Broder Bros., Co. Annual Report for the Year Ended December 29

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Broder Bros., Co.
Annual Report for the Year Ended December 29, 2012
Delivered Pursuant to Section 4.03(a)(1) of the Indenture
Governing the 12%/15% Senior PIK Toggle Notes due 2013
IMPORTANT EXPLANATORY NOTE
On May 20, 2009, Broder Bros., Co. (“Broder”) issued its 12%/15% Senior PIK Toggle Notes due 2013 (the “2013 Notes”)
pursuant to an Indenture, dated May 20, 2009, between Broder and U.S. Bank National Association, as trustee (the
“Indenture”). Section 4.03(a)(1) of the Indenture requires Broder to prepare substantially the same annual financial
information that it would otherwise be required to file with the Securities and Exchange Commission (the “SEC”) on Form
10-K if Broder were required to file such reports with the SEC. In addition, Broder is required to furnish such reports referred
to in Section 4.03(a)(1) to such holders of the 2013 Notes by publicly posting the applicable report on its website within the
time periods specified for such report by Section 4.03, and to make such reports available to the general public with no
password required. This Annual Report has been prepared and posted to Broder’s website pursuant to the requirements of
Section 4.03 of the Indenture. Broder is not required to file reports with the SEC and the preparation of this report and the
posting of this information to Broder’s website pursuant to the requirements of the Indenture shall in no way be interpreted as
an undertaking on the part of Broder to otherwise comply with all of the rules and regulations that are applicable to a
company subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. For example, the
Indenture specifically provides that Broder does not need to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
This report will not be filed with the SEC. Neither the SEC nor any state or foreign securities commission has reviewed or
passed upon the accuracy or adequacy of this report. No independent person has confirmed the accuracy or truthfulness of
this report, nor whether it is complete. Any representation to the contrary is illegal.
Broder Bros., Co.
Annual Report
TABLE OF CONTENTS
Part I.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Business ...........................................................................................................................................................................
Risk Factors .....................................................................................................................................................................
Properties .........................................................................................................................................................................
Legal Proceedings ............................................................................................................................................................
Submission of Matters to a Vote of Security Holders ......................................................................................................
2
9
14
14
14
Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities .....................................................................................................................................................................
Item 6. Selected Financial Data....................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ...........................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .........................................................................................
Item 8. Consolidated Financial Statements ..................................................................................................................................
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures ........................................
Item 9B. Other Information ............................................................................................................................................................
15
15
17
30
31
59
59
Part III.
Item 10.
Item 12.
Item 13.
Item 14.
Item 15a.
60
62
63
64
65
Part II.
Item 5.
Directors, Executive Officers and Corporate Governance ...............................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................
Certain Relationships and Related Transactions, and Director Independence .................................................................
Principal Accountant Fees and Services ..........................................................................................................................
Financial Statement Schedules.........................................................................................................................................
i
As used in this Annual Report, unless the context indicates otherwise: (i) the “Company,” “Broder,” “we,” “us” and
“our” refers to Broder Bros., Co.;(ii) “Alpha” refers to the Company’s Alpha Shirt Company division for periods after its
acquisition by the Company; (iii) “Broder division” refers to the Company’s Broder division; (iv) “NES” refers to the
Company’s NES Clothing Company division for periods after its acquisition by the Company; and (v) “Imprints” refers to
the Company’s Imprints Wholesale division for periods after its acquisition by the Company.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INDUSTRY AND
MARKET DATA
This Annual Report contains forward-looking statements about our future expectations, plans or prospects and our
business. All statements contained in this Annual Report, other than statements of historical fact, regarding our strategy,
future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of
management, are forward-looking statements. When used in this Annual Report, the words “could,” “believe,” “anticipate,”
“intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such identifying words. Although these forward-looking statements are
based on our current expectations and assumptions about future events and are based on currently available information as to
the outcome and timing of future events, actual results may differ materially from those stated in or implied by these forwardlooking statements. Such factors include, but are not limited to, the following:
• Competition in the markets we serve;
• political, economic and regulatory uncertainty;
• exposure to credit risks;
• assimilation of acquisitions and the impact of any future material acquisitions;
• ability to fund our working capital requirements;
• unanticipated costs or cost increases;
• reduced activity in the imprint activewear industry;
• loss of key personnel;
• labor problems;
• global financial market instability;
• inability to service our debt obligations;
• application of tax laws in various jurisdictions;
• our sponsor may have interests that conflict with ours; and
• inability to upgrade our technology.
Actual results may differ materially from those discussed in these forward-looking statements due to a number of
factors, including the risks set forth in the sections entitled “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, and “Item 1A. Risk Factors” and elsewhere in this Annual Report. Although we
believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the
accuracy and completeness of these forward-looking statements. We are under no duty to update any of the forward-looking
statements after the date of this Annual Report to conform our prior statements to actual results.
1
The market data and other statistical information used throughout this Annual Report are based on independent
industry publications, reports by market research firms or other published independent sources. Some market data and
statistical information are also based on our good faith estimates, which are derived from our review of internal surveys, as
well as the independent sources listed above. This information may prove to be inaccurate because of the method by which
we obtain some of the data for our estimates or because this information cannot always be verified with complete certainty
due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other
limitations and uncertainties. As a result, although we believe these sources are reliable, we have not independently verified
the information and cannot guarantee its accuracy and completeness. The industry in which we operate is subject to a high
degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors” in
“Item 1A. Risk Factors” of this Annual Report. We assume no obligation to update any forward-looking statements to reflect
new information or developments. We urge readers to review carefully the risk factors described in this Annual Report and in
the other documents that we have posted from time to time on the Company’s website at www.broderbrosco.com under
“Investor Relations” pursuant to the terms of the Indenture.
TRADEMARKS
Broder Bros. and the Broder Bros. logo are trademarks of Broder Bros., Co. All other trademarks and service marks
appearing in this Annual Report are the property of their respective holders. All rights reserved. The absence of a trademark
or service mark or logo from this Annual Report does not constitute a waiver of trademark or other intellectual property
rights of Broder Bros., Co., its affiliates and/or licensors.
FINANCIAL INFORMATION
We operate on a 52- or 53-week year basis with the fiscal year ending on the last Saturday of December. Our fiscal
years 2012, 2011, 2010, 2009 and 2008 ended on December 29, 2012, December 31, 2011, December 25,
2010, December 26, 2009 and December 27, 2008, respectively. Fiscal years are identified in this Annual Report according
to the calendar year that they most accurately represent. For example, the fiscal year ended December 29, 2012 is referred to
herein as “fiscal 2012,” “fiscal year 2012” or “fiscal year ended December 31, 2012.” Fiscal year 2011 consisted of 53 selling
weeks while fiscal years 2012, 2010, 2009 and 2008 each consisted of 52 selling weeks.
Item 1.
Business.
The Company
We distribute imprintable activewear in the United States. We are the leading distributor of imprintable activewear in
the United States. We estimate the size of the imprintable activewear market to be about $6 billion per year at wholesale
prices. Imprintable activewear is undecorated or “blank” T-shirts, sweatshirts, sport shirts, and other imprintable “soft
goods.” It is sold to apparel decorators and promotional product distributors who decorate it, or have it decorated, for a wide
variety of purposes including awards, uniforms, team wear, souvenirs, retail, advertising, and corporate promotions. In
December 2012, Broder completed a strategic acquisition by acquiring all of the outstanding capital stock of Imprints
Wholesale, Inc. (“Imprints”). We acquired Imprints to capture additional market share, expand our product offerings and
enhance our presence in the Rocky Mountain and Midwest regions of the United States.
Distribution Network: We believe that we operate the largest distribution network in our industry. Our eight
distribution centers are located in Seattle, WA, Fresno, CA, Bolingbrook, IL, Dallas, TX, Middleboro, MA, Lewisberry, PA,
Duluth, GA, and Orlando, FL. Our ten “Express” facilities offering pickup room service are located in Santa Fe Springs, CA,
Denver, CO, Bensenville, IL, Plymouth, MI, St. Louis, MO, Louisville, KY, Houston, TX, Philadelphia, PA, Charlotte, NC,
and St. Petersburg, FL. Additionally, Imprints operates five distribution centers located in Denver, CO, Lenexa, KS, Verona,
WI, Las Vegas, NV and Kent, WA. We rely on UPS to ship the majority of our products to our customers.
Supplier Base: We have historically purchased goods from more than 60 suppliers, including those who provide
products to Imprints. Our five largest “basic” product brands are Gildan, Jerzees, Hanes, Fruit of the Loom and Anvil. As the
leading distributor in the imprintable activewear industry, we are generally able to purchase large quantities of basic products
at favorable terms directly from these suppliers and pass on these cost savings to our customers.
We buy “better” and “best” products from such brands as adidas Golf, Alternative Apparel, Ashworth, Bella, Canvas,
alo and Champion. In addition to purchasing from these suppliers, we develop and source our own private label brands:
Devon & Jones, Chestnut Hill, Authentic Pigment, Harriton, HYP and Apples & Oranges. Our private label products
generally yield higher gross margins and a broader product assortment to satisfy needs not adequately met by other brands.
2
Trade Names: We operate through the “Broder,” “Alpha,” “NES” and “Imprints” trade names. Each trade name has
its own catalogs and toll-free numbers and takes orders via unique websites. These trade names share our sales force and back
office functions to obtain economies of scale. We help our customers grow their businesses with merchandising, marketing
and promotional support.
Customer Base: Nearly 70,000 promotional product distributors and apparel decorators purchased products from us in
the past year while our total customer list is in excess of 100,000 customers. After decorating the products we sell to them,
our customers sell these products to a highly diversified range of end-consumers, including corporations, sporting venues,
concert promoters, athletic teams, educational institutions and resorts, among many others. We believe promotional
customers view imprintable activewear as a highly differentiated, cost-effective advertising and promotional tool that helps
them grow their businesses.
We believe that the highly fragmented nature of our customer base enables us to serve a critical function within our
industry. During 2012, our customers’ average order size was approximately $230. Our customers’ orders often include
products from multiple suppliers. We generally deliver our products on a “next day” basis. We believe no other supplier
offers a product line as comprehensive as we do. Many of our competitors lack the infrastructure and industry expertise to
respond to the needs of this highly fragmented customer base.
Competition: Our customers choose imprintable activewear providers based on several purchasing criteria including
price, inventory availability and service. Service has several dimensions including accurate fulfillment, quick delivery,
prompt problem resolution, broad product selection, availability of leading brands, quality marketing resources such as
catalogs and websites, and extending credit to customers. We believe we provide our customers with compelling value across
all of these purchasing criteria. We offer next-day delivery service to over 92% of our imprintable activewear customers
based in the United States and second-day delivery service to over 98% of this market. Our product offerings include over
59,000 stock-keeping units (“SKUs”) intended to satisfy the imprintable activewear needs of our customers. Our Broder,
Alpha, NES and Imprints catalog circulation is extensive, totaling approximately 1.1 million comprehensive catalogs that our
customers use as selling tools. We believe this strategy continues to make us a destination point for our customers.
Our size relative to other imprintable activewear providers is important to our strategy. Because of our scale, our
inventory turns rapidly, our national sales force serves compact territories, our marketing organization produces high quality
printed material at low cost per copy, and our websites and other systems are both effective in meeting customers’ needs and
are relatively low cost to operate. We believe these advantages allow us to effectively compete against our competitors, the
vast majority of which are small, regional and local distributors who lack our scale and resources.
History
Broder. Since our founding in 1919 as a haberdashery distributor, Broder has grown to become one of the leading
distributors of imprintable activewear in the United States. Mr. Jack Brode, one of the founders of Robins & Brode,
purchased Broder in 1955. In 1966, Broder was reincorporated in the state of Michigan. In the early 1970s, Broder evolved
into a local wholesale distributor of underwear, socks and hosiery. During this time, with the growing popularity of the Tshirt as daily wear, Broder began selling its products to the rapidly emerging imprintable activewear market.
Broder expanded geographically and between 1991 and 1999, Broder opened five branches: Orlando, FL in 1991;
Dallas, TX in 1993; Albany, NY in 1995; Fresno, CA in 1997; and Wadesboro, NC, adjacent to a central distribution center,
in 1999. In addition, Broder added 32,000 square feet of office space to its Plymouth, MI branch in 1998, which served as
Broder’s headquarters prior to the Alpha acquisition, described below.
In May 2000, affiliates of Bain Capital LLC acquired Broder in a recapitalization transaction to consolidate the highly
fragmented imprintable activewear distribution industry. Following the recapitalization, Broder continued its geographic
expansion through the acquisitions of St. Louis T’s in 2000, Full Line Distributors and Gulf Coast Sportswear in 2001, TShirts & More, Inc. (“TSM”) and Alpha Shirt Company in 2003, NES Clothing Company in 2004, and Amtex Imports Inc. in
2006.
As Broder consolidated the industry, we consolidated our distribution network to increase efficiency. Broder closed
two distribution facilities in the fourth quarter of 2003, two more during 2004 and another one during 2005. In December
2005, Broder moved its Atlanta, GA distribution facility to Duluth, GA, which distributed both Broder and Alpha products.
The Duluth, GA distribution facility later served as the proof of concept for a distribution center consolidation strategy. The
strategy called for distribution centers with the ability to serve Broder, Alpha and NES customers from all distribution
centers. During 2006 and 2007, Broder consolidated its distribution center network from seventeen to eight distribution
centers. The distribution center consolidation initiative was completed in December 2007. The implementation of this
strategy improved inventory availability, reduced inventory investment and reduced fulfillment expenses.
3
Alpha. The origins of Alpha date back to 1931 when a predecessor company was founded as a wholesaler of men’s
dress shirts, hosiery and underwear serving sportswear and accessories retailers and institutions in the New England region.
During the 1970s, Alpha shifted its operations to participate in the evolving imprintable activewear industry. In the 1990s, a
descendant of one of the founders incorporated Alpha and expanded its operations to three facilities located in Philadelphia,
PA, Ft. Wayne, IN, and La Mirada, CA. In 1999, Linsalata Capital Partners purchased a majority interest in Alpha. Alpha
successfully completed two acquisitions prior to it being acquired by Broder in 2003. Acquiring Kay’s Enterprises in
Houston, TX, and Good Buy Sportswear, in St. Petersburg, FL, increased the number of Alpha distribution centers from three
to five and created a more efficient nationwide distribution platform.
In September 2003, Broder acquired all of the outstanding capital stock of Alpha. Immediately after consummation of
the acquisition, Alpha and certain of its subsidiaries were subsequently merged with and into Broder.
NES. NES is the leading distributor of imprintable activewear in New England and a major distributor in the Charlotte,
NC area. In August 2004, Broder acquired all of the outstanding capital stock of NES Clothing Company Holdings Trust
(“NES”). NES and its operating subsidiary, Aprons Unlimited, Inc., as well as NES Acquisition Corp., were merged with and
into Broder.
In September 2006, Broder acquired substantially all of the assets of Amtex Imports Inc. (“Amtex”), an imprintable
activewear distributor with a single location in Northlake, IL. The Amtex acquisition facilitated our entry into the Chicago
market. We closed Amtex’s distribution center in March 2007 and opened a smaller facility in the Chicago market to service
Amtex’s customer pick-up business and discontinued use of the Amtex brand name shortly thereafter.
Imprints. Imprints Wholesale is the leading distributor of imprintable activewear in the Rocky Mountain region and a
major distributor in the Midwest U.S. The company was founded in 1987 and expanded to five distribution centers. In
December 2012, Broder acquired all of the outstanding capital stock of Imprints Wholesale, Inc.
Industry Overview and Trends
We compete in the estimated $6 billion U.S. imprintable activewear market, which is comprised of products used for
corporate promotion, general-use, event promotion and specialty retail sales. The diversity of end-uses of imprintable
activewear helps to reduce exposure to any one industry or market segment. Within the overall market, imprintable
activewear sold for corporate promotional purposes in the U.S. is estimated at $3 billion in wholesale revenue. The other $3
billion segment of the market includes items sold for general purposes, such as recreation, sports leagues, educational
institutions, specialty retail and for event promotions such as concerts and tourism.
In the past decade, promotional product spending has been fueled by the increased acceptance of these products as a
cost-effective advertising medium. During the same time period, our sales of imprintable activewear used for corporate
promotional purposes has grown faster than total promotional products spending because, we believe, it provides superior
corporate identity value relative to most other promotional products.
The imprintable activewear market is highly fragmented, with dozens of regional and local distributors accounting for
the majority of sales. In the past, successful distributors possessed the ability to provide quick delivery of a relatively limited
number of SKUs. While speed remains important, we believe that having substantial geographic coverage, broad product
offerings and sophisticated marketing programs are also competitive advantages. Over the past several years, scale has
allowed larger distributors like us to take advantage of favorable volume purchase pricing from suppliers, invest in broader
assortments and leverage investments in distribution systems, software, infrastructure, marketing and website development.
Business Strategy
Our goals are to become the most profitable supplier of imprintable activewear and the distributor of choice for our
customers in a highly competitive, fragmented commodity industry while growing faster than the market. Our objective is to
be the “ultra-reliable supplier” of products to customers in the U.S. imprintable activewear market. In the third quarter 2009
we instituted a three-part guarantee to customers. We promised that we would be in stock in key styles and colors, that we
would fulfill orders accurately and that we would match competitors’ advertised prices. During 2010, we added to the
number of styles included in our in-stock guarantee, including certain private label products. In 2012, we instituted our
“Performance Pledge” by adding a fourth guarantee which is a quality and social responsibility pledge. We believe our
products meet or exceed standards of quality, social responsibility and regulatory compliance. We believe that our four-part
Performance Pledge demonstrates our commitment and ability to provide the best service in the industry to our customers.
4
The following objectives are key components of our business strategy:
Improve Selling. We have devoted significantly more resources in recent years to improve sales of our products. We
created a regional sales management organization in 2008 that narrowed the spans of control for sales managers. This has
permitted sales managers to spend more time coaching salesmen and sharing best practices with them.
We have worked to determine our customers’ apparent need for various kinds of sales contacts. This work has allowed
us to ensure the customer is called on by the correct combination of outside and inside sales professionals at the appropriate
frequency. We have devoted more attention at national sales meetings to sales training. We have created incentive programs
to share the benefits of increased sales with sales professionals. We have established recognition programs to recognize our
best sales personnel. We created new sales positions in 2010 to engage with customers who have not made us their first call
when sourcing products to decorate. In 2011 and 2012, we expanded the number of sales personnel supporting customers
identified as strategic accounts. We are segmenting customer groups and providing similar services to those customers in
their cohort group.
Improve Pricing. We remain focused on pricing initiatives to improve our profitability. We attempt to satisfy the
pricing requirements of our customers while maximizing gross profit. All products have list prices that reflect the typical
economics of our products and customer orders. In addition, we evaluate offering special pricing to certain customers based
on how our economics in serving them differ from typical economics. As a result, many customers enjoy accommodations
that share Broder’s savings in serving them. On at least a weekly basis, Broder offers promotional pricing to essentially all
customers to maintain competitiveness with other imprintable activewear distributors. Frequently, we offer customers special
pricing for unusually large orders.
Improve inventory management. Having consolidated all distribution centers and having completed comprehensive
improvements to our Enterprise Resource Planning (“ERP”) system, we believe that we can maintain both higher-thanmarket inventory turns while achieving superior inventory availability. Non-brand-specific inventory management techniques
allow us to capitalize on our scale to improve inventory productivity on the industry’s most popular products in ways that we
believe no competitor can match. In addition, we have the ability to “share” inventory among our distribution centers to keep
a shortage of one size of a family of products of the same style and color from adversely impacting sales of the entire family.
During 2010, we experienced improved performance of our internal proprietary metrics that measure inventory availability.
Since 2011, we experienced the highest levels of performance of our internal proprietary metrics that measure inventory
availability mainly due to our improved liquidity that allowed us to buy all of the inventory that our proprietary supply chain
practices indicated would maximize our return on investment.
Automating certain purchasing functions have allowed us to increase the productivity of our purchasing and accounts
payable personnel.
Control operating expenses. In addition to realizing cost reduction through consolidation, we rely on our superior
scale, advanced technology, and experience to achieve superior operating expenses. Our size relative to competitors creates
opportunities for economies of scale in general and administrative activities such as operations management, distribution
center management, call center management, pricing administration, merchandising, purchasing and marketing. We also
utilize low-cost, advanced technology in many aspects of our business to reduce costs. Examples of these technologies
include using website technology to reduce the cost of order taking, using motorized picking to reduce the cost of fulfillment
and using rotogravure, a printing process that involved engraving the image onto an image carrier, to reduce the cost while
improving the appearance of printed catalogs. Various aspects of how our distribution centers operate reflect low-cost, high
quality approaches that have been learned after years of analysis and experimentation to determine best practices.
Products
We distribute a wide range of undecorated or “blank” T-shirts, sweatshirts, polo shirts, outerwear, caps, bags and other
imprintable items. Within our product selection, we offer recognizable basic brands purchased from trade brand suppliers
such as Gildan, Jerzees, Hanes, Fruit of the Loom and Anvil. We offer industry-leading retail brands, such as adidas Golf,
Alternative Apparel, Ashworth, Bella, Canvas, alo and Champion. Through the success of our premium brand strategy, we
have demonstrated that prominent brands can gain access to a large untapped consumer segment. These retail brand
relationships differentiate our product line from those of our competitors. In addition, we offer a line of private label brands,
such as Devon & Jones, Chestnut Hill, Authentic Pigment, Harriton, HYP and Apples & Oranges, which we believe are
complementary to our other brands. We believe this strategy strengthens our position as a destination point for our customers
by providing them with higher quality products and better values. In addition, we believe this strategy earns us higher gross
margins and enables us to expand our product assortment to better service our existing channels not adequately serviced by
other brands and also reach new channels, such as specialty retail.
5
Including additions made to our assortment for 2013, our brands include:
A4*
Adams Cap
adidas Golf
alo
Alternative Apparel
Anvil
Apples & Oranges
Ashworth
Augusta
Authentic Pigment
Bayside*
Bella
Big Accessories/BagEdge
Canvas
Carmel Towel Company
Champion
Chestnut Hill
Code V
Comfort Colors
Chroma ZONE*
Devon & Jones
Dickies Workwear
Doggie Skins*
Dri Duck*
Dyenomite*
econscious
Flexfit
Fruit of the Loom
Gildan
Hanes
Harriton
Hook & Tackle
HYP
HYP Hats
Independent*
Inner Harbor*
Izod
J America*
Jerzees
Jonathan Corey*
Kariban*
KC Caps*
L.A. T Sportswear
Liberty Bags
New Balance
OccuNomix
ProLine*
Rabbit Skins
Robinson Apparel
Russell Athletic
Sierra Pacific*
the Skins Game*
Storm Creek*
SubliVie
Tie - Dye
Van Heusen
Vanity*
Weatherproof
Willow Pointe Sportswear*
Willowtec*
Yupoong
zkapz*
* - Brands added by the Imprints Wholesale division
Competition
We compete in a highly fragmented market where dozens of local and small regional distributors with limited
geographic coverage and product offerings are common. Most regions are also served by one or more other national
distributors.
Competition is based on price, depth of inventory and service. Service includes breadth of product selection, access to
leading brands, product quality, delivery time and sophisticated marketing programs including catalogs, other marketing
materials and websites. Over the past several years, our scale has allowed us to take advantage of favorable volume purchase
pricing from suppliers and to leverage investments in distribution systems and software. We believe that we lead the industry
in product selection by offering the most SKUs, comprehensive marketing programs, extensive sales and service forces, and
expansive distribution infrastructure.
Suppliers
Large scale and long-standing supplier relationships provide us with important purchasing and inventory management
advantages relative to our competitors. Our scale and purchasing power with our suppliers have resulted in a number of
important benefits including marketing support, previews of new product launches and favorable purchasing terms. We do
business with most of our suppliers on a purchase order basis and do not have material supply contracts with our vendors. By
attempting to work with major suppliers to understand short-term supplier activity, we refine targeted inventory levels and
take advantage of special buying opportunities. Over two-thirds of our sales during the period of fiscal 2010 to fiscal 2012
were generated from products obtained from our top three suppliers. Suppliers A, B and C provided products generating
50.9%, 13.7% and 7.6% of our fiscal 2012 sales, respectively. No other supplier provided more than 10%.
Customers
Our total customer base exceeds 100,000 customers, including screen printers, embroiderers and specialty advertisers.
We sold products to nearly 70,000 customers nationwide in fiscal 2012. Our customer base is highly fragmented, as
indicated in the table below:
6
Percent of
Sales for Fiscal Year
Customer
2010
2011
2012
Top 10 Customers ..............................................................................................
Top 100 Customers ............................................................................................
Top 1,000 Customers .........................................................................................
4.8%
14.8%
42.0%
5.5%
16.7%
45.0%
6.9%
20.3%
48.7%
Seasonality
Historically, the first quarter of our fiscal year generates the lowest levels of net sales, gross profit and operating profit.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality”.
Sales and Marketing
Catalogs and Selling Materials
Our catalogs are an important part of our marketing strategy and we believe that the Broder, Alpha and NES catalogs
are the industry leaders in quality and breadth of selection. Our catalogs are designed to have the look and feel of high-end
consumer retail catalogs with attractive models, appealing photographs and a clear display of products. We offer customers
customizable catalogs that can be printed to include our customers’ logos and contact information on the cover. We believe
that these customized catalogs enhance the professional image of our customers, promote customer loyalty and allow us to
more effectively sell our product lines. We have distributed approximately 1.1 million comprehensive catalogs, which
included 0.8 million custom catalogs, which were used as selling tools to promote our fiscal 2012 sales. Beginning in 2013,
Imprints customers have access to Broder’s full assortment. By the end of the second quarter 2013, Broder’s customers will
be able to order the brands historically offered by Imprints but not by Broder.
National Sales Forces
Our salespeople sell all brands to our customers. Regional sales managers determine which targeted customers will be
called on, which will be called on by outside or inside sales professionals and how frequently each customer will be
contacted. We have also created a group of sales personnel supporting customers identified as strategic accounts. We believe
we provide unique service capabilities to support our customers’ complex business models.
We invest significant time in training and developing our sales forces. Our extensive training provides our sales force
with a thorough knowledge of our products, marketing solutions and approaches to help customers grow their sales of our
products. Each salesperson is responsible for enhancing existing customer relationships as well as for prospecting and
developing new relationships.
Call Centers and Customer Service Representatives
We maintain three call centers which as of December 31, 2012 were staffed with 106 full-time and 7 part-time
representatives answering phone calls, emails, internet chat sessions and faxes to assist our customers in placing orders,
checking stock levels, looking for price quotes or requesting adjustments and returns. All Broder call agents have been
trained to respond to calls from Broder, Alpha and NES customers. Imprints call center agents are being trained on the
Broder assortment during 2013. During 2008, we began to upgrade customer service beyond traditional functions to include
authorizing returns and discussing credit issues. This upgraded customer service is a feature of “Gold Service” which
includes other benefits and is offered to customers that our sales organization believes would increase their sales based on
this higher level of service. Our call centers are located in California, Colorado and Massachusetts. In November 2012, we
closed our call center in St. Petersburg, FL. The Colorado call center was added with the Imprints acquisition. Integration of
the Imprints call center employees will occur in early 2013.
Trade Shows
During 2012 and 2011, we participated in two of the largest industry trade shows and a few regional trade shows. In
addition, we have developed proprietary trade shows and events to compete with smaller competitors. Our major suppliers
participate with us in our proprietary trade shows which allow us to offer a more favorable customer experience than
participation in industry trade shows by exhibiting our product offerings and sharing customer merchandising strategies and
new promotions with our customers. We take advantage of proprietary trade shows and customer events as opportunities to
expand and enhance our customer relationships. At customer events, we showcase our product offerings, meet with our
customers and sponsor a social event to strengthen our customer relationships.
7
Websites
We maintain four industry-leading websites to support Broder, Alpha, NES and Imprints including
www.broderbros.com, www.alphashirt.com, www.nesclothing.com and www.imprintswholesale.com each of which allow
our customers to browse online versions of our catalogs, place orders, track order status, check inventory stock, learn about
our promotions, review industry trends, and receive information on marketing resources. The Broder, Alpha and NES
websites have enhanced functionality that consists of, among other things, online processing of customer returns, freight cost
comparisons and access to certain of our marketing materials to help our customers grow their businesses. In addition to our
branded websites, we also host generic formats of our websites that allow our decorator customers to insert their own “cover”
and branding. This functionality offers our customers a low-cost opportunity to leverage our customer service capabilities,
promote our products, effectively service end-users and procure sales over the Internet. Through an ISP and our own internal
web servers, we host over 15,000 active custom websites. Sales originating from our websites were approximately 45% and
46% of our total sales in 2012 and 2011, respectively.
