupt or insolvent, or (ii) appointing a receiver, trustee or liquidator of
the Borrower or of any Subsidiary, or of a material portion of the Borrower's or
any Subsidiary's assets, or (iii) enjoining, prohibiting or otherwise limiting
the operation of a material portion of the Borrower's or any Subsidiary's
business or the use or disposition of a material portion of the Borrower's or
any Subsidiary's assets, and such order, judgment or decree continues unstayed
and in effect for a period of thirty (30) days from the date entered.
6.1.7 Judgment.
---------
Unless adequately insured in the opinion of the Lender, the
entry of a final judgment for the payment of money involving more than $250,000
against the Borrower or any Subsidiary, and the failure by the Borrower or such
Subsidiary to discharge the same, or cause it to be discharged, within thirty
(30) days from the date of the order, decree or process under which or pursuant
to which such judgment was entered, or to secure a stay of execution pending
appeal of such judgment.
6.1.8 Default Under Other Borrowings.
-------------------------------
Default shall be made with respect to any Indebtedness for
Borrowed Money of the Borrower (other than the Loan) if the effect of such
default is to accelerate the maturity of such Indebtedness for Borrowed Money or
to permit the holder or obligee thereof or
32
other party thereto to cause such Indebtedness for Borrowed Money to become due
prior to its stated maturity.
6.1.9 Challenge to Agreements.
------------------------
The Borrower or any Guarantor shall challenge the validity and
binding effect of any provision of any of the Financing Documents or shall state
its intention to make such a challenge of any of the Financing Documents or any
of the Financing Documents shall for any reason (except to the extent permitted
by its express terms) cease to be effective.
6.1.10 Material Adverse Change.
------------------------
The Lender, in its sole discretion, determines in good faith
that a material adverse change has occurred in the financial condition of the
Borrower.
6.1.11 Impairment of Position.
-----------------------
The Lender, in its sole discretion, determines in good faith
that an event has occurred which impairs the prospect of payment of any of the
Obligations.
6.1.12 Liquidation, Termination, Dissolution, etc.
-------------------------------------------
The Borrower shall liquidate, dissolve or terminate its
existence without the prior written consent of the Lender, which consent shall
not be unreasonably withheld, conditioned or delayed.
6.1.13 Default under First Union Credit Agreement.
-------------------------------------------
If a default shall occur and be continuing beyond any
applicable grace or cure period under the First Union Credit Agreement.
6.1.14 Default under other Indebtedness owed to Lender.
------------------------------------------------
If a default shall occur and be continuing beyond any
applicable grace or cure period under any other Indebtedness for Borrowed Money
(other than the Loan) owed to the Lender, whether now existing or hereafter
incurred.
6.1.15 Change of Control.
------------------
A Change of Control shall have occurred.
Section 6.2 Remedies.
---------
Upon the occurrence of any Event of Default, the Lender may, in the
exercise of its sole and absolute discretion from time to time, at any time
thereafter exercise any one or more of the following rights, powers or remedies.
6.2.1 Acceleration.
-------------
The Lender may declare any or all of the Obligations to be
immediately due and payable, notwithstanding anything contained in this
Agreement or in any of the other Financing Documents to the contrary, without
presentment, demand, protest, notice of protest or of dishonor, or other notice
of any kind, all of which the Borrower hereby waives.
33
6.2.2 Further Advances.
-----------------
The Lender may from time to time without notice to the
Borrower suspend, terminate or limit any further advances, loans or other
extensions of credit under the Commitment, under this Agreement and/or under any
of the other Financing Documents. Further, upon the occurrence of an Event of
Default or Default specified in Sections 6.1.5 (Receiver; Bankruptcy) or 6.1.6
(Involuntary Bankruptcy, etc.), the Revolving Credit Commitment and any
agreement in any of the Financing Documents to provide additional credit shall
immediately and automatically terminate and the unpaid principal amount of the
Notes (with accrued interest thereon) and all other Obligations then
outstanding, shall immediately become due and payable without further action of
any kind and without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower.
6.2.3 Performance by Lender.
----------------------
If the Borrower shall fail to pay the Obligations or otherwise
fail to perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Agreement or any of the other
Financing Documents, the Lender without notice to or demand upon the Borrower
and without waiving or releasing any of the Obligations or any Default or Event
of Default, may (but shall be under no obligation to) at any time thereafter
make such payment or perform such act for the account and at the expense of the
Borrower, and may enter upon the premises of the Borrower for that purpose and
take all such action thereon as the Lender may consider necessary or appropriate
for such purpose and the Borrower hereby irrevocably appoints the Lender as its
attorney-in-fact to do so, with power of substitution, in the name of the
Lender, in the name of the Borrower or otherwise, for the use and benefit of the
Lender, but at the cost and expense of the Borrower and without notice to the
Borrower. All sums so paid or advanced by the Lender together with interest
thereon from the date of payment, advance or incurring until paid in full at the
Post-Default Rate and all costs and expenses, shall be deemed part of the
Enforcement Costs, shall be paid by the Borrower to the Lender on demand, and
shall constitute and become a part of the Obligations.
6.2.4 Other Remedies.
---------------
The Lender may from time to time proceed to protect or enforce
the rights of the Lender by an action or actions at law or in equity or by any
other appropriate proceeding, whether for the specific performance of any of the
covenants contained in this Agreement or in any of the other Financing
Documents, or for an injunction against the violation of any of the terms of
this Agreement or any of the other Financing Documents, or in aid of the
exercise or execution of any right, remedy or power granted in this Agreement,
the Financing Documents, and/or applicable Laws. The Lender is authorized to
offset and apply to all or any part of the Obligations all moneys, credits and
other property of any nature whatsoever of the Borrower now or at any time
hereafter in the possession of, in transit to or from, under the control or
custody of, or on deposit with, the Lender or any Affiliate of the Lender.
34
ARTICLE VII
MISCELLANEOUS
-------------
Section 7.1 Notices.
--------
All notices, requests and demands to or upon the parties to this Agreement
shall be in writing and shall be deemed to have been given or made when
delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Borrower: Trex Company, LLC
___________________________
___________________________
Attention: _______________
Lender: Bank of America, N. A.
8600 Greensboro Drive, Suite 550
McLean, Virginia 22102
Attention: Elaine Eaton
By written notice, each party to this Agreement may change the address to
which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight courier
in the ordinary course on any Business Day.
Section 7.2 Amendments; Waivers.
--------------------
This Agreement and the other Financing Documents may not be amended,
modified, or changed in any respect except by an agreement in writing signed by
the Lender and the Borrower. No waiver of any provision of this Agreement or of
any of the other Financing Documents, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing signed by the Lender. No course of dealing between the Borrower and the
Lender and no act or failure to act from time to time on the part of the Lender
shall constitute a waiver, amendment or modification of any provision of this
Agreement or any of the other Financing Documents or any right or remedy under
this Agreement, under any of the other Financing Documents or under applicable
Laws.
Section 7.3 Cumulative Remedies.
--------------------
The rights, powers and remedies provided in this Agreement and in the
other Financing Documents are cumulative, may be exercised concurrently or
separately, may be exercised from time to time and in such order as the Lender
shall determine, subject to the provisions of this Agreement, and are in
addition to, and not exclusive of, rights, powers and remedies provided by
existing or future applicable Laws. In order to entitle the Lender to exercise
any remedy reserved to it in this Agreement, it shall not be necessary to give
any notice, other than such notice as may be expressly required in this
Agreement.
35
Section 7.4 Severability.
-------------
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of the
remaining provisions shall remain effective and binding on the parties
thereto and shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to the
limit of such validity;
(c) if such provision or part thereof pertains to repayment of
the Obligations, then, at the sole and absolute discretion of the Lender,
all of the Obligations of the Borrower to the Lender shall become
immediately due and payable; and
(d) if the affected provision or part thereof does not pertain
to repayment of the Obligations, but operates or would prospectively
operate to invalidate this Agreement in whole or in part, then such
provision or part thereof only shall be void, and the remainder of this
Agreement shall remain operative and in full force and effect.
Section 7.5 Assignments by Lender.
----------------------
The Lender may, without notice to or consent of the Borrower, assign to any
Person (each an "Assignee" and collectively, the "Assignees") all or a portion
of the Lender's Commitment. The Lender and its Assignee shall notify the
Borrower in writing of the date on which the assignment is to be effective (the
"Adjustment Date"). On or before the Adjustment Date, the assigning Lender, the
Borrower and the respective Assignee shall execute and deliver a written
assignment agreement in a form acceptable to the Lender, which shall constitute
an amendment to this Agreement to the extent necessary to reflect such
assignment. Upon the request of any assigning Lender following an assignment
made in accordance with this Section 7.5, the Borrower shall issue new Notes to
the assigning Lender and its Assignee reflecting such assignment, in exchange
for the existing Notes held by the assigning Lender.
In addition, notwithstanding the foregoing, the Lender may at any time
pledge all or any portion of the Lender's rights under this Agreement, the
Commitment or any of the Obligations to a Federal Reserve Bank.
Section 7.6 Participations by Lender.
-------------------------
The Lender may at any time sell to one or more financial institutions
participating interests in any of the Lender's Obligations or Commitment;
provided, however, that (a) no such participation shall relieve the Lender from
its obligations under this Agreement or under any of the other
36
Financing Documents to which it is a party, (b) the Lender shall remain solely
responsible for the performance of its obligations under this Agreement and
under all of the other Financing Documents to which it is a party, and (c) the
Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under this Agreement and the
other Financing Documents.
Section 7.7 Disclosure of Information by Lender.
------------------------------------
In connection with any sale, transfer, assignment or participation by the
Lender in accordance with Section 7.5 (Assignments by Lender) or Section 7.6
(Participations by Lender), the Lender shall have the right to disclose to any
actual or potential purchaser, assignee, transferee or participant all financial
records, information, reports, financial statements and documents obtained in
connection with this Agreement and/or any of the other Financing Documents or
otherwise.
Section 7.8 Successors and Assigns.
-----------------------
This Agreement and all other Financing Documents shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective heirs,
personal representatives, successors and assigns, except that the Borrower shall
not have the right to assign their rights hereunder or any interest herein
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld, conditioned or delayed.
Section 7.9 Continuing Agreements.
----------------------
All covenants, agreements, representations and warranties made by the
Borrower in this Agreement, in any of the other Financing Documents, and in any
certificate delivered pursuant hereto or thereto shall survive the making by the
Lender of the Loan and the execution and delivery of the Notes, shall be binding
upon the Borrower regardless of how long before or after the date hereof any of
the Obligations were or are incurred, and shall continue in full force and
effect so long as any of the Obligations are outstanding and unpaid. From time
to time upon the Lender's request, and as a condition of the release of any one
or more of the Security Documents, the Borrower and other Persons obligated with
respect to the Obligations shall provide the Lender with such acknowledgments
and agreements as the Lender may require to the effect that there exists no
defenses, rights of setoff or recoupment, claims, counterclaims, actions or
causes of action of any kind or nature whatsoever against the Lender and/or any
of its agents and others, or to the extent there are, the same are waived and
released.
Section 7.10 Enforcement Costs.
------------------
The Borrower agree to pay to the Lender on demand all Enforcement Costs,
together with interest thereon from the date incurred or advanced until paid in
full at a per annum rate of interest equal at all times to the Post-Default
Rate. Enforcement Costs shall be immediately due and payable at the time
advanced or incurred, whichever is earlier. The provisions of this Section
shall survive the execution and delivery of this Agreement, the repayment of the
other Obligations and shall survive the termination of this Agreement.
37
Section 7.11 Applicable Law; Jurisdiction.
-----------------------------
7.11.1 Applicable Law.
---------------
Borrower acknowledges and agrees that the Financing Documents,
including, this Agreement, shall be governed by the Laws of the State, as if
each of the Financing Documents and this Agreement had each been executed,
delivered, administered and performed solely within the State even though for
the convenience and at the request of the Borrower, one or more of the Financing
Documents may be executed elsewhere. The Lender acknowledges, however, that
remedies under certain of the Financing Documents that relate to property
outside the State may be subject to the laws of the state in which the property
is located.
7.11.2 Submission to Jurisdiction.
---------------------------
The Borrower irrevocably submits to the jurisdiction of any
state or federal court sitting in the State over any suit, action or proceeding
arising out of or relating to this Agreement or any of the other Financing
Documents. The Borrower irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding brought in any such court and any claim
that any such suit, action or proceeding brought in any such court has been
brought in an inconvenient forum. Final judgment in any such suit, action or
proceeding brought in any such court shall be conclusive and binding upon the
Borrower and may be enforced in any court in which the Borrower is subject to
jurisdiction, by a suit upon such judgment, provided that service of process is
effected upon the Borrower in one of the manners specified in this Section or as
otherwise permitted by applicable Laws.
Section 7.12 Duplicate Originals and Counterparts.
-------------------------------------
This Agreement may be executed in any number of duplicate
originals or counterparts, each of such duplicate originals or counterparts
shall be deemed to be an original and all taken together shall constitute but
one and the same instrument.
Section 7.13 Headings.
---------
The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof.
Section 7.14 No Agency.
----------
Nothing herein contained shall be construed to constitute the Borrower as
the agent of the Lender for any purpose whatsoever or to permit the Borrower to
pledge any of the credit of the Lender. The Lender shall not, by anything
herein or in any of the Financing Documents or otherwise, assume any of the
Borrower's obligations under any contract or agreement assigned to the Lender,
and the Lender shall not be responsible in any way for the performance by the
Borrower of any of the terms and conditions thereof.
38
Section 7.15 Date of Payment.
----------------
Should the principal of or interest on the Notes become due and payable on
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and in the case of principal, interest shall be payable
thereon at the rate per annum specified in the Notes during such extension.
Section 7.16 Entire Agreement.
-----------------
This Agreement is intended by the Lender and the Borrower to be a complete,
exclusive and final expression of the agreements contained herein. Neither the
Lender nor the Borrower shall hereafter have any rights under any prior
agreements pertaining to the matters addressed by this Agreement but shall look
solely to this Agreement for definition and determination of all of their
respective rights, liabilities and responsibilities under this Agreement.
Section 7.17 Waiver of Trial by Jury.
------------------------
THE BORROWER AND THE LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES, ARISING OUT OF
OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT OR (B) ANY OF THE FINANCING
DOCUMENTS. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS
AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST
PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the Borrower
and the Lender, and the Borrower and the Lender hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Borrower and the Lender further represent that they have been represented in the
signing of this Agreement and in the making of this waiver by independent legal
counsel, selected of their own free will, and that they have had the opportunity
to discuss this waiver with counsel.
Section 7.18 Indemnification.
---------------
The Borrower agrees to indemnify and hold harmless, Lender, the respective
parent and Affiliates of the Lender and the respective parent's and Affiliates'
officers, directors, shareholders, employees and agents (each an "Indemnified
Party," and collectively, the "Indemnified Parties"), from and against any and
all claims, liabilities, losses, damages, costs and expenses (whether or not
such Indemnified Party is a party to any litigation), including without
limitation, reasonable attorney's fees and costs and costs of investigation,
document production, attendance at depositions or other discovery, incurred by
any Indemnified Party with respect to, arising out of or as a consequence of
(a) this Agreement or any of the other Financing Documents, including without
limitation, any failure of the Borrower to pay when due (at maturity, by
acceleration or otherwise) any principal, interest, fee or any other amount due
under this Agreement or the other Financing Documents, or any other Event of
Default; (b) the use by the Borrower of any proceeds advanced hereunder; (c) the
transactions contemplated hereunder; or (d) any claim, demand, action or cause
of action being asserted against (i) the Borrower or any
39
of their Affiliates by any other Person, or (ii) any Indemnified Party by the
Borrower in connection with the transactions contemplated hereunder.
Notwithstanding anything herein or elsewhere to the contrary, the Borrower shall
not be obligated to indemnify or hold harmless any Indemnified Party from any
liability, loss or damage resulting from the gross negligence, willful
misconduct or unlawful actions of such Indemnified Party. Any amount payable to
the Lender under this Section will bear interest at the Post- Default Rate from
the due date until paid.
Section 7.19 Termination of Agreement.
-------------------------
This Agreement shall terminate and be of no further force and effect when,
and only when, all of the Obligations have been paid in full and the Commitment
has been terminated.
IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above.
TREX COMPANY, LLC
By: Trex Company, Inc, Sole Member
By: /s/ Anthony J. Cavanna (Seal)
------------------------------
Name: Anthony J. Cavanna
Title: Chief Financial Officer
BANK OF AMERICA, N. A.
By: /s/ Christopher D. Hartman (Seal)
-----------------------------
Name: Christopher D. Hartman
Title: Vice President
40
Exhibit 10.15
GUARANTY OF PAYMENT AGREEMENT
-----------------------------
THIS GUARANTY OF PAYMENT AGREEMENT (this "Agreement") is made this 31st
day of January, 2001, by TREX COMPANY, INC., a corporation organized under the
laws of the State of Delaware (the "Guarantor") for the benefit of BANK OF
AMERICA, N. A., a national banking association (the "Lender").
RECITALS
--------
A. Trex Company, LLC, a corporation organized under the laws of the State
of Delaware (the "Borrower") has applied to the Lender for a revolving credit
facility in the maximum principal amount of $15,000,000 to be used by the
Borrower for working capital purposes (the "Loan"), which is to be advanced
pursuant to the terms of a Financing and Security Agreement of even date
herewith (as amended, modified, restated, substituted, extended and renewed at
any time and from time to time, the "Financing Agreement") by and between the
Borrower and the Lender.