While our catalogs serve as the backbone of our marketing strategy, they are supplemented by a number of other tools,
including our websites, which are designed to make promoting our products as simple as possible for customers. These tools
include mini-catalogs and sell sheets. Mini-catalogs are abbreviated versions of the catalogs that highlight a particular
category of products—a supplier’s brand or a kind of product. Sell sheets are one-page summaries that spotlight a particular
product and its attributes. Like the catalogs, these tools can be customized for customers.
Information Technology
We believe that we have one of the most sophisticated information technology systems in the industry. The systems
include a fully-integrated ERP system supporting order-entry, warehouse management, sales, purchasing, and financial
requirements. Significant investments in hardware, database, phone, warehouse management, customer relationship
management, internet applications, software, email, security and system redundancy have been made during the past several
years. The Imprints information technology platform will be integrated with Broder’s during the first half of 2013.
Employees
As of December 31, 2012, we employed a total of 1,021 full-time and 71 part-time employees, none of whom are party
to collective bargaining agreements or represented by any labor union. Our management believes that employee relations are
good.
Available Information
Our financial reports are currently available to the public on our internet website at http://www.broderbrosco.com
under Investor Relations pursuant to the terms of our Indenture governing our 2013. Following the redemption of the 2013
Notes described elsewhere in this Annual Report, we will complete a satisfaction and discharge of the Indenture, at which
time the Indenture will cease to have any further force or effect. Following the redemption of the 2013 Notes and satisfaction
and discharge of the Indenture, we will no longer be required to post our financial reports to our website and we will no
longer publicly disclose our financial information until otherwise required to do so pursuant to a formal legal requirement.
8
Item 1A.
Risk Factors.
If the cash provided by our operating and financing activities is insufficient to fund our cash requirements, we could
face substantial liquidity problems.
Although we successfully completed the Exchange Offer in May 2009, we continue to be a highly leveraged company.
While we believe we have sufficient liquidity to operate our business for the remainder of fiscal year 2013, if credit and
capital market conditions, as well as projected industry conditions, were to deteriorate, our ability to access capital markets in
the near-term could be restricted and any such access would likely be at an increased cost and under more restrictive terms
and conditions. Further, such constraints may also affect our agreements and payment terms with vendors. If our vendors
require us to pay for purchases in advance or upon delivery, it is unlikely that we will be able to continue operating as a going
concern.
We may not be able to satisfy our cash requirements from cash provided by operating activities. If our cash
requirements exceed the cash provided by our operating activities, then we would look to our committed credit lines to satisfy
those needs. However, we may not be able to access our revolving credit facility if we are in default under our revolving
credit agreement.
Absent access to additional liquidity from credit markets or other sources of external financial support, including
accommodations from key vendors, we may need to delay capital expenditures and/or curtail or dispose of substantial assets
or operations.
As of December 31, 2012, there were $117.9 million in principal amount of 2013 Notes outstanding. The carrying
value of the 2013 Notes recorded on the balance sheets represents the sum of the $117.9 million face value of the 2013 Notes
plus all future cash interest payments. On March 27, 2013, we entered into a senior secured loan agreement with Prospect
Capital Corporation and the lenders party thereto, pursuant to which we obtained loans and other credit accommodations in
an aggregate amount up to $100.0 million. Also on March 27, 2013, we entered into a third amended and restated credit
agreement with Bank of America and the lenders party thereto, pursuant to which we obtained loans and other credit
accommodations in the aggregate amount up to $255.0 million, which such amount may be increased by an additional $75.0
million pursuant to the terms of such credit agreement. A portion of the proceeds from the two new loan facilities referred to
above were used in order to affect a covenant defeasance and subsequent redemption of the 2013 Notes. The redemption of
the 2013 Notes will be completed on April 26, 2013, at which time the 2013 Notes will cease to be outstanding. However,
the new loan facilities referred to above will remain outstanding for the foreseeable future. At maturity of the new loan
facilities, we may not have the funds to fulfill our repayment obligations under such facilities or the ability to refinance such
obligations. If the maturity date occurs at a time when we do not have the funds to fulfill these obligations or when other
arrangements prohibit us from repaying the amounts outstanding under these new loan facilities, we would seek to obtain
waivers of such prohibitions from the lenders under those arrangements, or we could attempt to refinance the borrowings that
contain the restrictions. Refinancing of the borrowings may not be available on commercially reasonable terms or at all and
lenders may not provide the waivers that we may seek. If we are unable to obtain the waivers or refinance these borrowings,
we would be unable to repay outstanding borrowings under our new loan facilities, which if uncured would cause a default
under our other debt which may be outstanding at that time, which would likely cause us to file for bankruptcy.
For a discussion of the new loans, the covenant defeasance and redemption of the 2013 Notes and other factors
affecting our liquidity, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—
Liquidity and Capital Resources” and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Subsequent Events”.
Slowdowns in general economic activity could detrimentally impact our customers and have an adverse effect on our
sales and profitability.
Our business is sensitive to the business cycle of the national U.S. economy. Deterioration in general economic
conditions adversely affect demand for our products and cause sales of our products to decrease. In addition, slowdowns in
economic activity result in our customers shifting their purchases towards our lower priced and lower margin products, such
as T-shirts, which adversely affects our gross profit and gross profit margin.
Deterioration in economic conditions, along with decreasing levels of spending by our customers, may adversely affect
our revenues and profits through reduced purchases of our products. In such circumstances, we may reduce prices on certain
items, which would further adversely affect our profitability.
In addition, there could be a number of other effects from an economic downturn. The inability of key suppliers to
access liquidity, or the insolvency of key suppliers, could lead to delivery delays or failures. We grant credit to our customers
in the normal course of business which subjects us to potential credit risk. Financial difficulties of our customers could
9
adversely impact our results of operations. Finally, other counterparty failures, including banks and counterparties to other
contractual arrangements, could negatively impact our business.
Our ability to access the credit and capital markets may be adversely affected by factors beyond our control, including
turmoil in the financial services industry, volatility in financial markets and general economic downturns.
We rely upon access to the credit markets as a source of liquidity for the portion of our working capital requirements
not provided by cash from operations. Market disruptions in the U.S. and abroad could increase our cost of borrowing or
adversely affect our ability to access sources of liquidity upon which we rely to finance our operations and satisfy our
obligations as they become due. These disruptions could include turmoil in the financial services industry, including
substantial uncertainty surrounding particular lending institutions and counterparties with which we do business,
unprecedented volatility in the markets where our outstanding indebtedness trades, and general economic downturns. If we
are unable to access credit at competitive rates, or if our short-term or long-term borrowing costs dramatically increase, our
ability to finance our operations, meet our short-term obligations and implement our operating strategy could be adversely
affected. Additionally, if credit and capital market conditions were to deteriorate, it could have a material adverse effect on
our ability to refinance all or any portion of our existing debt, and we may be unable to refinance our existing debt on terms
acceptable to us, if at all.
Our industry is highly competitive and if we are unable to compete successfully we could lose customers and our sales
may decline.
The imprintable activewear market is a fragmented industry which is highly competitive. We face significant
competition from national, regional and local distributors. There can be no assurance that we can continue to compete
successfully with such competitors. Competition is based on price, depth of inventory, breadth of product selection, access to
leading brands, quality and delivery time and sophisticated marketing programs including catalogs, other marketing materials
and websites. To the extent that one or more of our competitors gains an advantage with respect to any key competitive
factor, we could lose customers and our sales may decline. To remain competitive, we must review and adjust our pricing
structure on a constant basis in response to price changes in our industry. To the extent we may be obligated to adjust our
pricing policies to meet competition or we delay our pricing adjustments, our financial performance may be adversely
affected if any of our competitors reduce their prices or we fail to increase prices in line with increases in our costs and
expenses.
Prices of certain of the products we distribute, particularly T-shirts, are determined primarily based on market
conditions, including the price of raw materials and available capacity in the industry. In general, we pass along to our
customers any changes in the market price we pay for the products we distribute on a real-time basis. If selling prices were to
fall due to a reduction in the raw materials and other manufacturing costs, we may not be protected by our suppliers on the
value of our on hand inventory. If that were to occur, we may experience write-downs in excess of previously established
reserves. As noted elsewhere in this Annual Report, the cost of cotton rose in 2010 and 2011, which had a negative effect on
the imprintable activewear market.
Disruption in our distribution centers could adversely affect our results of operations.
We operate out of eight distribution centers and several smaller customer pickup locations called “Express” locations
nationwide. We may establish additional facilities to expand into new markets. A serious disruption to any distribution center
or to the flow of goods in or out of our distribution centers due to fire, earthquake, act of terrorism or any other cause could
damage a significant portion of our inventory and could materially impair our ability to distribute our products to customers
in a timely manner or at a reasonable cost. We could incur significantly higher costs and longer lead times associated with
distributing our products to our customers during the time that it takes for us to reopen or replace a distribution center. As a
result, any such disruption could have an adverse effect on our business, results of operations and financial condition.
We obtain a significant portion of our products from a limited group of suppliers. Any disruption in their ability to
deliver products to us or a decrease in demand for their products could have an adverse effect on our results of
operations and damage our customer relationships.
We obtain a significant portion of the products we sell from a limited group of suppliers. Approximately 72% of the
products we sold in fiscal 2012 were purchased from three suppliers. Individually, each of these suppliers account for more
than 8% of the products sold by us. From time to time, we may experience difficulties in receiving orders from some of these
suppliers or certain products may not be available. Their ability to supply us with our products is subject to a number of risks,
including production problems at our suppliers’ facilities, work stoppages or strikes by our suppliers’ employees. The partial
or complete loss of any of these sources could have an adverse effect on our results of operations and damage customer
relationships. Consumer demand for these products may decrease based on a number of factors such as general economic
10
conditions and public perception. In addition, a significant increase in the price of one or more of these products could have a
material adverse effect on our results of operations.
Our relationships with most of our suppliers are terminable at will and the loss of any of these suppliers could have an
adverse effect on our sales and profitability.
Our relationships with suppliers are generally not governed by written contracts. These relationships may be terminated
at will by the supplier at any time. The loss of any of these suppliers could have an adverse effect on our sales and
profitability.
The loss of customers could adversely affect our sales and profitability.
Our business is based primarily upon individual sales orders with our customers. We typically do not enter into longterm contracts with our customers, which means that we have no recourse in the event a customer no longer wants to
purchase products from us. As such, our customers could cease buying our products from us at any time and for any reason.
A significant loss of customers to competitors or for other reasons would have an adverse effect on our sales and profitability.
We must successfully predict customer demand for our private label and retail products to succeed.
Our success with respect to our private label and retail brands is largely dependent on our ability to predict customer
demand. We enter into contracts for the purchase and manufacture of our private label and retail brands in advance of the
applicable selling season. Due to longer lead times than those for our other brands, we are vulnerable to demand and pricing
shifts and to suboptimal merchandising. To the extent we are unable to accurately predict customer demand, our sales and
operating results will be adversely affected and we may experience inventory write-downs in excess of previously established
reserves. While we believe our current strategies and initiatives appropriately address this issue, changes in styles and trends
could have a material adverse effect on our customer loyalty and on our operating results. Moreover, longer lead times for
our private label and retail brands require increased working capital, which could have an adverse effect on our liquidity
position.
We rely significantly on one shipper to distribute our products to our customers and any service disruption could have
an adverse effect on our sales.
Our ability to both maintain our existing customer base and to attract new customers is highly dependent on our ability
to deliver products and fulfill orders in a timely and cost-effective manner. To ensure timely delivery of our products to our
customers, we rely significantly on UPS to ship the vast majority of our products to our customers. UPS may not continue to
ship our products at its current pricing or on its current terms. If there is any disruption in UPS’s ability to deliver our
products, including a disruption caused by a strike by its employees, we may lose customers and our sales will be adversely
affected. Further, should UPS decide to terminate its contract with us, we may not be able to find an adequate replacement
within a reasonable period of time and at a reasonable cost to us. To the extent that UPS increases its prices, we are unable to
find a replacement or are required to hire a replacement at additional cost, our financial performance could be materially
adversely affected.
If any of our distribution facilities were to unionize, we would incur increased risk of work stoppages and possibly
higher labor costs.
None of our employees are party to collective bargaining agreements. If employees of any of our distribution facilities
were to unionize, we would incur increased risk of work stoppages and possibly higher labor costs. Although all of our
facilities are currently non-unionized, organization efforts have taken place in the past. If organization efforts at any of our
facilities are successful, it could have an adverse effect on our relationships with employees, labor costs and financial
performance.
Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit
our ability to operate and grow successfully.
Our success in the highly competitive markets in which we operate will continue to depend to a significant extent on
our leadership team and other key management personnel. Our operations could be materially adversely affected if we are
unable to retain these important executives and management personnel.
We may incur restructuring or impairment charges that would reduce our earnings.
We may incur restructuring charges in connection with future acquisitions or our ongoing operations. These
restructuring charges could be undertaken to realign our operations, eliminate duplicative functions, rationalize our operating
11
facilities and products, or reduce our staff. As of December 31, 2012, we had $24.4 million in long-lived assets. We test longlived assets for impairment when there are indicators of impairment.
The ability to realize long-lived assets is evaluated periodically as events or circumstances indicate a possible inability
to recover their carrying amount. Such evaluation is based on various analyses, including discounted cash flow and
profitability projections that incorporate, as applicable, the impact on the existing business. The analyses necessarily involve
significant management judgment. Any impairment loss, if indicated, is measured as the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
If we determine that there are impairments to our long-lived assets in the future, the resulting non-cash charge could be
substantial.
We may not successfully identify, complete or integrate future acquisitions or establish new distribution facilities,
which could adversely affect our business.
We have expanded our business partly through acquisitions and by establishing new distribution facilities in new
markets and we may continue to do so in the future. We may not succeed in identifying suitable acquisition candidates,
completing acquisitions, integrating acquired operations into our existing operations, or expanding into new markets either
through acquisitions or establishing new facilities.
In addition, future acquisitions could have an adverse effect on our operating results, particularly in the fiscal quarters
immediately following their completion while we integrate the operations of the acquired business. Acquired operations or
new facilities may not achieve levels of revenue, profitability or productivity comparable with those achieved by our existing
operations, or such acquired operations or new facilities may not otherwise perform as expected.
A change in our board of directors’ composition could lead to a loss of talent and insight, which may adversely affect
our results of operations.
Affiliates of Stonehill Capital Management and Cetus Capital, our significant stockholders, together acting by written
stockholder consent removed or replaced four of the five members of the Board effective July 23, 2012. Currently, the Board
consists of the current CEO of Broder Bros., Co. and four members designated by the affiliates noted above. Board members
serve for a one-year term. Board composition may change as terms expire, if directors were to resign, or if directors are
removed, and a new board could change our strategic initiatives, leading to an adverse effect on our results of operations and
liquidity.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our
obligations.
We have substantial indebtedness. As of December 31, 2012, we had approximately $258.5 million of total
indebtedness, which includes $132.0 million related to our 2013 Notes. As described more fully below under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Subsequent Events”, on March 27, 2013 the
Company completed a significant refinancing out of its outstanding indebtedness. In connection with such refinancing, the
2013 Notes were called for redemption, however, significant additional indebtedness was incurred in order to, among other
things, fund the redemption of the 2013 Notes.
In addition, subject to restrictions in our revolving credit facility and our new senior secured loan agreement, we may
incur additional indebtedness. The high level of our indebtedness could have important consequences, including the
following:
•
it may be more difficult for us to satisfy our obligations with respect to our indebtedness;
•
our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired;
•
we must use a substantial portion of our cash flow from operations to pay interest and principal on our
indebtedness, which will reduce the funds available to us for other purposes, such as capital expenditures;
•
we may be limited in our ability to borrow additional funds;
•
we may have a higher level of indebtedness than some of our competitors, which may put us at a competitive
disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our industry,
including increased competition; and
•
we are more vulnerable to economic downturns and adverse developments in our business.
12
We expect to obtain the funds to pay our expenses and to pay the principal and interest on our revolving credit facility,
new senior secured notes, and other debt from cash flow from our operations. Our ability to meet our expenses thus depends
on our future performance, which will be affected by financial, business, economic and other factors. We will not be able to
control many of these factors, such as economic conditions in the markets where we operate and the actions of our
competitors. Our cash flow may not be sufficient to allow us to pay principal and interest on our debt and meet our other
obligations. If we do not have enough liquidity, we may be required to refinance all or part of our existing debt, sell assets or
borrow more money. We may not be able to do so on terms acceptable to us, if at all. In addition, the terms of existing or
future debt agreements, including our revolving credit facility, may restrict us from pursuing any of these alternatives.
Our failure to comply with restrictive covenants contained in our revolving credit facility, our new senior secured loan
agreement, or any new debt incurred in the future could lead to an event of default under such instruments.
Our revolving credit facility and our new senior secured loan agreement impose significant restrictive covenants on us.
The agreements governing our revolving credit facility and our new senior secured notes also requires us to achieve specified
financial results and maintain compliance with a specified financial ratio and satisfy other financial condition tests. Our
ability to comply with these covenants may be affected by events beyond our control. Our breach of any of these restrictive
covenants or our inability to comply with the required financial ratios could result in a default under the agreement governing
our revolving credit facility or our new senior secured loan agreement. If a default occurs, the lenders under our revolving
credit facility may elect to declare all borrowings outstanding, together with all accrued interest and other fees, to be
immediately due and payable, which would result in an event of default under the new senior secured notes causing that debt
to also become immediately due and payable. The lenders would also have the right in these circumstances to terminate any
commitments under our revolving credit facility to provide further borrowings. If we are unable to repay outstanding
borrowings when due, the lenders under our revolving credit facility and our senior secured loan agreement will also have the
right to proceed against our collateral granted to them to secure the indebtedness. If the indebtedness under our revolving
credit facility, our new senior secured loan agreement, or any new debt incurred in the future were to be accelerated, we
cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness, including
trade payables.
Despite current anticipated indebtedness levels and restrictive covenants, we may incur additional indebtedness in the
future.
Despite our current level of indebtedness, we may be able to incur certain additional indebtedness, including additional
secured indebtedness. Although our existing credit agreement and our new senior secured loan agreement contain restrictions
on our ability to incur additional indebtedness, these restrictions are subject to important exceptions and qualifications. If we
incur additional indebtedness which is permitted under these agreements, the risks that we and they now face as a result of
our leverage could intensify. If our financial condition or operating results deteriorate, our relations with our creditors, the
lenders under our secured credit facility and our new senior secured loan agreement and our suppliers, may be materially and
adversely affected.
Internal Revenue Service Regulations could require the acceleration of a portion of our deferred tax liabilities if we
were to enter into certain transactions identified in the regulations.
As a result of our 2009 debt refinancing transaction, we realized cancellation of indebtedness (“COD”) income in the
amount of $143.8 million. For federal tax purposes, we have elected to defer $80.3 million of this COD income pursuant to
Section 108(i) of the Internal Revenue Code. As a result, we may include this COD income in our gross income ratably over
a five-year period beginning in 2014. We also deferred $74.2 million in related original issue discount (“OID”) which we will
include in our expense ratably over the same five-year period beginning 2014. Under Internal Revenue Service Regulations,
all or a portion of the corresponding deferred tax liability could be accelerated if we change our tax status, cease our
corporate existence in a transaction to which Section 381(a) of the Internal Revenue Code (i.e., the corporate acquisition
rules) does not apply, or we engage in a transaction that impairs, in any way, our ability to pay the tax liability associated
with the deferred COD income. The acceleration of such deferred tax liabilities could have a material adverse effect on our
results of operations, financial condition and cash flows. There can be no guarantee that we can avoid the acceleration of
these tax liabilities or that our assets would be sufficient to pay the accelerated liabilities when due.
13
Item 2.
Properties.
We are headquartered in Trevose, Pennsylvania, and operate eight distribution centers and several smaller customer
pickup locations called “Express” locations nationwide. We added five facilities on December 27, 2012 with the Imprints
acquisition. Our distribution facilities are located strategically throughout the country to take advantage of ground parcel
service, shipping regions and population density. We use UPS for the vast majority of our shipments. Each of our facilities is
leased. The leases for such facilities are scheduled to expire between 2013 and 2023. We believe our current facilities are
generally well maintained and provide adequate warehouse and distribution capacity for future operations. Our locations at
December 31, 2012 are listed below:
Distribution
Center
Location
Express
Location
Trevose, Pennsylvania ....................................................................................
Bolingbrook, Illinois .......................................................................................
Lewisberry, Pennsylvania ...............................................................................
Dallas, Texas...................................................................................................
Orlando, Florida ..............................................................................................
Fresno, California ...........................................................................................
Duluth, Georgia ..............................................................................................
Middleboro, Massachusetts.............................................................................
Seattle, Washington ........................................................................................
Houston, Texas ...............................................................................................
Charlotte, North Carolina................................................................................
Denver, Colorado ............................................................................................
St. Louis, Missouri ..........................................................................................
Santa Fe Springs, California ...........................................................................
St. Petersburg, Florida.....................................................................................
Philadelphia, Pennsylvania(2) ...........................................................................
Plymouth, Michigan(3) .....................................................................................
Louisville, Kentucky .......................................................................................
Bensenville, Illinois ........................................................................................
Denver, Colorado(4) (5) .......................................................................................
Lenexa, Kansas(4) .............................................................................................
Verona, Wisconsin(4) .......................................................................................
Las Vegas, Nevada(4) .......................................................................................
Kent, Washington(4) .........................................................................................
(1)
(2)
(3)
(4)
(5)
Call
Center
Office
Sq. Feet
(000s)(1)
48
425
413
358
340
332
321
280
160
89
63
63
33
33
15
25
25
25
4
169
73
60
31
38
Includes warehouse and corporate space.
Total leased space is 286,000 square feet. Location previously served as a distribution center.
Total leased space is 117,000 square feet. Location previously served as a distribution center.
Imprints Wholesale location.
Two Imprints Wholesale buildings are located in the City of Denver, Colorado.
Item 3.
Legal Proceedings.
We are involved from time to time in routine legal matters and other claims incidental to our business. When it appears
probable in management’s judgment that we will incur monetary damages or other costs in connection with such claims and
proceedings, and such costs can be reasonably estimated, liabilities are recorded in the audited consolidated financial
statements and charges are recorded against earnings. We believe the resolution of such routine matters and other incidental
claims, taking into account reserves and insurance, will not have a material adverse effect on our financial condition or results
of operations.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
PART II
ITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is currently no established public trading market for our common stock. As of January 30, 2013, there were
approximately 44 record holders of our common stock.
We have not in the past paid, and do not expect for the foreseeable future to pay, dividends on our common stock.
Instead, we anticipate that all of our earnings in the foreseeable future will be used in the operation and expansion of our
business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon,
among other factors, our results of operations, financial condition, capital requirements and contractual restrictions, including
restrictions under our revolving credit facility and the indenture governing our 2013 Notes and any new debt incurred in
connection with a refinancing of our 2013 Notes, and any other considerations our board of directors deems relevant.
ITEM 6.
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of the Company as of the dates and for the periods
indicated. The selected historical financial information for the Company as of and for the fiscal years ended December 31,
2012 and 2011 has been derived from the historical financial statements that have been audited by Ernst and Young LLP, an
independent auditor. The selected historical financial information for the Company as of and for the fiscal years ended
December 31, 2010, 2009 and 2008 has been derived from the historical financial statements that have been audited by
PricewaterhouseCoopers LLP, an independent auditor.
The summary information below should be read in conjunction with Item 7. “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto, included in
Item 8 in this Annual Report.
Fiscal Year Ended December 31,(1)
2012
2011
2010
2009
2008
(dollars in thousands)
Statement of Income Data:
Net sales ............................................................................
Cost of sales (exclusive of depreciation and amortization
included in warehousing, selling and administrative
below) ...........................................................................
$ 817,859
$ 848,199
$ 791,335
$ 705,235
$ 926,074
683,483
687,592
644,231
588,089
762,047
Gross profit........................................................................
Warehousing, selling and administrative...........................
Depreciation and amortization ..........................................
Restructuring and asset impairment charges, net(2) ............
Goodwill and trade name impairment(3) .............................
134,376
100,951
7,314
198
—
160,607
97,267
9,933
(2,187)
—
147,104
101,547
14,611
(298)
—
117,146
102,087
17,246
2,280
—
164,027
127,662
18,041
2,717
62,504
Total operating expenses..........................................
108,463
105,013
115,860
121,613
210,924
Income (loss) from operations ...........................................
Interest expense, net(4) ........................................................
Other costs(5) ......................................................................
Gain on troubled debt restructuring(6) ................................
25,913
5,760
—
—
55,594
7,477
163
—
31,244
11,239
—
—
(4,467)
17,753
1,516
(10,525)
(46,896)
35,728
—
—
Total other expense, net ...........................................
5,760
7,640
11,239
8,744
35,728
Income (loss) before income tax provision (benefit) .........
Income tax provision (benefit) ..........................................
20,153
7,922
47,954
2,290
20,005
3,308
(13,211)
35
(82,625)
(13,755)
Net income (loss) .....................................................
$ 12,231
$ 45,664
$ 16,697
$ (13,246)
$ (68,870)
15
Fiscal Year Ended December 31,(1)
2012
2011
2010
2009
2008
(dollars in thousands)
Other Financial Data:
Cash flow from (used in) operating activities....................
Cash flow (used in) investing activities(7) ..........................
Cash flow from (used in) financing activities....................
Capital expenditures(8) ........................................................
Balance Sheet Data (at period end):
Cash ...................................................................................
Working capital .................................................................
Total assets ........................................................................
Total debt and capital lease obligations(9) ..........................
Shareholders’ (deficit) .......................................................
(1)
(2)
(3)
(4)
$ 39,912
(28,753)
(10,264)
949
$
2,854
(3,642)
(3,982)
4,147
$
5,181
(1,144)
(2,262)
1,159
$
$
—
211,876
347,490
282,661
(34,383)
$
4,770
158,587
313,574
283,561
(80,251)
895
224,133
348,637
258,450
(22,827)
$ 71,503
(928)
(70,335)
930
$ (8,821)
(2,794)
9,736
3,032
$
$
2,995
125,034
296,015
277,342
(97,048)
2,755
204,690
388,959
385,624
(126,875)
We operate on a 52- or 53-week year basis with the fiscal year ending on the last Saturday of December. Fiscal year
2011 consisted of 53 selling weeks and fiscal years 2012, 2010, 2009 and 2008 each consisted of 52 selling weeks.
During fiscal year 2011, the Company recorded a reduction of approximately $2.2 million in restructuring charges
consisting of a reversal of its restructuring accrual of $2.2 million on the purchase of its leased facility in Wadesboro,
NC and a reduction of $0.2 million resulting from an amendment to a sublease at our former Philadelphia, PA
distribution center offset by interest accretion of $0.2 million. During fiscal year 2010, the Company recorded a
reduction of approximately $0.3 million in restructuring charges consisting of a reduction $0.5 million resulting from a
new sublease agreement for one of our closed facilities, a reduction of $0.3 million due to a change in the estimate of
future real estate taxes payable at one of our closed facilities and interest accretion of $0.5 million. Restructuring
charges of $2.3 million in fiscal 2009 consisted of $1.4 million resulting from a rent increase at one of our closed
facilities due to the default of the counterparty to our lease agreement, interest accretion of $0.6 million and severance
charges of $0.4 million. The 2009 severance expense is related to a workforce reduction which was completed in
March 2009. Restructuring charges of $2.7 million in fiscal 2008 consist of $1.1 million in severance charges, $0.7
million in interest accretion, and $1.4 million resulting from changes in sublease assumptions partially offset by a
reduction to the restructuring charge of approximately $0.5 million as we executed a buyout agreement for our
Stafford, TX distribution center. The severance expense includes approximately $1.0 million related to a workforce
reduction announced by us in December 2008.
During the quarter ended December 31, 2008, as part of our annual impairment evaluation, we recorded an additional
non-cash goodwill impairment charge of $50.9 million and a non-cash impairment charge of $11.6 million related to
the value of our Alpha Trade Name asset. See Note 2 to the consolidated financial statements for more information.
We sold $175.0 million aggregate principal amount of 11 ¼% Senior Notes due 2010 in September 2003 to finance the
Alpha acquisition and repay existing indebtedness of Broder and Alpha. In November 2004, we sold an additional
$50.0 million aggregate principal amount of 11 1/4% Senior Notes due 2010 to repay a portion of our then-outstanding
borrowings under our revolving credit facility. In the second quarter of fiscal 2009, we completed an Exchange Offer
for our outstanding 2010 Notes. An aggregate of $213.5 million in principal amount of 2010 Notes were exchanged for
$94.9 million aggregate principal amount of 2013 Notes. The 2013 Notes are recorded on the balance sheet at the value
of the total future cash payments under the terms of the 2013 Notes, including both principal and interest payments, as
required under the guidance provided by the applicable accounting guidance. As a result, we did not recognize any
interest expense on the 2013 Notes in fiscal 2012, 2011, 2010 or 2009 and do not anticipate recognizing any interest
expense on the 2013 Notes through their maturity or redemption.
16
(5)
(6)
(7)
(8)
(9)
We incurred legal and professional fees in connection with the troubled debt restructuring completed in the quarter
ended June 30, 2009. In 2011, we completed the sale of the Wadesboro facility at a loss.
We recorded a gain on troubled debt restructuring of $10.5 million in fiscal 2009 as a result of the completion of an
Exchange Offer for our 2010 Notes which was completed in the quarter ended June 30, 2009. See Note 4 to the
consolidated financial statements for more information.
We acquired Imprints Wholesale for $27.8 million through a stock purchase in December 2012.
Capital expenditures exclude non-cash capital expenditures financed through capital leases and acquisition.
In May 2009, we issued our 2013 Notes with a face value $94.9 million. Under the guidance provided by the FASB,
the 2013 Notes are carried on our balance sheet at the amount of the total future cash payments under the terms of the
2013 Notes, including both principal and interest payments. The following table presents a reconciliation of the face
value of the 2013 Notes to their carrying value as of the respective balance sheet dates:
December 31,
2012
2011
(dollars in thousands)
Face value of 2013 Notes ...........................................................
Cash interest short-term ..............................................................
Cash interest long-term ...............................................................
$ 117,856
—
14,142
$ 117,856
14,142
14,142
Carrying value of 2013 Notes ...................................................
$ 131,998
$ 146,140
Revolving credit facility ..............................................................
All other ......................................................................................
122,071
4,381
130,827
5,694
Total debt and capital lease obligations ..................................
$ 258,450
$ 282,661
See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Subsequent
Events” for a discussion of the recent refinancing transactions completed on March 27, 2013 which has affected our
outstanding indebtedness.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
We are the leading distributor of imprintable activewear in the United States and we operate the largest distribution
network in the industry including eight distribution centers and several smaller customer pickup locations called “Express”
locations. In addition, we added five locations with the Imprints acquisition. We offer next-day delivery service to over 92%
of our imprintable activewear customers based in the United States and second-day delivery service to over 98% of our entire
customer base.
We estimate the size of the imprintable activewear market to be about $6 billion per year at wholesale prices.
Imprintable activewear is undecorated or “blank” T-shirts, sweatshirts, sport shirts, and other imprintable “soft goods.” It is
sold to apparel decorators and promotional product distributors who decorate it, or have it decorated, for a wide variety of
purposes including awards, uniforms, team wear, souvenirs, retail, advertising, and corporate promotions. Nearly 66,000
promotional product distributors and apparel decorators bought products from us in the past year.
We purchase goods from more than 60 suppliers including Gildan, Jerzees, Hanes, Fruit of the Loom and Anvil,
including those who provide products to Imprints. We also buy “better” and “best” products from such brands as Adidas
Golf, Alternative Apparel, Ashworth, Bella, Canvas, alo and Champion. In addition, we develop and source our own private
label brands: Devon & Jones, Chestnut Hill, Authentic Pigment, Harriton, HYP and Apples & Oranges. Our assortment
includes over 59,000 SKUs intended to satisfy the imprintable activewear needs of our customers. We operate through the
“Broder,” “Alpha,” “NES” and “Imprints” brand names. Our Broder, Alpha and NES catalog circulation is extensive, totaling
approximately 1.1 million comprehensive catalogs that our customers use as selling tools.
17
RESULTS OF OPERATIONS
The Company operates on a 52/53-week year basis with the year ending on the last Saturday of December. The twelve
months ended December 29, 2012 and December 31, 2011 consisted of fifty-two weeks and fifty-three weeks, respectively. In
certain cases, fiscal periods are identified according to the calendar period that they most accurately represent. For
example, the year ended December 29, 2012 is referred to herein as “the year ended December 31, 2012” and the balance
sheet date of December 29, 2012 is referred to herein as “December 31, 2012.” Tables and other data in this section may not
total due to rounding.
The following table sets forth the amounts and the percentages of net sales that items in the statement of operations
constitute for the periods indicated:
Fiscal Year 2012 Compared to Fiscal Year 2011
Fiscal Year Ended December 31,
2012
Increase/
(Decrease)
2011
(dollars in millions)
Net sales .....................................................................................
Cost of sales (exclusive of depreciation and amortization as
shown below) ........................................................................
$ 817.9
100.0%
683.5
83.6
687.6
81.1
Gross profit ................................................................................
Warehousing, selling and administrative expenses ....................
Depreciation and amortization ...................................................
Restructuring charges, net ..........................................................
134.4
101.0
7.3
0.2
16.4
12.3
0.9
0.0
160.6
97.2
9.9
(2.2)
18.9
11.5
1.2
(0.3)
Income from operations .............................................................
Interest expense, net ...................................................................
Other expense, net......................................................................
Income tax provision..................................................................
25.9
5.8
—
7.9
3.2
0.7
—
1.0
55.7
7.5
0.2
2.3
6.6
0.9
—
0.3
Net income .................................................................................
$ 12.2
1.5%
$ 848.2
$ 45.7
100.0% $ (30.3)
(3.6%)
(4.1)
(0.6)
(26.2) (16.3)
3.8
3.9
(2.6) (26.3)
2.4 (109.1)
(29.8)
(1.7)
(0.2)
5.6
5.4% $ (33.5)
(53.5)
(22.7)
—
243.5
(73.3%)
Net Sales. Net sales decreased by approximately $30.3 million, or 3.6%, to $817.9 million for the year ended
December 31, 2012 from $848.2 million for the year ended December 31, 2011. This decrease resulted from a decrease in
average selling prices in response to cost reductions imposed by manufacturers which we passed along to our customers in
the form of lower average selling prices combined with a change in product mix (estimated impact of $24.6 million) and a
decrease in unit volume (estimated impact of $5.7 million).
Gross Profit. Gross profit decreased by $26.2 million, or 16.3%, to $134.4 million for the year ended December 31,
2012 from $160.6 million for the year ended December 31, 2011. Gross margin was 16.4% and 18.9% for the years ended
December 31, 2012 and 2011, respectively. The decreases in gross profit and gross profit margin were attributable to lower
gross profit per unit compared to the prior year. Cost of sales per unit increased by 0.1% per unit for the year ended
December 31, 2012 compared to the year ended December 31, 2011.
Warehousing, Selling and Administrative Expenses (Including Depreciation and Amortization). Warehousing,
selling and administrative expenses, including depreciation and amortization, increased $1.2 million, or 1.1%, to $108.3
million for the year ended December 31, 2012 from $107.1 million for the year ended December 31, 2011. The net increase
was due to lower depreciation and amortization expense combined with higher warehouse, selling and administrative
expenses during the twelve months ended December 31, 2012. The decrease in depreciation and amortization was primarily
the result of a $2.6 million reduction as assets have become fully depreciated and definite-lived intangible assets have
become fully amortized. The increase in warehousing, selling and administrative expenses of $3.8 million was primarily the
result of: (i) $2.7 million in employee separation costs; (ii) $2.1 million in higher variable operating expenses driven by 2011
reversals of accounts receivable and workers’ compensation reserves; (iii) $0.5 million incurred in connection with
evaluating a refinancing of the 2013 Notes; and (iv) $0.3 million of Imprints acquisition-related costs; partially offset by (v) a
$1.9 million decrease in fixed expenses related our distribution centers and annual compensation plans.
18
Restructuring Credits, Net. As described in Note 15 to the consolidated financial statements, we recorded net
restructuring charges of $0.2 million and restructuring credits of $2.2 million during the years ended December 31, 2012 and
2011, respectively. During fiscal 2012, we recorded restructuring charges of $0.2 million for separation benefits due to the
consolidation of the number of call centers we operate from three to two and additional interest accretion. The 2011 credits
were driven by a reversal of a restructuring accrual of $2.2 million on the purchase of its leased facility in Wadesboro, NC
and a reduction from an amendment to a sublease at our former Philadelphia, PA distribution center of $0.2 million offset by
interest accretion of $0.2 million.
Income from Operations. As a result of the factors described above, income from operations decreased by
approximately $29.8 million to $25.9 million for the year ended December 31, 2012 from $55.6 million for the year ended
December 31, 2011.
Interest Expense, Net. Interest expense, net was $5.8 million and $7.5 million for the years ended December 31, 2012
and December 31, 2011, respectively. The reduction in interest expense was due primarily due to lower average interest rates
under our revolving credit facility and lower borrowings.
Income Tax Provision. Income tax expense for the year ended December 31, 2012 was $7.9 million compared income
tax expense of $2.3 million for the year ended December 31, 2011. The difference between the U.S. federal statutory rate and
the effective tax rate for the year ended December 31, 2012 relates primarily as a result of the COD income reserve for
unrecognized tax benefits and state tax expense (see Note 13 to the consolidated financial statements for more information).
The difference between the U.S. federal statutory rate and the effective tax rate for the year ended December 31, 2011 relates
primarily to the release of the valuation allowance (see Note 13 to the consolidated financial statements for more
information).
Fiscal Year 2011 Compared to Fiscal Year 2010
Fiscal Year Ended December 31,
2011
Increase/
(Decrease)
2010
(dollars in millions)
Net sales .....................................................................................
Cost of sales (exclusive of depreciation and amortization as
shown below) ........................................................................
$ 848.2
100.0%
$ 791.3
100.0%
$ 56.9
7.2%
687.6
81.1
644.2
81.4
43.4
Gross profit ................................................................................
Warehousing, selling and administrative expenses ....................
Depreciation and amortization ...................................................
Restructuring charges, net ..........................................................
160.6
97.2
9.9
(2.2)
18.9
11.5
1.2
(0.3)
147.1
101.6
14.6
(0.3)
18.6
12.8
1.8
—
13.5
(4.4)
(4.7)
(1.9)
9.2
(4.3)
(32.2)
633.3
Income from operations .............................................................
Interest expense, net ...................................................................
Other expense, net......................................................................
Income tax provision..................................................................
55.7
7.5
0.2
2.3
6.6
0.9
—
0.3
31.2
11.2
—
3.3
3.9
1.4
—
0.4
24.5
(3.7)
0.2
(1.0)
78.5
(33.0)
—
(30.3)
Net income .................................................................................
$ 45.7
5.4%
$ 16.7
2.1%
$ 29.0
6.7
173.7%
Net Sales. Net sales increased by approximately $56.9 million, or 7.2%, to $848.2 million for the year ended
December 31, 2011 from $791.3 million for the year ended December 31, 2010. This increase resulted from an increase in
average selling prices in response to cost increases imposed by manufacturers which we passed along to our customers in the
form of higher average selling prices combined with a change in product mix (estimated impact of $93.6 million) partially
offset by a decrease in unit volume (estimated impact of $36.7 million). According to data provided by CREST (which cease
in June 2012), the U.S. imprintable activewear market shrank 5% in units sold during 2011. Our units sold shrank by 5%
when using the comparable period used by CREST, which was January 1, 2011 through December 31, 2011.
Gross Profit. Gross profit increased by $13.5 million, or 9.2%, to $160.6 million for the year ended December 31, 2011
from $147.1 million for the year ended December 31, 2010. Gross margin was 18.9% and 18.6% for the years ended
December 31, 2011 and 2010, respectively. The increase in gross profit was attributable to management’s continued focus on
improved pricing and purchasing activities. The prior year’s gross profit included the recognition of approximately $13.0
million for inventory gains resulting from the rising cotton apparel prices offset by $6.5 million in inventory reserves. Cost of
sales per unit increased 11.9% per unit for the year ended December 31, 2011 compared to the year ended December 31,
2010.
19
Warehousing, Selling and Administrative Expenses (Including Depreciation and Amortization). Warehousing,
selling and administrative expenses, including depreciation and amortization, decreased $9.1 million, or 7.8%, to $107.1
million for the year ended December 31, 2011 from $116.2 million for the year ended December 31, 2010. The decrease was
primarily the result of: (i) a $4.7 million decrease in depreciation and amortization expense as assets have become fully
depreciated and definite-lived intangible assets have become fully amortized; (ii) a $2.2 million reduction in our accounts
receivable reserves; (ii) a $2.1 million decrease in workers’ compensation insurance following an actuarial valuation of our
claims data; and (iii) $2.1 million reduction in variable operation expenses driven by lower volumes, and (iv) $1.9 million in
more efficient operations in our distribution centers coupled with lower volume, partially offset by a $2.0 million increase in
fixed operating expenses. The increase in fixed operating expenses is non-recurring. We moved our 2012 national sales
meeting into the fourth quarter 2011 due to scheduling conflicts in early 2012 and we settled a multi-year sales and use tax
audit in one of the states in which we do business.
Restructuring Credits, Net. As more fully described in Note 15 to the consolidated financial statements, we recorded
net restructuring credits of $2.2 million and $0.3 million during the years ended December 31, 2011 and 2010, respectively.
The 2011 credits were driven by a reversal of a restructuring accrual of $2.2 million on the purchase of its leased facility in
Wadesboro, NC and reductions from an amendment to a sublease at the Company’s former Philadelphia, PA distribution
center of $0.2 million offset by interest accretion of $0.2 million. The credit to restructuring charges during the year ended
December 31, 2010 was the result of our executing a sublease for unused space at one of our closed facilities and a reduction
of $0.3 million due to a change in the estimate of future real estate taxes payable at one of our closed facilities, net of $0.5
million in interest accretion on restructuring charges which have been accrued but not yet paid.
Income from Operations. As a result of the factors described above, income from operations increased by
approximately $24.5 million, to $55.7 million for the year ended December 31, 2011 from $31.2 million for the year ended
December 31, 2010.
Interest Expense, Net. Interest expense, net was $7.5 million and $11.2 million for the years ended December 31, 2011
and December 31, 2010, respectively. The reduction in interest expense was due primarily due to lower average interest rates
under our revolving credit facility and the absence of interest on the Company’s 2010 Notes which matured in October 2010.
Interest expense in the year ended December 31, 2010 included approximately $1.0 million of interest expense on our 2010
Notes (see Note 4 to the consolidated financial statements for more information).
Income Tax Provision. Income tax expense for the year ended December 31, 2011 was $2.3 million compared income
tax expense of $3.3 million for the year ended December 31, 2010. The difference between the U.S. federal statutory rate and
the effective tax rate for the year ended December 31, 2011 relates primarily to the release of the valuation allowance (see
Note 13 to the consolidated financial statements for more information). The difference between the U.S. federal statutory rate
and the effective tax rate for the year ended December 31, 2010 relates primarily to the COD income reserve for
unrecognized tax benefits, state tax expense and the valuation allowance recorded during the year. Due to the impact of the
exchange transaction and attribute reduction on our net deferred tax asset position, we recorded a $14.0 million decrease to
our valuation allowance during the year ended December 31, 2010. The remaining valuation allowance for deferred tax assets
at December 31, 2010 related principally to the uncertainty of the utilization of certain deferred tax assets in various
jurisdictions. The valuation allowance was calculated in accordance with the applicable guidance for such matters, which
requires that a valuation allowance be established and maintained when it is “more likely than not” that all or a portion of
deferred tax assets will not be realized.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Fiscal year 2012 compared to fiscal year 2011. Net cash provided by operating activities was $39.9 million for the
year ended December 31, 2012 compared with cash provided by operating activities of $2.9 million for the year ended
December 31, 2011. The increase in cash flows from operating activities was principally due to a decrease in inventory of
$28.6 million in the year ended December 31, 2012 compared to an increase in inventory of $47.6 million for the year ended
December 31, 2011. The decrease in inventory was due to cost reductions from the manufacturers of our products. The
decrease in inventory was partially offset by lower net income of $12.2 million for the year ended December 31, 2012
compared to $45.7 million in the prior year. An additional offset included a decrease in accounts payable of $7.2 million in
the year ended December 31, 2012 compared to an increase in accounts payable of $14.2 million for the year ended
December 31, 2011.
Net cash used in investing activities was $28.8 million and $3.6 million for the years ended December 31, 2012 and
2011, respectively. The increase was mainly due to the acquisition of Imprints Wholesale.
20
Net cash used in financing activities was approximately $10.3 million for the year ended December 31, 2012 compared
to $4.0 million for the year ended December 31, 2011. The change in financing cash flows was primarily the result of net
repayments on our revolving credit facility during the year ended December 31, 2012 of $8.8 million compared to net
borrowings on our revolving credit facility of $15.5 million in the year ended December 31, 2011 and interest payments on
2013 Notes of $14.1 million during 2012. These outflows were offset by an increase in the overdraft of $15.5 million in the
year ended December 31, 2012 compared to a decrease of $2.1 million in the prior year.
Fiscal year 2011 compared to fiscal year 2010. Net cash provided by operating activities was $9.9 million for the year
ended December 31, 2011 compared with cash provided by operating activities of $5.2 million for the year ended
December 31, 2010. The decrease in cash flows from operating activities was principally due to an increase in inventory and
a decrease in accrued liabilities of $47.6 million and $9.2 million, respectively, in the year ended December 31, 2011
compared to an increase in inventory and accrued liabilities of $5.2 million and $4.2 million for the year ended December 31,
2010, respectively. The increase in inventory was due to an increase in COGS per day at year end 2011 combined with
inventory turns at year end 2011 decreasing from 2010. At December 31, 2010, we did not have the financial resources to
purchase all of the inventory that our proprietary supply chain practices indicated would maximize return on investment. At
December 31, 2011, we were financially able to buy goods to the level we have determined is optimal, so some of the
inventory in inventory days on-hand was warranted. The decreases in accrued liabilities were mainly due to a reduction in
workers’ compensation reserves following an actuarial valuation and a decrease in federal income taxes payable related to
payments made in the fourth quarter 2011. The increase in inventory and decreases in accrued liability were partially offset
by improved net income of $45.7 million for the year ended December 31, 2011 compared to $16.7 million in the prior year.
An additional offset included an increase in accounts payable of $10.7 million in the year ended December 31, 2011
compared to a decrease in accounts payable of $15.1 million for the year ended December 31, 2010.
Net cash used in investing activities was $3.6 million and $1.1 million for the years ended December 31, 2011 and
2010, respectively. The increase was due to an increase in fixed asset purchases in the current year.
Net cash used in financing activities was approximately $4.0 million for the year ended December 31, 2011 compared
to $2.3 million for the year ended December 31, 2010. The change in financing cash flows was primarily the result of net
borrowings on our revolving credit facility during the year ended December 30, 2011 of $15.5 million compared to net
borrowings on our revolving credit facility of $14.4 million in the year ended December 31, 2010 and interest payments on
2013 Notes of $14.1 million during 2011.
Liquidity
General. We have relied primarily upon cash flow from operations and borrowings under our revolving credit facility
to finance operations, capital expenditures and debt service requirements. Borrowings and availability under the revolving
credit facility fluctuate due to seasonal demands. Historical borrowing levels have reached peaks during the middle of a given
year and low points during the last quarter of the year.
Our ability to manage cash flow and working capital levels, particularly inventory and accounts payable, has allowed
us to meet our obligations during the seasonal low period, pay scheduled principal and interest payments, and provide funds
for working capital, capital expenditures and other needs of the business.
Our business is sensitive to the business cycle of the national economy. Deterioration in general economic conditions
adversely affects demand for our products, and cause sales of our products to decrease. In addition, slowdowns in economic
activity result in our customers shifting their purchases towards lower priced and lower margin products, such as T-shirts,
which adversely affects our gross profit and gross profit margin.
Exchange Offer. In April 2009, we launched the Exchange Offer for all of our outstanding $225.0 million aggregate
principal amount of 2010 Notes. In exchange for their 2010 Notes, noteholders who participated in the exchange received our
newly issued 2013 Notes and a pro-rata share of our newly issued common stock. We completed the Exchange Offer in
May 2009, in which an aggregate of $213.5 million in principal amount of 2010 Notes were exchanged for $94.9 million
aggregate principal amount of 2013 Notes and 9,600,001 shares of our new common stock (representing 96% of the
outstanding common stock immediately after giving effect to the Exchange Offer). Holders of 2010 Notes also received an
amount in cash equal to $10 per $1,000 principal amount of 2010 Notes tendered prior to the consent time.
The indenture governing the 2013 Notes, among other things, (1) restricts our ability and our subsidiaries, including the
guarantors of the 2013 Notes, to incur additional indebtedness, issue shares of preferred stock, incur liens, pay dividends or
make certain other restricted payments and enter into certain transactions with affiliates, (2) prohibits certain restrictions on
the ability of certain of our subsidiaries, including the guarantors of the 2013 Notes, to pay dividends or make certain
payments to us and (3) places restrictions on our ability and our subsidiaries, including the guarantors of the 2013 Notes, to
merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially
21
all of our assets. The indenture related to the 2013 Notes also contains various covenants which limit the management’s
discretion in the operation of our businesses.
In connection with the Exchange Offer, we realized COD income in the amount of $143.8 million. For federal tax
purposes, we have elected to defer $80.3 million of this COD income pursuant to Section 108(i) of the Internal Revenue
Code. As a result, we may include this COD income in our gross income ratably over a five-year period beginning in 2014.
We also deferred $74.2 million in related OID which we will include in our expense ratably over the same five-year period
beginning 2014. Under recently enacted Internal Revenue Service Regulations, all or a portion of the corresponding deferred
tax liability could be accelerated if we change our tax status, cease our corporate existence in a transaction to which
Section 381(a) of the Internal Revenue Code (i.e., the corporate acquisition rules) does not apply, or we engage in a
transaction that impairs, in any way, our ability to pay the tax liability associated with the deferred COD income. The
acceleration of such deferred tax liabilities could have a material adverse effect on our results of operations, financial
condition and cash flows. Management reviews transactions to which the Company is or may become party with a view to
preserve the deferred tax liabilities recognized in connection with the Exchange Offer.
Following the Exchange Offer, there were $11.5 million in principal amount of 2010 Notes outstanding. These notes
matured in October 2010, upon which the entire outstanding principal amount of the 2010 Notes, together with accrued and
unpaid interest, were paid utilizing funds borrowed under our revolving credit facility.
Credit Facilities. In August 2006, we entered into an amended and restated credit agreement (“Credit Agreement”)
which provided for aggregate revolver borrowings of up to $225.0 million (subject to borrowing base availability), including
a provision for up to $25.0 million of letters of credit. In April 2009, we entered into an amendment, waiver and consent (the
“First Amendment”) of our revolving credit facility, which reduced the commitment to $200.0 million.
In October 2010, we entered into a Second Amended and Restated Credit Agreement (the “Amended Credit
Agreement”) with Bank of America, N.A. as Administrative Agent and Bank of America, N.A. and General Electric Capital
Corporation as Co-Collateral Agents. The Amended Credit Agreement amended and restated in its entirety our Credit
Agreement, which was scheduled to mature on August 31, 2011.
The Amended Credit Agreement provided for a $175.0 million revolving credit facility (the “revolving credit facility”)
and a $10.0 million first-in, last-out facility (the “FILO Facility”). The revolving credit facility may be, and the FILO Facility
may have been, used for working capital and other lawful corporate purposes of the Company. The revolving credit facility
matures on October 13, 2014 and the FILO Facility matured on January 31, 2011 and was repaid using funds from the
revolving credit facility.
On April 2011, we increased our revolving credit facility commitment from $175.0 million to $215.0 million. In
connection with this increase, we entered into the First Amendment to Second Amended and Restated Credit Agreement,
which modified the Amended Credit Agreement by (i) acknowledging an increase from $175.0 million to $215.0 million to
the aggregate revolving facility and (ii) amending a component of the borrowing base to provide that it shall not exceed the
greater of (A) $215.0 million and (B) the amount of the Indenture Borrowing Base (as defined in the credit agreement).
In June 2011, we entered into the Second Amendment to our Amended Credit Agreement. The amendment reduced the
Applicable Fee and the Applicable Margin (as defined in the Amended Credit Agreement). The Applicable Margin for all
tiers in the grid pricing was reduced by 1.50%. The Applicable Fee was reduced by 0.25% if less than 50% of the
commitments under the revolving credit facility are used and was reduced by 0.125% if greater than or equal to 50% of the
commitments under the revolving credit facility are used. The revised grid pricing became effective on the date of the Second
Amendment.
As of December 31, 2012, we had $0.8 million in cash recorded on our balance sheet, outstanding borrowings on the
Amended Credit Agreement were $122.1 million, and outstanding letters of credit were $5.7 million, which left $61.4 million
of available borrowing capacity as determined by borrowing base availability. As of December 31, 2011, outstanding
borrowings on the Amended Credit Agreement were $130.8 million and outstanding letters of credit were $6.8 million, which
left $57.7 million of available borrowing capacity as determined by the borrowing base availability. See Note 6 to the
consolidated financial statements for more information.
22
Subsequent Events.
Entry into a Material Definitive Agreement, Termination of a Material Definitive Agreement, Creation of a Direct
Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement, and Triggering Events That Accelerate or
Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
On March 27, 2013, the Company completed a significant refinancing of its outstanding indebtedness as described
below.
Senior Secured Loan Agreement
On March 27, 2013, the Company entered into a Senior Secured Loan Agreement (the “Loan Agreement”) by and
among the Company, Prospect Capital Corporation (“Prospect”), as Agent, and the purchasers identified therein.
Under the terms of the Loan Agreement, the Company issued $100 million in senior secured notes. The senior secured
notes issued pursuant to the Loan Agreement mature in June 2018 and bear interest in cash at the greater of (x) LIBOR plus
9.00% per annum (with a 1.75% LIBOR floor) and (y) 10.75% per annum, in each case payable quarterly in arrears. A
structuring fee equal to $2 million was paid to Prospect in connection with the closing of the transactions contemplated by the
Loan Agreement.
The senior secured notes amortize on a quarterly basis pursuant to a 2.0% per annum amortization schedule, with the
first amortization payment due on June 30, 2013. The balance of the senior secured notes will be payable in full at maturity.
Beginning for the fiscal year ending December 27, 2014, the senior secured notes are subject to a 65% annual excess cash
flow sweep payable on or before each April 30, with a reduction to 50% upon achievement and maintenance of a ratio of
Total Debt (as defined in the Loan Agreement) to EBITDA (as defined in the Loan Agreement) of no greater than 4.00 to
1.00 and a further reduction to 25% upon achievement and maintenance of a ratio of Total Debt to EBITDA of 3.25 to 1.00.
Scheduled amortization payments and excess cash flow payments shall be applied to reduce the principal balance of the
senior secured notes at par.
The senior secured notes are secured by a first-priority perfected lien on all of the Company’s tangible and intangible
assets; provided, however, that the Company is permitted to maintain a revolving credit facility in an amount up to $255.0
million, including a 120-day seasonal overadvance for general working capital of up to $25.0 million to be secured by a first
lien on certain agreed upon assets (including Company's inventory and accounts) (the “Revolver Assets”); provided that (i)
no more than $175 million may be drawn on the revolving credit facility on the closing of the loans on March 27, 2013 and
(ii) Prospect shall retain a second lien on the Revolver Assets. The revolving credit facility referred to above is described in
greater detail below (see “Third Amended and Restated Credit Agreement” below).
The Loan Agreement contains certain negative covenants which limit or restrict the Company’s ability to among other
things, incur indebtedness and contingent obligations, make investments, intercompany loans and capital contributions, and
dispose of property or assets. The Loan Agreement also includes customary representations and warranties of the Company,
imposes on the Company certain affirmative covenants, and includes other typical provisions. In particular, the Loan
Agreement includes quarterly financial covenants, including:
(i)
a Fixed Charge Coverage Ratio (as defined in the Loan Agreement), tested as of the last day of each fiscal
quarter, commencing with the fiscal quarter ending June 29, 2013, on a trailing four quarter basis, of not less
than the following:
Applicable Rate
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.25:1.00
Date
June 29, 2013
September 28, 2013
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015 and each Fiscal Quarter thereafter
23
(ii)
a Total Leverage Ratio (as defined in the Loan Agreement), tested as of the last day of each fiscal quarter
ending on the dates specified below, on a trailing four quarter basis, of not more than the following:
Applicable Rate
6.40:1.00
6.75:1.00
6.40:1.00
6.25:1.00
5.50:1.00
5.50:1.00
5.25:1.00
5.00:1.00
4.50:1.00
4.50:1.00
4.25:1.00
4.00:1.00
4.00:1.00
4.00:1.00
(iii)
(iv)
Date
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015
June 27, 2015
September 26, 2015
December 26, 2015
March 26, 2016
June 25, 2016
September 24, 2016
December 31, 2016
Each Fiscal Quarter end thereafter
No capital expenditures may be made in excess of $3,500,000 with respect to fiscal years 2013 and 2014,
$4,000,000 with respect to fiscal year 2015, and $4,500,000 with respect to fiscal year 2016 and each fiscal
year thereafter.