B. All defined terms used in this Agreement and not defined herein shall
have the meaning given to such terms in the Financing Agreement.
C. The Guarantor has requested that the Lender enter into the Financing
Agreement with the Borrower and make the credit facility described in the
Financing Agreement available to the Borrower.
D. The Lender has required, as a condition to entering into the Financing
Agreement, that the Guarantor execute this Agreement as additional security for
the payment and performance of the Obligations.
NOW, THEREFORE, in order to induce the Lender to enter into the Financing
Agreement, the Guarantor covenants and agrees with the Lender as follows:
ARTICLE I
THE GUARANTY
------------
Section 1.1 Guaranty.
---------
The Guarantor hereby unconditionally and irrevocably guarantees to the
Lender:
(a) the due and punctual payment in full (and not merely the
collectibility) of the principal of the Obligations and the interest thereon, in
each case when due and payable, all according to the terms of any promissory
note evidencing all or any part of the Obligations and the other Financing
Documents (as that term is defined in the Financing Agreement);
(b) the due and punctual payment in full (and not merely the
collectibility) of all other sums and charges which may at any time be due and
payable in accordance with, or secured by, any promissory note evidencing all or
any part of the Obligations or any of the other Financing Documents;
(c) the due and punctual performance of all of the other terms,
covenants and conditions contained in the Financing Documents; and
(d) all indebtedness, obligations and liabilities of any kind and
nature of the Borrower to the Lender, whether now existing or hereafter created
or arising, direct or indirect, matured or unmatured, and whether absolute or
contingent, joint, several or joint and several, and howsoever owned, held or
acquired.
Section 1.2 Guaranty Unconditional.
-----------------------
The obligations and liabilities of the Guarantor under this Agreement shall
be absolute and unconditional, irrespective of the genuineness, validity,
priority, regularity or enforceability of the Financing Agreement, any
promissory note evidencing all or any part of the Obligations, or any of the
other Financing Documents or any other circumstance which might otherwise
constitute a legal or equitable discharge of a surety or guarantor. The
Guarantor expressly agrees that the Lender may, in its sole and absolute
discretion, without notice to or further assent of the Guarantor and without in
any way releasing, affecting or in any way impairing the obligations and
liabilities of the Guarantor hereunder:
(a) waive compliance with, or any defaults under, or grant any other
indulgences under or with respect to any of the Financing Documents;
(b) modify, amend, change or terminate any provisions of any of the
Financing Documents;
(c) grant extensions or renewals of or with respect to any promissory
note evidencing all or any part of the Obligations, any of the other
Financing Documents or any of the Obligations;
(d) effect any release, subordination, compromise or settlement in
connection with any promissory note evidencing all or any part of the
Obligations, any of the other Financing Documents, or any of the
Obligations;
(e) agree to the substitution, exchange, release or other disposition
of any collateral for the Obligations or to the subordination of any lien
or security interest therein;
(f) make advances for the purpose of performing any term, provision or
covenant contained in the Financing Agreement or any of the other Financing
Documents with respect to which the Borrower shall then be in default;
(g) make future advances to the Borrower pursuant to the Financing
Agreement or any of the other Financing Documents;
(h) assign, pledge, hypothecate or otherwise transfer the Financing
Agreement, any of the Financing Documents or this Agreement or any interest
therein;
2
(i) deal in all respects with the Borrower as if this Agreement were
not in effect; and
(j) effect any release, compromise or settlement with another
guarantor.
Section 1.3 Guaranty Primary.
-----------------
The obligations and liabilities of the Guarantor under this Agreement shall
be primary, direct and immediate, shall not be subject to any counterclaim,
recoupment, setoff, reduction or defense based upon any claim that the Guarantor
may have against the Borrower, the Lender and/or any other guarantor and shall
not be conditional or contingent upon pursuit or enforcement by the Lender of
any remedies it may have against the Borrower with respect to any promissory
note evidencing all or any part of the Obligations or any of the other Financing
Documents, whether pursuant to the terms thereof or by operation of law.
Without limiting the generality of the foregoing, the Lender shall not be
required to make any demand upon the Borrower, or to pursue, enforce or exhaust
its remedies against the Borrower or any collateral either before, concurrently
with or after pursuing or enforcing its rights and remedies hereunder. Any one
or more successive or concurrent actions or proceedings may be brought against
the Guarantor under this Agreement, either in the same action, if any, brought
against the Borrower or in separate actions or proceedings, as often as the
Lender may deem expedient or advisable. Without limiting the foregoing, it is
specifically understood that any modification, limitation or discharge of any of
the liabilities or obligations of the Borrower, any other guarantor or any
obligor under any of the Financing Documents, arising out of, or by virtue of,
any bankruptcy, arrangement, reorganization or similar proceeding for relief of
debtors under federal or state law initiated by or against the Borrower or the
Guarantor or any obligor under any of the Financing Documents shall not modify,
limit, lessen, reduce, impair, discharge, or otherwise affect the liability of
the Guarantor hereunder in any manner whatsoever, and this Agreement shall
remain and continue in full force and effect. It is the intent and purpose of
this Agreement that the Guarantor shall and does hereby waive all rights and
benefits which might accrue to any other guarantor by reason of any such
proceeding, and the Guarantor agrees that it shall be liable for the full amount
of the obligations and liabilities under this Agreement, regardless of, and
irrespective to, any modification, limitation or discharge of the liability of
the Borrower, any other guarantor or any obligor under any of the Financing
Documents, that may result from any such proceedings.
Section 1.4 Certain Waivers by the Guarantor.
---------------------------------
The Guarantor hereby unconditionally, irrevocably and expressly waives:
(a) presentment and demand for payment of the principal of or interest
on any promissory note evidencing all or any part of the Obligations and
protest of non-payment;
(b) notice of acceptance of this Agreement and of presentment, demand
and protest thereof;
3
(c) notice of any default hereunder or under the Financing Agreement,
or any of the other Financing Documents and notice of all indulgences;
(d) notice of any increase in the amount of any portion of or all of
the indebtedness guaranteed by this Agreement;
(e) demand for observance, performance or enforcement of any of the
terms or provisions of this Agreement, the Financing Agreement or any of
the other Financing Documents;
(f) all errors and omissions in connection with the Lender's
administration of all indebtedness guaranteed by this Agreement, except
errors and omissions resulting from acts of bad faith;
(g) any right or claim of right to cause a marshalling of the assets of
the Borrower;
(h) any act or omission of the Lender (except acts or omissions in bad
faith) which changes the scope of the Guarantor's risk hereunder; and
(i) all other notices and demands otherwise required by law which the
Guarantor may lawfully waive.
Section 1.5 Reimbursement for Expenses.
---------------------------
In the event the Lender shall commence any action or proceeding for the
enforcement of this Agreement, then the Guarantor will reimburse the Lender,
promptly upon demand, for any and all reasonable expenses incurred by the Lender
in connection with such action or proceeding including, without limitation,
reasonable attorneys' fees together with interest thereon at the Post-Default
Rate.
Section 1.6 Events of Default.
------------------
The occurrence of any one or more of the following events shall constitute
an "Event of Default" under the provisions of this Agreement (individually, an
"Event of Default" and collectively, the "Events of Default"):
(a) The failure of the Guarantor to pay any of the Obligations as and
when due and payable in accordance with the provisions of this Agreement.
(b) Any representation or warranty made in this Agreement or in any
report, statement, schedule, certificate, opinion (including any opinion of
counsel for the Guarantor), financial statement or other document furnished
in connection with this Agreement, shall prove to have been false or
misleading when made (or, if applicable, when reaffirmed) in any material
respect.
(c) The failure of the Guarantor to perform, observe or comply with any
covenant, condition or agreement contained in this Agreement.
4
(d) A default shall occur under any of the other Financing Documents
and such default is not cured within any applicable grace period provided
therein.
(e) The Guarantor shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator of itself or any of its property, (ii)
admit in writing its inability to pay its debts as they mature, (iii) make
a general assignment for the benefit of creditors, (iv) be adjudicated a
bankrupt or insolvent, (v) file a voluntary petition in bankruptcy or a
petition or an answer seeking or consenting to reorganization or an
arrangement with creditors or to take advantage of any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations
of a petition filed against it in any proceeding under any such law, or
take corporate action for the purposes of effecting any of the foregoing,
or (vi) by any act indicate its consent to, approval of or acquiescence in
any such proceeding or the appointment of any receiver of or trustee for
any of its property, or suffer any such receivership, trusteeship or
proceeding to continue undischarged for a period of ninety (90) days, or
(vii) by any act indicate its consent to, approval of or acquiescence in
any order, judgment or decree by any court of competent jurisdiction or any
Governmental Authority enjoining or otherwise prohibiting the operation of
a material portion of the Guarantor's business or the use or disposition of
a material portion of the Guarantor's assets.
(f) (i) An order for relief shall be entered in any involuntary case
brought against the Guarantor under the Bankruptcy Code, or (ii) any such
case shall be commenced against the Guarantor and shall not be dismissed
within ninety (90) days after the filing of the petition, or (iii) an
order, judgment or decree under any other Law is entered by any court of
competent jurisdiction or by any other Governmental Authority on the
application of a Governmental Authority or of a Person other than the
Guarantor (A) adjudicating the Guarantor bankrupt or insolvent, or (B)
appointing a receiver, trustee or liquidator of the Guarantor, or of a
material portion of the Guarantor's assets, or (C) enjoining, prohibiting
or otherwise limiting the operation of a material portion of the
Guarantor's business or the use or disposition of a material portion of the
Guarantor's assets, and such order, judgment or decree continues unstayed
and in effect for a period of thirty (30) days from the date entered.
(g) Unless adequately insured in the opinion of the Lender, the entry
of a final judgment for the payment of money involving more than $10,000
against the Guarantor, and the failure by the Guarantor to discharge the
same, or cause it to be discharged, within thirty (30) days from the date
of the order, decree or process under which or pursuant to which such
judgment was entered, or to secure a stay of execution pending appeal of
such judgment.
(h) If the Lender in its sole discretion determines in good faith that
a material adverse change has occurred in the financial condition of the
Guarantor.
5
(i) If the Guarantor shall liquidate, dissolve or terminate its
existence or any change occurs in the management or control of the
Guarantor without the prior written consent of the Lender.
Section 1.7 Rescission of Election to Accelerate.
-------------------------------------
In the event the Lender shall elect to accelerate the maturity of any
promissory note evidencing all or any part of the Obligations as to the
Guarantor pursuant to the provisions of this Agreement, such election may be
rescinded by written acknowledgment to that effect by the Lender; provided,
however, that the acceptance of a partial payment on account of any promissory
note evidencing all or any part of the Obligations shall not alone effect or
rescind such election.
Section 1.8 Subordination; Subrogation.
---------------------------
In the event the Guarantor shall advance any sums to the Borrower, or in
the event the Borrower has heretofore or shall hereafter become indebted to the
Guarantor before the Obligations have been paid in full, all such advances and
indebtedness shall be subordinate in all respects to the Obligations (the
"Guarantor Subordinated Debt"). Any payment to the Guarantor on account of the
Guarantor Subordinated Debt shall be collected and received by the Lender or the
Guarantor in trust for the Lender and shall be paid over to the Lender on
account of the Obligations without impairing or releasing the obligations of the
Guarantor hereunder.
Without the prior written consent of the Lender, the Guarantor shall not
ask, demand, receive, accept, sue for, set off, collect or enforce the Guarantor
Subordinated Debt or any collateral and security therefor. The Guarantor
represents and warrants to the Lender that the Guarantor Subordinated Debt is
unsecured and agrees not to receive or accept any collateral or security
therefor without the prior written permission of the Lender. The Guarantor
shall not assign, transfer, hypothecate or dispose of the Guarantor Subordinated
Debt while this Agreement is in effect. In the event of any sale, receivership,
insolvency or bankruptcy proceeding, or assignment for the benefit of creditors,
or any proceeding by or against the Borrower for any relief under any bankruptcy
or insolvency law or other laws relating to the relief of debtors, readjustment
of indebtedness, reorganizations, compositions or extensions, then and in any
such event any payment or distribution of any kind or character, either in cash,
securities or other property, which shall be payable or deliverable upon, or
with respect to, all or any part of the Guarantor Subordinated Debt or otherwise
shall be paid or delivered directly to the Lender for application to the
obligations and liabilities of the Guarantor under this Agreement (whether due
or not due and in such order and manner as the Lender may determine in the
exercise of its sole discretion) until the obligations of the Guarantor
hereunder shall have been fully paid and satisfied. The Guarantor hereby
irrevocably authorizes and empowers the Lender to demand, sue for, collect and
receive every such payment or distribution on account of the Guarantor
Subordinated Debt and give acquittance therefor and to file claims and take such
other proceedings in the Lender's own name or in the name of the Guarantor or
otherwise, as the Lender may deem necessary or advisable to carry out the
provisions of this Agreement. The Guarantor hereby agrees to execute and
deliver to the Lender such powers of attorney, assignments, endorsements or
other instruments as may be requested by the Lender in order to enable the
Lender to enforce any and all claims upon, or with respect to, the Guarantor
6
Subordinated Debt, and to collect and receive any and all payments or
distributions which may be payable or deliverable at any time upon or with
respect thereto.
So as to secure the performance by the Guarantor of the provisions of this
Agreement, the Guarantor assigns, pledges and grants to the Lender a security
interest in, and lien on, the Guarantor Subordinated Debt, all proceeds thereof
and all and any security and collateral therefor. Upon the request of the
Lender, the Guarantor shall endorse, assign and deliver to the Lender all notes,
instruments and agreements evidencing, securing, guarantying or made in
connection with the Guarantor Subordinated Debt.
Nothing contained in this Agreement shall be construed to give the
Guarantor any right of subrogation in or to the Obligations or any of the
Financing Documents, or all or any part of the interest of the Lender therein,
until the Obligations have been paid in full.
Section 1.9 Arbitration and Waiver of Jury Trial.
-------------------------------------
(a) This paragraph concerns the resolution of any controversies or
claims between the Borrower and the Lender, whether arising in contract, tort or
by statute, including but not limited to controversies or claims that arise out
of or relate to: (i) this Agreement (including any renewals, extensions or
modifications); or (ii) any document related to this Agreement; (collectively a
"Claim").
(b) At the request of the Borrower or the Lender, any Claim shall be
resolved by binding arbitration in accordance with the Federal Arbitration Act
(Title 9, U. S. Code) (the "Act"). The Act will apply even though this Agreement
provides that it is governed by the law of a specified state.
(c) Arbitration proceedings will be determined in accordance with the
Act, the rules and procedures for the arbitration of financial services disputes
of J.A.M.S./Endispute or any successor thereof ("J.A.M.S."), and the terms of
this paragraph. In the event of any inconsistency, the terms of this paragraph
shall control.
(d) The arbitration shall be administered by J.A.M.S. and conducted in
any U. S. state where real or tangible personal property collateral for this
credit is located or if there is no such collateral, in the Commonwealth of
Virginia. All Claims shall be determined by one arbitrator; however, if Claims
exceed $5,000,000, upon the request of any party, the Claims shall be decided by
three arbitrators. All arbitration hearings shall commence within 90 days of the
demand for arbitration and close within 90 days of commencement and the award of
the arbitrator(s) shall be issued within 30 days of the close of the hearing.
However, the arbitrator(s), upon a showing of good cause, may extend the
commencement of the hearing for up to an additional 60 days. The arbitrator(s)
shall provide a concise written statement of reasons for the award. The
arbitration award may be submitted to any court having jurisdiction to be
confirmed and enforced.
(e) The arbitrator(s) will have the authority to decide whether any
Claim is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis. For purposes of the application of the statute of
limitations, the service on J.A.M.S. under applicable J.A.M.S. rules of a notice
of Claim is the equivalent of the filing of a lawsuit. Any dispute
7
concerning this arbitration provision or whether a Claim is arbitrable shall be
determined by the arbitrator(s). The arbitrator(s) shall have the power to award
legal fees pursuant to the terms of this Agreement.
(f) This paragraph does not limit the right of the Borrower or the
Lender to: (i) exercise self-help remedies, such as but not limited to, setoff;
(ii) initiate judicial or nonjudicial foreclosure against any real or personal
property collateral; (iii) exercise any judicial or power of sale rights, or
(iv) act in a court of law to obtain an interim remedy, such as but not limited
to, injunctive relief, writ of possession or appointment of a receiver, or
additional or supplementary remedies.
(g) By agreeing to binding arbitration, the parties irrevocably and
voluntarily waive any right they may have to a trial by jury in respect of any
Claim. Furthermore, without intending in any way to limit this Agreement to
arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably
and voluntarily waive any right they may have to a trial by jury in respect of
such Claim. This provision is a material inducement for the parties entering
into this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1 Representations and Warranties.
-------------------------------
The Guarantor represents and warrants to the Lender as follows:
2.1.1 Good Standing.
--------------
The Guarantor (a) is a corporation duly organized, existing
and in good standing under the laws of the jurisdiction of its organization, (b)
has the power to own its property and to carry on its business as now being
conducted, and (c) is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned by it therein
or in which the transaction of its business makes such qualification necessary.
2.1.2 Power and Authority.
--------------------
The Guarantor has full power and authority to execute and
deliver this Agreement and the other Financing Documents to which it is a party
and to incur and perform the Obligations whether under this Agreement, the other
Financing Documents or otherwise, all of which have been duly authorized by all
proper and necessary action under the governing documents of the Guarantor. No
consent or approval of owners or any creditors of the Guarantor, and no consent,
approval, filing or registration with or notice to any Governmental Authority on
the part of the Guarantor, is required as a condition to the execution,
delivery, validity or enforceability of this Agreement or the other Financing
Documents or the performance by the Guarantor of the Obligations.
8
2.1.3 Binding Agreements.
-------------------
This Agreement and the other Financing Documents executed and
delivered by the Guarantor have been properly executed and delivered and
constitute the valid and legally binding obligations of the Guarantor and are
fully enforceable against the Guarantor in accordance with their respective
terms.
2.1.4 No Conflicts.
-------------
Neither the execution, delivery and performance of the terms
of this Agreement or of any of the other Financing Documents executed and
delivered by the Guarantor nor the consummation of the transactions contemplated
by this Agreement will conflict with, violate or be prevented by (a) the
Guarantor's charter or bylaws, (b) any existing mortgage, indenture, contract or
agreement binding on the Guarantor or affecting its property, or (c) any Laws.
2.1.5 Compliance with Laws.
---------------------
The Guarantor is not in violation of any applicable Laws
(including, without limitation, any Laws relating to employment practices, to
environmental, occupational and health standards and controls) or order, writ,
injunction, decree or demand of any court, arbitrator or any Governmental
Authority affecting the Guarantor or any of its properties, the violation of
which, considered in the aggregate, could materially adversely affect the
business, operations or properties of the Guarantor.
2.1.6 Litigation.
-----------
There are no proceedings, actions or investigations pending
or, so far as the Guarantor knows, threatened before or by any court, arbitrator
or any Governmental Authority which, in any one case or in the aggregate, if
determined adversely to the interests of the Guarantor, would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective, of the Guarantor.
2.1.7 Financial Condition.
--------------------
The financial statements of the Guarantor dated September 30,
2000, are complete and correct and fairly present the financial position of the
Guarantor and the results of its operations and transactions in its surplus
accounts as of the date and for the period referred to and have been prepared in
accordance with GAAP applied on a consistent basis throughout the period
involved. There are no liabilities, direct or indirect, fixed or contingent, of
the Guarantor as of the date of such financial statements that are not reflected
therein or in the notes thereto. There has been no adverse change in the
financial condition or operations of the Guarantor since the date of such
financial statements and to the Guarantor's knowledge no such adverse change is
pending or threatened. The Guarantor has not guaranteed the obligations of, or
made any investment in or advances to, any Person, except as disclosed in such
financial statements. The representations and warranties contained in this
Section shall also cover financial statements furnished from time to time to the
Lender pursuant to Section 3.3 (Financial Records; Inspection).
9
2.1.8 Full Disclosure.
----------------
The financial statements referred to in Section 2.1.9
(Financial Condition), the Financing Documents (including, without limitation,
this Agreement), and the statements, reports or certificates furnished by the
Guarantor in connection with the Financing Documents (a) do not contain any
untrue statement of a material fact and (b) when taken in their entirety, do not
omit any material fact necessary to make the statements contained therein not
misleading. There is no fact known to the Guarantor which the Guarantor has not
disclosed to the Lender in writing prior to the date of this Agreement which
materially and adversely affects or in the future could, in the reasonable
opinion of the Guarantor materially adversely affect the condition, financial or
other wise, results of operations, business, or assets of the Guarantor.
2.1.9 Financial Interest.
-------------------
The Guarantor has a financial interest in the Borrower and
will derive a benefit from the Loan extended to and the Obligations incurred by
the Borrower, and hereby waives any claim that the Lender violated the Equal
Credit Opportunity Act (15 U.S.C. 1691 et seq.) in connection with the Loan, any
of the Financing Documents or any of the other Obligations or security for any
obligation which is the subject thereto.
Section 2.2 Survival; Updates of Representations and Warranties.
----------------------------------------------------
All representations and warranties contained in or made under or in
connection with this Agreement and the other Financing Documents shall survive
the Closing Date, the making of any advance under the Financing Agreement and
the incurring of any Obligations.
ARTICLE III
AFFIRMATIVE COVENANTS
---------------------
The Guarantor hereby covenants and agrees as follows:
Section 3.1 Existence.
----------
The Guarantor shall maintain its existence in good standing in the
jurisdiction in which it is organized and in each other jurisdiction where it is
required to register or qualify to do business if the failure to do so in such
other jurisdiction might have a material adverse effect on the ability of the
Guarantor to perform the Obligations, on the conduct of the Guarantor's
operations or on the Guarantor's financial condition.
Section 3.2 Further Assurances.
-------------------
The Guarantor will make, execute, acknowledge and deliver all and every
such further acts and assurances as the Lender shall from time to time require
for confirming or carrying out the intentions or facilitating the performance of
the terms of this Agreement.
Section 3.3 Financial Records; Inspection.
------------------------------
The Guarantor will (a) maintain or cause to be maintained full, complete,
accurate and adequate records and books of account in accordance with generally
accepted accounting principles consistently applied; (b) permit the Lender and
its duly authorized agents, attorneys
10
and accountants to inspect, examine, and copy its records and books of account
at all reasonable times; (c) provide to the Lender within ninety (90) days after
each calendar/fiscal year end, the Guarantor's financial statements certified by
the Guarantor to be true and correct, in such form and detail as may be
reasonably requested by the Lender; and (d) promptly deliver to the Lender such
other information with respect to the financial statements of the Guarantor as
the Lender may from time to time require.
Section 3.4 Estoppel Certificates.
----------------------
Within ten (10) days following any request of the Lender so to do, the
Guarantor will furnish the Lender and such other persons as the Lender may
direct with a written certificate, duly acknowledged stating in detail whether
or not any credits, offsets or defenses exist with respect to this Agreement.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.1 Notices.
--------
All notices, requests and demands to or upon the parties to this Agreement
shall be in writing and shall be deemed to have been given or made when
delivered by hand on a Business Day, or two (2) days after the date when
deposited in the mail, postage prepaid by registered or certified mail, return
receipt requested, or when sent by overnight courier, on the Business Day next
following the day on which the notice is delivered to such overnight courier,
addressed as follows:
Guarantor: Trex Company, Inc.
___________________________
___________________________
Attention: _______________
Lender: Bank of America, N. A.
8600 Greensboro Drive, Suite 550
McLean, Virginia 22102
Attention: Elaine Eaton
By written notice, each party to this Agreement may change the address to
which notice is given to that party, provided that such changed notice shall
include a street address to which notices may be delivered by overnight courier
in the ordinary course on any Business Day.
Section 4.2 Amendments; Waivers.
--------------------
This Agreement may not be amended, modified, or changed in any respect
except by an agreement in writing signed by the Lender and the Guarantor. No
waiver of any provision of this Agreement, nor consent to any departure by the
Guarantor therefrom, shall in any event be effective unless the same shall be in
writing. No course of dealing between the Guarantor and the Lender and no act
or failure to act from time to time on the part of the Lender shall constitute
11
a waiver, amendment or modification of any provision of this Agreement or any
right or remedy under this Agreement or under applicable Laws.
Without implying any limitation on the foregoing:
(a) Any waiver or consent shall be effective only in the specific
instance, for the terms and purpose for which given, subject to such
conditions as the Lender may specify in any such instrument.
(b) No waiver of any Default or Event of Default shall extend to any
subsequent or other Default or Event of Default, or impair any right
consequent thereto.
(c) No notice to or demand on the Guarantor in any case shall entitle
the Guarantor to any other or further notice or demand in the same, similar
or other circumstance.
(d) No failure or delay by the Lender to insist upon the strict
performance of any term, condition, covenant or agreement of this Agreement
or of any of the other Financing Documents, or to exercise any right, power
or remedy consequent upon a breach thereof, shall constitute a waiver,
amendment or modification of any such term, condition, covenant or
agreement or of any such breach or preclude the Lender from exercising any
such right, power or remedy at any time or times.
(e) By accepting payment after the due date of any amount payable under
this Agreement or under any of the other Financing Documents, the Lender
shall not be deemed to waive the right either to require prompt payment
when due of all other amounts payable under this Agreement or under any of
the other Financing Documents, or to declare a default for failure to
effect such prompt payment of any such other amount.
Section 4.3 Cumulative Remedies.
--------------------
The rights, powers and remedies provided in this Agreement and in the other
Financing Documents are cumulative, may be exercised concurrently or separately,
may be exercised from time to time and in such order as the Lender shall
determine and are in addition to, and not exclusive of, rights, powers and
remedies provided by existing or future applicable Laws. In order to entitle
the Lender to exercise any remedy reserved to it in this Agreement, it shall not
be necessary to give any notice, other than such notice as may be expressly
required in this Agreement. Without limiting the generality of the foregoing,
the Lender may:
(a) proceed against the Guarantor with or without proceeding against
the Borrower or any other Person who may be liable for all or any part of
the Obligations;
12
(b) proceed against the Guarantor with or without proceeding under any
of the other Financing Documents or against any collateral and security for
all or any part of the Obligations;
(c) without reducing or impairing the obligation of the Guarantor and
without notice, release or compromise with any other Person liable for all
or any part of the Obligations under the Financing Documents or otherwise;
or
(d) without reducing or impairing the obligations of the Guarantor and
without notice thereof: (i) fail to perfect the Lien in any or all
collateral or to release any or all the collateral or to accept substitute
collateral, (ii) approve the making of advances under the credit facilities
under the Financing Agreement, (iii) waive any provision of this Agreement
or the other Financing Documents, (iv) exercise or fail to exercise rights
of set-off or other rights, or (v) accept partial payments or extend from
time to time the maturity of all or any part of the Obligations.
Section 4.4 Severability.
-------------
In case one or more provisions, or part thereof, contained in this
Agreement or in the other Financing Documents shall be invalid, illegal or
unenforceable in any respect under any Law, then without need for any further
agreement, notice or action:
(a) the validity, legality and enforceability of the remaining
provisions shall remain effective and binding on the parties thereto and
shall not be affected or impaired thereby;
(b) the obligation to be fulfilled shall be reduced to the limit of
such validity;
(c) if such provision or part thereof pertains to repayment of the
Obligations, then, at the sole and absolute discretion of the Lender, all
of the Obligations shall become immediately due and payable; and
(d) if the affected provision or part thereof does not pertain to
repayment of the Obligations, but operates or would prospectively operate
to invalidate this Agreement in whole or in part, then such provision or
part thereof only shall be void, and the remainder of this Agreement shall
remain operative and in full force and effect.
Section 4.5 Assignments by Lender.
----------------------
The Lender may, without notice to, or consent of, the Guarantor, sell,
assign or transfer to or participate with any Person or Persons all or any part
of the Obligations, and each such Person or Persons shall have the right to
enforce the provisions of this Agreement and any of the other Financing
Documents as fully as the Lender, provided that the Lender shall continue to
have the unimpaired right to enforce the provisions of this Agreement and any of
the other Financing Documents as to so much of the Obligations that the Lender
has not sold, assigned or transferred.
13
In connection with the foregoing, the Lender shall have the right to disclose to
any such actual or potential purchaser, assignee, transferee or participant all
financial records, information, reports, financial statements and documents
obtained in connection with this Agreement and any of the other Financing
Documents or otherwise.
Section 4.6 Successors and Assigns.
-----------------------
This Agreement shall be binding upon the Guarantor and its successors and
assigns, and shall inure to the benefit of the Lender and its successors and
assigns.
Section 4.7 Continuing Agreements.
----------------------
All covenants, agreements, representations and warranties made by the
Guarantor in this Agreement and in any certificate delivered pursuant hereto
shall survive the making by the Lender of advances and other extensions of
credit under the Loan and the execution and delivery of each promissory note
evidencing all or any part of the Obligations, shall be binding upon the
Guarantor regardless of how long before or after the date hereof any of the
Obligations were or are incurred, and shall continue in full force and effect so
long as any of the Obligations are outstanding and unpaid. From time to time
upon the Lender's request, and as a condition of the release of any one or more
of the Security Documents, the Guarantor and other Persons obligated with
respect to the Obligations shall provide the Lender with such acknowledgments
and agreements as the Lender may require to the effect that there exists no
defenses, rights of setoff or recoupment, claims, counterclaims, actions or
causes of action of any kind or nature whatsoever against the Lender, its agents
and others, or to the extent there are, the same are waived and released.
Section 4.8 Enforcement Costs.
------------------
The Guarantor agrees to pay to the Lender on demand all reasonable
Enforcement Costs, together with interest thereon from the date incurred or
advanced until paid in full at a per annum rate of interest equal at all times
to the Post -Default Rate. Enforcement Costs shall be immediately due and
payable at the time advanced or incurred, whichever is earlier. Without
implying any limitation on the foregoing, the Guarantor agrees, as part of the
Enforcement Costs, to pay upon demand any and all stamp and other Taxes and fees
payable or determined to be payable in connection with the execution and
delivery of this Agreement and to save the Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay any Taxes or fees referred to in this Section. The provisions
of this Section shall survive the execution and delivery of this Agreement, the
repayment of the other Obligations and shall survive the termination of this
Agreement.
Section 4.9 Applicable Law.
---------------
As a material inducement to the Lender to enter into this Agreement, the
Guarantor acknowledges and agrees that the Financing Documents, including, this
Agreement, shall be governed by the Laws of the Commonwealth of Virginia, as if
each of the Financing Documents and this Agreement had each been executed,
delivered, administered and performed solely within the Commonwealth of Virginia
even though for the convenience and at the request of the Borrower, one or more
of the Financing Documents may be executed elsewhere. The Lender acknowledges,
however, that remedies under certain of the Financing Documents that relate to
14
property outside the Commonwealth of Virginia may be subject to the laws of the
state in which the property is located.
Section 4.10 Duplicate Originals and Counterparts.
-------------------------------------
This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument.
Section 4.11 Headings; Etc.
--------------
The headings in this Agreement are included herein for convenience only,
shall not constitute a part of this Agreement for any other purpose, and shall
not be deemed to affect the meaning or construction of any of the provisions
hereof. The above Recitals are part of this Agreement.
Section 4.12 No Partnership; Third Parties.
------------------------------
Nothing contained in this Agreement shall be construed in a manner to
create any relationship between the Guarantor and the Lender other than the
relationship of guarantor and lender and the Guarantor and the Lender shall not
be considered partners or co-venturers for any purpose. The terms and
provisions of this Agreement are for the benefit of the Lender and its
successors, assigns, endorsees and transferees and all persons claiming under or
through it and no other person shall have any right or cause of action on
account thereof. The Lender has no obligation to make any advance of any loan
provided for in the Financing Agreement or otherwise for the benefit of the
Guarantor; the Guarantor has no beneficial interest in the proceeds of any of
the loans or otherwise under the Obligations or rights or claims under the
Financing Agreement or any of the other Financing Documents. The obligations
and liabilities of the Guarantor shall in no manner be affected by the actual
use of the proceeds of the Loan or otherwise or whether the Lender waives any or
all of the conditions to advances set forth in the Financing Agreement or any of
the other Financing Documents.
Section 4.13 Entire Agreement.
-----------------
This Agreement is intended by the Lender and the Guarantor to be a
complete, exclusive and final expression of the agreements contained herein.
Neither the Lender nor the Guarantor shall hereafter have any rights under any
prior agreements pertaining to the matters addressed by this Agreement but shall
look solely to this Agreement for definition and determination of all of their
respective rights, liabilities and responsibilities under this Agreement.
Section 4.14 Consent to Jurisdiction.
------------------------
The Guarantor, irrevocably submits to the jurisdiction of any state or
federal court sitting in the Commonwealth of Virginia over any suit, action, or
proceeding arising out of or relating to this Agreement. The Guarantor
irrevocably waives, to the fullest extent permitted by law, any objection that
it may now or hereafter have to laying the venue of any such suit, action, or
proceeding brought in any such court and any claim that any such suit, action,
or proceeding brought in any such court has been brought in an inconvenient
forum. Final judgment in any such suit, action, or proceeding brought in any
such court shall be conclusive and binding upon the Guarantor and may be
enforced in any court to the jurisdiction of which the Guarantor is
15
subject, by a suit upon such judgment provided that service of process is
effected upon the Guarantor in a manner specified in this Agreement or as
otherwise permitted by applicable law.
Section 4.15 WAIVER OF TRIAL BY JURY.
------------------------
THE GUARANTOR AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE GUARANTOR AND THE LENDER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY
OF THE FINANCING DOCUMENTS, OR (C) THE COLLA TERAL. THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PRO
CEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT.
This waiver is knowingly, willingly and voluntarily made by the Guarantor
and the Lender, and the Guarantor and the Lender hereby represent that no
representations of fact or opinion have been made by any individual to induce
this waiver of trial by jury or to in any way modify or nullify its effect. The
Guarantor and the Lender further represent that they have been represented in
the signing of this Agreement and in the making of this waiver by independent
legal counsel, selected of their own free will, and that they have had the
opportunity to discuss this waiver with counsel.
Section 4.16 Reinstatement.