The Company must maintain at least $20,000,000 of Excess Availability (as defined in the Third Amended
and Restated Credit Agreement) as of the last day of each fiscal quarter during fiscal year 2013.
In the event of a default under the senior secured notes, Prospect may declare amounts outstanding, including accrued
interest and fees, payable immediately, and enforce any and all rights and interests. In addition, following an event of default,
Prospect could exercise remedies with respect to the collateral, including foreclosure and other remedies available to secured
creditors.
The Company issued the senior secured notes pursuant to the Loan Agreement in order to repay amounts borrowed
under its existing revolving credit facility, to redeem the outstanding 2013 Notes, and to pay certain fees and expenses
incurred in connection with the Loan Agreement.
The foregoing is only a summary of certain terms and conditions of the Loan Agreement and is qualified in its entirety
by reference to the Loan Agreement, which is attached as Exhibit 10.1 to this Annual Report and is incorporated herein by
reference.
Third Amended and Restated Credit Agreement
On March 27, 2013, the Company entered into a Third Amended and Restated Credit Agreement (the “New Credit
Agreement”) in order to refinance the Second Amended and Restated Credit Agreement, dated as of October 13, 2010, as
amended (the “Existing Credit Agreement”), among the Company, the other borrowers party thereto, the lenders party
thereto, Bank of America, N.A., as administrative agent, and the other agents named therein.
The New Credit Agreement is an asset-based revolving facility with a commitment of $255 million, subject to a
borrowing base of certain eligible accounts receivable and inventory (the “ABL Facility”) and subject to an increase in the
commitment by up to $75 million in certain circumstances as described in the New Credit Agreement. The commitment
under the New Credit Agreement includes a $50 million sublimit for the issuance of letters of credit and a $25 million
sublimit for swingline loans. Availability under the ABL Facility is based on a borrowing base and is subject to seasonal
overadvances for a consecutive 120 day period chosen by the Company each fiscal year during which the advance rate is
increased by 2.5%-7.5% for eligible accounts and 2.5%-10.0% for eligible inventory.
24
All borrowings under the New Credit Agreement will accrue interest at a rate equal to the Adjusted LIBOR Rate (as
defined in the New Credit Agreement) plus the applicable margin or the prime rate plus the applicable margin. The applicable
margin ranges from 0.5% to 1.00% for base rate borrowings and 1.50% to 2.00% for LIBOR borrowings. The initial
applicable margin through June 30, 2013 for base rate borrowings is 0.75% and for LIBOR borrowings is 1.75%. These
margins fluctuate with average availability. The Company will pay a fee to the lenders for unused commitments in
accordance with the formula set forth in the New Credit Agreement.
The ABL Facility has a maturity date of March 27, 2018. The entire principal amount of loans under the New Credit
Agreement and any outstanding letters of credit will be due on the maturity date.
The ABL Facility is secured by a first priority perfected security interest and lien on (i) all inventory; (ii) all accounts;
(iii) all deposit accounts holding proceeds of the foregoing; (iv) all chattel paper, documents, instruments, letter-of-credit
rights, supporting obligations, contract rights, general intangibles, commercial tort claims and books and records, in each case
arising from the foregoing, relating thereto or derivative thereof; and (v) all accessions, products and proceeds (including
insurance proceeds, claims, damages and proceeds of suits) of the foregoing, and a second priority perfected security interest
and lien on substantially all other assets of the Company, in each case, subject to certain limited exceptions.
The New Credit Agreement contains certain negative covenants which limit or restrict the Company’s ability to among
other things, incur indebtedness and contingent obligations, make investments, intercompany loans and capital contributions,
and dispose of property or assets. The ABL Credit Agreement also includes customary representations and warranties of the
Company, imposes on the Company certain affirmative covenants, and includes other typical provisions. The New Credit
Agreement includes a financial covenant which requires the Company, under certain circumstances described in the New
Credit Agreement to ensure the Consolidated Fixed Charge Coverage Ratio (as defined in the New Credit Agreement) as of
the end of any trailing four fiscal quarter period is at least 1.0:1.0.
The New Credit Agreement allows the prepayment of the 2013 Notes upon satisfaction of certain conditions described
in the New Credit Agreement. In the event of a default under the New Credit Agreement, the lenders may declare amounts
outstanding, including accrued interest and fees, payable immediately, and enforce any and all rights and interests. In
addition, following an event of default, the lenders could exercise remedies with respect to the collateral including
foreclosure and other remedies available to secured creditors.
Certain other amendments were made to the Existing Credit Agreement, as more fully described in the New Credit
Agreement, including the restricted payment covenant which was amended to permit such restricted payments, upon
satisfaction by the Company of (a) a pro forma excess availability requirement (after giving effect to such restricted payment)
of at least 17.5% of the loan cap for the thirty (30) days prior to such restricted payment, and (b) a pro forma fixed charge
coverage ratio requirement calculated on a trailing twelve month basis of no less than 1.1:1.0; provided that if pro forma
excess availability (after giving effect to such restricted payment) is equal to or greater than 27.5% of the loan cap for the
thirty (30) days prior to such restricted payment, the Company is not obligated to satisfy the provisions of clause (b) hereof in
connection with such restricted payment.
The New Credit Facility is available to the Company for general corporate purposes, working capital, refinancing of
the 2013 Notes, and other permitted uses as specified in the Existing Credit Agreement, including permitted investments and
permitted acquisitions.
The foregoing is only a summary of certain terms and conditions of the New Credit Agreement and is qualified in its entirety
by reference to the New Credit Agreement, which is attached as Exhibit 10.2 to this Annual Report and is incorporated herein
by reference.
25
2013 Notes
On March 27, 2013, the Company deposited with U.S. Bank, the trustee under the indenture governing the 2013 Notes
(the “Indenture”), an amount sufficient to redeem all of the outstanding 2013 Notes (including interest accrued through the
redemption date) in connection with a defeasance of the covenants under the Indenture. Upon the deposit of such funds with
U.S. Bank, and upon satisfaction of certain other conditions set forth in the Indenture, the 2013 Notes were subjected to
covenant defeasances, meaning that certain of the restrictive covenants under the Indenture ceased to be effective. Also on
March 27, 2013, U.S. Bank, on behalf of the Company, delivered a redemption notice to the record holder(s) of the
outstanding 2013 Notes. The redemption notice specified that all outstanding 2013 Notes are subject to mandatory
redemption on April 24, 2013. The funds deposited with U.S. Bank on March 25, 2013 will be used to redeem the 2013
Notes on April 24, 2013. All outstanding 2013 Notes will be redeemed and will cease to be outstanding as of April 24, 2013
under the terms of the Indenture.
Affiliates of Littlejohn & Co., LLC (“Littlejohn”) beneficially own approximately $8.3 million principal amount of the
outstanding 2013 Notes, all of which will be subject to covenant defeasance and redemption upon the same terms and
conditions as will apply to all other noteholders. Cetus Capital II, LLC, an affiliate of Littlejohn, is the largest stockholder of
the Company.
Following the redemption of the 2013 Notes, the Company will complete a satisfaction and discharge of the Indenture,
at which time the Indenture will cease to have any further force or effect.
A portion of the proceeds from the Loan Agreement and the New Credit Agreement described above were used by the
Company for purposes of the covenant defeasance and redemption of the 2013 Notes described above.
First Amendment to Management Services and Fee Agreement
On March 27, 2013, the Company and Littlejohn Managers, LLC (the “Manager”), an affiliate of Cetus Capital II, LLC,
the largest stockholder of the Company, entered into a First Amendment to Management Services and Fee Agreement (the
“Amendment”) in order to amend a Management Services and Fee Agreement the parties had entered into on January 8,
2013. The Amendment was entered into in connection with the refinancing transactions described above.
Pursuant to the Amendment, the Company agreed to pay the Manager a quarterly fee of $125,000 in advance for each
3-month period ending on January 31, April 30, July 31 and October 31 effective for the period beginning on August 1,
2012. However, the Company is not obligated to pay the management fee for a particular 3-month period if (i) the
Company’s Consolidated EBITDA (as defined in the New Credit Agreement) for the trailing 12-month period ending on the
last day of the Measurement Month (as defined below) is less than $30,000,000 or (ii) at the time of any such payment or,
after giving effect to any such payment, there shall occur and be continuing under either the New Credit Agreement or the
Loan Agreement an Event of Default (as defined in each such agreement). The unpaid portion of the management fee is to be
paid as soon as such payment is not otherwise prohibited by the provisions of clauses (i) or (ii) above. The term
“Measurement Month” means the calendar month determined as follows: (i) with respect to the management fee applicable to
any 3-month period commencing on February 1, the Measurement Month is the previous December; (ii) with respect to the
management fee applicable to any 3-month period commencing on May 1, the Measurement Month is the previous March;
(iii) with respect to the Management Fee applicable to any 3-month period commencing on August 1, the Measurement
Month is the previous June; and (iv) with respect to the Management Fee applicable to any 3-month period commencing on
November 1, the Measurement Month is the previous September.
OFF-BALANCE SHEET ARRANGEMENTS
The revolving credit facility contains a provision for up to $25.0 million of letters of credit, subject to borrowing base
availability and total amounts outstanding under the revolving credit agreement of $215.0 million. As of December 31, 2012
and December 31, 2011, we had approximately $5.7 million and $6.8 million, respectively, of outstanding letters of credit,
primarily related to commitments for the purchase of inventory and collateral of leased real estate and other corporate
matters.
We purchase products in the normal course of business through the use of short-term purchase orders representing
quantities for normal business needs at current market prices.
26
CONTRACTUAL CASH OBLIGATIONS
The following table presents the aggregate amount of future cash outflows under our contractual cash obligations and
commercial commitments as of December 31, 2012:
Payments Due by Period
Total
Less than
1 year
1 to 3
years
3 to 5
years
After 5
years
(dollars in millions)
Revolving credit facility .............................................................................
2013 Notes(1) ...............................................................................................
Small business loan(2) ..................................................................................
Operating lease obligations(3) ......................................................................
Capital lease obligations, including interest................................................
$ 122.1
132.0
0.9
83.8
3.8
$
—
—
0.9
17.4
2.2
$ —
—
—
34.8
1.5
$—
—
—
19.1
0.1
$ 122.1
132.0
—
12.5
—
Total contractual cash obligations(4) ............................................................
$ 342.6
$ 20.5
$ 36.3
$ 19.2
$ 266.6
(1)
(2)
(3)
(4)
Amounts include all future cash payments due under the terms of the notes, including both principal and interest. See
Note 6 to our consolidated financial statements for more information.
The small business loan was debt we assumed in connection with the Imprints acquisition. The loan was paid off in the
first quarter of 2013.
Operating lease payments have not been reduced by minimum sublease rentals of $0.3 million due to the Company in
the future under noncancelable subleases.
The amounts included in this table exclude any interest payments which may be made related to our revolving credit
facility. If the December 31, 2012 weighted average interest rate of 3.3% and balance outstanding of $122.1 million
were to remain constant throughout the remainder of the revolving credit facility, our total future interest payments
under the facility would be approximately $11.1 million.
We also have obligations related to uncertain income tax provisions. For more information, see Note 13 to our
consolidated financial statements for more information.
INFLATION
Prices of certain of the products we distribute, particularly T-shirts, are determined primarily based on market
conditions, including the price of raw materials and available capacity in the industry. In general, we pass along to our
customers any changes in the market price we pay for the products we distribute on a real-time basis.
Our major suppliers implemented five cost increases from July 2010 through March 2011. As a result, the average unit
cost of products we bought from our major suppliers had increased approximately 35% from July 2010 through March 2011.
During the fourth quarter 2011, major suppliers announced devaluations on short-sleeved crew neck T-shirts. Other products
were devalued in 2012. With spot cotton prices at roughly $0.82 per pound and December 2013 futures prices at roughly
$0.86 per pound as of March 25, 2013, further price reductions in 2013 appear likely.
Cotton apparel prices are not as volatile as cotton prices. Although cotton prices had risen more than threefold from
March 2009 to March 2011, following the global economic crisis, to the present, cotton apparel prices had risen only 35%.
The impact of cotton prices increases on more expensive cotton shirts such as knit sport shirts and on cotton-polyester blend
shirts such as sweatshirts is significantly less than promotional T-shirts.
27
SEASONALITY
Historically, the first quarter of our fiscal year generates the lowest levels of net sales, gross profit and operating profit.
Due to the level of fixed operating expenses, operating profit is normally significantly lower in the first quarter of our fiscal
year. During 2012, first quarter net sales were approximately 22.4% of the total for the year and first quarter gross profit was
approximately 22.0% of the total for the year. During 2011, first quarter net sales were approximately 20.5% of the total for
the year and first quarter gross profit was approximately 21.5% of the total for the year. During fiscal year 2012, we earned
combined operating income of $23.7 million in the second, third and fourth quarters compared to full year operating income
of $25.9 million. During fiscal year 2011, we earned combined operating income of $49.0 million in the second, third and
fourth quarters compared to full year operating income of $55.6 million.
We have historically realized, and expect to continue to realize, slightly higher gross profit in the second half of the
fiscal year. For fiscal year 2010, approximately 54% and 56% of our net sales and gross profit, respectively, occurred in the
second half of the year. For fiscal year 2011, approximately 53% and 48% of our net sales and gross profit, respectively,
occurred in the second half of the year. For fiscal year 2012, approximately 50% and 53% of our net sales and gross profit,
respectively, occurred in the second half of the year. This seasonality is primarily a result of the sale of higher priced products
during the second half of the year, such as sweatshirts and winter-oriented outerwear. Gross profit generated during the first
half of 2011 was abnormally impacted by the cost increases imposed by major suppliers as noted above.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are described in Note 2 to the consolidated financial statements. While all
significant accounting policies are important to our consolidated financial statements, some of these policies may be viewed
as being critical. Such policies are those that are both most important to the portrayal of our financial condition and require
our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon our historical
experience and on various other assumptions that we believe to be reasonable under the circumstances. Our actual results
may differ from these estimates under different assumptions or conditions. We believe our most critical accounting policies
are as follows:
Revenue Recognition. Revenue is recognized when title and risk of loss is transferred to the customer, which, for the
majority of our customers who have FOB shipping point terms, is upon shipment of the product to the customer. Revenue
includes selling price of the product and all shipping and handling costs paid by the customer. Under certain circumstances,
customers may submit a claim for damaged or shorted shipments. Based on historical experience, we establish a reserve for
potential returns through a reduction of sales at the time of sale. Our reserve for returns totaled $0.1 million at December 31,
2012. A 10% difference in our sales returns reserve would have impacted pre-tax results by less than $0.1 million. Revenue is
further reduced at the time of sale for estimated customer-related incentives. These incentives primarily consist of volume
and growth rebates.
Accounts Receivable. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments, which is included in bad debt expense. We determine the adequacy of this
allowance by regularly reviewing our accounts receivable aging and evaluating individual customer receivables, considering
customers’ financial condition, credit history and current economic conditions. Historically, our actual losses have been
consistent with the allowances provided. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. Our allowance for doubtful accounts
was $4.9 million as of December 31, 2012. A 10% difference in our estimate provision for doubtful accounts would have
impacted pre-tax results by $0.5 million.
Inventories. We maintain an allowance for potential losses on the disposal of our discontinued and slow moving
inventory. Estimates for the allowance are based on past and estimated future sales of the product, historical realization of
similar discontinued product and potential return of slow moving and discontinued product back to the mill. The allowance
for excess and discontinued inventory was $6.7 million at December 31, 2012. A 10% difference in our estimated allowance
for excess and discontinued inventory would have impacted pre-tax results by $0.7 million. Cost of sales includes (i) the cost
of product, (ii) inbound and outbound freight costs, (iii) the costs of purchasing, receiving, inspecting and handling and
(iv) adjustments for various incentive programs offered to us by our vendors.
28
Income Taxes. We account for income taxes using an asset and liability approach which requires the recognition of
deferred income tax assets and deferred income tax liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not
that a tax benefit will not be realized. Due to the Company’s net operating losses and its net deferred tax asset position, the
Company recorded a valuation allowance of $15.6 million during fiscal year 2007. The Company recorded additional
increases of $14.6 million and $0.7 million during fiscal 2008 and 2009, respectively. During the year ended December 31,
2010, the Company recorded a decrease to its valuation allowance of $14.0 million. The decrease was primarily due to the
Company’s treatment of COD income in connection with the 2009 exchange transaction. In fiscal 2011, we recorded a
reduction to the valuation allowance of $16.9 million based on management’s evaluation that it would be more likely than not
that the tax benefits will be realized.
Long-lived and Intangible Assets. Intangible assets are assets acquired that lack physical substance and that meet the
specified criteria for recognition apart from goodwill. Intangible assets acquired are comprised mainly of customer
relationships and trade names / trademarks. The fair value of trade names / trademarks is estimated by the use of a relief from
royalty method, which values an intangible asset by estimating the royalties saved through the ownership of an asset. The
royalty, which is based on a reasonable rate applied against forecasted sales, is tax-effected and discounted to present value
using a discount rate commensurate with the relative risk of achieving the cash flow. The fair value of acquired customer
relationships is estimated by the use of an income approach known as the excess earnings method. The excess earnings
method measures economic benefit indirectly by calculating residual profit attributable to an asset after appropriate returns
are paid to complementary or contributory assets. The residual profit is tax-effected and discounted to present value at an
appropriate discount rate that reflects the risk factors associated with the estimated income stream. Determining the useful
life of an intangible asset requires judgment as different types of intangible assets will have different useful lives and certain
assets may even be considered to have indefinite useful lives.
Management historically tested indefinite-lived intangible assets on at least an annual basis, or more frequently if
necessary. In connection with the analysis, management tests for impairment by comparing the carrying value of intangible
assets to its estimated fair value. Since quoted market prices are seldom available for intangible assets, we utilize present
value techniques to estimate fair value. Common among such approaches is the “relief from royalty” methodology. This
methodology estimates the direct cash flows associated with the intangible asset. Management must estimate the hypothetical
royalty rate, discount rate, and residual growth rate to estimate the forecasted cash flows associated with the asset.
Long-lived assets, including finite-lived intangible assets such as customer relationships, do not require that an annual
impairment test be performed. Instead, we test long-lived assets for impairment when indicators of impairment are noted.
Significant judgments in this area involve determining whether a triggering event has occurred and re-assessing the
reasonableness of the remaining useful lives of finite-lived assets by, among other things, validating customer attrition rates.
The impact of recently issued accounting pronouncements are discussed in Note 2 to the consolidated financial
statements.
29
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2012 and December 31, 2011, we had $122.1 and $130.8 million, respectively, of debt outstanding
under our revolving credit facility. Our revolving credit facility is subject to variable interest rates. Accordingly, our earnings
and cash flow are affected by changes in interest rates. Assuming the December 31, 2012 level of borrowings, we estimate
that a one percentage point increase in interest on our variable rate debt agreements would have increased interest expense for
the twelve months ended December 31, 2012 by approximately $1.2 million. Assuming the December 31, 2011 level of
borrowings, we estimate that a one percentage point increase in interest on our variable rate debt agreements would have
increased interest expense for fiscal 2011 by approximately $1.3 million.
At December 31, 2012 and 2011, we had outstanding $117.9 million of our 2013 Notes (excluding future interest
payments as disclosed in Note 6 to the consolidated financial statements). The fair value of our 2013 Notes was
approximately $113.1 million at December 31, 2012 and $114.9 million at December 31, 2011.
RECENT ACCOUNTING PRONOUNCEMENTS
The impact of recently issued accounting pronouncements are discussed in Note 2 to the consolidated financial
statements included in this Annual Report.
30
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Broder Bros., Co.
The following Consolidated Financial Statements, and the related Notes thereto, of Broder Bros., Co. and Reports of
Independent Auditors are furnished as a part of this Annual Report.
Page
Reports of Independent Auditors ...................................................................................................................................................
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011...........................................................................
Consolidated Statements of Operations for the Years Ended December 29, 2012, December 31, 2011 and December 25, 2010 .
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) for the Years Ended December 29,
2012, December 31, 2011 and December 25, 2010 ...................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 29, 2012, December 31, 2011 and December 25,
2010............................................................................................................................................................................................
Notes to Consolidated Financial Statements ...................................................................................................................................
31
32
34
35
36
37
38
Report of Independent Auditors
The Board of Directors and Shareholders of Broder Bros., Co.
We have audited the accompanying consolidated financial statements of Broder Bros., Co., which comprise the consolidated
balance sheets as of December 29, 2012 and December 31, 2011, and the related consolidated statements of operations,
changes in stockholders’ (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial
statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S.
generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control
relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to
fraud or error.
Auditor’s Responsibility
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 involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Broder Bros., Co. at December 29, 2012 and December 31, 2011, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 29, 2013
32
Report of Independent Auditors
To the Board of Directors and Shareholders of Broder Bros., Co.:
In our opinion, the accompanying statements of operations, changes in shareholders’ deficit and cash flows present fairly, in
all material respects, the results of operations and cash flows of Broder Bros., Co. (the “Company”) for the fiscal year ended
December 25, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition,
in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial statements. These financial statements and financial
statement schedule 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 of America. 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
March 21, 2011, except with respect to our opinion on the financial statements insofar as it relates to the inclusion of segment
information and earnings per share (Note 2), as to which the date is August 2, 2011
33
Broder Bros., Co.
CONSOLIDATED BALANCE SHEETS
December 29, 2012 and December 31, 2011
2012
2011
(dollars in thousands,
except per share amounts)
ASSETS
Current assets
Cash .....................................................................................................................................................
Accounts receivable, net of allowance for doubtful accounts of $4,881 at December 29, 2012 and
$5,777 at December 31, 2011 .........................................................................................................
Finished goods inventory, net..............................................................................................................
Prepaid and other current assets ..........................................................................................................
Deferred income taxes .........................................................................................................................
$
895
$
—
79,590
216,190
8,553
12,327
73,629
220,952
7,203
11,594
Total current assets ........................................................................................................................
317,555
313,378
Fixed assets, net...................................................................................................................................
Goodwill ..............................................................................................................................................
Intangible assets, net............................................................................................................................
Deferred financing fees, net ................................................................................................................
Other assets .........................................................................................................................................
8,811
1,445
15,568
2,645
2,613
11,858
—
16,286
4,030
1,938
Total assets ...............................................................................................................................
$ 348,637
$ 347,490
$
2,885
74,755
7,500
7,981
301
$ 16,495
66,485
10,986
7,290
246
Total current liabilities ...............................................................................................................
Long-term debt and capital lease obligations, net of current portion ..................................................
Deferred income taxes .........................................................................................................................
Other long-term liabilities ...................................................................................................................
93,422
255,565
484
21,993
101,502
266,166
3,294
10,911
Total liabilities ..........................................................................................................................
Commitments and contingencies
Shareholders’ Equity (Deficit)
Common stock; par value $0.01 per share; 15,000,000 authorized, 10,053,374 issued and
10,045,361 outstanding shares at December 29, 2012; 15,000,000 authorized, 10,152,181
issued and 10,144,168 outstanding shares at December 31, 2011. .................................................
Warrants ..............................................................................................................................................
Additional paid-in capital ....................................................................................................................
Treasury Stock, at cost 8,013; shares held at December 29, 2012 and December 31, 2011 ................
Accumulated deficit ............................................................................................................................
371,464
381,873
101
1,224
164,062
(103)
(188,111)
101
1,224
164,737
(103)
(200,342)
Total shareholders’ deficit .........................................................................................................
(22,827)
(34,383)
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current liabilities
Current portion of long-term debt and capital lease obligations (see Note 6) .....................................
Accounts payable ................................................................................................................................
Accrued expenses ................................................................................................................................
Payroll and benefit-related liabilities ...................................................................................................
Accrued interest...................................................................................................................................
Total liabilities and shareholders’ equity (deficit) ................................................................
$ 348,637
The accompanying notes are an integral part of the consolidated financial statements.
34
$ 347,490
Broder Bros., Co.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 29, 2012, December 31, 2011 and December 25, 2010
2012
2011
2010
(dollars in thousands,
except per share data)
Net sales ...........................................................................................................
Cost of sales (exclusive of depreciation and amortization) ..............................
$
817,859
683,483
$
848,199
687,592
$
791,335
644,231
Gross profit ...................................................................................
Warehousing, selling and administrative .........................................................
Depreciation and amortization .........................................................................
Restructuring charges, net ................................................................................
134,376
100,951
7,314
198
160,607
97,267
9,933
(2,187)
147,104
101,547
14,611
(298)
Total operating expenses...............................................................
108,463
105,013
115,860
Income from operations ................................................................
Other expense
Interest ..........................................................................................
Other Expense ...............................................................................
25,913
55,594
31,244
5,760
—
7,477
163
11,239
—
Total other expense .......................................................................
5,760
7,640
11,239
Income before income taxes .........................................................
Income tax provision........................................................................................
20,153
7,922
47,954
2,290
20,005
3,308
Net income ....................................................................................
$
12,231
$
45,664
$
16,697
Net income per share of common stock:
Basic .............................................................................................
$
1.21
$
4.52
$
1.67
Diluted ..........................................................................................
$
1.20
$
4.43
$
1.66
Weighted average shares outstanding—common stock:
Basic .......................................................................................................
10,126,677
10,101,658
10,000,000
Diluted ....................................................................................................
10,207,452
10,299,101
10,036,162
The accompanying notes are an integral part of the consolidated financial statements.
35
Broder Bros., Co.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 29, 2012, December 31, 2011 and December 25, 2010
Shares
Amount
Warrants
Additional
paid-incapital
Balance, December 26, 2009 .........................................................
Stock-based compensation expense ..............................................
Net income / comprehensive income.............................................
10,000,000
—
$100
—
$ 1,224
—
—
$ 164,331
100
—
$ (262,703)
—
16,697
$
—
—
—
$ (97,048)
100
16,697
Balance, December 25, 2010 .........................................................
Exercise of stock options ...............................................................
Shares purchased for treasury stock ..............................................
Stock-based compensation expense ..............................................
Net income / comprehensive income.............................................
10,000,000
144,168
(8,013)
—
—
$100
1
—
—
—
$ 1,224
—
—
—
—
$ 164,431
176
—
130
—
$ (246,006)
—
—
—
45,664
$
—
—
(103)
—
—
$ (80,251)
177
(103)
130
45,664
Balance, December 31, 2011 .........................................................
Exercise of stock options ...............................................................
Excess tax benefit from stock options ...........................................
Shares purchased for cancellation .................................................
Stock-based compensation expense ..............................................
Net income / comprehensive income.............................................
10,136,155
40,276
—
(131,070)
—
—
$101
1
—
(1)
—
—
$ 1,224
—
—
—
—
—
$ 164,737
101
434
(1,278)
68
—
$ (200,342)
—
—
—
—
12,231
$ (103)
—
—
—
—
—
$ (34,383)
102
434
(1,279)
68
12,231
Balance, December 29, 2012 .........................................................
10,045,361
$101
$ 1,224
$ 164,062
$ (188,111)
$ (103)
$ (22,827)
Common Stock
Accumulated
deficit
Treasury
stock
Total
shareholders’
equity (deficit)
(dollars in thousands)
The accompanying notes are an integral part of the consolidated financial statements.
36
Broder Bros., Co.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 29, 2012, December 31, 2011 and December 25, 2010
2012
2011
2010
(dollars in thousands)
Cash flows from operating activities
Net income .............................................................................................................................
Adjustments to reconcile net income to net cash provided by (used in) operating
activities
Depreciation ..................................................................................................................
Amortization..................................................................................................................
Provision for losses on accounts receivable ..................................................................
Deferred income taxes ...................................................................................................
Stock-based compensation ............................................................................................
(Gain) loss on disposal of fixed assets...........................................................................
Changes in operating accounts, net of acquisition:
Accounts receivable .............................................................................................
Finished goods inventory .....................................................................................
Prepaid and other current assets ...........................................................................
Accounts payable .................................................................................................
Accrued liabilities and other ................................................................................
Net cash provided by operating activities...............................................
Cash flows from investing activities
Acquisition of Imprints Wholesale, net of cash acquired .......................................................