--------------
If at any time any payment, or portion thereof, made by, or for the account
of, the Borrower or the Guarantor on account of any of the obligations and
liabilities arising hereunder or under any of the Financing Documents is set
aside by any court or trustee having jurisdiction as a voidable preference or
fraudulent conveyance or must otherwise be restored or returned by the Lender to
the Borrower or to the Guarantor under any insolvency, bankruptcy or other
federal and/or state laws or as a result of any dissolution, liquidation or
reorganization of the Borrower or upon, or as a result of, the appointment of
any receiver, intervenor or conservator of, or trustee, or similar officer for,
the Borrower or any substantial part of its properties or assets, the Guarantor
hereby agrees that this Agreement shall continue and remain in full force and
effect or be reinstated, as the case may be, all as though such payment(s) had
not been made.
Section 4.17 Complete and Final Expression of Agreement.
-------------------------------------------
This Agreement is intended by the Lender and the Guarantor to be a
complete, exclusive and final expression of the agreements contained herein. No
course of dealing, course of performance or trade usage, and no parol evidence
of any nature, shall be used to supplement or modify any terms of this
Agreement. The Lender and the Guarantor further agree that there are no
conditions to the full effectiveness of this Agreement, unless otherwise
expressly stated herein. The Guarantor has unconditionally delivered this
Agreement to the Lender, and failure to sign this or any other guarantee by any
other person shall not discharge the liability of the Guarantor hereunder.
16
WITNESS the signature and seal of the Guarantor as of the day and year
first above written.
TREX COMPANY, INC.
By: /s/ Anthony J. Cavanna (SEAL)
------------------------------
Name: Anthony J. Cavanna
Title: Chief Financial Officer
17
EXHIBIT 10.16
Adams-Nelson & Associates, Inc.
Full Service Lease
================================================================================
DEED OF LEASE
BETWEEN
SPACE, LLC
AND
TREX COMPANY, LLC,
as Tenant
Dated: June 15, 2000
================================================================================
For Premises Located At:
Trex Center Office Building 1
Winchester, Virginia
TABLE OF CONTENTS
-----------------
Page
- ------------------------------------------------------------------- ----
ARTICLE 1: BASIC LEASE PROVISIONS................................ 1
ARTICLE 2: DEFINITIONS........................................... 2
ARTICLE 3: THE PREMISES.......................................... 4
ARTICLE 4: TERM.................................................. 5
ARTICLE 5: RENT.................................................. 5
ARTICLE 6: SECURITY DEPOSIT...................................... 6
ARTICLE 7: OPERATING EXPENSES.................................... 6
ARTICLE 8: TAXES................................................. 9
ARTICLE 9: PARKING............................................... 10
ARTICLE 10: USE................................................... 10
ARTICLE 11: ASSIGNMENT AND SUBLETTING............................. 11
ARTICLE 12: MAINTENANCE AND REPAIR................................ 11
ARTICLE 13: INITIAL CONSTRUCTION; ALTERATIONS..................... 13
ARTICLE 14: SIGNS................................................. 14
ARTICLE 15: TENANT'S EQUIPMENT AND PROPERTY....................... 14
ARTICLE 16: RIGHT OF ENTRY........................................ 15
ARTICLE 17: INSURANCE............................................. 15
ARTICLE 18: LANDLORD SERVICES AND UTILITIES....................... 17
ARTICLE 19: LIABILITY OF LANDLORD................................. 18
ARTICLE 20: RULES AND REGULATIONS................................. 18
ARTICLE 21: DAMAGE; CONDEMNATION.................................. 19
ARTICLE 22: DEFAULT............................................... 20
ARTICLE 23: MORTGAGES............................................. 22
ARTICLE 24: SURRENDER; HOLDING OVER............................... 23
ARTICLE 25: QUIET ENJOYMENT....................................... 23
ARTICLE 26: TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS...... 24
ARTICLE 27: MISCELLANEOUS......................................... 25
LIST OF EXHIBITS
----------------
Exhibit A-1 Plan Showing Premises
Exhibit A-2 Plat Showing Land and Building
Exhibit B Rules and Regulations
Exhibit C Guaranty of Lease
Exhibit D Lease Commencement Certificate
Exhibit E Prohibited Uses
Exhibit F Work Agreement
Exhibit G Covenants and Restrictions
Exhibit H Subordination, Non-Disturbance and Attornment Agreement
DEED OF LEASE
THIS DEED OF LEASE (:Lease:) is made as of the 15th day of June, 2000 (the
"Date of Lease"), by and between Space, LLC ("Landlord"), and Trex Company, LLC
("Tenant").
Landlord and Tenant, intending legally to be bound, hereby covenant and
agree as set forth below.
ARTICLE 1: BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set forth
below.
1.1 Premises. Approximately 35,928 rentable square feet, known as Suites
--------
300 & 400 and located on the top two (2) floors of the Building as
outlined on Exhibit A-1 attached hereto and made a part hereof, which
-----------
square footage is subject to confirmation by Tenant's architect.
1.2 Building. The building containing approximately 60,000 gross rentable
--------
square feet shown on Exhibit A-1 attached hereto and made a part
-----------
hereof, and all Alterations, additions, improvements, restorations or
replacements now or hereafter made thereto, with an address of 1460
North Frederick Pike, Winchester, Virginia.
1.3 Term. 10 years, 0 months and 0 days plus any exercised renewal
----
periods.
1.4 Commencement Date. As set forth in Article 4.
-----------------
1.5 Expiration Date. Ten (10) Lease Years after the Commencement Date.
---------------
1.6 Fixed Rent. $21.50 for each rentable square foot of the Premises for
----------
the first through the third Lease Year which is equal to a total of
$772,452 for each of the first three (3) Lease Years payable in equal
monthly installments of $64,371. The Fixed Rent shall be increased
annually by an amount equal to two and one half percent (2-1/2%) of
the previous Lease Year's Fixed Rent commencing with the fourth Lease
Year.
For the purposes of this full-service lease, $15.69 has been
attributed to the base rent and $5.81 per rentable square foot per
annum has been allowed for operating costs. The Landlord will perform
an operating costs reconciliation each January 1st beginning with the
first full year of operation. Operating costs are estimated to be
$5.21 per rentable square foot of the Premises per annum. The Tenant
shall be due 50% of operating costs savings for each Calendar Year, if
any, which shall be the difference between allocated operating costs,
$5.81 per rentable square foot per annum, and actual per rentable
square foot operating costs per annum. Example: If reconciled
operating costs are $5.50 per rentable square foot of the Premises per
annum, then Tenant shall be due a rebate of 50%, the difference
between $5.81 and $5.50 or $.155 per rentable square foot per year
which shall be paid by Landlord to Tenant within thirty (30) days
after the operating expense reconciliation.
1.7 Intentionally Deleted.
---------------------
1.8 Intentionally Deleted.
---------------------
1.9 Intentionally Deleted.
---------------------
1.10 Intentionally Deleted.
---------------------
1.11 Intentionally Deleted.
---------------------
1.12 Business Hours. Utilities pursuant to Section 18.1(i) are furnished
--------------
for Tenant's normal business operations. Under no circumstances will
HVAC or other utilities, including but not limited to electricity,
water, etc. be turned off unless necessary for repairs.
1.13 Parking Space Allocation. Not more than Tenant's proportionate share
------------------------
of available parking spaces, which shall be in unreserved, non-
exclusive parking spaces available in the Parking Facilities.
1.14 Permitted Use. Any lawful purpose. The Permitted Use shall be deemed
-------------
to expressly include but not be limited to any use of any other
occupant of the Building as allowed from time to time.
1.15 Intentionally Deleted.
---------------------
1.16 Broker(s). None.
---------
1.17 Landlord's Address. Kevin Adams, The Adams Companies, The Fern Adams
------------------
Building, 303 S. Loudoun Street, Winchester, VA 22601, with a copy to
Thomas Moore Lawson, Lawson and Silek, P.L.C., P.O. Box 2740,
Winchester, VA 22604
1.18 Tenant's Address. Before occupancy: 20 South Cameron Street,
----------------
Winchester, Virginia; after occupancy: at the Premises; either with a
copy to Hirschel, Savitz, Parker & Hollman, Attn: Steve Levey, 481
North Frederick Avenue, Suite 200, Gaithersburg, MD 20877.
1.19 Guarantor and Guarantor' Address. Trex Company, Inc. Before
--------------------------------
occupancy: 20 S. Cameron Street, Winchester, Virginia; after
occupancy: at the Premises; either with a copy to Hirschel, Savitz,
Parker & Hollman, Attn: Steve Levey, 481 North Frederick Avenue, Suite
200, Gaithersburg, MD 20877.
ARTICLE 2: DEFINITIONS
The following terms, when used herein, shall have the meanings set forth
below.
2.1 Additional Rent. As defined in Section 5.3.
---------------
2.2 Agents. Officers, partners, directors, employees, agents, licensees,
------
customers, contractors, and invitees.
2.3 Alterations. Alterations, decorations, additions or improvements of
-----------
any kind or nature to the Premises or the Building, whether structural
or non-structural, interior, exterior or
-2-
otherwise.
2.4 Calendar Year. A period of twelve (12) months commencing on each
-------------
January 1 during the Term, except that the first Calendar Year shall
be that period from and including the Commencement Date through
December 31 of that same year, and the last Calendar Year shall be
that period from and including the last January 1 of the Term through
the earlier of the Expiration Date or date of Lease termination.
2.5 Common Area. All areas, improvements, facilities and equipment in the
-----------
Building outside of any tenant's premises and within the area
designated as the Common Area Envelope on Exhibit A-2, from time to
-----------
time designated by Landlord for the common use or benefit of Tenant,
other tenants of the Building and their Agents, including, without
limitation, entrances and exits, landscaped areas, exterior lighting,
loading areas, pedestrian walk-ways, sidewalks, atriums, courtyards,
concourses, stairs, ramps, washrooms, maintenance and utility rooms
and closets, exterior utility lines, hallways, lobbies, elevators and
their housing and rooms, common window areas, common walls, common
ceilings, common trash areas and Parking Facilities. In no event
shall the Common Area include areas of the Land allocable to any other
structures, including but not limited to parking garage, shopping
centers, theaters, gas stations, hotels or other buildings which are
not the Building.
2.6 Guaranty. The Guaranty of Lease executed by the Guarantor in the form
--------
of Exhibit C attached hereto and made a part hereof.
---------
2.7 Event of Default. As defined in Article 22.
-----------------
2.8 Herein, hereafter, hereunder and hereof. Under this Lease, including,
---------------------------------------
without limitation, all Exhibits and any Riders.
2.9 Interest Rate. Per annum interest rate listed as the base rate on
--------------
corporate loans at large U. S. money center commercial banks as
published from time to time under "Money Rates" in the Wall Street
-----------
Journal plus three percent (3%), but in no event greater than the
-------
maximum rate permitted by law. In the event the Wall Street Journal
-------------------
ceases to publish such rates, Landlord and Tenant shall choose a
similar publication which publishes such rates.
2.10 Land. The piece or parcel of land described in Exhibit A-2 and all
---- -----------
rights, easements and appurtenances thereunto belonging or pertaining,
or such portion thereof as shall be reasonably allocated by Landlord
to the Building.
2.11 Lease Year. Each consecutive twelve (12) month period elapsing after
----------
(i) the Commencement Date if the Commencement Date occurs on the first
day of a month, or (ii) the first day of the month following the
Commencement Date if the Commencement Date does not occur on the first
day of the month.
2.12 Mortgage. Any mortgage, deed of trust, security interest or title
--------
retention interest affecting the Building or the Land.
2.13 Mortgagee. The holder of any note or obligation secured by a
----------
mortgage, deed of trust, security interest or title retention interest
affecting the Building or the Land, including,
-3-
without limitation, lessors under ground leases, sale-leasebacks and
lease-leasebacks.
2.14 Operating Expenses. As defined in Sections 7.1 and 7.2.
------------------
2.15 Parking Facilities. All parking areas now or hereafter made available
------------------
by Landlord for use by tenants, including, without limitation, open-
air parking, and parking areas under or within the Building, whether
reserved, exclusive, non-exclusive or otherwise.
2.16 Real Estate Taxes. As defined in Section 8.2.
-----------------
2.17 Rent. Fixed Rent and Additional Rent.
----
2.18 Rules and Regulations. The rules and regulations set forth in Exhibit
--------------------- -------
B attached hereto and made a part hereof, as the same may be
-
reasonably amended or supplemented from time to time (after reasonable
=================
notice to Tenant) provided they are uniformly applied to all occupants
=================
of the Building.
2.19 Substantial Completion. As defined in the Work Agreement attached
----------------------
hereto and made a part hereof as Exhibit F.
----------
2.20 Substantial Part. More than eighty percent (80%) of the rentable
----------------
square feet of the Premises or the Building, as the case may be.
2.21 Work Agreement. As set forth in Exhibit F attached hereto and made a
-------------- ---------
part hereof.
ARTICLE 3: THE PREMISES
3.1 Lease of Premises. In consideration of the agreements contained
-----------------
herein, Landlord hereby leases the Premises to Tenant, and Tenant
hereby leases the Premises from Landlord, for the Term and upon the
terms and conditions hereinafter provided. As an appurtenance to the
Premises, Tenant shall have the non-exclusive right, together with
other tenants of the Building and their Agents, to use the Common
Area. Subject to the provisions of this Lease, Landlord shall retain
absolute domain and control over the Common Area and shall operate and
maintain the Common Area in such manner as Landlord, in its sole
discretion, shall determine; provided the Building is maintained as a
Class A office building and provided such right shall not operate to
interfere with Tenant's use of the Premises for the Permitted Use.
Landlord expressly reserves the right permanently to change, modify or
eliminate, or temporarily to close, any portion of the Common Area
provided it does not materially interfere with Tenant's use and
occupancy of the Premises or the Building. The Premises are leased
subject to, and Tenant agrees not to violate, all covenants,
conditions and restrictions of record which affect the Building as are
negotiated in good faith between the parties and as are attached
hereto as Exhibit G. In no event may Landlord allow the number of
parking spaces in the Common Area to be diminished.
3.2 Landlord's Reservations. In addition to the other rights of Landlord
-----------------------
under this Lease, Landlord reserves the right (i) to change the street
address and/or name of the Building (provided however if Landlord
changes the name without Tenant's consent, Landlord shall reimburse
Tenant for all costs incurred in connection therewith, including but
not
-4-
limited to costs of change in stationery, business cards and advising
Tenant's clients of such change), (ii) to install, erect, use,
maintain and repair mains, pipes, conduits and other such facilities
to serve the Building's tenants in and through the Premises, after
twenty-four (24) hours notice unless in the event of an emergency
provided the same are located in a place which cannot be seen from
within the Premises and such installation, maintenance or repair shall
not interfere with the operation of Tenant's business, (iii) to grant
to anyone the exclusive right to conduct any particular business or
undertaking in the Building, provided the same does not restrict
Tenant's ability to use and occupy the Premises as set forth in this
Lease, (iv) to establish a condominium regime for the Building, the
Land and/or the Common Area and to include the Premises therein, so
long as the same is at no cost to Tenant and that the terms of this
Lease remain in full force and effect and are unmodified (v) to
control the use of the roof and exterior walls of the Building for any
purpose and (vi) to use Tenant's name in promotional materials
relating to the Building as long as Tenant is a tenant. Landlord may
exercise any or all of the foregoing rights without being deemed to be
guilty of an eviction, actual or constructive, or a disturbance or
interruption of the business of Tenant or Tenant's use or occupancy of
the Premises provided Landlord's actions are reasonable and do not
materially interfere with Tenant's business. In no event may Landlord
lease space in the Building for any of the agreed Prohibited Uses set
forth on Exhibit E. In the event the exercise of Landlord's rights
hereunder materially interferes with the operation of Tenant's
business, all rent shall abate during such period of material
interference. In the event such interference continues for one hundred
twenty (120) consecutive days, Tenant may terminate this Lease.
ARTICLE 4: TERM
The Term shall commence on the Commencement Date and expire at midnight on
the Expiration Date. Except as otherwise set forth in Exhibit F, the
Commencement Date shall be the later of (a) June 1, 2001 or (b) sixty (60)
days after the date of Substantial Completion. The first sixty days are
intended to be rent free. Notwithstanding what is stated above, the first
monthly payment shall be due on the Commencement Date. The date of
Substantial Completion shall be the date when (a) the work to be performed
by Landlord in the Premises in accordance with this Lease shall have been
substantially completed notwithstanding that certain minor details of
decoration remain to be performed, the non-completion of which would not
materially interfere with the Tenant's use of the Premises ("Punch List
Items"), (b) Landlord has completed the Building so that the same is ready
for occupancy by tenants, and (c) all areas within the Common Area Envelope
have been substantially completed but not prior to April 15, 2001. All
Punch List Items or work to be performed by Landlord shall be completed by
Landlord within thirty (30) days. The Expiration Date shall be adjusted so
that the period of the Term is not changed. Promptly after the
Commencement Date is ascertained, Landlord and Tenant shall execute a
certificate confirming the Commencement Date which certificate shall be in
the form of Exhibit D attached hereto and made a part hereof. Tenant shall
---------
cause said certificate to be executed on behalf of the Tenant within
fifteen (15) days of receipt from Landlord. The Term shall include any
option periods. Notwithstanding what is stated above, the Landlord shall
not be responsible for any delays in the delivery of the Premises if said
delays are caused by the Tenant, its architect or subcontractor(s).