Acquisition of fixed assets ......................................................................................................
Proceeds from disposal of fixed assets ...................................................................................
Net cash used in investing activities ........................................................
Cash flows from financing activities
Borrowings on revolving credit agreement .............................................................................
Repayments on revolving credit agreement ............................................................................
Payments of principal on capital lease obligations .................................................................
Payment of financing fees .......................................................................................................
Proceeds from issuance of common shares .............................................................................
Shares purchased for treasury stock ........................................................................................
Shares purchased for cancellation ...........................................................................................
Repayment of 2013 Notes .......................................................................................................
Excess tax benefit from stock options.....................................................................................
Change in overdraft ................................................................................................................
Net cash used in financing activities .......................................................
Net increase (decrease) in cash ............................................................................................
Cash at beginning of year .......................................................................................................
Cash at end of year..................................................................................................................
$ 12,231
$ 45,664
$ 16,697
4,361
4,487
1,621
7,211
68
(13)
5,383
5,960
137
(8,490)
130
1,395
8,774
7,935
2,173
(85)
100
(15)
640
28,643
(1,106)
(14,442)
(3,789)
39,912
2,562
(47,563)
(235)
7,152
(9,241)
2,854
(14,802)
(5,148)
360
(15,052)
4,244
5,181
(27,817)
(949)
13
(28,753)
—
(4,147)
505
(3,642)
—
(1,159)
15
(1,144)
811,665
(820,422)
(2,293)
(140)
102
—
(1,279)
(14,142)
434
15,811
(10,264)
895
—
$
895
870,755
(855,208)
(2,305)
(1,103)
177
(103)
—
(14,142)
—
(2,053)
(3,982)
(4,770)
4,770
$
—
792,848
(778,413)
(4,343)
(3,131)
—
—
—
(11,544)
—
2,321
(2,262)
1,775
2,995
$ 4,770
Supplemental disclosure of cash flow information
Interest paid.............................................................................................................................
$
4,183
$
6,279
$
9,326
Taxes paid, net of refunds .......................................................................................................
$
2,574
$
7,544
$
18
Assets acquired as a result of capital lease obligations ...........................................................
$
59
$
—
$
7,682
Supplemental non-cash disclosure
See Note 4, Debt Restructuring and Note 6, Long-Term Debt and Capital Lease Obligations for description of non-cash
activities.
The accompanying notes are an integral part of the consolidated financial statements.
37
Broder Bros., Co.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Business
Broder Bros., Co. (the “Company”) is a leading distributor of imprintable activewear in the United States and operates
the largest distribution network in the industry including eight distribution centers and sixteen “Express” facilities offering
pickup room service. Imprintable activewear is undecorated or “blank” T-shirts, sweatshirts, sport shirts, and other
imprintable “soft goods.” It is sold to apparel decorators and promotional product distributors who decorate it, or have it
decorated, for a wide variety of purposes including awards, uniforms, team wear, souvenirs, retail, advertising, and corporate
promotions.
In September 2003, the Company acquired all of the outstanding capital stock of Alpha Shirt Holdings, Inc. (“Alpha”).
In August 2004, the Company acquired all of the shares of beneficial interest of NES Clothing Company (“NES”), a leading
distributor of imprintable activewear in New England. In September 2006, the Company acquired substantially all of the
assets of Amtex Imports Inc. In December 2012, the Company acquired all of the outstanding capital stock of Imprints
Wholesale, Inc. (“Imprints”). See note 3 for details of this acquisition.
The Company operates on a 52/53-week year basis with the year ending on the last Saturday of December. The year
ended December 31, 2011 consisted of 53 weeks. The years ended December 29, 2012 and December 25, 2010 each
consisted of 52 weeks. Fiscal periods are identified according to the calendar period that they most accurately represent. For
example, the year ended December 29, 2012 is referred to herein as “fiscal 2012,” “fiscal year 2012” or “fiscal year ended
December 31, 2012.”
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the financial statements of Broder and its wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in consolidation.
Cash
Cash generally represents one day of lockbox receipts which have not yet been posted to customer accounts.
Segments
The Company operates one business segment, being distribution of imprintable activewear and related products. The
imprintable activewear product group accounts for essentially all of the Company’s revenue. The Company does not sell its
products internationally and all of its operations and assets are located in the United States. For the fiscal years ended
December 31, 2012, 2011 and 2010, no single customer accounted for more than 10% of the Company’s revenue.
Accounts receivable
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of the
Company’s customers to make required payments, which is included in the provision for losses on accounts receivable. The
Company determines the adequacy of this allowance by regularly reviewing its accounts receivable aging and evaluating
individual customer receivables, considering customers’ financial condition, credit history and current economic conditions.
Accounts receivable are considered past due based on how payments are received compared to the customer’s credit terms.
Accounts are written off when management determines the accounts are uncollectable.
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out method. Inventory consists of finished
goods held for sale. The Company’s reported inventory cost consists of the cost of product, net of vendor incentives related to
unsold inventory, and certain costs incurred to bring inventory to its existing condition or location, including freight-in,
purchasing, receiving, inspection and other material handling costs. Amounts due to the Company related to vendor
incentives are recorded as reductions to vendor payables.
38
The Company maintains an allowance representing the write-down of inventory to its net realizable value for its
discontinued and slow moving inventory. The allowance for excess and discontinued inventory balances at December 31,
2012 and 2011 was approximately $6.7 million and $7.6 million, respectively.
Fixed assets
Fixed assets are stated at cost less accumulated depreciation. Depreciation of property and equipment is computed
using the straight-line method based upon estimated useful lives. Improvements are capitalized and depreciated over the
estimated useful life of the asset. Repair and maintenance costs are charged to expense as incurred. When property is retired
or otherwise disposed of, the cost of the property and the related accumulated depreciation are removed from the accounts,
and any resulting gains or losses are reflected as a component of operating income.
Long-lived asset impairments
The Company reviews the carrying values of long-lived assets are evaluated whenever changes in circumstances
indicate the carrying amounts of such assets may not be recoverable. In performing such reviews for recoverability, the
Company compares the expected undiscounted cash flows to the carrying values of long-lived assets. If the expected
undiscounted future cash flows are less than the carrying amounts of such assets, the Company recognizes an impairment loss
for the difference between the carrying amount and its estimated fair value.
Revenue recognition
Revenue is recognized when title and risk of loss is transferred to the customer. This generally occurs when products
are shipped. Revenue includes selling price of the product and all shipping and handling costs paid by the customer. Under
certain circumstances, customers may submit a claim for damaged or shorted shipments. Based on historical experience, the
Company establishes a reserve for potential returns at the time of sale. Revenue is further reduced at the time of sale for
estimated customer-related incentives. These incentives primarily consist of volume and growth rebates.
Internal use software costs
The Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. These
costs are being amortized over a period of three years. The Company capitalized approximately $0.2 million and $0.5 million
of purchased or developed computer software for the years ended December 31, 2012 and 2011, respectively. The
unamortized computer software costs were approximately $0.4 million and $0.5 million at December 31, 2012 and 2011,
respectively. The amounts charged to depreciation expense for the amortization of software costs were approximately $0.3
million, $0.5 million and $1.3 million in fiscal 2012, 2011, and 2010, respectively.
Catalog costs, co-op and marketing allowances and other advertising expenses
The Company incurs catalog and advertising costs to promote its products. Catalog costs, consisting primarily of the
Company’s annual production for its catalogs, printing and postage costs, are capitalized and amortized over the life of the
catalog, not to exceed twelve months for the subsequent year. The Fiscal 2010, 2011 and 2012 catalogs were amortized over
the period January through December of each year, over their useful lives.
Approximately $5.3 million of prepaid catalog costs were reported as other current assets at December 31, 2012 and
2011. At December 31, 2012, no prepaid catalog costs were reported as other long term assets. Prepaid catalog costs at
December 31, 2012 represent the unamortized portion of the fiscal 2013 catalog. Prepaid catalog costs at December 31, 2011
represent prepaid catalog costs incurred for the fiscal 2012 catalog. Total catalog expense, net of expected vendor co-op
advertising allowances earned and reimbursements by customers for catalogs purchased, was approximately $0.0 million,
$0.3 million and $0.5 million in fiscal 2012, 2011 and 2010, respectively.
The Company records co-op marketing and advertising allowances received from vendors as a reduction of directly
corresponding costs incurred within warehousing, selling and administrative expenses. Such amounts netted against
warehousing, selling and administrative expenses were approximately $5.7 million, $5.3 million and $4.9 million for fiscal
2012, 2011 and 2010, respectively.
The Company periodically advertises through means other than its catalog and these costs are expensed as incurred.
Other advertising expense was approximately $0.4 million, $0.3 million and $0.4 million for the years ended December 31,
2012, 2011 and 2010, respectively.
39
Goodwill & Intangible assets
Goodwill represents the excess of the purchase price paid over the fair value of the net assets of acquired businesses.
Goodwill is not amortized but rather tested for impairment annually as of the first day of the fourth quarter, or more
frequently in the event of a significant event or change in circumstances.
A two-step method for determining goodwill impairment is prescribed. In the first step, the Company determines the
fair value of the reporting unit using comparable companies market multiple approach. If the net book value of the reporting
unit were to exceed the fair value, the Company would then perform the second step of the impairment test, which requires
allocation of the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation,
with any residual fair value being allocated to goodwill. An impairment charge will be recognized only when the implied fair
value of a reporting unit’s goodwill is less than its carrying amount. For indefinite-lived intangibles, the annual impairment
test consists of comparing the estimate of the fair value of the asset to the carrying value.
Intangible assets are assets acquired that lack physical substance and that meet the specified criteria for recognition
apart from goodwill. Intangible assets acquired are comprised mainly of customer relationships and trade names / trademarks.
The fair value of trade names / trademarks is estimated by the use of a relief from royalty method, which values an intangible
asset by estimating the royalties saved through the ownership of an asset. The royalty, which is based on a reasonable rate
applied against forecasted sales, is tax-effected and discounted to present value using a discount rate commensurate with the
relative risk of achieving the cash flow. The fair value of acquired customer relationships is estimated by the use of an
income approach known as the excess earnings method. The excess earnings method measures economic benefit indirectly by
calculating residual profit attributable to an asset after appropriate returns are paid to complementary or contributory assets.
The residual profit is tax-effected and discounted to present value at an appropriate discount rate that reflects the risk factors
associated with the estimated income stream. Determining the useful life of an intangible asset requires judgment as different
types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful
lives.
Long-lived assets, including finite-lived intangible assets (e.g., customer relationships), do not require that an annual
impairment test be performed; instead, long-lived assets are tested for impairment upon the occurrence of a triggering event.
Triggering events include the likely (i.e., more likely than not) disposal of a portion of such assets or the occurrence of an
adverse change in the market involving the business employing the related assets. Significant judgments in this area involve
determining whether a triggering event has occurred and re-assessing the reasonableness of the remaining useful lives of
finite-lived assets by, among other things, validating customer attrition rates.
The gross carrying amounts and accumulated amortization for the Company’s intangible assets at December 31, 2012
and 2011 are summarized below:
December 31, 2012
Amortizable
Life
Trademarks / Trade names—Definite life ...........................
Trademark / Trade names—Defined life .............................
Customer Relationships .......................................................
Other ....................................................................................
Gross
Carrying
Amount
9 years $ 24,000
1 to 5 years
9,297
2 to 10 years
63,073
3 to 5 years
1,551
97,921
Accumulated
Amortization
(dollars in thousands)
$
(10,667) $
(8,700)
(61,480)
(1,506)
(82,353)
December 31, 2011
Gross
Carrying
Amount
Accumulated
Amortization
24,000 $
8,700
61,480
1,506
(8,000)
(8,700 )
(61,194 )
(1,506)
95,686
(79,400)
The Company’s trade name intangible assets with a nine year useful life were the result of the Alpha acquisition in
September 2003. The Company owns the rights to “Alpha Shirt Company” under which the Alpha sales division markets its
product portfolio.
The Company’s net trademarks and trade name intangible assets with defined lives resulted from the Alpha acquisition
in September 2003, the NES acquisition in August 2004, the Amtex acquisition in September 2006 and the Imprints
acquisition in December 2012. Amortization expense of these trademark and trade name intangible assets was approximately
$2.7 million in each of the years ended December 31, 2012, 2011 and 2010.
The Company’s net customer relationship intangible assets were amortized over the estimated useful lives on a basis
proportionate to the discounted expected future cash flows underlying the initial valuation of asset.
40
The Company’s other intangible assets consisted primarily of supply agreement intangible assets resulting from the
Full Line and Alpha acquisitions and non-compete agreements resulting from the Amtex and Imprints acquisitions. Other
intangible assets were amortized on a straight-line basis over the average life of the asset.
Amortization expense for intangible assets approximated $2.9 million, $4.6 million and $5.8 million for the years
ended December 31, 2012, 2011 and 2010, respectively. Estimated amortization expense for the next five fiscal years
beginning December 31, 2013 is expected to be approximately $3.0 million annually.
Stock options
The Company accounts for stock compensation under ASC 718 “Compensation – Stock Compensation” which requires
the Company to expense the cost of employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. This expense is recognized ratably over the requisite service period following the date of
grant.
The fair value of the stock options was estimated at the date of grant using the Black-Scholes option pricing model,
which requires management to make certain assumptions. The risk-free interest rate was based on the United States Treasury
spot rate with an equal term to the expected life assumed at the date of grant. Expected volatility was estimated based on the
historical volatility of comparable public companies over the expected life of the options at the grant date. There is no
expected dividend yield since the Company has not paid any cash dividends on its Common Stock and since the Company
intends to retain all of its earnings to pay down debt. The weighted-average expected life was based on the contractual term
of the stock options and the expected employee exercise dates. Forfeitures are estimated at the date of grant based on
historical experience and the estimate is evaluated based on future experience.
Earnings Per Share
The following table presents the calculation of basic and diluted income per common share (shares in thousands):
Twelve Months Ended December 31
2012
2011
2010
(dollars in thousands)
Numerator:
Net income ............................................................................................
Denominator:
Basic weighted-average shares outstanding ..........................................
Incremental shares from assumed option exercises ...............................
$
Diluted weighted-average shares outstanding .......................................
Net income per share of new common stock:
Basic ......................................................................................................
Diluted ...................................................................................................
$
$
12,231
$
45,664
$
16,697
10,126,677
80,775
10,101,658
197,443
10,000,000
36,162
10,207,452
10,299,101
10,036,162
1.21
1.20
$
$
4.52
4.43
$
$
1.67
1.66
The basic net income per share of common stock is computed by dividing net income by the weighted average number
of common shares outstanding. Diluted net income per common share is computed by dividing the net income by the
weighted average number of common shares outstanding plus potential dilutive securities.
41
For the years ended December 31, 2012, 2011 and 2010 warrants for the purchase of 1,474,201 common shares were
not included in the calculation of diluted income per share of common stock as their exercise price of $14.96 exceeded the
market price of the common shares.
Fair value of financial instruments
Cash, net accounts receivable, net accounts payable and accrued expenses approximate their fair value because of the
short maturity of those instruments. The fair value of the Company’s revolving debt is estimated to approximate carrying
value based on the variable nature of the interest rates and current market rates available to the Company. The fair value of
the 2013 Notes approximated $113.1 million and $114.9 million at December 31, 2012 and 2011, respectively.
Income taxes
The Company accounts for income taxes using an asset and liability approach which requires the recognition of
deferred income tax assets and deferred income tax liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will
not be realized. The Company recorded a decrease of $14.0 million during fiscal 2010. The Company released the valuation
allowance of $16.9 million in 2011.
Concentration of Suppliers
The Company obtains a significant portion of the products sold from a limited group of suppliers. Approximately 72%
of the products the Company sold in fiscal 2012 were purchased from three suppliers. Individually, each of these suppliers
account for more than 8% of the products sold by the Company.
Use of estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and disclosure of contingent assets and liabilities reported in its consolidated financial
statements and accompanying notes. These assumptions also affect the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates and assumptions.
Reclassifications
The Company reclassed prior period amounts to conform to the current year presentation.
New accounting pronouncements
In July 2012, the FASB issued guidance for the impairment testing of indefinite-lived intangible assets. The guidance
permits an entity to first assess qualitative factors to determine whether it is more-likely-than-not that an indefinite-lived
intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. This
guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.
Management believes that the adoption will not have an impact on the Company’s consolidated financial statements.
In February 2013, the FASB issued guidance for the reporting of amounts reclassified out of accumulated other
comprehensive income. The guidance does not change the current requirements for reporting net income or other
comprehensive income in consolidated financial statements; however, it requires an entity to provide information about the
amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to
present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out
of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is
required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that
are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to
other disclosures required under U.S. GAAP that provide additional detail about those amounts. This guidance is effective
prospectively for annual reporting periods beginning after December 15, 2012, and interim periods within those annual
reporting periods. Management believes that the adoption will not have an impact on the Company’s financial statements.
42
3. Acquisition
On December 27, 2012, the Company acquired all of the shares of beneficial interest of Imprints Wholesale, Inc.
(“Imprints”), a leading distributor of imprintable sportswear in the Rocky Mountain Region. The primary benefit inherent in
the Imprints acquisition was its strong market position in the Rocky Mountain and Midwest regions. The aggregate
preliminary purchase price was $27.8 million, net of $0.1 cash acquired. In addition approximately $0.3 million in
transaction costs were expensed into the warehouse, selling and administrative line item on the Company’s Statement of
Operations during fiscal 2012. The preliminary purchase price allocation of the acquisition of Imprints was performed with
the assistance of an independent appraisal firm to determine valuations of identifiable intangible assets. The fair value
measurements were primarily based on significant inputs that are not observable in the market, and therefore represent a
Level 3 measurement as defined in FASB Accounting Standards Codification 820, Fair Value Measurements and
Disclosures. Inventory and Fixed Assets were valued using the cost approach and the customer relationships, trade name and
non-compete agreement were valued using the income approach. The income approach indicates value for a subject asset
based on the present value of cash flows projected to be generated by the asset. Projected cash flow is discounted at a rate of
return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach considers the
value based on the cost of reproducing or replacing the asset. The method is based on the principle that the fair value of an
asset should not exceed the cost to obtain a substitute asset of comparable features and functionality.
The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at
the date of acquisition, net of $0.1 million cash acquired:
(dollars in thousands)
Assets acquired:
Accounts receivables, net of allowances for doubtful accounts
Finished goods inventory, net
Prepaid expenses and other current assets
Property and equipment, net
Customer relationships
Trademarks
Non-compete agreement
Total assets acquired
Less liabilities assumed:
Accounts payable
Short-term debt
Accrued Expenses
Total liabilities assumed
Total fair value of net assets received
Total consideration (net of $144 cash received)
Total goodwill
$
8,222
23,880
919
306
1,593
598
45
35,563
$
6,901
921
1,369
9,191
$
26,372
27,817
1,445
The amounts allocated to fixed assets are being depreciated on a straight-line basis over the weighted-average
estimated useful life of 2.8 years. The customer relationships are being amortized over ten years, the trade name over five
years and the non-compete agreement over four years.
There was no amortization expense for 2012 for these intangible assets due to the timing of the transaction. The
estimated annual amortization expense for these intangibles assets for each of the next five years is approximately $0.3
million per year.
43
4. Debt Restructuring
During 2008, weakened economic conditions, largely attributable to the global credit crisis, and erosion of consumer
confidence, negatively impacted the markets in which the Company operates. Significant factors including the deterioration
of corporate profits and decreased corporate spending, equity market volatility and rising unemployment levels resulted in
customers delaying, canceling or limiting purchases of the Company’s products. As a result, the Company’s liquidity had
been adversely affected. The Company had difficulty in maintaining sufficient inventory levels due to some of its vendors
limiting its trade credit. The Company was unable to make its interest payment on its 2010 Notes (defined below) in April
2009, and the holders of the 2010 Notes would have been able to accelerate the indebtedness outstanding under those notes if
the Company had not completed the Exchange Offer (defined below).
The Company retained legal and financial advisors to assist it in exploring financing and strategic alternatives with
respect to its long-term capital structures. The Company also commenced discussions with certain of its major vendors to
address its liquidity and capital requirements. This process culminated in the consummation in May 2009 (the “Settlement
Date”) of an exchange offer (the “Exchange Offer”) for the Company’s outstanding 11 1/4% Senior Notes due October 15,
2010 (the “2010 Notes”). An aggregate of $213.5 million in principal amount of 2010 Notes were exchanged in the Exchange
Offer. On the Settlement Date, for each $1,000 principal amount of 2010 Notes tendered in the Exchange Offer, the holder
thereof received $444.44 in principal amount of the Company’s newly issued 12%/15% senior payment-in-kind toggle notes
due October 15, 2013 (the “2013 Notes”) and a pro rata share of the Company’s newly issued common stock, par value $0.01
per share (the “Common Stock”). Holders of 2010 Notes also received an amount in cash of $2.1 million which was equal to
$10 per $1,000 principal amount of 2010 Notes tendered prior to the consent time. An aggregate of $94.9 million in principal
amount of 2013 Notes and an aggregate of 9,600,001 shares of Common Stock (representing 96% of the Company’s
outstanding Common Stock as of the Settlement Date) were issued to the holders of 2010 Notes participating in the Exchange
Offer (the “Participating Noteholders”). In addition, on the Settlement Date, in connection with the Exchange Offer, the
Company cancelled its previously outstanding Class A common stock and Class B common stock and the equityholders of its
Class L common stock immediately prior to the completion of the Exchange Offer (the “Existing Equityholders”) received,
as a result of a reclassification, 399,999 shares of Common Stock. Certain of the Existing Equityholders also received
warrants to purchase up to an aggregate of 1,474,201 shares of Common Stock (representing approximately 12% of the fully
diluted capital of the Company as of the date of issuance). The Company’s new board of directors also adopted a new
management incentive plan in August 2010 that provides for the grant of nonqualified stock options or restricted stock to the
Company’s officers and employees. A total of 7.5% of the shares of Common Stock issued and outstanding upon the
completion of the Exchange Offer (or 810,811 shares) were reserved for issuance under this plan. See Note 12 for more
information. In addition, on the Settlement Date, the Company converted to a Delaware corporation. Following the
consummation of the Exchange Offer, $11.5 million in aggregate principal amount of the 2010 Notes remained outstanding.
44
As a result of the successful completion of the Exchange Offer, the indenture governing the 2010 Notes was amended
to waive any and all existing defaults and events of default that had arisen or may arise under the indenture, eliminate
substantially all of the covenants in the indenture governing the Company’s actions (other than the covenants to pay principal
of and interest on the 2010 Notes when due), and eliminate or modify the related events of default.
On the Settlement Date, the Company completed the Exchange Offer for the Company’s outstanding 2010 Notes. An
aggregate of $213.5 million in principal amount of 2010 Notes were exchanged in the Exchange Offer for $94.9 million
aggregate principal amount of newly issued 2013 Notes and a pro rata share of 96% of the outstanding New Common Stock.
This transaction qualified as a Troubled Debt Restructuring under the authoritative guidance. As a result of this transaction,
the Company recorded a net gain of $10.5 million during the quarter ended June 30, 2009. The gross gain of $16.2 million
was calculated as the difference between the carrying amount of the liabilities settled (reduced for the fair value of the equity
issued to the Participating Noteholders) and the total future cash payments under the terms of the 2013 Notes. The
authoritative guidance requires that the Company offset any gain by the costs directly attributable to the debt restructuring.
The Company reduced the gain by $5.7 million relating to legal and financing fees incurred in connection with the debt
restructuring. The net gain was recorded as a component of other income on the Company’s statement of operations.
As of December 31, 2011 and December 31, 2010, the 2013 Notes are recorded on the balance sheet at $146.1 million
and $160.3 million, respectively which represents the total future cash payments under the terms of the Notes, including both
principal and Payment in Kind (“PIK”) interest payments, as required under the authoritative guidance. The face value of the
2013 Notes outstanding was $117.9 million at both December 31, 2011 and 2010, respectively. As a result, the Company
does not anticipate recognizing any interest expense on the 2013 Notes through their maturity. All future cash payments will
be offset against the $146.1 million carrying balance. The calculation of the value of the total future cash payments includes
the assumption that the interest payments on the 2013 Notes which are due in 2010 are paid in additional notes at the PIK
interest rate of 15% rather than in cash at the cash rate of 12%. The calculation of the total future cash payments includes the
face value of the notes of $94.9 million, the additional notes issued in October 2009, April 2010 and October 2010 at the PIK
interest rate of 15%, as required under the Indenture, and the payment of all additional interest payments after 2010 due on
the 2013 Notes in cash, at the cash interest rate of 12%, as required under the Indenture. The Indenture requires that on each
interest payment date from and including April 15, 2010, the Company shall pay interest on the New Notes entirely in cash;
provided that with respect to such interest payments on April 15, 2010 and October 15, 2010, interest was to be paid in the
form of additional notes unless (i) the Company was in compliance with the covenants in the Revised Credit Agreement, on a
pro forma basis giving effect to the applicable interest payment, that required average daily revolver availability to exceed
$20 million for the preceding 45 days and actual revolver availability to exceed $20 million and (ii) no default or event of
default would have occurred under the Revised Credit Agreement as a result of such interest payment. The interest payments
due April 15, 2010 and October 15, 2010 were paid in the form of additional notes in the amount of $7.6 million and $8.2
million, respectively.
In connection with the debt restructuring transaction, the Company incurred legal and professional fees of
approximately $13.3 million. As discussed above, $5.7 million of these fees were recorded as a reduction to the gain on debt
restructuring. Of the remaining fees, $4.3 million related to the amendments to the Revised Credit Agreement were being
amortized over the remaining term of the agreement, $1.8 million in fees related to the issuance of the new common shares
and warrants were recorded as a reduction to additional paid-in capital and $1.5 million in fees were recorded as an expense
in the quarter ended June 30, 2009 and were included in other financing costs on the Company’s statement of operations. The
$1.5 million of fees recorded as expense consisted of approximately $1.1 million of professional fees related to Chapter 11
bankruptcy contingency planning and $0.4 million for the review of strategic alternatives and other corporate matters related
to the debt restructuring. The amortization of deferred financing fees incurred in connection with the April 2009 amendment
to the Revised Credit Agreement were modified beginning in the fourth quarter 2010 following the execution of the Second
Amended and Restated Credit Agreement in October 2010 (see Note 6).
45
As a result of the debt restructuring, the amount of the Company’s aggregate indebtedness was reduced as discussed
above. The reduction in indebtedness resulted in income from cancellation of debt (“COD”) for tax purposes of $143.8
million. Because realization of such income occurred while the Company was insolvent, it will not recognize all the income
from COD for tax purposes, but instead will reduce certain federal tax attributes by the amount of COD and will elect to
defer the recognition of the remaining COD income over a five year period commencing in 2014 under the American
Recovery and Reinvestment Tax Act of 2009. This election was made as part of the 2009 tax return which was filed during
the third quarter of 2010. As a result of the COD income, the Company reduced its federal net operating losses carryforward
down to zero.
5. Shareholders’ Deficit
In connection with the Exchange Offer, the Company issued equity consideration in the form of new Common Stock,
the aggregate amount of which issued to the Participating Noteholders represented approximately 96% of new Common
Stock outstanding as of the issuance date. The Common Stock was issued to holders on a pro rata basis based on the
aggregate principal amount of 2010 Notes exchanged by the holders. The Common Stock that was issued to the Participating
Noteholders will be subject to dilution upon (i) the exercise of warrants to purchase shares of Common Stock initially
representing an aggregate of 12% of fully diluted Common Stock as of the issuance date, issued to stockholders immediately
prior to the settlement of the Exchange Offer, and (ii) the issuance of stock and the exercise of stock options to purchase
stock representing an aggregate of 7.5% of issued and outstanding Common Stock as of immediately following the settlement
of the Exchange Offer (or 810,811 shares), to be issued to Company management under a management equity incentive plan
that the Company adopted in August 2010 (see Note 12 for more information).
The Common Stock is the only class of stock outstanding after the Exchange Offer. The Company amended its articles
of incorporation such that all of the issued and outstanding shares of Class A common stock and Class B common stock were
cancelled for no or nominal consideration and all of the issued and outstanding shares of Class L common stock were
reclassified into a new class of voting common stock. Immediately after the settlement of the Exchange Offer, the Company
reincorporated under Delaware law by merging with and into a newly formed Delaware corporation that was named Broder
Bros., Co. upon the completion of the merger. The Company terminated or canceled any options or warrants that were
outstanding prior to such transactions. As a result of the cancellation of all of the outstanding stock options, previously
unrecognized compensation costs of $0.2 million were recognized in the quarter ended June 30, 2009.
Upon the completion of the Exchange Offer, the Company’s Existing Equityholders were issued warrants to purchase
1,474,201 shares of Common Stock representing an aggregate of 12% of fully diluted Common Stock as of the issuance date
(which shall be deemed to include all equity issued or issuable under the management equity incentive plan adopted in 2010).
The warrants were issued to such stockholders based on their respective equity interests in the Company immediately prior to
the issuance of the Common Stock in the Exchange Offer. The exercise price of such warrants will equate to an equity value
in which the Common Stock and 2013 Notes issued to the noteholders in the Exchange Offer would have a value equal to the
principal amount of 2010 Notes together with accrued interest thereon through their scheduled maturity date.
46
6. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consisted of the following:
December 31,
2012
December 31,
2011
(dollars in thousands)
Revolving credit facility .....................................................................................
2013 Notes(1)........................................................................................................
Small business loan(2) ..........................................................................................
Capital lease obligations .....................................................................................
$ 122,071
131,998
921
3,460
$ 130,827
146,140
—
5,694
258,450
282,661
Less current portion:
Cash interest on 2013 Notes due April 15, 2012 .......................................
Cash interest on 2013 Notes due October 15, 2012 ..................................
Small business loan ...................................................................................
All other ....................................................................................................
—
—
921
1,964
7,071
7,071
—
2,353
Total long-term debt and capital lease obligations, excluding current
portion ............................................................................................................
$ 255,565
$ 266,166
(1)
The face value of the 2013 Notes outstanding was $117.9 million at December 31, 2012 and 2011. The amount
recorded on the balance sheets as of December 31, 2012 and 2011, of $132.0 million and $146.1 million, respectively,
represents the total future cash payments under the terms of the 2013 Notes, including both principal and interest
payments, as required under the guidance provided by the FASB. As a result, the Company does not anticipate
recognizing any interest expense on the 2013 Notes through their maturity. All cash interest payments will reduce the
carrying value of the 2013 Notes.
(2)
The small business loan was debt we assumed in connection with the Imprints acquisition. The loan was paid off in the
first quarter of 2013.
At December 31, 2012, the Company was contractually obligated to pay the principal payments on the revolving credit
facility, 2013 Notes and capital lease obligations for the next five years and thereafter included in the table below:
(dollars in
thousands)
2013 ...........................................................................................................
2014 ...........................................................................................................
2015 ...........................................................................................................
2016 ...........................................................................................................
2017 ...........................................................................................................
Thereafter ..................................................................................................
2,885
1,295
92
83
26
254,068
The Company has excluded short-term obligations totaling approximately $132.0 million from current liabilities because
it intends to refinance the obligations on a long-term basis. See Note 17 to the consolidated financial statements for more
information.
Revolving Credit Facility
In October 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “Amended Credit
Agreement”) with Bank of America, N.A. as Administrative Agent and Bank of America, N.A. and General Electric Capital
Corporation as Co-Collateral Agents. The Amended Credit Agreement amended and restated in its entirety the Company’s
Revised Credit Agreement, dated as of August 31, 2006, which was scheduled to mature on August 31, 2011.
47
The Amended Credit Agreement provides for a $175.0 million revolving credit facility (the “Revolver Facility”) and a
$10.0 million first-in, last-out facility (the “FILO Facility”). The Revolver Facility and the FILO Facility may be used for
working capital and other lawful corporate purposes of the Company.
The FILO Facility was borrowed in full on the effective date for working capital and general corporate purposes and,
upon repayment, may not be reborrowed. The interest rate for the FILO Facility was, at the election of the Company, either
the London Interbank Offer Rate plus 8% or the base rate plus 7%. The FILO Facility matured on January 31, 2011 and was
repaid using funds from the Revolver Facility.
The Revolver Facility bears interest at a per annum rate equal to, at the election of the Company, either the London
Interbank Offer Rate or the base rate plus, in either case, the Applicable Margin (as defined in the Amended Credit
Agreement). An unused line fee is payable quarterly in an amount equal to: (i) 0.75% per annum on the average daily unused
portion of the Revolver Facility if less than 50% of the Revolver Facility has been used and (ii) 0.50% per annum on the
average daily unused portion of the Revolver Facility if 50% or more of the Revolver Facility has been used. The Revolver
Facility matures on October 13, 2014.
The Revolver Facility is secured by a first priority security interest in substantially all the assets of the Company
(subject to permitted liens).
The Amended Credit Agreement contains both affirmative and negative covenants which, among other things, require
the Company to meet a minimum consolidated fixed charge coverage ratio and places limits upon disposals of assets,
mergers and acquisitions, further indebtedness, liens and investments, transactions with affiliates and other customary
restrictions. The Company was in compliance with all required financial covenant at December 31, 2012.
Total unused credit line fees under the revolving credit facility were approximately $0.2 million for the twelve months
ended December 31, 2012. The effective interest rate at December 31, 2012 was 2.9% and the weighted average interest rate
on borrowings under the revolving credit facility for the twelve months ended December 31, 2012 was 3.3%. As of
December 31, 2012, we had $0.8 million in cash recorded on our balance sheet, outstanding borrowings on the revolving
credit facility were $122.1 million, which left $61.4 million of available borrowing capacity as determined by borrowing base
availability. The effective interest rate at December 31, 2011 was 2.7%. As of December 31, 2011, outstanding borrowings
on the revolving credit facility were $130.8 million, which left $57.7 million of available borrowing capacity as determined
by borrowing base availability.
The Company incurred a total of $5.1 million in debt issuance costs in connection with the Revised Credit Agreement.
The Company incurred a total of $4.6 million in debt issuance costs in connection with the Amended Credit Agreement. In
addition, approximately $0.3 million of pre-amendment fees were written-off during the 2010 fiscal year as a result of a
reduction in the number of lenders participating in the Amended Credit Agreement. The remaining costs are being amortized
to interest expense on a straight-line basis, which approximated the effective interest method, over the remaining life of the
Amended Credit Agreement.
The Amended Credit Agreement also contains a provision for up to $25.0 million of letters of credit, subject to
borrowing base availability and total amounts outstanding under the Credit Agreement not to exceed $175.0 million. In 2011,
the company exercised the accordion feature contained in the Amended Credit Agreement and increased the credit facility
size to $215.0 million. As of December 31, 2012 and December 31, 2011, the Company had approximately $5.7 million and
$6.8 million, respectively, of outstanding letters of credit primarily related to commitments for the purchase of inventory and
collateral for leased real estate and other corporate matters.
Senior Notes
In September 2003, the Company completed a private offering of $175.0 million in aggregate principal amount of 11
¼% senior notes due 2010. The proceeds of the private offering were used to finance the Alpha acquisition, repay existing
indebtedness and to pay related fees and expenses. In November 2004, the Company completed a private offering of an
additional $50.0 million aggregate principal amount of 11 ¼% senior notes due 2010. The proceeds of that private placement
were used to repay borrowings under the revolving credit facility. All senior notes were issued under the same indenture. The
senior notes were guaranteed on a senior unsecured basis by all existing and future material domestic subsidiaries, and paid
interest semi-annually in arrears on April 15 and October 15 of each year.
48
In April 2009, the Company launched the Exchange Offer for its outstanding $225.0 million aggregate principal
amount of 2010 Notes. In exchange for their 2010 Notes, Participating Noteholders received the Company’s newly issued
2013 Notes and a pro-rata share of the Company’s Common Stock. This change in the Company’s capital structure was made
to reduce its leverage, extend the maturity of its senior debt, decrease its cash interest expense, and enhance the Company’s
near-term liquidity. In May 2009, the Company announced that at the expiration of the Exchange Offer in May 2009, $213.5
million in aggregate principal amount of 2010 Notes, or approximately 95% of the outstanding 2010 Notes, had been validly
tendered in the Exchange Offer and not withdrawn. On the Settlement Date, the Company announced that it had completed
the financial restructuring through the settlement of the Exchange Offer.
The 2013 Notes will mature on October 15, 2013 and will pay interest semi-annually, commencing on or about the
fifteenth day of the sixth month after the date of issuance and thereafter on the fifteenth day of each sixth month succeeding
such date of each year. Interest on the 2013 Notes began to accrue from April 15, 2009 at a rate of 15.00% per annum and
was payable on October 15, 2009 in the form of the issuance of additional 2013 Notes (“PIK interest”). From October 15,
2009 to October 15, 2010, in each semiannual interest payment period, interest was to accrue at the rate of 15.00% per annum
if such semi-annual interest payment was paid in PIK interest or at the rate of 12.00% per annum if such semi-annual interest
payment was paid in cash. The Company was to pay cash interest in these periods so long as (i) it was in compliance with the
covenants in its Revised Credit Agreement, on a pro forma basis giving effect to the applicable interest payment, that
required average daily revolver availability to exceed $20 million for the preceding 45 days and actual revolver availability to
exceed $20 million and (ii) no default or event of default would have occurred under the Revised Credit Agreement as a
result of such payment. After October 15, 2010, in each semi-annual interest payment period, interest will accrue at a rate of
12.00% per annum and will be payable in cash. Interest on the 2013 Notes in 2010 was paid in PIK interest.
The other terms of the 2013 Notes are substantially identical to those of the 2010 Notes, except the 2013 Notes will not
be registered under the Securities Act. The Company does not intend, and is not required, to file a registration statement with
respect to the 2013 Notes.
Following the Exchange Offer, there were $11.5 million in principal amount of 2010 Notes outstanding. These notes
matured on October 15, 2010, and the entire outstanding principal amount of the 2010 Notes, together with accrued and
unpaid interest, were paid utilizing funds borrowed under the Company’s revolving credit facility.
7. Fixed Assets
Property and equipment (and the estimated useful lives of the related assets) consisted of the following:
December 31,
2012
December 31,
2011
(dollars in thousands)
Leasehold improvements (lesser of 10 years or remaining lease term) ................................ $
Machinery and equipment (5–7 years) .................................................................................
Furniture and fixtures (7 years) ............................................................................................
Computers and software (3–5 years) ....................................................................................
Vehicles (5 years) .................................................................................................................
Construction in process ........................................................................................................
Less: accumulated depreciation ............................................................................................
Fixed assets, net.................................................................................................................... $
6,080 $
30,663
5,719
19,696
82
76
62,316
53,505
8,811 $
5,528
31,335
4,898
18,538
21
772
61,092
49,234
11,858
Depreciation expense, which includes depreciation on capital lease assets, was approximately $4.4 million, $5.4
million and $8.8 million for the years ended December 31, 2012, 2011 and 2010, respectively.
49
8. Leases
Capital leases
As of December 31, 2012, capital lease obligations included in long-term debt are as follows:
(dollars in thousands)
Payable in:
2013 ..........................................................................................................................................
2014 ..........................................................................................................................................
2015……………………………………………………………………………………………
2016 ..........................................................................................................................................
2017……………………………………………………………………………………………
2,157
1,358
97
85
26
Total minimum capital lease payments ..........................................................................
Less—imputed interest.............................................................................................................
Present value of net minimum capital lease payments ................................................... $
3,723
(263)
3,460
The net book value of property and equipment recorded under capital leases as of December 31, 2012 and 2011 was
approximately $3.0 million and $4.7 million, respectively, representing certain warehouse equipment, computer hardware
and software and furniture and fixtures. Accumulated depreciation of the property and equipment recorded under capital
leases was approximately $12.6 million and $16.3 million as of December 31, 2012 and 2011, respectively. Depreciation
expense on the outstanding obligations under the capital leases was approximately $1.5 million, $2.2 million and $4.9 million
in fiscal 2012, 2011 and 2010, respectively.
Operating leases
The Company leases facilities and equipment pursuant to operating leases expiring at various times over the next
eleven years. Total rent expense incurred under the leases was approximately $15.5 million, $15.4 million and $15.2 million
in fiscal 2012, 2011 and 2010, respectively. The Company has certain operating lease agreements which contain provisions
for scheduled rent increases. Rent expense for these agreements is recognized on a straight-line basis over the minimum lease
term.
The future minimum operating lease payments for noncancelable operating leases are as follows:
(dollars in thousands)
Payable in:
2013 ...................................................................................................
2014 ...................................................................................................
2015 ...................................................................................................
2016 ...................................................................................................
2017 ...................................................................................................
Thereafter ..........................................................................................
$ 17,420
17,385
17,431
11,853
7,260
12,534
*Total future minimum operating lease payments ...................
$ 83,884
* Minimum payments have not been reduced by minimum sublease rentals of $0.3 million due to the Company in the
future under noncancelable subleases.
50
9. Related Party Transactions
The founder and former sole stockholder of Imprints Wholesale, Inc., is also the owner of S.A.L Holdings LLC. S.A.L
Holdings LLC is the landlord of an Imprints facility. The Company continues to lease this building from S.A.L Holdings
LLC. The base rent of the location is less than $0.1 million per month and the lease term ends in November 2023. The
former Imprints owner remains employed by the Company.
10. Defined Contribution Plans
The Company is a sponsor of an employee savings 401(k) plan covering substantially all employees who meet
predetermined eligibility requirements. Contributions made by the Company are at the discretion of the board of directors.
For the years ended December 31, 2012, 2011 and 2010, such contributions amounted to 100% of the first 2% and 25% of
the next 4% of compensation deferred by the employee. Contributions to the plan were approximately $0.6 million each year
for 2012 and 2011 and were approximately $0.5 million for 2010.
11. Commitments and Contingencies
Self-Insured Health Plan
The Company maintains a self-insured health plan for some of its employees. The Company purchased stop loss
insurance to supplement the health plan, which will reimburse the Company for individual claims in excess of $0.1 million
annually in fiscal 2012, 2011, 2010 and for aggregate claims exceeding approximately $5.5 million, $4.5 million and $4.8
million in fiscal years 2012, 2011 and 2010, respectively. Approximately $0.7 million was included in accrued liabilities for
self-insured health plan costs at December 31, 2012 and 2011.
Litigation
The Company is a party to various lawsuits arising out of the normal conduct of its business, none of which,
individually or in the aggregate, are expected to have a material adverse effect on the Company’s results of operations or
financial position.
Employment Agreements
The Company has entered into employment agreements with certain employees, which provide that the employee will
not compete in the wholesale distribution of imprintable activewear business for a specified period after their respective
termination dates. The employment agreements also define employment terms including salary, bonus and benefits to be
provided to the respective employees.
12. Stock Option and Equity Incentive Plans
In 2010 the Company’s board of directors adopted the 2010 Equity Incentive Plan which provides for the grant of
nonqualified stock options and/or restricted shares to the Company’s officers and employees. A total of 7.5% of the shares of
Common Stock issued and outstanding upon the completion of the Exchange Offer (or 810,811 shares) were reserved for
issuance under this plan. At December 31, 2012 there were 202,693 options available for future grants under the 2010 Plan.
All options issued under the 2010 Plan shall have an exercise price per share of common shares of not less than 100% of fair
market value of such share on the date of grant and shall not be exercisable more than ten years after the date of grant.
The board of directors approved an option grant to the Company’s executive officers and certain other employees in
August 2010. The options granted vested in two tranches. Tranche 1 options represent 50% of the options granted and were
deemed fully vested and exercisable as of the date of grant. Tranche 2 options represent the remaining 50% and vested and
became exercisable with respect to the cumulative percentage of the Tranche 2 options as set forth opposite the dates in the
table below if the participant was, and had been, continuously employed by the Company from the date of the grant
agreement through such date:
Date
Cumulative Percentage
Options Exercisable and Vested
January 1, 2011
January 1, 2012
January 1, 2013
33%
67%
100%
51
Cumulative Options
Exercisable and Vested
66,893
135,813
202,707
The Black-Scholes option pricing model was used to estimate the fair value for the option grants. The Company used
the fair value method using a risk-free rate of 0.8%, an expected life of 3.4 years, volatility of 50% and a dividend yield of
zero. Historical information was the principal basis for the selection of the expected term and dividend yield. The expected
volatility was based on the equity volatility of comparable companies. The risk-free interest rate was selected based upon the
US Treasury yield curve in effect at the time of grant for the expected term of the option.
In March of 2011, the board of directors approved an option grant to the Company’s executive officers and certain
other employees under the 2010 Plan. The options granted vest in four tranches and shall vest and become exercisable with
respect to the cumulative percentage of the options as set forth opposite the dates in the table below if the participant is, and
has been, continuously employed by the Company from the date of the grant agreement through such date:
Date
Cumulative Percentage
Options Exercisable and Veste
d
January 1, 2012
January 1, 2013
January 1, 2014
January 1, 2015
25%
50%
75%
100%
Cumulative Options
Exercisable and Vested
50,674
101,355
152,029
202,703
The Black-Scholes option pricing model was used to estimate the fair value for the 2011 option grants. The Company
used the fair value method using a risk-free rate of 2.2%, an expected life of 4.8 years, volatility of 54.4% and a dividend
yield of zero. Historical information was the principal basis for the selection of the expected term and dividend yield. The
expected volatility was based on the equity volatility of comparable companies. The risk-free interest rate was selected based
upon the US Treasury yield curve in effect at the time of grant for the expected term of the option. The weighted average
grant-date fair value of options granted during the year ended December 31, 2011 was $4.60. No options were granted
during the year ended December 31, 2012.
The Company recognized $0.1 million (and less than $0.1 million after tax) in stock compensation expense in each of
the years ended December 31, 2012 and 2011 resulting from the vesting of options. Stock-based compensation expense is
included within the statement of operations under warehousing, selling and administrative expenses. At December 31, 2012
and 2011, the total compensation cost related to nonvested awards not yet recognized equaled $0.1 million and $0.3 million,
respectively. This cost is expected to be recognized over the remaining vesting periods, which will not exceed four years.
As of December 31, 2012, no restricted shares have been awarded under the 2010 Plan.
Options Allocated
to
Key Employees
Unallocated
Options
Total # of
Shares
405,415
405,396
810,811
$ 1.01
(144,168)
202,703
(10,062)
—
(202,703)
—
(144,168)
—
(10,062)
$ 1.01
$ 4.60
$ 3.16
$ 645
453,888
202,693
656,581
$ 2.56
$3,828
(40,276)
—
(176,042)
$2.53
—
$ 2.75
440,263
135,715
$ 2.44
$ 1.63
Weighted Avg.
Price Per Share
Aggregate
Intrinsic
Value
(in thousands)
Options outstanding at December 31, 2010 ......
Options exercised ....................................
Options granted .......................................
Options cancelled ....................................
Options outstanding at December 31, 2011 ......
Options exercised ....................................
Options granted .......................................
Options cancelled ....................................
Options outstanding at December 31, 2012 ......
Exercisable at December 31, 2012 ....................
(40,276)
—
(176,042)
—
—
—
237,570
135,715
202,693
—
52
—
$1,465
$ 945
A summary of options outstanding as of December 31, 2012 and 2011 is as follows:
2012 .....................................................................
2011 .....................................................................
Exercise
Prices
Number of
Options
Outstanding
Number of
Options
Exercisable
$2.44
$2.56
237,570
453,888
135,715
125,434
Weighted
Average
Exercise Price
$ 1.63
$ 1.01
Weighted
Average
Remaining
Contractual Life
7.81 yrs.
8.88 yrs.
13. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions. In
general, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years
before 2007. The Income Taxes Topic of the FASB ASC requires the use of the asset and liability method under which
deferred taxes are determined based on the estimated future tax effects of differences between the consolidated financial
statement and tax bases of assets and liabilities, given the provisions of the enacted tax laws. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not that some portion of the deferred tax assets will
not be realized. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that a tax
benefit will not be realized. Due to the Company’s net operating losses and its net deferred tax asset position, the Company
recorded a valuation allowance of $15.6 million during fiscal year 2007. The Company recorded additional increases of $14.6
million and $0.7 million during fiscal 2008 and 2009, respectively. During the year ended December 31, 2010, the Company
recorded a decrease to its valuation allowance of $14.0 million. The decrease was primarily due to the Company’s treatment
of COD income in connection with the 2009 exchange transaction. As the Company deferred the COD income from the
exchange transaction until 2014, long-term deferred tax liabilities were recognized, which reduced the valuation allowance
required. In 2011, based on management’s evaluation the valuation allowance was reversed as it was believed that it is “more
likely than not” that all of the deferred tax assets will be realized. Management’s evaluation was based on the guidance and
was largely due the fact that the Company had income before income taxes in 2010 and 2011 and projected future pretax
income, which held consistent through 2012.
As a result of the debt restructuring, the amount of the Company’s aggregate indebtedness was reduced as discussed
above. The reduction in indebtedness resulted in COD income for tax purposes of $143.8 million. Because realization of such
income occurred while the Company was insolvent, the Company will not recognize all the income from COD for tax
purposes, but instead reduced certain federal tax attributes by the amount of the COD. During the first quarter of 2010, the
Company determined that it would elect to defer $80.3 million of COD income and $74.2 million in related OID expense
over a five year period commencing in 2014 under the American Recovery and Reinvestment Tax Act of 2009. This election
was made as part of the 2009 tax return which was filed in 2010. As a result of the COD income, the Company reduced its
federal net operating losses carryforward to zero.
During the years ended December 31, 2012 the Company recognized approximately $0.3 million of interest and
penalties, net of deferred taxes. The Company has accrued approximately $0.6 million for the payment of interest and
penalties at December 31, 2012. The Company does not anticipate that a portion of the December 31, 2012 balance of the
unrecognized tax benefits will be recognized within the next twelve months.
53
The following table summarizes the activity related to the Company’s gross unrecognized tax benefits from
December 31, 2010 to December 31, 2012:
Unrecognized Tax Benefits—as of December 31, 2010...............................
Gross increases for tax positions of prior years ............................................
Gross decreases for tax positions of prior years ...........................................
Gross increases—current-period tax positions .............................................
Settlements during the period .......................................................................
Lapse of statute of limitations.......................................................................
Unrecognized Tax Benefits—as of December 31, 2011...............................
Gross increases for tax positions of prior years ............................................
Gross increases—current-period tax positions .............................................
Gross decreases—current-period tax positions .............................................
Settlements during the period .......................................................................
Lapse of statute of limitations.......................................................................
Unrecognized Tax Benefits—as of December 31, 2012...............................
$ 12,835
944
749
(16)
—
(44)
$14,468
342
986
(321)
—
—
$15,475
Management does not expect a significant change in the amount of unrecognized tax benefits during the next 12 months. The
federal and state income tax provision is summarized as follows:
Year Ended December 31,
2012
2011
2010
(dollars in thousands)
Current
Federal .....................................................................................................
State .........................................................................................................
Deferred
Federal .....................................................................................................
State .........................................................................................................
Total income tax provision ............................................................
$
920
(209)
711
6,519
692
7,211
$ 7,922
$ 9,226
1,554
10,780
$1,130
2,264
3,394
(6,358)
—
(2,132)
(86)
(8,490)
(86)
$ 2,290 $3,308
Total income tax provision differed from the amount computed by applying the U.S. federal income tax rate of 35% to
earnings before income tax benefit as a result of the following:
Year Ended December 31,
2012
2011
2010
(dollars in thousands)
Computed expected tax rate at the statutory rate ............................................... $ 6,759
State and local taxes, net of federal tax benefit..................................................
508
Uncertain tax provisions tax and interest ...........................................................
974
Valuation allowance ..........................................................................................
—
Other ..................................................................................................................
(319)
Income tax provision ................................................................................ $ 7,922
54
$16,871
1,591
1,096
(16,909)
(359)
$ 2,290
$ 6,802
872
2,156
(6,700)
178
$ 3,308
Deferred income tax assets and liabilities at December 31, 2012 and 2011 are as follows:
December 31,
2012
December 31,
2011
(dollars in thousands)
Deferred tax assets
Inventory, principally due to costs capitalized for tax purposes in excess of
those capitalized for financial reporting purposes and obsolescence reserve ...
Reserve for self insurance .....................................................................................
Reserve for bad debts ............................................................................................
Deferred rent .........................................................................................................
Vacation and bonus ...............................................................................................
NOL carryforward ................................................................................................
Restructuring costs ................................................................................................
Goodwill and amortization....................................................................................
New debt basis difference .....................................................................................
Deferred financing fees .........................................................................................
Other .....................................................................................................................
Total deferred tax assets ..............................................................................
Deferred tax liabilities
Section 108(i) deferral ..........................................................................................
Other book intangibles related to the acquisitions of Alpha and NES ..................
Other asset basis reduction ....................................................................................
Tax depreciation in excess of book depreciation ..................................................
Total deferred tax liabilities .........................................................................
Net deferred tax asset ..................................................................................
$ 4,302
188
444
1,878
699
295
745
3,289
33,752
607
1,130
47,329
$ 4,409
129
565
1,720
1,206
97
1,098
4,832
40,288
1,048
753
56,145
(29,432)
(5,313)
(238)
(1,104)
(36,087)
$ 11,242
(40,160)
(6,521)
(392)
(772)
(47,845)
$ 8,300
Total income tax expense differed from the amount computed by applying the U.S. federal income tax rate of 35% to
earnings before income tax benefit primarily as a result of the COD income reserve for unrecognized tax benefits and state
tax expense. At December 31, 2012, the Company had state net operating loss carry forwards of $5.0 million with varying
expiration dates and federal net operating loss carry forward of $1.8 million which expires in twenty years. The Company
intends to carryback the federal net operating loss when the 2012 federal tax returns are filed.
14. Deferred Financing Costs and Unamortized Note Premium
The Company incurred a total of $5.1 million in debt issuance costs in connection with the Revised Credit Agreement.
The remaining costs were being amortized to interest expense on a straight-line basis, which approximated the effective
interest method, over the remaining life of the Revised Credit Agreement.
In October 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “Amended Credit
Agreement”) with Bank of America, N.A. as Administrative Agent and Bank of America, N.A. and General Electric Capital
Corporation as Co-Collateral Agents. The Amended Credit Agreement amended and restated in its entirety the Company’s
Revised Credit Agreement, dated as of August 31, 2006. The Company incurred a total of $4.6 million in debt issuance costs
in connection with the Amended Credit Agreement. In addition, approximately $0.3 million of pre-amendment fees were
written-off during the 2010 fiscal year as a result of a reduction in the number of lenders participating in the Amended Credit
Agreement. The remaining costs are being amortized to interest expense on a straight-line basis, which approximated the
effective interest method, over the remaining life of the Amended Credit Agreement.
55
Amortization of deferred financing fees charged to interest expense were approximately $1.5 million, $1.4 million and
$2.1 million in fiscal years 2012, 2011 and 2010, respectively. The amortization of the note premium credit netted against the
amount above was less than $0.1 million in fiscal 2012, 2011 and 2010.
15. Restructuring Charges
During fiscal years 2005, 2006 and 2007, the Company recorded restructuring charges related to its distribution center
consolidation initiative and its initiative to reduce the number of call centers it operates from seven to three. The distribution
center and call center closure costs include accruals for the fair value of future lease obligations, net of expected sublease
rentals. These future lease obligations are expected to be paid over the remaining lease terms, which end on dates beginning
June 2013 and ending March 2015.
During fiscal year 2010, the Company recorded a reduction of approximately $0.3 million in restructuring charges
consisting of a reduction of $0.5 million resulting from a new sublease agreement for one of its closed facilities, a reduction
of $0.3 million due to a change in the estimate of future real estate taxes payable at one of its closed facilities and interest
accretion of $0.5 million.
During fiscal year 2011, the Company recorded a reduction of approximately $2.2 million in restructuring credits
consisting of a reversal of its restructuring accrual of $2.2 million on the purchase of its leased facility in Wadesboro, NC., a
reduction of $0.2 million resulting from an amendment to a sublease at the Company’s former Philadelphia, PA distribution
center offset by interest accretion of $0.2 million.
During fiscal 2012, the Company recorded restructuring charges of $0.2 million for separation benefits due to the
consolidation of the number of call centers the Company operates from three to two and additional interest accretion.
56
Restructuring activity is summarized as follows:
Balance at
December 31,
2009
Restructuring
Charge
Cash
Payments
Balance at
December 31,
2010
(dollars in thousands)
Distribution center closure costs, net Lease termination
and other costs, net .....................................................
$10,805
$ (298)
$ (2,757)
$ 7,750
$10,805
$ (298)
$ (2,757)
$ 7,750
Cash
Payments
Balance at
December 31,
2011
Balance at
December 31,
2010
Restructuring
Charge
(dollars in thousands)
Distribution center closure costs, net Lease termination
and other costs, net .....................................................
$ 7,750
$ (2,187)
$(2,675)
$ 2,888
$ 7,750
$ (2,187)
$(2,675)
$ 2,888
Cash
Payments
Balance at
December 31,
2012
Balance at
December 31,
2011
Restructuring
Charge
(dollars in thousands)
Distribution center closure costs, net Lease termination
and other costs, net .....................................................