ARTICLE 5: RENT
-5-
5.1 Fixed Rent. Commencing on the Commencement Date, Tenant shall pay to
----------
Landlord the Fixed Rent as specified in Section 1.6.
5.2 Payment of Fixed Rent. Fixed Rent for each Lease Year shall be
---------------------
payable in equal monthly installments, in advance, without demand,
notice, deduction, offset or counterclaim (except as otherwise
provided in this Lease), on or before the first day of each and every
calendar month during the Term prorated for any partial month; Tenant
shall pay the Fixed Rent and all Additional Rent, by good check or in
lawful currency of the United States of America, to Landlord at
Landlord's Address, or to such other address or in such other manner
as Landlord from time to time specifies by written notice to Tenant.
Any payment made by Tenant to Landlord on account of Fixed Rent may be
credited by Landlord to the payment of any late charges then due and
payable and to any Fixed Rent or Additional Rent then past due before
being credited to Fixed Rent currently due.
5.3 Intentionally Deleted.
---------------------
ARTICLE 6: INTENTIONALLY DELETED
ARTICLE 7: OPERATING EXPENSES
7.1 Operating Expenses Defined. As used herein, the term "Operating
--------------------------
Expenses" shall mean all expenses and costs which Landlord incurs
because of or in connection with the ownership, maintenance,
management and operation of the Building. Operating Expenses shall
include, without limitation, all reasonable actual costs, expenses and
disbursements incurred or made in connection with the following:
(i) Wages and salaries of all on-site management agent, staff,
below the level of property manager whether employed by
Landlord or the Building's management company, engaged in the
operation and maintenance or security of the Building and all
costs related to or associated with such employees or the
carrying out of their duties, including uniforms and their
cleaning, taxes, auto allowances and insurance and benefits
(including without limitation, contributions to pension and/or
profit sharing plans and vacation or other paid absences);
(ii) All supplies and materials, including janitorial and lighting
supplies, used directly in the operation and maintenance of the
Building, Common Area and Parking Facilities allocable to the
Building.
(iii) All utilities, including, without limitation, electricity,
telephone (including, without limitation, all costs and
expenses of telephone service for the sprinkler alarm systems,
if any), water, sewer, power, gas heating, lighting and air
conditioning for the Building, except to the extent such
utilities are chargeable or separately metered to a tenant of
the Building;
(iv) All insurance purchased by Landlord or the Building's
management company relating to the Building and its
improvements specifically allocated to the Building and any
equipment or other property contained therein or located
-6-
thereon including, without limitation, casualty, liability,
rental loss, sprinkler and water damage insurance but not
including any deductible for such insurance;
(v) All non-structural repairs to the Building (excluding repairs,
the cost of which are recoverable by the proceeds of insurance
or by Tenant or other third parties other than as part of the
Operating Expenses);
(vi) All maintenance of the Building, including, without limitation,
painting, ice and snow removal, landscaping, groundskeeping and
the patching of driveways and parking lots allocable to the
Building;
(vii) Intentionally Deleted;
(viii) All commercially reasonable maintenance, operation and service
agreements for the Building, and any equipment related thereto,
including, without limitation, service and/or maintenance
agreements for the sprinkler system in the Building, if any
(excluding those chargeable to Tenant or any third parties
other than as a part of Operating Expenses);
(ix) Accounting and legal fees incurred in connection with the
operation and maintenance of the Building or related thereto,
to the extent the same actually results in a reduction in
Operating Expenses;
(x) Intentionally Deleted;
(xi) All computer rentals for energy management or security
monitoring system used to reduce Operating Expenses, if any;
(xii) Any capital improvements made to the Building after the
Commencement Date (other than those made for the addition of
rentable square footage to the Building or for the sole benefit
of a Building tenant pursuant to its Lease), (but only to the
extent that such capital improvement actually results in the
reduction of Operating Expenses) the cost of which shall be
amortized over the useful life of such improvement; and
(xiii) Intentionally Deleted.
7.2 Exclusions from Operating Expenses. Operating Expenses shall not
----------------------------------
include the following:
(i) Legal fees, space planners' fees, real estate brokers' leasing
commissions and advertising expenses incurred in connection
with the original or future leasing of space in the Building;
(ii) Costs and expenses of Alterations or improvements of the
Premises or the leasehold premises of other individual tenants;
(iii) Depreciation, interest and principal payments on mortgages and
other debt costs, if any;
-7-
(iv) Costs and expenses associated with the operation of the
business of the person or entity which constitutes Landlord as
the same are distinguished from the costs of operation of the
Building, including accounting and legal matters, costs of
defending any lawsuits with any mortgagee (except to the extent
the actions of Tenants or any other tenant may be in issue),
costs of selling or financing any of Landlord's interest in the
Building and outside fees paid in connection with disputes with
other tenants;
(v) Costs and expenses resulting from the negligence or willful
misconduct of Landlord or its Agents to the extent provable by
Tenant;
(vi) Real Estate Taxes as defined in Section 8.2.
(vii) management or administrative fees;
(viii) Intentionally deleted;
(ix) the cost of Landlord's federal, state or local income taxes;
(x) the expense of rental payments made by Landlord pursuant to any
grant or lease covering any or all of the Building or the Land;
(xi) charges or fees for, or taxes on, the furnishing of water,
sewer service, gas, fuel, electricity or other utility services
to those portions of the Building or the Land which are leased
to or occupied by tenants, which are separately metered or
submetered;
(xii) the cost of providing janitorial or trash removal service to
those portions of the Building or the Land which are leased to
or occupied by tenants and separately chargeable to such
tenants or occupants;
(xiii) the cost of removing asbestos and all other hazardous
substances, if any, located in, on or within the Land, and the
costs of complying with all laws, rules, orders and regulations
concerning hazardous substances (including asbestos) of all
governmental, quasi-governmental or judicial authorities;
(xiv) the costs incurred in repairing or replacing the roof or the
structural portions of the Building or any building or
structure on the Land;
(xv) the cost of new construction or renovation of the Building or
any building or structure on the Land;
(xvi) expenses related to security guards;
(xvii) expenses incurred solely for the benefit of tenants other than
the office tenants of the Building generally;
-8-
(xviii) expenses incurred solely for the benefit of any one office
tenant unless such expenses are also incurred for all other
office tenants of the Building;
(xix) the costs of complying with all laws, rules, orders and
regulations of all governmental, quasi-governmental or
judicial authorities concerning any improvements or
Alterations to the Building or the Land unless said costs are
incurred for the benefit of all tenants; or
(xx) Intentionally Deleted.
7.3 Reconciliation Statement. For the purposes of this full-service lease,
------------------------
$15.69 has been attributed to the base rent and $5.81 per rentable
square foot per annum has been allowed for operating costs. The
Landlord will perform an operating costs reconciliation each January
1st beginning with the first full year of operation. Operating costs
are estimated to be $5.21 per rentable square foot of the Premises per
annum. The Tenant shall be due 50% of operating costs savings for
each Calendar Year, if any, which shall be the difference between
allocated operating costs, $5.81 per rentable square foot per annum,
and actual per rentable square foot operating costs per annum.
Example: If reconciled operating costs are $5.50 per rentable square
foot of the Premises per annum, then Tenant shall be due a rebate of
50%, the difference between $5.81 and $5.50 or $.155 per rentable
square foot per year which shall be paid by Landlord to Tenant within
thirty (30) days after the operating expense reconciliation.
7.4 Tenant's Right to Audit. In the event Tenant shall dispute the amount
-----------------------
set forth in Landlord's statement as described in Section 7.4 herein,
Tenant shall have the right, not later than eighteen (18) months
following receipt of such statement, to cause Landlord's books and
records with respect to the preceding Calendar Year to be audited.
Such audit shall occur upon not less than five (5) days prior written
notice to Landlord, at Landlord's place of business or the actual
location of Landlord's books and records if different from Landlord's
place of business, provided the same is within the continental United
States during Landlord's normal business hours. The amounts payable
under this Section by Landlord to Tenant or by Tenant to Landlord, as
the case may be, shall be appropriately adjusted on the basis of such
audit. If such audit discloses a liability for further refund by
Landlord to Tenant in excess of five percent (5%) of the payments
previously made by Tenant for such Calendar Year, the cost of such
audit shall be borne by Landlord and shall not be considered as an
Operating Expense for purposes of this Lease; otherwise, the cost of
such audit shall be borne by Tenant. Notwithstanding the foregoing,
in no event shall Landlord's cost for such audit exceed one thousand
dollars ($1,000.00).
ARTICLE 8: TAXES
8.1 Real Estate Taxes Defined. As used herein, the term "Real Estate
--------------------------
Taxes" shall mean all taxes and assessments which have accrued within
the Term of this Lease, including but not limited to, general or
special, ordinary or extraordinary, foreseen or unforseen, assessed,
levied or imposed by any governmental authority upon the Building and
the Land and upon the fixtures, machinery, equipment or systems in,
upon or used in connection with any of the foregoing, and the rental,
revenue or receipts derived therefrom, under the current or any future
taxation or assessment system or modification of, supplement to, or
substitute for such system. Real Estate Taxes also shall include
-9-
special assessments which are in the nature of or in substitution for
real estate taxes, including, without limitation, road improvement
assessments, special use area assessments and school district
assessments. If at any time the method of taxation prevailing at the
Date of Lease shall be altered so that in lieu of, as a substitute for
or in addition to the whole or any part of the taxes now levied or
assessed, there shall be levied or assessed a tax of whatever nature,
then the same shall be included as Real Estate Taxes hereunder.
Further, for the purposes of this Article, Real Estate Taxes shall
include the reasonable expenses (including, without limitation,
reasonable attorney's fees) incurred by Landlord in challenging or
obtaining or attempting to obtain a reduction of such Real Estate
Taxes, to the extent of any reduction. Notwithstanding the foregoing,
Landlord shall have no obligation to challenge Real Estate Taxes. If
as a result of any such challenge, a tax refund is made to Landlord,
then the amount of such refund less the reasonable expenses of the
challenge shall be deducted from Real Estate Taxes due in the Lease
Year such refund is received.
Notwithstanding the foregoing, Real Estate Taxes shall not include
penalties and interest on taxes resulting from Landlord's delinquency in paying
the same nor any inheritance, estate, succession, transfer, gift, franchise or
corporation tax (such corporation tax shall include taxies levied solely against
a corporation or similar entity or corporate taxes or the like; such corporation
tax shall exclude taxes included on, for example, utility bills or bills for
goods or services incurred in relation to the operation of the Building or the
Common Area Envelope) levied or imposed upon Landlord nor any real estate
transfer tax, mortgage lien tax, documentary stamp tax, recording fees or the
like.
Real Estate Taxes shall also exclude any rent, gross receipt, business
taxes, income or profit tax of any kind whatsoever. Notwithstanding anything in
this Section to the contrary, (i) if any betterments assessment is payable in
installments, the Real Estate Taxes for any tax year shall include only such
installments of such betterments assessment as is allocable to such tax year,
(ii) if for any tax year included within the Term of this Lease a betterments
assessment is assessed for an improvement (such as a street or sewer) made,
commenced, or authorized prior to the time the Building first opens for
business, then, except for any front foot benefit charges and except as
hereinafter provided, such assessment shall not be included in the definition of
Real Estate Taxes for any tax year.
ARTICLE 9: PARKING
9.1 Changes to Parking Facilities. Subject to Section 3.1, Landlord shall
-----------------------------
have the right, from time to time, without Tenant's consent, to
change, alter, add to, temporarily close or otherwise affect the
Parking Facilities in such manner as Landlord may decide provided the
total number of parking spaces allocable to the Building does not
decrease and that Landlord's actions do not materially interfere with
Tenant's use of the Premises. The total number of parking spaces
shall be not less than two hundred forty (240) or as required by law
to the extent applicable to the Building, whichever is greater. One
hundred sixty-five (165) of said parking spaces shall be designated by
Landlord for Tenant's exclusive use and eleven (11) of which shall be
located in front of the Building as marked on Exhibit A-2 as "Trex
Visitor" spaces. Upon request by Tenant, Landlord shall use
commercially reasonable efforts to ensure and enforce Tenant's right
to use exclusive parking spaces. Any material change to the parking
area as is defined on Exhibit A-2 shall be preapproved by Tenant.
Said approval shall not be unreasonably withheld, conditioned or
delayed.
-10-
ARTICLE 10: USE
Tenant shall occupy the Premises solely for the Permitted Use. The
Premises shall not be used for any other purpose without the prior written
consent of Landlord which consent shall not be unreasonably withheld,
conditioned, or delayed. Tenant shall comply, at Tenant's expense, with
(i) all present and future laws, ordinances, rules, requirements,
regulations and orders of the United States of America, the Commonwealth of
Virginia and any other public or quasi-public federal, state or local
authority and/or any department or agency thereof, having jurisdiction over
the Premises and relating Tenant's particular use, or alteration of the
Premises performed by Tenant (ii) any reasonable requests of Mortgagee or
any insurance company providing coverage with respect to the Premises to
the extent the same does not cause expense to Tenant or otherwise
interfere with Tenant's use and occupancy of the Premises and does not
pertain to any structural alteration which is Landlord's responsibility.
Tenant shall not use or occupy the Premises in any manner that is unlawful
or dangerous or that shall constitute waste, unreasonable annoyance or a
nuisance to Landlord or the other tenants of the Building. Landlord shall
comply, at Landlord's sole cost and expense, with all governmental laws,
rules, regulations, and orders of the United States of America, the
Commonwealth of Virginia and any other public or quasi-public Federal,
State or local authority and/or any department or agency thereof having
jurisdiction over the Premises with regard to: (a) requirements prior to
the Commencement Date including, but not limited to, requirements imposed
with respect to Tenant work that is performed by Landlord or Landlord's
Agent (in the event Tenant performs work after obtaining consent from
Landlord then Tenant shall have the sole responsibility to comply with all
governmental laws, rules, regulations and orders); (b) the nature of the
structure of the Premises; (c) the building operating and life safety
systems; (d) the Common Area; and/or (e) Landlord's failure to make any
repairs required of Landlord hereunder. If a fire sprinkler or any
additional exits are ever required, the same shall be installed or
constructed by Landlord at Landlord's sole cost and expense. Landlord
represents that Tenant's stated use does not conflict with Landlord's
insurance and that Tenant shall not be precluded from using the Premises in
accordance with the stated Permitted Use or be liable or obligated to
reimburse Landlord for any increases in Landlord's insurance premium or
rates resulting from Tenant's use of the Premises if Tenant is conducting
its normal business in accordance with the stated Permitted Use for which
the Premises were leased to Tenant.
ARTICLE 11: ASSIGNMENT AND SUBLETTING
11.1 Consent. Tenant shall have the absolute right to assign this Lease or
sublet all or any portion of the Premises without the prior written
consent of Landlord, provided, however that no such assignment or
subletting shall release Tenant or Guarantor of their liability under
the Lease. For an assignment to be effective, any assignee must
deliver within thirty (30) days an agreement by which it assumes all
of the obligations of Tenant hereunder.
ARTICLE 12: MAINTENANCE AND REPAIR
12.1 Landlord's Obligation. Landlord shall keep and maintain in good
---------------------
repair (including replacements as necessary) and working order the
Building, the Common Area and the equipment within and serving the
Premises and the Building (excluding Tenant's leasehold improvements
made by Tenant in the Premises) that are required for the maintenance
and operation of the Premises and the Building. Except as otherwise
-11-
provided in Article 7 or Article 10, the cost of such maintenance and
repairs to the Building and said equipment shall be included in the
Operating Expenses and paid by Landlord. Tenant shall give Landlord
written notice of any defect or need for repairs. After becoming
aware, Landlord shall have a reasonable opportunity to repair or cure
such defect. Landlord's liability with respect to any defects, repairs
or maintenance for which Landlord is responsible under any of the
provisions of this Lease shall be limited to the cost of such repairs
or maintenance or the curing of such defect. In the event of an
emergency requiring immediate action, e.g., danger to health, life or
property, fire, water seepage, sewer back-up, cessation or
interruption of any facility serving the Premises, and the like
(herein called "Emergency") or in the event Landlord fails to make
repairs as set forth herein within a reasonable period of time (i.e.
within five days), Tenant may repair the cause of the emergency or the
damage which Landlord has failed to repair whether the means of
repairing the same are located within the Premises or other portions
of Building, prior to giving any written notice to Landlord (or in the
case of Landlord's failure to repair, after five (5) days' written
notice); provided, however, that Tenant shall notify Landlord within
two (2) business days after expiration of the Emergency. Landlord
shall reimburse Tenant within thirty (30) days after notice for the
cost of said reasonable repairs.