$ 2,888
$
198
$(1,114)
$ 1,972
$ 2,888
$
198
$(1,114)
$ 1,972
The total of approximately $2.0 million in accrued restructuring at December 31, 2012 was recorded as $1.0 million in
current liabilities and $1.0 million in long-term liabilities. The total of approximately $2.9 million in accrued restructuring at
December 31, 2011 was recorded as $0.8 million in current liabilities and $2.1 million in long-term liabilities. The remaining
accrued restructuring will be incurred through March of 2015 which is the period of expiration of the distribution center
leases.
16. Selected Quarterly Financial Data (Unaudited)
The Company’s selected quarterly financial results of operations (unaudited) for each quarter in the years ended
December 31, 2012 and 2011 were as follows:
Quarter Ended
March 31
June 30
September 30
December 31
(in thousands)
2012
Net sales .............................................................................
Gross profit ........................................................................
Income from operations .....................................................
Net income .........................................................................
Net income per share:
Basic .........................................................................
Diluted ......................................................................
57
$183,315
29,487
2,217
289
$221,897
34,280
6,971
3,232
$205,051
34,680
6,479
3,118
$207,596
35,929
10,246
5,592
$
$
$
$
$
$
$
$
0.03
0.03
0.32
0.31
0.31
0.30
0.55
0.55
Quarter Ended
March 31
June 30
September 30
December 31
(in thousands)
2011
Net sales .............................................................................
Gross profit ........................................................................
Income from operations .....................................................
Net income .........................................................................
Net income per share:
Basic .........................................................................
Diluted ......................................................................
$173,923
34,452
6,547
4,334
$227,077
48,420
23,309
15,978
$220,476
39,798
12,692
8,316
$226,723
37,937
13,046
17,036
$
$
$
$
$
$
$
$
0.43
0.43
1.58
1.54
0.82
0.80
1.68
1.65
During fiscal 2011, the credit to restructuring charges was due to a gain of approximately $2.2 million on the purchase
of a leased facility in Wadesboro, NC. The net purchase price of the facility was less than the present value of the remaining
lease payments due under the lease, which was set to expire in March 2014. Other expense consisted of the loss on sale of the
facility, which the Company had acquired in July 2011 and sold in August 2011.
17. Subsequent Events
Management has evaluated the period from December 31, 2012, the date of the consolidated financial statements,
through March 28, 2013, the date on which the consolidated financial statements were available for issuance, for subsequent
events and determined that no material subsequent events occurred that would affect the information presented in these
consolidated financial statements or require additional disclosure, other than which are presented in the below paragraphs.
The Company has excluded short-term obligations totaling approximately $132.0 million from current liabilities
because it intends to refinance the obligations on a long-term basis. The Company has issued long-term obligations (Notes
and Credit Facility) after the date of the balance sheet but prior to the issuance of the consolidated financial statements for the
purpose of refinancing the short-term obligations on a long-term basis. In particular, on March 27, 2013, the Company
entered into a Senior Secured Loan Agreement with Prospect Capital Corporation and the purchasers identified therein,
pursuant to which the Company has agreed to obtain loans and other credit accommodations in the aggregate amount of up to
$100.0 million. In addition, on March 27, 2013, the Company entered into a Third Amended and Restated Credit Agreement
with Bank of America, N.A., and the lenders party thereto in order to obtain loans and other credit accommodations in the
aggregate amount of up to $255.0 million, as such amount may be increased by an additional $75.0 million pursuant to the
terms of such agreement. The net proceeds from the new facilities referred to above have been (or will be) used for, among
other things: (i) the redemption and defeasance of the Company’s 2013 Notes, (ii) repayment of existing indebtedness owed
under the Second Amended and Restated Credit Agreement with Bank of America N.A. and the lenders party thereto, and
(iii) general corporate purposes.
In January 2013, the Company executed a Management Services and Fee Agreement with Littlejohn Managers, LLC.
This agreement outlines the services to be performed by the Manager and the terms of the quarterly management fee payment
of approximately $0.1 million. The agreement shall end on July 31, 2014 but can be extended for one-year periods subject to
the approval of the Board.
In March 2013, the Company and the Manager entered into a First Amendment to Management Services and Fee
Agreement in order to amend a Management Services and Fee Agreement the parties had entered into in January 2013. The
Amendment was entered into in connection with and to take into account the refinancing transactions described herein.
58
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
ITEM 9B. OTHER INFORMATION
None.
59
PART III
Item 10.
Directors and Executive Officers.
The following is a list of our current directors and named executive officers:
Name
Age Position
Norman Hullinger ..........................
Dan Pantano ...................................
Martin J. Matthews ........................
Christopher Blakeslee ....................
Robert E. Davis ..............................
Michael I. Klein .............................
Gene Moriarty................................
David E. Simon ..............................
54
48
41
35
49
48
56
39
Chief Executive Officer and Director
President
Chief Financial Officer
Senior Vice President of Sales
Director
Director
Director
Director
Norman Hullinger, Chief Executive Officer and Director, was named Chief Executive Officer (CEO) and became a
Director of the Company in December 2012. Mr. Hullinger had served as Executive Vice President and Chief Operating
Officer of the Company since February 2009 and was responsible for all distribution center and call center operations as well
as information technology and purchasing and inventory management. From November 2005 to February 2009, he served as
Senior Vice President of Operations of the Company. Mr. Hullinger joined the Company in March 2003 as Vice President of
Operations. Previously, Mr. Hullinger was Senior Vice President of Operations of UBID, an online retailer, and a Vice
President at Yahoo.
Dan Pantano, President, joined Broder in January 2013. Mr. Pantano is responsible for all marketing, merchandising,
distribution center and other operations functions. Mr. Pantano has effectively managed large, multi-billion dollar distribution
businesses and in the global healthcare market. Most recently, Mr. Pantano was President of Fisher Scientific from 2009 to
2012. Prior to joining Fisher Scientific, Mr. Pantano was President of McKesson Corporation's Pharmacy Systems and
Automation Group from 2004 to 2009, and held other top management positions within McKesson Corporation since 1997.
Mr. Pantano began his career with Baxter Healthcare where he served for eleven years after graduating from Ohio State
University.
Martin Matthews, Chief Financial Officer, was named Chief Financial Officer (CFO) in October 2007 and served as
Corporate Controller of Broder since 2003 until being named CFO. Mr. Matthews has responsibility for the Company’s
pricing, accounting, financial reporting, corporate taxation, risk management, credit and collections, treasury, and budgeting
and planning activities. He was also actively involved in the merger integration and acquisition activities of Broder prior to
being named chief financial officer. Prior to joining Broder, Mr. Matthews worked at UbiquiTel Inc. and Internet Capital
Group, Inc., and he began his career with Ernst & Young LLP.
Christopher Blakeslee, Senior Vice President of Sales, has direct responsibility for the sales and customer service
activities for the company. Mr. Blakeslee joined Broder as Vice President of Sales for the Alpha division in August 2007 and
was named Vice President of Sales in May 2008. Prior to joining Broder, Mr. Blakeslee was Vice President of Sales and
Marketing – Northeast Region for the Industrial Distribution Group and previously was Director of Corporate Quality for
Sandvik Tooling NAFTA, a subsidiary of Sandvik AB, where he was responsible for strategic initiatives and acquisition
integrations. Prior to Sandvik, Mr. Blakeslee held various management positions in the industrial manufacturing industry.
60
Robert Davis, Director, was appointed to Broder’s board of directors in July 2012. Mr. Davis is currently a Managing
Director of Littlejohn & Co., LLC ("Littlejohn"). Mr. Davis joined Littlejohn as a Partner in 2005. Prior to joining Littlejohn,
Mr. Davis was a managing director and founding member of Oaktree Capital Management's Mezzanine Fund where he was
responsible for originating, executing and monitoring mezzanine investments. Previously, Mr. Davis was a principal at
Halcyon Asset Management LLC, focusing on distressed / special situations investments. Mr. Davis started his post-MBA
career at Prudential Insurance Company, where he was a founding member of its Financial Restructuring Group.
Additionally, Mr. Davis spent two years as a distressed debt and high yield analyst at Oppenheimer and Co. and started his
career as an investment banking analyst at Bear Stearns & Co. Mr. Davis received an MBA from the J.L. Kellogg School of
Management at Northwestern University in 1989 and a BA in Economics with Honors from Northwestern University in
1985. Mr. Davis is also currently a member of the Board of Directors of Accuride Corporation, a diversified manufacturer
and supplier of commercial vehicle components that is listed on the New York Stock Exchange.
Michael Klein, Director, was appointed to Broder’s board of directors in July 2012. Mr. Klein is currently Chief
Executive Officer of Littlejohn. Mr. Klein joined Littlejohn at its inception in 1996. Prior to Littlejohn, he acquired and
served as an executive officer and director of S&S Industries, a mid-size manufacturing concern. Previously, he was a senior
associate at Joseph, Littlejohn & Levy, where he worked on numerous buyouts and subsequent turnaround, acquiring both
financial and management experience. Mr. Klein began his career at Sumitomo Corporation as a project manager in its
transportation equipment department. He received an MBA from Harvard Business School in 1991, following a BS in
Accounting from New York University in 1986.
Gene Moriarty, Director, was appointed to Broder’s board of directors in December 2012. Mr. Moriarty is currently
President, Chief Executive Officer and Chairman of Brown Jordan International. Prior to joining Brown Jordan in May 2005,
Mr. Moriarty was President and Chief Operating Officer at Evenflo Baby Products, an equity holding of KKR & Co. L.P.,
since June 2000. From 1997 to 2000, he was Vice President of Sales and Marketing for Playtex Products. Before serving in
these top management positions, he was an Executive Consultant with Meridian Consulting Group. Mr. Moriarty has also
served in executive positions with Tambrands, Inc. and Slim Fast Foods, and was Vice President of Sales and Marketing for
the Warner Music Division of Time Warner, Inc. In addition, he currently serves as a director for Home Products
International.
David Simon, Director, was appointed to Broder’s board of directors in July 2012. Mr. Simon is currently a Managing
Director of Littlejohn. Mr. Simon became a partner of Littlejohn in January 2007 after having been with the firm since 2001.
Prior to joining the firm, he was an associate with Fenway Partners, Inc. Previously, he was a member of the Financial
Entrepreneurs Group of the investment banking department of Smith Barney, Inc. where he advised private equity firms and
their portfolio companies. He received an MBA from The Wharton School with honors in 2001 and a BS in Economics with
a concentration in Finance from The Wharton School, magna cum laude in 1995.
Code of Ethics
In 2006, we adopted a code of ethics for our chief executive officer, chief financial officer and senior financial
managers. The Code of Ethics can be viewed by selecting “Code of Ethics” on our corporate website at
www.broderbrosco.com.
Board of Directors and Standing Committees
Our board of directors is currently elected pursuant to the terms of our certificate of incorporation. The board of
directors shall consist of five members, one of which shall be the chief executive officer of the Company. Until May 20,
2012, the Company’s certificate of incorporation provided certain director election rights to holders of the Company’s
common stock (the “Existing Stockholders”) and its debt securities (the “Noteholders”) then outstanding immediately prior to
the Exchange Offer. Such director election rights lapsed on May 20, 2012, pursuant to the terms of the certificate of
incorporation. Currently, the other four directors are elected by vote of the stockholders in accordance with our certificate of
incorporation and applicable law. We currently do not have a nominating, compensation or audit committee. We do not have
any securities listed for trading on a national securities exchange or in an automated inter-dealer quotation system of a
national securities association, which would impose requirements on us as to the composition of an audit committee or a
compensation committee.
61
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
As of March 23, 2013, the issued stock of Broder consisted of 10,053,374 shares of common stock and 10,045,361
were outstanding.
Unless otherwise noted, the following table sets forth certain information regarding the ownership of common stock as
of January 30, 2013, by (1) the beneficial owners of more than 5% of our common stock, (2) each current director and named
executive officer and (3) all of our current directors and executive officers as a group. To our knowledge, each of such
stockholders listed in the table below has sole voting and investment power as to the shares shown unless otherwise noted.
Beneficial ownership of the common stock listed in the table has been determined in accordance with the applicable rules and
regulations promulgated under the Securities Exchange Act of 1934, or the “Exchange Act.” The percent of class is
calculated based on the number of shares outstanding plus such option shares held by the person or aggregation of persons for
which such percentage ownership is being determined. Except as noted below, the address for each of the directors and
named executive officers is c/o Broder Bros., Co., Six Neshaminy Interplex, 6th Floor, Trevose, Pennsylvania 19053.
Common Stock
Number
of
Shares
Name and Address
Principal Stockholders:
Littlejohn & Co., LLC(1) ......................................................................
Bain Capital Fund VII, L.P. and Related Entities(2) .............................
Stonehill Offshore Partners Limited Total(3) ........................................
Directors and Named Executive Officers:
Robert Davis .......................................................................................
Michael Klein ......................................................................................
Gene Moriarty .....................................................................................
David Simon .......................................................................................
Norman Hullinger ...............................................................................
Dan Pantano ........................................................................................
Martin Matthews .................................................................................
Christopher Blakeslee .........................................................................
All Directors and Executive Officers as a Group (eight persons) .......
*
(1)
(2)
(3)
(4)
(5)
Percentage
of
Class
4,539,976(4)
1,811,868(5)
1,513,592
38.8%
15.5%
12.9%
—
—
—
—
103,098
—
102,316
24,075
285,156
*
*
*
*
*
*
*
*
2.4%
Less than one percent.
The address is 8 Sound Shore Drive, Suite 303, Greenwich, CT 06830.
The address is c/o Bain Capital, LLC, 111 Huntington Avenue, Boston, Massachusetts 02199.
The address is Stonehill Capital Management, 885 Third Avenue, 30th Fl, New York, NY 10022.
Consists of: (i) 112,435 shares of common stock held by Cetus Capital, LLC (Fund III); (ii) 4,347,591 shares of
common stock held by Cetus Capital II (Fund IV); (iii) 79,950 shares of common stock held by Littlejohn
Opportunities Master Fund L.P.
Consists of: (i) 40,241 shares of common stock held by BCIP III; (ii) 9,249 shares of common stock held by BCIP T
III; (iii) 18,579 shares of common stock held by BCIP Associates III-B, LLC (“BCIP III-B”); (iv) 1,692 shares of
common stock held by BCIP T Associates III-B, LLC (“BCIP T III-B”); (v) 68,267 shares of common stock held by
Bain Capital Fund VII, LLC-BICP Waived Fees (“Bain Fund VII BCIP”) and (vi) 1,175,940 shares of common stock
held by Bain Capital Fund VII, LLC (“Bain Fund VII”), (vii) 364,622 shares of common stock held by Bain Capital
Fund VI, L.P. (viii) 55,498 shares of common stock held by BCIP Associates II, LLC (ix) 15,566 shares of common
stock held by BCIP Associates II-B, LLC (x) 5,913 shares of common stock held by BCIP Associates II-C, LLC,
(xi) 31,262 shares of common stock held by BCIP Trust Associates II, LLC, (xii) 10,528 shares of common stock held
by BCIP Trust Associates II-B, LLC, (xiii) 1,215 shares of common stock held by PEP Investments PTY Ltd.
62
Equity Compensation Plans
The following table sets forth information regarding securities authorized for issuance under our equity compensation
plans:
(a)
Number of Securities
to be Issued upon
Exercise of
Outstanding
Options,
Warrants and
Rights
(b)
Weighted Average Option
Exercise Price of
Outstanding Options,
Warrants and Rights
(c)
Number of Securities
Remaining Available for
Future Issuance under Equity
Compensation Plans
(Excluding Securities Reflected
in Column (a)
Plan category:
Equity Compensation plans approved by
security holders ..............................................
Equity Compensation plans not approved by
security holders ..............................................
190,418
1.25
47,152
n/a
n/a
n/a
Total ....................................................................
190,418
1.25
47,152
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Stockholders Agreement
Prior to the settlement of the Exchange Offer, Broder, investment funds and others affiliated with Bain Capital (the
“Bain Entities”) and the management stockholders were party to an amended and restated stockholders agreement, which
agreement was terminated in connection with the Exchange Offer.
Registration Agreement
In connection with the acquisition of Alpha, Broder and all of its equity holders (including the Bain Entities) entered
into an amended and restated registration agreement on substantially identical terms to the registration agreement entered into
in connection with the May 2000 recapitalization. The amended and restated registration rights agreement was terminated in
connection with the Exchange Offer.
Director Independence
The Company has no securities listed for trading on a national securities exchange or in an automated inter-dealer
quotation system of a national securities association which has requirements that a majority of its board of directors be
independent, and therefore has not made any determination as to whether its board members are independent. In the event our
common stock is listed on a national securities exchange or in an automated inter-dealer quotation system of a national
securities association, SEC and national securities exchange or national securities association rules will require us to meet
certain independence standards with respect to our audit committee, our compensation committee and independent
nomination of our directors, subject to certain transition rules. We intend to satisfy the independence standards within the
timeframes permitted by SEC and national securities exchange or national securities association rules.
Policies and Procedures for Related Party Transactions
Our board of directors generally reviews our related party transactions, although we have not historically had formal
policies and procedures regarding the review and approval of related party transactions. In the event our common stock is
listed on a national securities exchange, we intend to comply with the rules of such exchange with regard to review of related
party transactions and conflict of interest situations.
63
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid to Independent Accountants for 2012 and 2011
The amounts shown below represent the fees billed by Ernst and Young LLP for professional services rendered in
respect to the fiscal years ended December 29, 2012 and December 31, 2011, respectively.
(in thousands)
Audit Fees ............................................................................................
Audit Related and Other Fees ..............................................................
Tax Fees ...............................................................................................
2012 Fees
2011 Fees
$ 499
$ $ 82
$ 564
$ 22
$ 102
The Audit Fees listed above were billed in connection with the audit of our consolidated financial statements for the
related fiscal year and the review of the consolidated financial statements included in our quarterly reports. The 2011 fees
include professional services incurred in connection with a Form 10 filing in August 2011 which was later withdrawn. We do
not have a policy regarding pre-approval of non-audit services. Our board of directors will pre-approve any such services
prior to their provision.
64
ITEM 15a. FINANCIAL STATEMENT SCHEDULES
Schedule II
BRODER BROS., CO.
Valuation and Qualifying Accounts
Balance at
Beginning
of Period
Additions
Resulting
from
Acquisitions
Charged to
Costs and
Expenses
Charged to
Other
Accounts—
Describe
Deductions—
Describe(1)
Balance at
End of
Period
(dollars in thousands)
YEAR ENDED DECEMBER 29, 2012
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts ............
Excess and discontinued inventory
reserve ................................................
YEAR ENDED DECEMBER 31, 2011
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts ............
Excess and discontinued inventory
reserve ................................................
Deferred tax asset valuation allowance.....
YEAR ENDED DECEMBER 25, 2010
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts ............
Excess and discontinued inventory
reserve ................................................
Deferred tax asset valuation
allowance ..............................................
(1)
$ 5,777
$290
$ 1,621
$—
$ 2,807
$ 4,881
7,648
150
$ 1,602
—
2,697
6,703
$ 8,750
$—
$—
$ 3,110
$ 5,777
12,834
16,909
—
—
—
—
5,186
—
7,648
—
$ 9,502
$—
$ 2,173
$—
$ 2,925
$ 8,750
6,267
—
8,361
—
1,794
12,834
30,907
—
(13,999)
—
—
16,908
$
137
—
(16,909)
Allowance for Doubtful Accounts—Uncollectible accounts written off, net of recoveries.
Excess and Discontinued Inventory Reserve—Loss on sale/disposal of Excess and Discontinued Inventory.
All other schedules are omitted as the required information is inapplicable or the information is presented in the financial
statements or related notes.
65
Exhibit 10.1
EXECUTION COPY
SENIOR SECURED LOAN AGREEMENT
by and among
BRODER BROS., CO.,
as Borrower
and
PROSPECT CAPITAL CORPORATION,
as Agent
and
THE PURCHASERS IDENTIFIED ON
ANNEX A HERETO
March 27, 2013
ME1 15090407v.18
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS ....................................................................................................1 Section 1.1 Section 1.2 Section 1.3 Section 1.4 Certain Definitions. ....................................................................................1 Accounting Principles. .............................................................................22 Knowledge Qualification. ........................................................................23 Other Definitional Provisions; Construction.........................................23 ARTICLE 2
ISSUANCE OF THE NOTES; CLOSING; FEES.........................................23 Section 2.1 Section 2.2 Section 2.3 Section 2.4 Section 2.5 Section 2.6 Authorization and Issuance of the Notes. ..............................................23 Funding. ....................................................................................................23 The Closing. ..............................................................................................24 Fees. ...........................................................................................................24 Loan Account. ..........................................................................................24 Statements. ................................................................................................24 ARTICLE 3
INTEREST; REPAYMENT OF THE NOTES..............................................25 Section 3.1 Section 3.2 Section 3.3 Section 3.4 Section 3.5 Section 3.6 Section 3.7 Section 3.8 Section 3.9 Section 3.10 Interest Rates and Interest Payments. ...................................................25 Repayment of the Notes. ..........................................................................28 Optional Prepayment of the Notes. ........................................................29 Notice of Optional Prepayment. .............................................................29 Mandatory Prepayment. .........................................................................29 Home Office Payment. .............................................................................30 Taxes..........................................................................................................31 Maximum Lawful Rate............................................................................33 Capital Adequacy. ....................................................................................33 Certain Waivers. ......................................................................................33 ARTICLE 4
CONDITIONS ...................................................................................................34 Section 4.1 Conditions to Purchase of Notes. ............................................................34 ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES..........37 Section 5.1 Section 5.2 Representations and Warranties of Loan Parties. ................................37 Absolute Reliance on the Representations and Warranties. ................45 ARTICLE 6
TRANSFER OF NOTES ..................................................................................45 i
ME1 15090407v.18
Section 6.1 Section 6.2 Section 6.3 Section 6.4 Section 6.5 Section 6.6 Restricted Notes. ......................................................................................45 Legends; Purchaser’s Representations. .................................................46 Transfer of Notes......................................................................................46 Replacement of Lost Notes. .....................................................................47 No Other Representations Affected. ......................................................47 Register. ....................................................................................................47 ARTICLE 7
COVENANTS ...................................................................................................48 Section 7.1 Section 7.2 Section 7.3 Affirmative Covenants.............................................................................48 Negative Covenants..................................................................................54 Financial Covenants.................................................................................68 ARTICLE 8
EVENTS OF DEFAULT ..................................................................................70 Section 8.1 Section 8.2 Section 8.3 Section 8.4 Section 8.5 Events of Default. .....................................................................................70 Consequences of Event of Default. .........................................................72 Security. ....................................................................................................72 Order of Payment. ...................................................................................72 Financial Covenant Cure. .......................................................................73 ARTICLE 9
THE AGENT .....................................................................................................74 Section 9.1 Section 9.2 Section 9.3 Section 9.4 Section 9.5 Section 9.6 Section 9.7 Section 9.8 Section 9.9 Section 9.10 Section 9.11 Authorization and Action. .......................................................................74 Delegation of Duties. ................................................................................75 Exculpatory Provisions............................................................................75 Reliance. ....................................................................................................75 Non-Reliance on Agent and Other Purchasers. ....................................76 Agent in its Individual Capacity. ............................................................76 Successor Agent. .......................................................................................76 Collections and Disbursements. ..............................................................77 Reporting. .................................................................................................78 Consent of Purchasers. ............................................................................78 No Liability of Purchasers.......................................................................79 ARTICLE 10
MISCELLANEOUS .........................................................................................79 Section 10.1 Section 10.2 Section 10.3 Section 10.4 Section 10.5 Section 10.6 Section 10.7 Successors and Assigns. ...........................................................................79 Modifications and Amendments. ............................................................79 No Implied Waivers; Cumulative Remedies; Writing Required. .......80 Reimbursement of Expenses. ..................................................................80 Holidays. ...................................................................................................81 Notices. ......................................................................................................81 Survival. ....................................................................................................83 ii
ME1 15090407v.18
Section 10.8 Section 10.9 Section 10.10 Section 10.11 Section 10.12 Section 10.13 Section 10.14 Section 10.15 Section 10.16 Section 10.17 Section 10.18 Section 10.19 Governing Law. ........................................................................................83 Severability. ..............................................................................................83 Headings....................................................................................................84 Indemnity. .................................................................................................84 Environmental Indemnity. ......................................................................84 Counterparts. ...........................................................................................85 Integration. ...............................................................................................85 Confidentiality; Press Releases. ..............................................................86 Facsimile Signatures. ...............................................................................86 Set-off. .......................................................................................................86 Assignment and Participation.................................................................87 Nonliability of Agent and Purchasers. ...................................................89 ARTICLE 11
DISPUTE RESOLUTION; JURISDICTION; JURY TRIAL WAIVER ...89 iii
ME1 15090407v.18
ANNEX
Annex A
Annex B
Information Relating to Purchasers
Purchasers’ Allocations
SCHEDULES
“Pre-Closing Stipulated Capital Expenditure
Amounts”, “Pre-Closing Stipulated EBITDA
Amounts” and “Pre-Closing Stipulated Debt
Service”
(Schedule 1.1)
“Organization Schedule”
“Capitalization Schedule”
“Litigation Schedule”
“Environmental Schedule”
“Tax Matters Schedule”
“Labor and Employment Schedule”
“Properties Schedule”
“Intellectual Property Schedule”
“Material Contracts Schedule”
“Potential Conflicts of Interest Schedule”
“Deposit Accounts Schedule”
“Leased Facilities Schedule”
“Permitted Indebtedness Schedule”
“Permitted Encumbrances Schedule”
“Affiliate Transaction Schedule”
(Schedule 5.1(a))
(Schedule 5.1(d))
(Schedule 5.1(j))
(Schedule 5.1(l))
(Schedule 5.1(n))
(Schedule 5.1(o))
(Schedule 5.1(q))
(Schedule 5.1(r))
(Schedule 5.1(w))
(Schedule 5.1(z))
(Schedule 5.1(aa))
(Schedule 7.1(n))
(Schedule 7.2(a))
(Schedule 7.2(b))
(Schedule 7.2(g))
EXHIBITS
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E-1
EXHIBIT E-2
EXHIBIT E-3
EXHIBIT F
EXHIBIT G
EXHIBIT H
EXHIBIT I
EXHIBIT J
Form of Note
Form of Notice of Continuation
Form of Guarantee Agreement
Form of Security Agreement
Form of Trademark Security Agreement
Form of Patent Security Agreement
Form of Copyright Security Agreement
Form of Pledge Agreement
Form of Compliance Certificate
Form of Excess Cash Flow Certificate
Form of Intercreditor Agreement
Form of Landlord Agreement
iv
ME1 15090407v.18
SENIOR SECURED LOAN AGREEMENT
$100,000,000 Aggregate Principal Amount of
Senior Secured Term Loan Notes
THIS SENIOR SECURED LOAN AGREEMENT, dated as of March 27, 2013, is
by and among BRODER BROS., CO., a Delaware corporation (“Broder,” or the “Borrower”
and collectively, with any hereinafter created or acquired Subsidiaries of the Borrower which
become borrowers hereunder, the “Borrowers”), any Future Holding Company or any existing
or hereafter created or acquired Subsidiaries of the Borrower or any other Loan Party which
become guarantors hereunder (the “Guarantors,” and collectively with the Borrower, the “Loan
Parties”), the lenders that are now and hereafter at any time parties hereto and are listed in
Annex A (or any amendment or supplement thereto) attached hereto (collectively,
“Purchasers”), and PROSPECT CAPITAL CORPORATION, a Maryland corporation
(“Prospect”), as administrative agent for Purchasers (in such capacity, “Agent”). Capitalized
terms used and not defined elsewhere in this Agreement are defined in Article 1 hereof.
RECITALS
Borrower has proposed selling $100,000,000 of Senior Secured Term Loan Notes
for the purposes of, among other things, refinancing certain existing senior and senior unsecured
indebtedness of the Borrower and paying the transaction fees and expenses related to the
foregoing.
NOW, THEREFORE, the parties hereto, in consideration of the premises and
their mutual covenants and agreements herein set forth, and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1
Certain Definitions.
In addition to other words and terms defined elsewhere in this Agreement, the
following words and terms shall have the meanings set forth below (and such meanings shall be
equally applicable to both the singular and plural form of the terms defined, as the context may
require):
“Accounting Changes” shall have the meaning assigned in Section 1.2.