12.2 Tenant's Obligation. Tenant shall, at its own expense, maintain all
-------------------
improvements in the Premises made by Tenant and other real and
personal property within the Premises in good condition, promptly
making all necessary repairs and replacements. Notwithstanding what
is stated above, the Tenant will have no obligation to maintain the
HVAC system, electric service and basic plumbing service to the
Premises. Tenant shall repair at its expense, any and all damage
caused by Tenant, Tenant's invitees while within the Premises or
Tenant's employees, agents, contractors or subcontractors to the
Building, the Common Area, or the Premises, including equipment within
and serving the Building, ordinary wear and tear excepted. Except as
set forth in 12.1 above, Tenant shall bear the cost of, but shall not
itself perform without Landlord's prior consent (which consent shall
not be unreasonably withheld, conditioned or delayed), any such
repairs caused by Tenant as set forth in the previous sentence which
would affect the Building's structure or mechanical or electrical
systems or which would be visible from the exterior of the Building or
from any interior Common Area of the Building. Where Landlord
performs such repairs, Tenant shall promptly pay to Landlord within
thirty (30) days after notice, all costs incurred in connection
therewith plus interest thereon at the Interest Rate from the demand
date until paid. Without prior written notice to Landlord, Tenant
shall not have access to the roof of the Building for any purpose
whatsoever. Tenant's liability with respect to any defects, repairs
or maintenance for which Tenant is responsible under any of the
provisions of this Lease shall be limited to the cost of such repairs
or maintenance or the curing of such defect.
12.3 Landlord's Right to Maintain or Repair. If, within thirty (30) days
--------------------------------------
following notice to Tenant, Tenant fails to commence to repair or
replace any damage to the Premises or Building which is Tenant's
obligation to perform, and diligently pursue timely completion of such
repair and replacement, Landlord may, at its option, cause all
required maintenance, repairs or replacements to be made. Tenant
shall within thirty (30) days after notice, pay Landlord all costs
incurred in connection therewith plus interest thereon at the Interest
Rate from the due date until paid.
12.4 The provisions of this Article are subject to the provisions of
Article 21.
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ARTICLE 13: INITIAL CONSTRUCTION; ALTERATIONS
13.1 Initial Construction. Landlord and Tenant agree that the construction
---------------------
of the Tenant Work and other initial construction with respect to the
Premises shall be performed in accordance with Exhibit F attached
---------
hereto and made a part hereof.
13.2 Alterations. During the Term, Tenant shall not make or permit any
------------
Alterations affecting the structural integrity or the common operating
systems of the Building without the prior written consent of Landlord
which shall not be unreasonably withheld, conditioned or delayed.
Landlord may impose any reasonable conditions to its consent,
including without limitation, (i) delivery to Landlord of written and
unconditional waivers of mechanic's and materialmen's liens as to the
Premises, the Building and the Land for all work, labor and services
to be performed and materials to be furnished, signed by all
contractors, subcontractors, materialmen and laborers participating in
the Alterations providing materials and labor for the Alterations
exceed a value of $500,000.00, (ii) prior approval of the plans and
specifications and Tenant's contractor(s) with respect to the
Alterations, and (iii) supervision by Landlord's representative at
Tenant's expense of the Alterations. The Alterations shall conform to
the requirements of Landlord's and Tenant's insurers and of the
Federal, state and local governments having jurisdiction over the
Premises, shall be performed in accordance with the terms and
provisions of this Lease in a good and workmanlike manner befitting a
first class office building. If the Alterations made pursuant to this
Section 13.2 are not performed as herein required, Landlord shall have
the right, at Landlord's option, to halt any further Alterations, or
to require Tenant to perform the Alterations as herein required or to
require Tenant to return the Premises to its condition before such
Alterations. Subject to Section 13.3 herein, all Alterations and
fixtures, whether temporary or permanent in character, made in or upon
the Premises either by Tenant or Landlord, will immediately become
Landlord's property and, at the end of the Term will remain on the
Premises without compensation to Tenant. Notwithstanding the
foregoing, if any mechanic's or materialmen's lien is filed against
the Premises, the Building or the Land for work claimed to have been
done for, or materials claimed to have been furnished to or for the
benefit of, Tenant, such lien shall be discharged of record by Tenant
within thirty (30) days after notice by Landlord by the payment there
of or the filing of any bond required by law. If Tenant shall fail to
discharge any such lien, Landlord may (but shall not be obligated to)
discharge the same, the cost of which shall be paid by Tenant within
ten (10) days of demand. Neither Landlord's consent to the
Alterations nor anything contained in this Lease shall be deemed to be
the agreement or consent of Landlord to subject Landlord's interest in
the Premises, the Building or the Land to any mechanic's or
materialmen's liens which may be filed in respect of the Alterations.
13.3 Permitted Alterations. Tenant may, at its own expense, without
----------------------
Landlord's consent, but with prior written notice to Landlord, from
time to time during the Term, make nonstructural, non-exterior
alterations costing less than $500,000.00 in and to the interior of
the Premises, as it may find necessary or convenient for its purposes.
Notwithstanding the foregoing, Tenant must obtain Landlord's prior
written consent, which shall not be unreasonably withheld, conditioned
or delayed for any alterations made by a subtenant in connection with
a use other than standard office use (a use different than Tenant's
standard office use). Tenant may retain an interest in any
improvements or Alterations
-13-
made to the Premises for purposes of amortization thereof. Tenant may
erect a satellite dish or comparable roof equipment on the roof of the
Building subject to Landlord's reasonable designation as to the
location thereof and provided Tenant does not void any applicable roof
warranties.
13.4 Landlord Alterations. Landlord shall have no obligation to make any
---------------------
Alterations in or to the Premises, the Building, the Common Area or
the Land except as specifically provided in the Work Agreement or as
required by law. Landlord hereby reserves the right, from time to
time, to make Alterations to the Building, change the Building
dimensions, erect additional stories thereon and attach other
buildings and structures thereto, and to erect such scaffolding and
other aids to construction as Landlord deems appropriate and no such
Alterations, changes, construction or erection shall constitute an
eviction, constructive or otherwise, or permit Tenant any abatement of
Rent or claim subject however to the provisions of Section 3.1.
ARTICLE 14: SIGNS
No sign, advertisement or notice shall be inscribed, painted, affixed,
placed or otherwise displayed by Tenant on any part of the Land or the
outside or the inside (including, without limitation, the windows) of the
Building or the Premises. In addition to the sign referenced in Section
1.3 of the Work Agreement, Tenant may, at Tenant's sole expense, place a
tenant identification sign on an exterior Building monument sign or on the
Building in a location and appearance approved by Landlord which approval
shall not be unreasonably withheld, conditioned or delayed. Such signage
shall be in accordance with all applicable covenants, restrictions,
governmental regulations and Landlord's signage requirements. Tenant shall
have the foregoing right for a period of one (1) year from the Commencement
Date to install said sign. Landlord shall also, at its sole cost and
expense, install suite entry signage and a building directory in the
Building. Any other permitted signs shall be installed and maintained by
Landlord at Tenant's sole expense. If any prohibited sign, advertisement
or notice is nevertheless exhibited by Tenant, Landlord shall have the
right to remove the same after ten (10) days' notice, and Tenant shall pay
any and all expenses incurred by Landlord in such removal, together with
interest thereon at the Interest Rate, upon demand. Landlord shall have
the right to prohibit any sign, on the Building which, in Landlord's
reasonable opinion, tends to impair the reputation of the Building or its
desirability as a first class office building. Tenant shall have the right
to the most conspicuous sign on the Building or on the Building Monument
Sign at Tenant's sole cost and expense.
ARTICLE 15: TENANT'S EQUIPMENT AND PROPERTY
15.1 Moving Tenant's Property. Any and all damage or injury to the
-------------------------
Premises or the Building caused by moving the property of Tenant into
or out of the Premises, or due to the same being on the Premises,
shall be repaired by Tenant. Tenant shall promptly remove from the
Common Area any of Tenant's furniture, equipment or other property
there deposited.
15.2 Installing and Operating Tenant's Equipment. Without first obtaining
--------------------------------------------
the written consent of Landlord which shall not be unreasonably
withheld, conditioned or delayed, Tenant shall not install or operate
in the Premises (i) any electrically operated equipment or other
machinery, other than standard office or kitchen equipment that does
not require wiring, cooling or other service in excess of Building
standards, (ii) any equipment of any kind or
-14-
nature whatsoever which will require any changes, replacements or
additions to, or changes in the use of, any water, heating, plumbing,
air conditioning or electrical system of the Building to the extent
not exclusively serving the Premises, or (iii) any equipment which
causes the floor load to exceed the load limits reasonably set by
Landlord for the Building. Landlord's consent to such installation or
operation may be conditioned upon the payment by Tenant of additional
compensation for any excess consumption of utilities and any
additional power, wiring, cooling or other service (as determined in
the reasonable sole discretion of Landlord) that may result from such
equipment. Machines and equipment which cause noise or vibration that
may be transmitted to and adversely affect the structure of the
Building or to any space therein so as to be reasonably objectionable
to Landlord or any other Building tenant shall be installed and
maintained by Tenant, at its expense, on vibration eliminators or
other devices sufficient to eliminate such noise and vibration.
Notwithstanding what is stated above Tenant may install minor
appliances such as a dishwasher, water cooler or coffee maker,
toaster, refrigerator or other appliances commonly found in large
office spaces.
ARTICLE 16: RIGHT OF ENTRY
Tenant shall permit Landlord or its Agents, at any time and with one
business day's notice (except in cases of emergencies), to enter the
Premises, without charge therefor to Landlord and without diminution of
Rent, (i) to examine, inspect and protect the Premises and the Building,
(ii) to make such Alterations and repairs or perform such maintenance
permitted or required by this Lease (iii) to exhibit the same to
prospective purchasers of the Building or to present or future Mortgagees
or (iv) to exhibit the same to prospective tenants during the last six (6)
months of the Term and to erect outside the Building a reasonable sign
indicating the Premises are available. In the event any such entry
materially interferes with the operation of Tenant's business, all rent
shall abate during such period of material interference.
ARTICLE 17: INSURANCE
17.1 Insurance Rating. Tenant shall not conduct or permit any activity, or
-----------------
place any equipment or material, in or about the Premises, the
Building or the Common Area which will increase the rate of fire or
other insurance on the Building; and if any increase in the rate of
insurance is stated by any insurance company or by the applicable
insurance rating bureau to be due to any activity, equipment or
material of Tenant in or about the Premises, the Building or the
Common Area, such statement shall be conclusive evidence that the
increase in such rate is due to the same and, as a result thereof,
Tenant shall pay any such increase to Landlord upon demand. Landlord
represents that the Tenant's stated intended use and the equipment
used in connection therewith shall not cause an increase of Landlord's
insurance premiums or a violation of Landlord's insurance policies.
17.2 Insurance for Personal Property. Tenant shall, at its sole cost and
--------------------------------
expense, procure and maintain throughout the Term a property insurance
policy (written on an "Special Risk" basis) insuring all of Tenant's
personal property, including but not limited to equipment, furniture,
fixtures, furnishings and leasehold improvements which are the
responsibility of Tenant for not less than the full replacement cost
of said property. Should Tenant elect not to replace or repair
Tenant's property with insurance proceeds, then Tenant waives all
claims that it may have against Landlord to recover damages or repair
or replacement of Tenant's property.
-15-
17.3 Requirements of Insurance Coverage. All such insurance required to be
-----------------------------------
carried by Tenant herein shall be with an insurance company licensed
to do business in the Commonwealth of Virginia and complies with the
requirements herein. Such insurance (i) shall contain an endorsement
that such policy shall remain in full force and effect notwithstanding
that the insured has released its right of action against any party
before the occurrence of a loss; (ii) shall name Landlord, Tenant and,
at Landlord's request, any Mortgagee or ground lessor, as an
additional named insured parties; and (iii) shall provide that the
policy shall not be canceled, failed to be renewed or materially
amended without at least thirty (30) days' prior written notice
(fifteen (15) days if due to non-payment of premium) to Landlord and,
at Landlord's request, any Mortgagee. Upon request or before the
Commencement Date and, thereafter, before the expiration date of the
insurance policy, an original of the policy (including any renewal or
replacement policy) or a certified copy thereof, together with
evidence reasonably satisfactory to Landlord of the payment of all
premiums for such policy, shall be delivered to Landlord and, at
Landlord's request, to any Mortgagee. Tenant shall at all times
during the Lease Term keep in force a policy or policies of public
liability insurance or an endorsement on a blanket liability insurance
policy or policies, which policy, policies or endorsement shall
provide that Landlord is named as additional insured, against any and
all damages and liability on account of, or arising out of injuries to
persons or property or the death of any person or for property damage
resulting from acts or omissions of Tenant, its agents, contractors or
employees, or occurring in the Premises, in the amount of Five Million
Dollars ($5,000,000) combined single limit in any one accident. All
insurance policies herein to be procured by Tenant shall be issued by
insurance companies having a Best's Rating of A-X and authorized to
do business in the State. Neither issuance of any insurance policy
required hereunder, nor the minimum limits specified herein with
respect to Tenant's insurance coverage, shall be deemed to limit or
restrict in any way Tenant's liability arising under or out of this
Lease. Upon request, Tenant shall deliver to Landlord a duplicate
original or certified copy of each such policy or a certificate of the
insurer, certifying that such policy has been issued, providing the
coverage required by this Section and containing provisions specified
herein, together with evidence of payment of all applicable premiums.
Any insurance required to be carried hereunder may be carried under a
blanket policy covering the Premises and other locations of Tenant.
The term "insurance policy" as used herein shall be deemed to include
any extensions or renewals of such insurance policy. Tenant shall
commence to adjust any loss within 30 days of any casualty and shall
diligently pursue such adjustment.
17.4 Waiver of Subrogation. Tenant and Landlord hereby waive and release
----------------------
any and all right of recovery against the other, including agents,
contractors and employees, arising during the Term for any and all
loss or damage to any property (including Tenant's fixtures,
furnishings, equipment, merchandise and other personal property)
located within or constituting a part of the Building, which loss or
damage arises from the perils coverable by an All Risk Policy (Special
Form) or which right of recovery arises from loss of earnings or rents
resulting from damage caused by such a peril. This mutual waiver is
in addition to any other waiver or release contained in this Lease.
Landlord and Tenant shall each have their insurance policies issued in
such form as to waive any right of subrogation which might otherwise
exist. In addition, neither party waives claims against the other for
losses sustained which are the result of a party's intentional
misconduct.
-16-
17.5 Security. In the event that Landlord engages the services of a
---------
professional security system for the Building, it is understood that
such engagement shall in no way increase Landlord's liability for
occurrences and/or consequences which such a system is designed to
detect or avert and that Tenant shall look solely to its insurer as
set out above for claims or damages or injury to any person or
property.
17.6 Landlord's Insurance. Landlord shall maintain at all times during the
---------------------
Term an All Risk Policy (Special Form) insuring against damage to any
portion of the Building, improvements and the Land. Upon completion
of construction of the Building, such insurance shall be obtained
specifying an owner's rating for the Building which contemplates a
status of the Building as an existing, operating entity and not as a
property under development. Such insurance shall be in the amount of
the full replacement cost, including demolition cost but excluding
foundations. Landlord shall at all times during the Lease Term keep
in force a policy or policies of public liability insurance or an
endorsement on a blanket liability insurance policy or policies, which
policy, policies or endorsement shall provide that Tenant is named as
additional insured, against any and all damages and liability on
account of, or arising out of injuries to persons or property or the
death of any person or for property damage resulting from acts or
omissions of Landlord, its agents, contractors or employees, or
occurring on or about the Common Areas, in the amount of Five Million
Dollars ($5,000,000) combined single limit in any one accident. Said
policy or policies shall be obtained at a premium which shall not
exceed the average premium for an owner's rate for the same class of
property in the state where the Building is located and shall include
contractual liability insurance recognizing the liability assumed in
the indemnification provision of the Lease, contain a cross-liability
endorsement, and be with an insurer which is rated at least A and X in
Best's Insurance Reports or equivalent. All insurance policies herein
to be procured by Landlord shall be issued by insurance companies
have a Best's Rating of A-X and authorized to do business in the
State. Neither issuance of any insurance policy required hereunder,
nor the minimum limits specified herein with respect to Landlord's
insurance coverage, shall be deemed to limit or restrict in any way
Landlord's liability arising under or out of this Lease. Upon
request, Landlord shall deliver to Tenant a duplicate original or
certified copy of each such policy or a certificate of the insurer,
certifying that such policy has been issued, providing the coverage
required by this Section and containing provisions specified herein,
together with evidence of payment of all applicable premiums. Any
insurance required to be carried hereunder may be carried under a
blanket policy covering the Building and other locations of Landlord.
The term "insurance policy" as used herein shall be deemed to include
any extensions or renewals of such insurance policy. Landlord shall
commence to adjust any loss within 30 days of any casualty and shall
diligently pursue such adjustment.
ARTICLE 18: LANDLORD SERVICES AND UTILITIES
18.1 Ordinary Services to the Premises. Landlord shall furnish to the
---------------------------------
Premises throughout the Term (i) electricity, heating and air
conditioning appropriate for the Permitted Use during the Business
Hours, (ii) reasonable janitorial service, (iii) regular trash removal
from Premises, (iv) hot and cold water from points of supply, (v)
subject to Article 10, restrooms as are required by applicable code,
and (iv) elevator service, if there is an elevator in the Building,
provided that Landlord shall have the right to temporarily remove such
elevators from service as may be required for moving, freight or for
-17-
servicing the elevators or the Building so long as there is at least
one elevator operating at all times (excluding instances where there
are brief periods for service or repair). Landlord agrees to furnish
landscaping and grounds maintenance and snow clearing for the areas
used in common by the tenants of the Building. Landlord shall be
under no responsibility or liability for failure or interruption in
such services caused by breakage, accident, strikes, repairs or any
other cause or causes beyond the control of Landlord, nor in any event
for any indirect or consequential damages; and failure or omission on
the part of Landlord to furnish such service shall not be construed as
an eviction of Tenant, nor work an abatement of Rent, nor render
Landlord liable in damages, nor release Tenant from prompt fulfillment
of any of the covenants of this Lease.
18.2 Interruption of Services. Notwithstanding anything in this Lease to
-------------------------
the contrary, if any of the services listed above are interrupted or
suspended for a period of time and to the extent that the Tenant is
substantially unable to function in the Premises, then Tenant's Rent
shall abate during the time and to the extent the Tenant is
substantially unable to function in said Premises. If any such
interference continues for one hundred twenty (120) consecutive days,
Tenant may terminate this Lease.
ARTICLE 19: LIABILITY OF LANDLORD
19.1 Except to the extent expressly prohibited by law, Tenant and Landlord
hereby waive any claim each may have against the other or its agents,
contractors or employees for any consequential damages sustained
arising out of the loss or damage to any person or property of Tenant
or Landlord, as the case may be.
19.2 Indemnity. Tenant shall indemnify and hold Landlord and its agents,
----------
contractors or employees harmless from and against any and all damage,
claim, liability, cost or expense (including, without limitation,
reasonable attorneys' or other reasonable professionals' fees of every
kind and nature (including, without limitation, those arising from any
injury or damage to any person, property or business) incurred by or
claimed against Landlord or its agents, contractors or employees,
directly or indirectly, as a result of, arising from or in connection
with Tenant's or its contractor's, employee's, or agent's use and
occupancy of the Premises or the negligence or wilful misconduct of
Tenant, its contractors, employees and agents. Landlord shall
indemnify and hold Tenant and its agents, contractors or employees
harmless from and against any and all damage, claim, liability, cost
or expense (including, without limitation, reasonable attorneys' or
other reasonable professionals' fees of every kind and nature
(including, without limitation, those arising from any injury or
damage to any person, property or business) incurred by or claimed
against Tenant or its agents, contractors or employees, directly or
indirectly, as a result of, arising from or in connection with
Landlord's or its contractors, employees, or agent's use, ownership
and occupancy of the Premises, the Building or the Common Area or the
negligence or wilful misconduct of Landlord or its contractors,
employees or agents.
ARTICLE 20: RULES AND REGULATIONS
Tenant shall at all times abide by and observe the Rules and Regulations
(as attached hereto as Exhibit B) for the operation and maintenance of the
Building and the Common Area and the Rules and Regulations shall be deemed
to be covenants of the Lease to be performed and/or
-18-
observed by Tenant. Landlord shall not be liable to Tenant for any
violation by any party of the Rules and Regulations or the terms of any
other Building Lease. If there is any inconsistency between this Lease and
the Rules and Regulations, this Lease shall govern. The Rules and
Regulations must be reasonable and uniformly enforced against other tenants
by Landlord.
ARTICLE 21: DAMAGE; CONDEMNATION
21.1 Damage to the Premises. If the Premises shall be damaged by fire or
-----------------------
other cause Landlord shall diligently and as soon as practicable after
such damage occurs (taking into account the time necessary to effect a
satisfactory settlement with any insurance company involved) which
Landlord shall make all reasonable efforts to cause the insurance
company to adjust the claim within thirty (30) days of the casualty)
repair such damage at the expense of Landlord. Notwithstanding the
foregoing, if the Premises or the Building are damaged during the last
two (2) Lease Years, then Landlord or Tenant within thirty (30) days
from the date of such damage, may terminate this Lease by notice to
the other (under no circumstances shall Tenant be entitled to elect to
terminate the Lease if the loss or damage is caused by the Tenant's
negligence) provided, however that Tenant may negate Landlord's
termination by exercising Tenant's option to extend within thirty (30)
days after receipt of Landlord's termination notice. If either
Landlord or Tenant terminates this Lease, the Rent shall be
apportioned and paid to the date of such termination. If neither
Landlord nor Tenant so elects to terminate this Lease but the damage
required to be repaired by Landlord is not repaired within one hundred
fifty (150) days from the date of such damage (such one hundred fifty
(150) day period to be extended by the period of any delay outside the
direct control of Landlord plus a reasonable period for a satisfactory
settlement with any insurance company involved) not to exceed thirty
(30) days), Tenant, within thirty (30) days from the expiration of
such one hundred fifty (150) day period (as the same may be extended),
may terminate this Lease by notice to Landlord. Within thirty (30)
days after any such damage, Landlord shall deliver to Tenant a
statement from Landlord's insurance adjuster or architect stating its
good faith estimate as to the time necessary to completely repair such
damage. In the event such estimate exceeds one hundred twenty (120)
days, Tenant may terminate the Lease. During the period that Tenant
is deprived of the use of the damage Portion of the Premises, Fixed
Rent and Tenant's proportionate share of Operating Expenses and Taxes
shall be reduced by the ratio that the rentable square footage of the
Premises damaged bears to the total rentable square footage of the
Premises before such damage. Notwithstanding anything herein to the
contrary, Landlord shall not be required to rebuild, replace or repair
personal property of Tenant.
21.2 Condemnation. If the whole or a Substantial Part of the Premises or
-------------
the Building shall be taken or condemned by any governmental or quasi-
governmental authority for any pubic or quasi-public use or purpose
(including, without limitation, sale under threat of such a taking),
then the Term shall cease and terminate as of the date when title vest
in such governmental or quasi-governmental authority, and Rent shall
be prorated to the date when title vests in such governmental or
quasi-governmental authority. If less than a Substantial Part of the
Premises is taken or condemned by any governmental or quasi-
governmental authority for any public or quasi-public use or purpose
(including, without limitation, sale under threat of such a taking),
Tenant may elect to terminate the Lease within thirty (30) days after
such taking. If this Lease is not terminated, Fixed Rent and Tenant's
proportionate share of Operating Expenses and Taxes shall be reduced
by the
-19-
ratio that the portion so taken bears to the rentable square footage
of the Premises before such taking, effective as of the date when
title vests in such governmental or quasi-governmental authority, and
this Lease shall otherwise continue in full force and effect. Tenant
shall have no claim against Landlord (or otherwise) as a result of
such taking, and Tenant hereby agrees to make no claim against the
condemning authority for any portion of the amount that may be awarded
as compensation or damages as a result of such taking; provided,
however, that Tenant may, to the extent allowed by law, claim an award
for moving expenses, loss of any business and for the taking of any of
Tenant's property which does not, under the terms of this Lease,
become the property of Landlord at the termination hereof, as long as
such claim is separate and distinct from any claim of Landlord and
does not diminished Landlord's award.
ARTICLE 22: DEFAULT
22.1 Events of Default. Each of the following shall constitute an Event of
------------------
Default: (i) Tenant fails to pay Rent within ten (10) days after
notice from Landlord; (ii) Tenant fails to observe or perform any
other term, condition or covenant herein binding upon or obligating
Tenant within thirty (30) days after notice from Landlord or an
additional period of time not to exceed sixty (60) days so long as
Tenant is diligently pursuing a cure, (iii) Tenant or any Guarantor
makes or consents to a general assignment for the benefit of creditors
or a common law composition of creditors, or a receiver of the
Premises or all or substantially all of Tenant's or Guarantor's assets
is appointed, or (iv) Tenant or Guarantor files a voluntary petition
in any bankruptcy or insolvency proceeding, or an involuntary petition
in any bankruptcy or insolvency proceeding is field against Tenant or
Guarantor and is not discharged by Tenant or Guarantor within ninety
(90) days.
22.2 Landlord's Remedies. Upon the occurrence of an Event of Default,
--------------------
Landlord, at its option, without further notice or demand to Tenant,
may in addition to all other rights and remedies provided in this
Lease, at Law or in equity (except for acceleration of damages or
rent):
(i) By judicial process, terminate this Lease and Tenant's right of
possession of the Premises, and recover all damages to which
Landlord is entitled under law, specifically including but
without limitation, all of Landlord's expenses of returning the
Premises into the condition in which it was required to be
surrendered. If Landlord elects to terminate this Lease,
provided Landlord has obtained a judgment terminating the Lease,
every obligation of the parties shall cease as of the date of
such termination, except that Tenant shall remain liable for
payment of Rent and performance of all other terms and
conditions of this Lease to the date of termination.
(ii) By judicial process, terminate Tenant's right of possession of
the Premises without terminating this Lease, in which event
Landlord may, but shall not be obligated to, relet the Premises,
or any part thereof, for the account of Tenant, for such rent
and term and upon such other conditions as are acceptable to
Landlord. For purposes of such reletting, Landlord is authorized
to redecorate, repair, alter and improve the Premises to the
extent necessary in Landlord's sole discretion. Until Landlord
relets the Premises, Tenant shall remain obligated tO pay Rent
to
-20-
Landlord as provided in this Lease. If and when the Premises
are relet and if a sufficient sum is not realized from such
reletting to satisfy the payment of Rent due under this Lease
for any month, Tenant shall pay Landlord any such deficiency
upon demand. Tenant agrees that Landlord may file suit to
recover any sums due Landlord under this Section from time to
time and that such suit or recovery of any amount due Landlord
shall not be any defense to any subsequent action brought for
any amount not previously reduced to judgment in favor of
Landlord.
(iii) Intentionally Deleted.
(iv) By judicial process, re-enter and repossess the Premises and
remove all persons and effects therefrom, to summary proceeding,
ejectment or other legal action.
(v) Recover from Tenant, to the extent permitted under the laws of
the Commonwealth of Virginia, the value and/or cost of all
concessions to Tenant under this Lease.
22.3 Rights Upon Possession. If Landlord takes possession pursuant to this
-----------------------
Article, with or without terminating this Lease, Landlord may, at its
option, enter into the Premises, remove Tenant's Alterations, signs,
personal property, equipment and other evidences of tenancy, and store
them at Tenant's risk and expense or dispose of them as Landlord may
see fit, and take and hold possession of the Premises; provided,
however, that if Landlord elects to take possession only without
terminating this Lease, such entry and possession shall not terminate
this Lease or release Tenant or any Guarantor, in whole or in part,
from the obligation to pay the Rent reserved hereunder for the full
Term or from any other obligation under this Lease or any guaranty
thereof.
22.4 No Waiver. If Landlord or Tenant shall institute proceedings against
----------
the other and a compromise or settlement thereof shall be made, the
same shall not constitute a waiver or any other covenant, condition or
agreement herein contained, nor of any of Landlord's or Tenant's
rights hereunder. No waiver by Landlord or Tenant of any breach shall
operate as a waiver of such covenant, condition or agreement, or
operate as a waiver of such covenant, condition or agreement itself,
or of any subsequent breach thereof. No payment of Rent by Tenant or
acceptance of Rent by Landlord shall operate as a waiver of any breach
or default by Tenant under this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly installment of
Rent herein stipulated shall be deemed to be other than a payment on
account of the earliest unpaid Rent, nor shall any endorsement or
statement on any check or communication accompanying a check for any
payment by either party be deemed an accord and satisfaction, and
Landlord or Tenant may accept such check or payment without prejudice
to its right to recover the balance of such amount due or to pursue
any other remedy provided in this Lease. No re-entry by Landlord, and
no acceptance by Landlord of keys from Tenant, shall be considered an
acceptance of a surrender of the Lease.
22.5 Right of Landlord to Cure Tenant's Default. If an Event of Default
-------------------------------------------
shall occur, then Landlord may (but shall not be obligated to) make
such payment or do such act to cure the Event of Default, and charge
the amount of the expense thereof, together with interest thereon at
the Interest Rate, to Tenant. Such payment shall be due and payable
upon
-21-
demand. Any such payment made by Landlord on Tenant's behalf shall
bear interest until paid at the Interest Rate.
22.6 Late Payment. If Tenant fails to pay any Rent within ten (10) days
-------------
after notice that such Rent was due and payable, Tenant shall pay to
Landlord a late charge of five percent (5%) of the amount of such
overdue Rent.
22.7 Landlord's Default. If Landlord shall fail to perform any of its
obligations when and as due under this Lease (a "breach" or
"default"), which default continues for a period of more than thirty
(30) days after written notice from Tenant specifying such default (or
as to any default which requires more than thirty (30) days to remedy,
if such cure is not commenced promptly and pursued diligently or
continues beyond the time reasonably necessary therefor) Tenant may
at its option upon written notice (1) if the default has a material
and adverse effect upon Tenant's ability to operate its usual and
regular business in the Premises, and Tenant has no other adequate
remedy under this Lease or at law, declare the Term ended and vacate
the Premises, and be relieved from all further obligations under this
Lease (provided, however, prior to termination, Tenant shall send to
Landlord an additional notice to Landlord, following the initial
default notice, advising Landlord of Tenant's intention to terminate
this Lease if the default is not cured within ten (10) days after such
notice); and/or (2) incur any reasonable expense necessary to perform
the obligation of Landlord specified in such notice; and/or (3) sue
for injunctive relief; and/or (4) sue for specific performance; and/or
(5) except as otherwise set forth in this Lease, set off any amount
expended by Tenant as a result of such default, together with interest
at the Interest Rate, against the next payments of Rent coming due
under this Lease until recovered in full; and/or (6) avail itself of
any other remedy provided herein or available at law or in equity
(except for acceleration of damages).
22.8 Mitigation. Notwithstanding any of the terms and provisions herein
-----------
contained to the contrary, Landlord and Tenant shall each have the
duty and obligation to use reasonable good faith efforts to mitigate
any and all damages that may or shall be caused or suffered by virtue
of the other's defaults under, or violation of, any of the terms and
provisions of this Lease.
ARTICLE 23: MORTGAGES
23.1 Subordination. This Lease is subject and subordinate to all ground
--------------
or underlying leases and to any first Mortgage(s) which may now or
hereafter affect such leases or the Land and to all renewals,
modifications, consolidations, replacements and extensions thereof.
This subordination shall be self-operative; however, in confirmation
thereof, Tenant shall execute any instrument that Landlord or any
first Mortgagee may reasonably request confirming such subordination
within thirty (30) days after request therefor. Notwithstanding the
foregoing, before any foreclosure sale under a Mortgage, the Mortgagee
shall have the right to subordinate the Mortgage to this Lease, and,
in the event of a foreclosure, this Lease may continue in full force
and effect and Tenant shall attorn to and recognize as its landlord
the purchaser of Landlord's interest under this Lease. Tenant shall,
upon the request of a Mortgagee or purchaser at foreclosure, execute,
acknowledge and deliver any instrument that has for its purpose and
effect the subordination of the lien of any Mortgage to this Lease or
Tenant's attornment to such Purchaser. Landlord shall by the
Commencement Date or thirty (30) days after the
-22-
request by Tenant, and prior to a refinancing of the Building, deliver
to Tenant a non-disturbance agreement reasonably satisfactory to
Tenant from any Mortgagee or ground lessor substantially similar to
the Agreement attached here to as Exhibit H.
23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee by
---------------------
certified mail, return receipt requested, a copy of any notice of
default served upon Landlord, provided that before such notice Tenant
has been notified in writing of the address of such Mortgagee. Tenant
further agrees to accept any cure from said Mortgagee within the cure
periods provided herein.
23.3 Subordination, Nondisturbance Agreement. If the Premises are
----------------------------------------
encumbered by a mortgage, deed of trust, or ground lease as of the
date this Lease is executed and delivered by the parties hereto, and a
fully executed Non-Disturbance, Subordination and Attornment Agreement
is not delivered to Tenant concurrently with Landlord's delivery of
the Premises to Tenant, Tenant may, in its sole discretion, (i)
terminate this Lease by written notice given to Landlord at any time
prior to the date a fully executed Non-Disturbance, Subordination and
Attornment Agreement is delivered to Tenant, or (ii) abate Fixed Rent
from the Commencement Date through the date that a fully executed
Non-Disturbance, Subordination and Attornment Agreement is delivered
to Tenant.
ARTICLE 24: SURRENDER; HOLDING OVER
24.1 Surrender of the Premises. Tenant shall surrender the Premises to
--------------------------
Landlord on the Expiration Date or earlier termination of this Lease,
in broom-clean condition, including, without limitation, the repair of
any damage to the Premises caused by the removal of any of Tenant's
personal property or trade fixtures from the Premises, except for
reasonable wear and tear and loss by fire or other casualty. After
five (5) days notice to Tenant, any of Tenant's personal property left
on or in the Premises, the Building or the Common Area after the
Expiration Date or earlier termination of this Lease shall be deemed
to be abandoned, and, at Landlord's option, title shall pass to
Landlord under this Lease.
24.2 Holding Over. In the event that Tenant shall not immediately
-------------
surrender the Premises to Landlord on the Expiration Date or earlier
termination of this Lease, Tenant shall be deemed to be a month to
month tenant upon all of the terms and provisions of this Lease,
except the monthly Fixed Rent shall be one hundred fifty percent
(150%) the monthly Fixed Rent in effect during the last month of the
Term.
ARTICLE 25: QUIET ENJOYMENT
Landlord covenants that if Tenant shall pay Rent and perform all of the
terms and conditions of this Lease to be performed by Tenant subject to
applicable cure periods, Tenant shall during the Term peaceably and quietly
occupy and enjoy possession of the Premises without molestation or
hindrance by Landlord or any party claiming through or under Landlord,
subject to the provisions of this Lease and any Mortgage to which this
Lease is subordinate and easements, conditions and restrictions of record
affecting the Land.
ARTICLE 26: TENANT'S COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 Definition. As used in this Lease, the term "Hazardous Material" means
----------
any flammable
-23-
items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any
substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "infectious wastes", "hazardous
materials" or "toxic substances" now or subsequently regulated under
any federal, state or local laws, regulations or ordinances including,
without limitation, oil, petroleum-based products, paints, solvents,
lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar
compounds, and including any different products and materials which
are subsequently found to have adverse effects on the environment or
the health and safety of persons.
26.2 General Prohibition. Tenant shall not cause or permit any Hazardous
--------------------
Material to be generated, produced, brought upon, used, stored,
treated, discharged, released, spilled or disposed of on, in, under or
about the Premises, the Building or the Land by Tenant or its agents,
contractors and employees, sublessees or assignees in violation of any
local, state or federal law. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all actions (including,
without limitation, remedial or enforcement actions of any kind,
administrative or judicial proceedings, and orders or judgments
arising out of or resulting therefrom), costs, claims, damages
(including, without limitation, punitive damages), expenses
(including, without limitation, attorneys', consultants' and experts'
fees, costs, court costs and amounts paid in settlement of any claims
or actions), fines, forfeitures, or other civil, administrative or
criminal penalties, injunctive or other relief (whether or not based
upon personal injury, property damage, or contamination of, or adverse
effects upon, the environment, water tables or natural resources),
liabilities or losses arising from a breach of this prohibition by
Tenant, its contractors, employees and agents, or sublessees or
assignees. Notwithstanding the foregoing, Landlord acknowledges that
Tenant may use and store limited quantities of Hazardous Material in
connection with the operation of its Permitted Use so long as the same
are used and stored in compliance with laws.
26.3 Notice. In the event that Hazardous Materials are discovered upon, or
-------
under the Premises, the Building or the Land, provided the same were
brought on to the Premises, Building or Land by Tenant, and the
governmental agency or entity having jurisdiction over the Premises,
the Building or the Land requires the removal of such Hazardous
Materials, Tenant shall be responsible for removing those Hazardous
Materials arising out of or related to the use or occupancy of the
Premises by Tenant or its contractors, employees or agents,
affiliates, sublessees or assignees but not those of its predecessors.
Notwithstanding the foregoing, Tenant shall not take any remedial
action in or about the Premises, the Building or the Land, without
first notifying Landlord or Tenant's intention to do so and affording
Landlord a reasonable opportunity to protect Landlord's interest with
respect thereto. Tenant immediately shall notify Landlord in writing
of: (i) any spill, release, discharge or disposal of any Hazardous
Material in, on or under the Premises, the Building, the Land or any
portion thereof made by Tenant, (ii) any enforcement, cleanup, removal
or other governmental or regulatory action instituted, contemplated,
or threatened (if Tenant has notice thereof) pursuant to any Hazardous
Materials Laws; (iii) any claim made or threatened by any person
against Tenant, relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result from
any Hazardous Materials; and (iv) any reports made by Tenant to any
governmental agency or entity arising out of or in connection with any
Hazardous Materials in, on, under or about or removed from the
Premises, the Building or the Land,
-24-
including any complaints, notices, warnings, reports or asserted
violations in connection therewith. Tenant also shall supply to
Landlord as promptly as possible, and in any event withing five (5)
business days after Tenant first receives or sends the same, copies
of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises, the Building, the
Land or Tenant's use or occupancy thereof.
26.4 Survival. The respective rights and obligations of Landlord and
---------
Tenant under this Article 26 shall survive the expiration or
earlier termination of this Lease.
26.5 Landlord's Obligations, Representations and Warranties. Landlord
-------------------------------------------------------
warrants that the Building, Land and Premises are free of any
asbestos or any other Hazardous Material. In the event there is
discovered to be Hazardous Material in the Building, Land and/or
Premises which has not been placed or introduced there by Tenant,
its employees, agents or contractors, then Landlord shall, at its
sole cost and expense bear the cost and expense of any
investigation, testing, digging, removal or clean up required and
any fines or penalties assessed as a result of the presence of
Hazardous Material within, on or under the Land or the Building.
Also under such circumstance, Landlord shall indemnify, defend and
hold Tenant harmless from any claims, demands, suits, actions,
awards, fines, clean up costs, expenses, attorney fees, etc., which
may arise as a result of such presence, which indemnity shall
survive the expiration or earlier termination of this Lease. If as
a result of the presence of Hazardous Material, the Premises is
substantially untenantable, Tenant shall have the right to either
(i) abate Rent and all other charges payable under this Lease based
upon the duration and extent of the interruption to Tenant's
business or (ii) terminate this Lease upon sixty (60) days written
notice to Landlord should the contamination be to the extent that
it is not cured within ninety (90) days and the Premises is
untenantable.
ARTICLE 27: MISCELLANEOUS
27.1 No Representations by Landlord. Tenant acknowledges that neither
-------------------------------
Landlord or its agents nor any broker has made any representation
or promise with respect to the Premises, the Building, the Land or
the Common Area, except as herein expressly set forth, and no
rights, privileges, easements or licenses are acquired by Tenant
except as herein expressly set forth. Landlord shall deliver
possession of the Premises to Tenant with all of Landlord's
improvements and Tenant Work completed as required by the terms of
the Lease and as an integral, enclosed, and secure space with all
the roof and demising walls properly in place, weather tight and
free and clear of asbestos and Hazardous Materials, and with all
service lines and meters in place, ready for occupancy. All of
Landlord's improvements and Tenant Work shall be done in a good and
workmanlike manner and in conformity with the local, state and
national codes having jurisdiction. In addition to the foregoing,
Landlord agrees to include a provision in every tenant's lease or
agreement for occupancy in the Building prohibiting such tenant or
occupant from allowing its employees, agents, contractors or
invitees from smoking in the Building.
27.2 No Partnership. Nothing contained in this Lease shall be deemed or
---------------
construed to create a partnership or joint venture of or between
Landlord and Tenant, or to create any other relationship between
Landlord and Tenant other than that of landlord and tenant.
27.3 Broker. Landlord and Tenant represent and warrant each to the
-------
other that each has not
-25-
dealt with any real estate agent or broker in connection with this
transaction and agree to indemnify and save each other harmless
from and against all loss, cost and expense incurred by reason of
the breach of such representation and warranty.
27.4 Estoppel. At any time and from time to time upon not less than ten
---------
(10) days' prior notice by Landlord or Tenant, the other party
shall deliver a statement in writing addressed to the requesting
party certifying if true (i) that this Lease is unmodified and in
full force and effect (or if, there have been modifications, that
the same is in full force and effect as modified and stating the
modifications), (ii) whether the Term has commenced and the date
Rent shall have become payable hereunder, and if so, the dates to
which it has been paid, (iii) whether or not, to such party's
knowledge, the requesting party is in default in performance of any
of the terms of this Lease, and if so, specifying such default of
which it may have knowledge, (iv) whether Tenant has accepted
possession of the Premises, (v) whether either party has made any
claim against the other under this Lease, and if so, the nature
thereof, (vi) whether there exist any offset or defenses against
enforcement of any of the terms of this Lease upon the part of
Tenant to be performed, and if so, specifying the same; and (vii)
such other matters as either party may reasonably request of the
other.
27.5 Intentionally Deleted.
---------------------
27.6 Notices. All notices or other communications hereunder shall be in
--------
writing and shall be deemed duly given if delivered in person or
under the earlier of receipt, if mailed by certified or registered
mail, or three (3) days after certified or registered mailing,
return receipt requested, postage prepaid, addressed and sent to
the respective parties and addresses listed in Sections 1.17, 1.18
and 1.19 herein. Landlord and Tenant may from time to time by
written notice to the other designate another address for receipt
of future notices.
27.7 Invalidity of Particular Provisions. If any provisions of this
------------------------------------
Lease or the application thereof to any person or circumstances
shall to any extent be invalid or unenforceable, the remainder of
this Lease, or the application of such provision to persons or
circumstances other than those to which it is invalid or
unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and be enforced to the full extent
permitted by law.
27.8 Gender and Number. Any terms and words used in this Lease,
-----------------
regardless of the number or gender in which they are used, shall be
deemed to include any other number or gender as the context may
require.
27.9 Benefit and Burden. Subject to the provisions of Article 11 and
-------------------
except as otherwise expressly provided, the provisions of this
Lease shall be binding upon, and shall inure to the benefit of, the
parties hereto and each of their respective representatives, heirs,
successors and assigns. Landlord may freely and fully assign its
interest hereunder provided the successor is bound hereby.
27.10 Entire Agreement. This Lease (which includes the Exhibits and
----------------
Rider attached hereto) contains and embodies the entire agreement
of the parties hereto, and no representations, inducements or
agreements, oral or otherwise, between the parties not contained in
this
-26-
Lease shall be of any force or effect. This Lease may not be
modified, changed or terminated in whole or in part in any manner
other than by an agreement in writing duly signed by Landlord and
Tenant.
27.11 Authority.
----------
(i) If Tenant signs as a corporation, Tenant hereby represents and
warrants that Tenant is a duly formed and validly existing
corporation, in good standing, qualified to do business in the
Commonwealth of Virginia, that the corporation has full power and
authority to enter into this Lease and that the person executing
the Lease is authorized to execute this Lease on behalf of the
corporation. Landlord executes this Lease as a Virginia limited
liability company and represents and warrants that it is duly
formed, validly existing and in good standing and qualified to do
business in the Commonwealth of Virginia, that the limited
liability company has full power and authority to enter into this
Lease and that the person signing on behalf of the limited
liability company has the authority to execute the lease on behalf
of the limited liability company.
27.12 Attorneys' Fees. If, as a result of default of Landlord or Tenant
----------------
in its performance of any of the provisions of this Lease, the
other party uses the services of an attorney in order to secure
compliance with such provisions or recover damages therefor, or to
terminate this Lease or evict Tenant, the non-prevailing party
shall reimburse the prevailing party upon demand for any and all
reasonable attorneys' fees, costs and expenses so incurred by the
prevailing party.
27.13 Interpretation, Venue. This Lease is governed by the laws of the
----------------------
Commonwealth of Virginia except venue and jurisdiction are proper
in the Circuit Court for Frederick County, Virginia.
27.14 No Personal Liability; Sale. Neither Landlord, Tenant nor their
----------------------------
respective agents, contractors or employees, whether disclosed or
undisclosed, shall have any personal liability under any provision
of this Lease. In the event of a judgment in favor of Tenant which
remains unpaid, Tenant's right of redress, execution and levy shall
be limited to the interest of Landlord in the Building as described
in Article 1 hereof. In the event that the original Landlord
hereunder, or any successor owner of the Building, shall sell or
convey the Building, all liabilities and obligations on the part of
the original Landlord, or such successor owner, under this Lease
occurring thereafter shall terminate as of the day of such sale,
and thereupon all such liabilities and obligations shall be binding
on the new owner. Tenant agrees to attorn to such new owner.
Notwithstanding the foregoing, if Landlord shall fail to perform
any covenant, term or condition of this Lease upon Landlord's part
to be performed and should Tenant, as a consequence of such
default, recover a money judgment against Landlord, such judgment
may be satisfied out of (i) the proceeds of sale produced upon
execution of such judgment and levy thereon against Landlord's
interest in the entire Building and improvements thereon, (ii) the
rents, other income, or insurance proceeds from such property
receivable by Landlord and (iii) the consideration received by
Landlord from the sale of all or any part of Landlord's interest in
the entire Building. The provisions of this article are not
designed to relieve Landlord from the performance of any of its
obligations hereunder, but rather to limit Landlord's liability in
the case of the recovery of a judgment against it, as aforesaid,
nor shall any of the provisions of this Article be deemed to limit
or otherwise affect Tenant's right to
-27-
obtain injunctive relief or specific performance or avail itself of
any other right or remedy which may be accorded Tenant by law or
this Lease. Notwithstanding anything to the contrary in this Lease,
Landlord may not transfer its interest in the Building prior to the
Commencement Date.
27.15 Time of the Essence. Time is of the essence as to obligations
--------------------
contained in this Lease.
27.16 Force Majeure. Neither Landlord nor Tenant shall be required to
-------------
perform any of its obligations under this Lease, nor shall such
party be liable for loss or damage for failure to do so, nor shall
the other party thereby be released from any of its obligations
under this Lease, where such failure by the non-performing party
arises from or through acts of God, strikes, lockouts, labor
difficulties, explosions, sabotage, accidents, riots, civil
commotions, acts of war, results of any warfare or warlike
conditions in this or any foreign country, fire or casualty, legal
requirements, energy shortage or other causes beyond the reasonable
control of the non-performing party, unless such acts are caused or
are contributed to by the actions or inactions of the party
asserting this clause or such loss or damage results from the
willful misconduct or gross negligence of the non-prevailing party.
27.17 Headings. Captions and headings are for convenience of reference
---------
only.
27.18 Memorandum of Lease. Tenant shall, at the request of Landlord,
-------------------
execute and deliver a memorandum of Lease in recordable form. Tenant
shall not record such a memorandum or this Lease without Landlord's
consent. In the event Tenant requests recordation of a memorandum of
this Lease, Tenant shall be obligated to pay all costs, fees and
taxes , if any, associated with such recordation. In the event
Landlord elects to record a memorandum of this Lease, Landlord shall
be obligated to pay all costs, fees and taxes, if any, associated
with such recordation.
27.19 Perpetuities. Notwithstanding any provision in this Lease to the
------------
contrary, if the Lease Term has not commenced within twenty-one (21)
years after the date of this Lease, this Lease shall automatically
terminate on the 21st anniversary of the date of this Lease. The
sole purpose of this provision is to avoid any possible
interpretation of this Lease as violating the Rule Against
Perpetuities or other rule of law against restraints on alienation.
27.20 Effectiveness. The furnishing of the form of this Lease shall not
--------------
constitute an offer and this Lease shall become effective upon and
only upon its execution by and delivery to each party hereto.
27.21 Option to Purchase. In the event Landlord desires to sell all or
------------------
any portion of the Building and/or the Premises, or convert the same
to a condominium regime, Landlord shall first offer the same to
Tenant. The purchase price shall be at market value as determined in
good faith by an appraiser selected by the Landlord and an appraiser
selected by the Tenant. In the event the market appraisals are not
the same, the purchase price shall be the average of the two
appraisals. If Tenant does not exercise its right to purchase all or
any of the above after 60 days notice from Landlord by confirming in
writing the engagement of an appraiser, then the Landlord shall be
free to sell same at its sole and absolute discretion.
-28-
27.22 Signage/Name. Tenant agrees to give Landlord the right to name the
-------------
Premises and surrounding property "Trex Center". Landlord has the
sole discretion to change the name at any time provided that Tenant
is no longer occupying the Premises. Tenant agrees to bear the cost
for two signs on property so long as the signs bear the name "Trex".
Landlord agrees to use Trex approved logo and color on all project
signage.
27.23 Right of First Offer. Landlord agrees that during the Lease Term,
---------------------
if space in the Building ("Offering Space") becomes or may become
available for any reason, Landlord, prior to offering the space to
any third party, shall notify Tenant in writing of the availability
of the Offering Space including the estimated date of availability
("Landlord's Notice"). In the event Tenant desires to lease such
Offering Space pursuant to the same terms of the Lease set forth
herein as they apply to the Premises, Tenant shall provide Landlord
with written notice of such interest within ten (10) days of the
receipt of such Landlord's Notice.
27.24 Right to Renew. Tenant shall have the right to extend the Term for
---------------
two (2) additional five (5) year terms upon the same terms,
covenants, and conditions as herein contained. Tenant may exercise
each such Renewal Period by giving Landlord notice in writing at
least six (6) months prior to the then scheduled expiration of the
Term. However, if Tenant fails to give such notice at least six (6)
months prior to the then scheduled expiration of the Term, Tenant
shall not be deemed to have waived the right to exercise such
Renewal Period until Landlord gives Tenant written notice of
Tenant's failure to exercise such Renewal Period and affords Tenant
a period of thirty (30) days after receipt of such notice to
exercise such Renewal Period. Landlord shall give Tenant written
notice of Tenant's failure to exercise such Renewal Period seven (7)
months prior to the expiration of the Term.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
as of the Date of Lease.
LANDLORD:
---------
ATTEST/WITNESS:
- --------------- -----------------------------------
By: /s/ Kevin D. Adams
--------------------------------
/s/ David A. Scordy Name: Kevin D. Adams
- --------------------------- Title: Manager
Name: David A. Scordy
----------------------
-29-
ATTEST/WITNESS: TENANT:
- --------------- -------
/s/ David A. Scordy (SEAL) By: /s/ Robert G. Matheny
- --------------------- ---------------------
Name: David A. Scordy Name: Robert G. Matheny
Title: President
-30-
Exhibit 21
Subsidiaries of the Registrant
Name of
Subsidiary Jurisdiction of Formation
---------- -------------------------
TREX Company, LLC Delaware
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-76847) pertaining to the Trex Company, Inc. 1999 Employee
Stock Purchase Plan and the Trex Company, Inc. 1999 Stock Option and Incentive
Plan of our report dated February 7, 2001, with respect to the consolidated
financial statements of Trex Company, Inc. included in the Annual Report (Form
10-K) for the year ended December 31, 2000.
/s/ Ernst & Young LLP
March 26, 2001
McLean, Virginia