“Accounts” shall mean all present and future rights of the Borrower to payment
for Inventory or other “goods” (as defined in the Code) sold or leased or for services rendered,
which rights are not evidenced by Instruments or “chattel paper” (as defined in the Code),
regardless of whether such rights have been earned by performance and any other “accounts” (as
defined in the Code).
“Affiliate” shall mean with respect to any Person, any other Person that is directly
or indirectly controlling, controlled by or under common control with such Person or any of its
1
ME1 15090407v.18
Subsidiaries, and the term “control” (including the terms “controlled by” and “under common
control with”) means having, directly or indirectly, the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting securities, Equity
Interests, by contract or otherwise. Without limiting the foregoing, the ownership of 35% or
more of the voting securities or Equity Interests of a Person shall be deemed to constitute
control; provided, that for the purposes of Section 7.2(g), “Affiliate” shall also include any
Person that directly or indirectly owns 10% or more of the voting securities or Equity Interests of
a Person. Notwithstanding anything to the contrary herein, none of Prospect, Purchasers nor
Agent, or any of their respective Affiliates shall be deemed to be Affiliates of any Loan Party by
virtue of the transactions contemplated in this Agreement.
“Agent” shall have the meaning assigned to such term in the preamble hereto and
any successor agent provided for hereunder.
“Agreement” shall mean this Senior Secured Loan Agreement, as the same may
be amended, restated, supplemented or otherwise modified from time to time.
“Annual Statements” shall have the meaning assigned to such term in Section
5.1(c)(i).
“Anti-Terrorism Laws” shall have the meaning assigned to such term in Section
5.1(x).
“Applicable LIBOR Margin” shall mean 9.0% per annum.
“Assignee” shall have the meaning assigned to such term in Section 10.18(a).
“Boards” shall mean, collectively, the board of directors, members, managers or
other governing Person or group of each of the Loan Parties.
“Borrower” shall have the meaning assigned to such term in the preamble hereto.
“Breached Period” shall have the meaning assigned to such term in Section 8.5.
“Broder” shall have the meaning assigned to such term in the preamble hereto.
“Business” shall mean the sale, marketing or distribution of promotional products
and ancillary activities related thereto, including, but not limited to, blank imprintable activewear
(T-shirts, sweatshirts and sport shirts), hard goods or decorative products.
“Business Day” shall mean any day other than a Saturday, Sunday or other day
on which banking institutions in The City of New York are authorized or required by law to
close, and in the case of a Business Day which relates to a LIBOR Loan, any day on which
dealings are carried on in the London Interbank Eurodollar market.
“Capital Expenditures” shall mean all expenditures (by the expenditure of cash
or incurrence of Indebtedness) by the Loan Parties during any measuring period for any fixed
assets or improvements or for replacements (exclusive of expenditures made with cash proceeds
2
ME1 15090407v.18
received from a Disposition, an Event of Loss or Extraordinary Receipts described in clauses (ii)
and (iii) of that definition to the extent relating to an identifiable loss of or defect in assets, in
each case, that are reinvested as permitted herein), substitutions or additions thereto that have a
useful life of more than one year and that are required to be capitalized under GAAP.
“Capitalized Leases” shall mean, with respect to any Person, leases of (or other
agreements conveying the right to use) any property (whether real, personal or mixed) by such
Person as lessee that, in accordance with GAAP, either would be required to be classified and
accounted for as capital leases on a balance sheet of such Person or otherwise be disclosed as
such in a note to such balance sheet.
“Carried-Forward Amount” shall have the meaning assigned to such term in
Section 7.3(c)(ii).
“Cash Interest” shall mean, for any period, the amount of cash interest paid (or
scheduled to have been paid) on all Indebtedness of the Loan Parties during such period (other
than cash interest on the Existing Notes).
“Cash Taxes” shall mean, for any period, the amount of cash income taxes paid
(or due to be paid) by the Loan Parties during such period.
“CERCLA” shall mean the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. § 9601, et seq.), as amended, and rules, regulations,
standards and guidelines issued thereunder.
“Change of Control” shall mean the occurrence of any of the following:
(a)
(x) Sponsor Group owns and controls beneficially and of record, directly
or indirectly, in the aggregate less than 30% of (i) the outstanding voting Equity Interests of
Broder (or following the formation thereof, the Future Holding Company) having the right to
vote for the election of members of the Board of Broder (or such Future Holding Company) and
(ii) the outstanding Equity Interests of Broder (or such Future Holding Company) (whether or
not having the right to vote for the members of the Board of Broder (or such Future Holding
Company)) representing all economic interests of Broder (or such Future Holding Company), in
each case computed on a fully diluted basis (but excluding the effect of any exercise of the
warrant owned as of the Closing Date by the Bain Holders as identified on Schedule 5.1(d)), or
(y) a majority of the members of the Board of Directors of Broder (or such Future Holding
Company) cease to be composed of individuals whose election or nomination to the Board of
Directors was approved by Sponsor Group;
(b)
(x) except for the effect of Permitted Acquisitions permitted by Section
7.2(j) and Permitted Investments permitted by Section 7.2(i), Broder owns and controls
beneficially and of record less than 100% of the outstanding Equity Interests of any other Loan
Party (other than the Future Holding Company); or (y) following the formation of the Future
Holding Company, the Future Holding Company at any time ceases to own directly 100% of the
Equity Interests of Broder (unless Broder is the subject of an initial Public Offering);
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ME1 15090407v.18
(c)
a “Change of Control”, as defined in the Revolver Documents or any term
of similar effect under any such documents or related documents; or
(d)
the sale of all or substantially all of the assets of the Loan Parties taken as
a whole.
“Charter Documents” shall mean the articles of incorporation, certificate of
incorporation, certificate of limited partnership, certificate of limited liability company, charter
or analogous organic instrument filed with the appropriate Governmental Authorities of each of
the Loan Parties, as applicable, including all amendments and supplements thereto.
“Closing” shall have the meaning assigned to such term in Section 2.3.
“Closing Date” shall have the meaning assigned to such term in Section 2.3.
“Code” shall have the meaning assigned to such term in Section 1.4.
“Collateral Assignee” shall have the meaning assigned to such term in Section
6.3.
“Consolidated” (or “consolidated”) or “Consolidating” (or “consolidating”)
shall mean, when used with reference to any financial term in this Agreement, the aggregate for
two or more Persons of the amounts signified by such term for all such Persons determined on a
consolidated (or consolidating) basis in accordance with GAAP, applied on a consistent basis.
“Consolidated Net Income” shall mean, for any period, the net income of the
Borrower (or following the formation thereof, any Future Holding Company) and its
Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP, but
excluding in any event (a) after-tax extraordinary gains or extraordinary losses; (b) after-tax
gains or losses realized from (i) the acquisition of any securities, or the extinguishment or
conversion of any Indebtedness or Equity Interest, of the Borrower (or such Future Holding
Company) or any of its Subsidiaries or (ii) any sales of assets (other than inventory in the
ordinary course of business); (c) net earnings or loss of any other Person (other than a Subsidiary
of the Borrower) in which the Borrower (or such Future Holding Company) or any Consolidated
Subsidiary has an ownership interest, except (in the case of any such net earnings) to the extent
such net earnings shall have actually been received by the Borrower (or such Future Holding
Company) or such Consolidated Subsidiary (subject to the limitation in clause (d) below) in the
form of cash dividends or distributions; (d) the net income of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by such Subsidiary of
its net income is not at the time of determination permitted without approval under applicable
law or under such Subsidiary’s organizational documents or any agreement or instrument
applicable to such Subsidiary or its stockholders; (e) gains or losses from the cumulative effect
of any change in accounting principles; (f) earnings resulting from any reappraisal, revaluation or
write-up or write-down of assets; (g) payments made on or after the Closing Date with respect to
the Existing Notes; and (h) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of the Borrower (or such Future Holding Company) or any Consolidated
Subsidiary or is merged into or consolidated with the Borrower (or such Future Holding
Company) or any Consolidated Subsidiary or that Person’s assets are acquired by the Borrower
4
ME1 15090407v.18
(or such Future Holding Company) or such Consolidated Subsidiary (other than for the
calculation of EBITDA for covenant purposes). In addition, Consolidated Net Income shall be
calculated without giving effect to (i) any write-off of deferred financing costs incurred as a
result of the refinancing of Indebtedness, (ii) purchase accounting or similar adjustments
required or permitted by GAAP, in connection with any Permitted Acquisitions, (iii) any noncash gain or loss recognized in determining consolidated net income (or net loss) for such period
in respect of pension and other post-retirement benefits and (iv) any non-cash gain or loss
recognized in determining consolidated net income (or loss) for such period in respect of pension
assets.
“Control Investment Affiliate” shall mean, with respect to any Person, an
Affiliate of such Person that is organized by such Person primarily for the purpose of making
equity or debt investments in one or more companies or for providing management services to
portfolio companies of such Person.
“Controlled Group” shall mean the “controlled group of corporations” as that
term is defined in Section 1563 of the IRC, of which any of the Loan Parties are a part from time
to time.
“Covered Taxes” shall have the meaning assigned to such term in Section 3.7(a).
“Curative Capital” means any Equity Issuance, the proceeds of which are used
in accordance with an exercise of a Cure Right in compliance with Section 8.5.
“Cure Right” shall have the meaning assigned to such term in Section 8.5(a).
“Cure Right Notice” shall have the meaning assigned to such term in Section
8.5(a).
“Debt Service” shall mean, without double-counting, during any period of
determination: (i) Cash Interest during such period; plus (ii) maintenance, non-use or other fees
paid in connection with the Revolving Loans; plus (iii) scheduled principal payments on the
Notes and other Indebtedness of the Loan Parties described in clauses (A) (i), (ii), (iii), (iv), (vi),
and (viii) of the definition of Indebtedness (taking into account the exclusions in clause (B) of
that definition) but excluding payments of Excess Cash Flow and payments of principal in
respect of the Revolving Loans (or any renewals, refinancings or extensions thereof) and
payments of principal on the Existing Notes.
“Default” shall mean any event or condition that, but for the giving of notice or
the lapse of time, or both, would constitute an Event of Default.
“Delivery Date” shall have the meaning assigned to such term in Section
7.1(e)(i).
“Deposit Account Control Agreement” shall mean, with respect to deposit
accounts of a Loan Party, (i) while the Revolving Loans or any commitments to make Revolving
Loans are outstanding, either (A) deposit account control agreements, subordinate by their terms
to the deposit account control agreement and other rights of the Revolving Agent, among the
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ME1 15090407v.18
Agent, such Loan Party and the applicable depository institution, or (B) a multi-party deposit
account control agreement among the Agent, the Revolving Agent, such Loan Party and the
applicable depository institution, in each case which shall be subject to the Intercreditor
Agreement, and (ii) thereafter, deposit account control agreements among Agent, such Loan
Party and the applicable depository institution, in each case form and substance reasonably
satisfactory to the Agent.
“Designated Equity Issuance” shall mean an Equity Issuance as to which the
Borrowers (or following the formation thereof, the Future Holding Company) notify Agent in
writing at or prior to the issuance thereof that all or a portion of the net proceeds to be derived
therefrom will be used to make a dividend or distribution permitted under Section 7.2(h) or an
Investment under Section 7.2(i)(xvii), Section 7.2(i)(xviii), or Section 7.2(i)(xxi).
“Disposition” shall mean the sale, lease, conveyance or other disposition of
property of any Loan Party, other than sales or other dispositions of inventory or collection of
accounts receivable and disbursements of cash in respect of accounts payable, each in the
ordinary course of business.
“Dispute” or “Disputes” shall mean any action, dispute, proceeding, claim or
controversy between or among the parties, or their successors or assigns, whether sounding in
contract, tort or otherwise.
“Dollar” or “Dollars” and “$” mean lawful money of the United States of
America.
“EBITDA” shall mean, for any period of determination, Consolidated Net
Income for such period, adjusted, in each case only to the extent (and in the same proportion)
deducted or excluded in determining such Consolidated Net Income (and with respect to the
portion of Consolidated Net Income attributable to any Subsidiary of the Borrower (or following
the formation thereof, the Future Holding Company) only if a corresponding amount would be
permitted at the date of determination to be distributed to the Borrower (or such Future Holding
Company or any acquired Person, as applicable) by such Subsidiary without prior approval (or
approval that has been obtained), pursuant to the terms of its organizational documents and all
agreements, instruments, judgments, decrees, orders, statutes, rules and regulations applicable to
such Subsidiary or its stockholders), by (a) adding thereto (i) the amount of Consolidated interest
expense, (ii) Cash Taxes (whether paid or accrued), (iii) amortization expense, (iv) depreciation
expense (including goodwill and other intangible asset impairment charges), (v) all other noncash charges, non-cash expenses or non-cash losses (including, but not limited to, amortization
of deferred financing fees, non-cash GAAP restructuring charges, non-cash expense from any
employee benefit or stock option plan, non-cash loss on sale or disposition of fixed assets,
purchase accounting adjustments with respect to re-valuing assets and liabilities which reduces
EBITDA and subsequent non-cash impairment charges), (vi) unusual or non-recurring charges,
fees and expenses which are reasonably acceptable to the Agent (including, without limitation
(which is reasonably acceptable to the Agent) any cash losses arising in connection with any
Disposition permitted by clause (iii) of the final sentence of Section 7.2(f) hereof during such
period), (vii) costs, fees, expenses, charges and any one time payments made related to (A) any
Permitted Acquisition (including, without limitation, one-time cash compensation charges
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related to any Permitted Acquisitions to the extent identified contemporaneously with the closing
of such Permitted Acquisition and paid within twelve months following such closing) in an
amount not to exceed $700,000 for any such Permitted Acquisition in any twelve month period
or (B) any Permitted Investments and any Disposition permitted hereunder in an amount not to
exceed $250,000 in the aggregate for any such Permitted Investments or Dispositions in any
twelve month period, (viii) to the extent not already included in Consolidated Net Income and
actually indemnified or reimbursed, any costs or expenses which are covered by indemnification
or reimbursement provisions in connection with any Permitted Acquisition or permitted
Disposition (provided that any such costs or expenses actually indemnified or reimbursed
following such period may be added to EBITDA at the time of actual receipt of such
indemnification or reimbursement), (ix) all one time compensation charges, including without
limitation, stay bonuses paid to existing management and recruiting and severance costs not to
exceed $1,000,000 during any Fiscal Year, (x) any portion of management fees actually paid by
or on behalf of (if not previously accrued), or accrued by, the Borrower (or such Future Holding
Company) or any of its Subsidiaries to the Sponsor pursuant to the terms of the Management
Agreement, plus reasonable out-of-pocket expenses payable to any Person in the Sponsor Group
or any Affiliate in connection therewith, and (xi) to the extent not already included in
Consolidated Net Income, proceeds from business interruption insurance, and (b) subtracting the
aggregate amount of all non-cash items other than (A) the accrual of revenue in the ordinary
course of business and in accordance with GAAP and (B) reversals of prior accruals or reserves
for cash items previously excluded in accordance with GAAP from Consolidated EBITDA
pursuant to clause (v) above, determined on a consolidated basis, to the extent such items
increased Consolidated Net Income for such period.
“ECF Rate” shall have the meaning assigned to such term in Section 3.2(b).
“Environmental Laws” shall mean any Laws that address, are related to or are
otherwise concerned with environmental, health or safety issues, including any Laws relating to
any emissions, releases or discharges of Pollutants into ambient air, surface water, ground water
or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling, clean-up or control of Pollutants or any exposure or impact on
worker health and safety.
“Environmental Liabilities” shall mean any obligations or liabilities (including
any claims, suits or other assertions of obligations or liabilities) that are: (a) related to
environmental, health or safety issues (including on-site or off-site contamination by Pollutants
of surface or subsurface soil or water, and occupational safety and health); and (b) based upon or
related to (i) any provision of past, present or future United States or foreign Environmental Law
(including CERCLA and RCRA) or common law, or (ii) any judgment, order, writ, decree,
permit or injunction imposed by any court, administrative agency, tribunal or otherwise.
The term “Environmental Liabilities” includes: (i) fines, penalties, judgments,
awards, settlements, losses, damages (including foreseeable and unforeseeable consequential
damages), costs, fees (including reasonable attorneys’ and consultants’ fees), expenses and
disbursements, (ii) defense and other responses to any administrative or judicial action (including
claims, notice letters, complaints, and other assertions of liability), and (iii) financial
responsibility for (A) cleanup costs and injunctive relief, including any Removal, Remedial or
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other Response actions, and natural resource damages and (B) any other compliance or remedial
measures.
“Equity Interest” shall mean (i) in the case of any corporation, all capital stock
(whether common or preferred) and any securities exchangeable for or convertible into capital
stock, (ii) in the case of a partnership or limited liability company, partnership (whether general
or limited) or membership interests, (iii) in the case of an association or other business entity,
any and all shares, interests, participations, rights or other equivalents of corporate stock
(however designated) in or to such association or entity and (iv) any other interest or
participation that confers on a Person the right to receive a share of the profits and losses of, or
distribution of assets of, the issuing Person, and including, in all of the foregoing cases described
in clauses (i), (ii), (iii) or (iv), any warrants, rights or other options to purchase or otherwise
acquire any of the interests described in any of the foregoing cases.
“Equity Issuance” shall mean, without duplication, any issuance or sale by any
Borrower (or following the formation thereof, the Future Holding Company) after the Closing
Date of (a) any Equity Interests (including any Equity Interests issued upon exercise of any
warrant or option) or any warrants or options to purchase Equity Interests or (b) any other
security or instrument representing an Equity Interest (or the right to obtain any Equity Interest)
in the issuing or selling Person.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended, and rules, regulations, standards and guidelines issued thereunder.
“Event of Default” shall mean any of the events of default described in Section
8.1.
“Event of Loss” shall mean, with respect to any property of any of the Loan
Parties, any of the following: (i) any loss, destruction or damage of such property or (ii) any
condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property, or confiscation of such property or the requisition of the use of such property.
“Excess Availability” has the meaning given such term in the Revolving Credit
Agreement.
“Excess Cash Flow” shall mean, on a consolidated basis for a given period of
determination in respect of the Loan Parties, EBITDA, minus (i) Cash Taxes, minus
(ii) management fees paid to Sponsor Group or Affiliates in cash, minus (iii) non-financed
Capital Expenditures, minus (iv) Cash Interest, minus (v) scheduled principal payments on any
Indebtedness of the Loan Parties (excluding payments of principal in respect of the Revolving
Loans), minus (vi) voluntary principal payments, and mandatory principal payments pursuant to
Section 3.5(b) on the Notes, minus (vii) Non-Recurring Expenses, minus (viii) if the Total
Leverage Ratio as of the most recent Fiscal Quarter ended December 31 is 4.25:1.00 or less and
Excess Cash Flow (before giving effect to any deductions for the non-financed consideration
described in this clause (viii)) multiplied by the applicable ECF Rate is $1,000,000 or more, then
85% of the non-financed consideration paid for Permitted Acquisitions in the United States (the
“Included Consideration”); notwithstanding the foregoing, no amount shall be treated as
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Included Consideration (1) in respect of any non-U.S. Permitted Acquisitions, and (2) in the
event that Excess Cash Flow (before giving effect to any deductions for the non-financed
consideration described in this clause (viii)) multiplied by the applicable ECF Rate is less than
$1,000,000, provided that in the event that Excess Cash Flow after giving effect to any
deductions for the non-financed consideration described in this clause (viii) multiplied by the
applicable ECF Rate is less than $1,000,000 but without giving effect to such deductions
described in this clause (viii) is $1,000,000 or more, then the Borrower may include an amount
of Included Consideration which results in the Excess Cash Flow multiplied by the applicable
ECF Rate equaling $1,000,000, plus (ix) foreign, United States, state or local tax refunds, all
such amounts as determined in accordance with GAAP.
“Excluded Accounts” shall have the meaning assigned to such term in Section
7.1(n)(i).
“Excluded Taxes” means with respect to Agent or any Purchaser: (i) taxes
measured by net income (including branch profit taxes) and franchise taxes imposed in lieu of
net income taxes, in each case, imposed on Agent or any Purchaser as a result of a present or
former connection between such Person and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or therein (other than
such connection arising solely from such Person having executed, delivered or performed its
obligations or received a payment under, or enforced, any Note); (ii) withholding taxes to the
extent that the obligation to withhold amounts existed on the date that such Person became Agent
or Purchaser under this Agreement in the capacity under which such Person makes a claim under
Section 3.7, except in each case to the extent a Purchaser is a direct or indirect assignee of any
other Purchaser that was entitled, at the time the assignment to such assignee Purchaser became
effective, to receive additional amounts under Section 3.7; (iii) taxes that are directly attributable
to the failure (other than as a result of a change in any requirement of Law (other than changes in
United State Treasury Regulations under FATCA, published guidance with respect to FATCA
and applicable intergovernmental agreements with respect thereto)) by Agent or any Purchaser to
deliver the documentation required to be delivered pursuant to Section 3.7(b) or (c), and (iv) any
United States federal withholding taxes imposed by FATCA.
“Executive Order” shall have the meaning assigned to such term in Section
5.1(x).
“Existing Notes” means the Borrower’s 12%/15% Senior PIK Toggle Notes due
2013.
“Extraordinary Receipts” means any cash received by any Loan Party not in the
ordinary course of business, in connection with (i) pension plan reversions (at any time that a
pension plan of a Loan Party exists), (ii) judgments, proceeds of settlements or other
consideration of any kind in connection with any cause of action and (iii) indemnity payments,
but excluding foreign, United States, state or local tax refunds. For the sake of clarity, Curative
Capital contributions shall not constitute Extraordinary Receipts.
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“FATCA” means sections 1471, 1472, 1473 and 1474 of the IRC, the United
States Treasury Regulations promulgated thereunder and published guidance with respect
thereto, and applicable intergovernmental agreements with respect thereto.
“Financial Officer” of any Person shall mean the Chief Executive Officer, Chief
Financial Officer, principal accounting officer, Treasurer, Vice President of Finance, Controller
or Assistant Controller of such Person, each in his or her official (and not individual) capacity.
“Financial Projections” shall have the meaning assigned to such term in Section
5.1(c)(ii).
“Financing Statements” shall have the meaning assigned to such term in Section
4.1(c).
“Fiscal Quarter” or “fiscal quarter” shall mean the three-month period ending
on:
March 30, 2013
June 29, 2013
September 28, 2013
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015
June 27, 2015
September 26, 2015
December 26, 2015
March 26, 2016
June 25, 2016
September 24, 2016
December 31, 2016
April 1, 2017
July 1, 2017
September 30, 2017
December 30, 2017
March 31, 2018
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June 30, 2018
September 29, 2018
December 29, 2018.
“Fiscal Year” or “fiscal year” shall mean the twelve-month period ending on (i)
for fiscal year 2012, December 29, 2012, (ii) for fiscal year 2013, December 28, 2013, (iii) for
fiscal year 2014, December 27, 2014, (iv) for fiscal year 2015, December 26, 2015, (v) for fiscal
year 2016, December 31, 2016, (vi) for fiscal year 2017, December 30, 2017, and (vi) for fiscal
year 2018, December 29, 2018.
“Fixed Charge Coverage Ratio” shall mean, on a consolidated basis for any date
of determination, the ratio of the Loan Parties’: (1) EBITDA for the then preceding four fiscal
quarters, minus Capital Expenditures for the then preceding four fiscal quarters; minus Cash
Taxes for the then preceding four fiscal quarters; divided by: (2) Debt Service for the then
preceding four fiscal quarters, provided however, (a) prior to the Closing Date, for the fiscal
quarters ended December 29, 2012, September 29, 2012 and June 30, 2012, the Pre-Closing
Stipulated Debt Service, the Pre-Closing Stipulated EBITDA Amounts and the Pre-Closing
Stipulated Capital Expenditure Amounts shall be used in place of Debt Service, EBITDA and
Capital Expenditures, respectively, in such determination, and for the fiscal months ended
January 31, 2013 and February 28, 2013 only, the Pre-Closing Stipulated Debt Service shall be
used in such determination, and (b) following the Closing Date, for the fiscal month ended
March 30, 2013, Debt Service used in such determination shall be equal to the actual amounts
incurred following the Closing Date.
“FRB” shall mean the Board of Governors of the Federal Reserve System or any
successor thereto.
“Future Holding Company” means a corporation organized under any State of
the United States at any time after the Closing Date which directly owns 100% of the Equity
Interests of Broder.
“GAAP” shall have the meaning assigned to such term in Section 1.2.
“Governmental Authorities” shall mean any federal, state or municipal court or
other governmental department, commission, board, bureau, agency, instrumentality or entity,
governmental or quasi-governmental, domestic or foreign.
“Guarantee Agreement” shall mean a guarantee agreement in favor of the Agent
for the benefit of the Purchasers in form and substance as set forth in Exhibit C attached hereto
(as the same may be amended, modified or supplemented from time to time in accordance with
the terms thereof), and shall include any joinder agreement executed from time to time in
connection therewith.
“Guarantors” shall have the meaning assigned to such term in the preamble
hereto.
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“Guaranty” shall mean any guaranty of the payment or performance of any
Indebtedness and any other arrangement whereby credit is extended to one obligor on the basis
of any promise of another Person, whether that promise is expressed in terms of an obligation to
pay the Indebtedness of such obligor, or to purchase an obligation owed by such obligor, or to
purchase goods and services from such obligor pursuant to a take-or-pay contract, or to maintain
the capital, working capital, solvency or general financial condition of such obligor, whether or
not any such arrangement is reflected on the balance sheet of such other Person, or referred to in
a footnote thereto, but shall not include endorsements of items for collection in the ordinary
course of business. For the purpose of all computations made under this Agreement, the amount
of a Guaranty in respect of any obligation shall be deemed to be equal to the maximum aggregate
amount of such obligation or, if the Guaranty is limited to less than the full amount of such
obligation, the maximum aggregate potential liability under the terms of the Guaranty.
“Historical Quarterly Statements” shall have the meaning assigned to such term
in Section 5.1(c)(i).
“Imprints Wholesale” means Imprints Wholesale, Inc., a Colorado corporation
and non-surviving corporation of a merger with and into the Borrower.
“Indebtedness” shall mean, for any Person at the time of any determination,
without duplication, all obligations, contingent or otherwise, of such Person that, in accordance
with GAAP, should be classified upon the balance sheet of such Person as indebtedness, but in
any event (A) including the following: (i) all obligations for borrowed money, (ii) all obligations
arising from installment purchases of property or representing the deferred purchase price of
property or services in respect of which such Person is liable, contingently or otherwise, as
obligor or otherwise (including all earn-out or like obligations, but excluding trade payables and
other current liabilities incurred in the ordinary course of business on terms customary in the
trade), (iii) all obligations evidenced by notes, bonds, debentures, acceptances or similar
instruments, or arising out of letters of credit, bankers’ acceptances or performance or surety
bonds issued for such Person’s account, (iv) all obligations, whether or not assumed, secured by
any Lien or payable out of the proceeds or production from any property or assets now or
hereafter owned or acquired by such Person, (v) all obligations for which such Person is
obligated pursuant to a Guaranty, (vi) the capitalized portion of lease obligations under
Capitalized Leases, (vii) all obligations for which such Person is obligated pursuant to any
Interest Rate Protection Agreements or hedging or derivative agreements or arrangements, and
(viii) all obligations of such Person upon which interest charges are customarily paid or accrued,
and (B) excluding the following: (i) ordinary trade payables and deferred obligations incurred in
the ordinary course of business, and (ii) balances on Loan Party credit cards incurred in the
ordinary course of business.
“Indenture” shall mean the Indenture, dated as of May 20, 2009, by and among
the Borrower, the Guarantors (if any) from time to time party thereto, and the Trustee, pursuant
to which the Borrower has issued the Existing Notes.
“Included Consideration” shall have the meaning assigned to such term in the
definition of Excess Cash Flow.
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“Indemnified Parties” shall have the meaning assigned to such term in Section
10.11.
“Intellectual Property Security Agreement” shall mean the Trademark Security
Agreement in form and substance as attached hereto as Exhibit E-1, the Patent Security
Agreement in form and substance as attached hereto as Exhibit E-2, and the Copyright Security
Agreement in form and substance as attached hereto as Exhibit E-3.
“Intercreditor Agreement” shall mean an Intercreditor Agreement by and
between the Revolving Lender and the Agent, on behalf of the Purchasers, the form of which is
set forth on Exhibit I, with such changes acceptable to the Agent and Purchasers.
“Interest Period” shall mean, as to any LIBOR Loan, the period commencing on
the date such LIBOR Loan commences or is continued as a LIBOR Loan and ending on the date
one, two, three or six months thereafter, as selected by Borrower pursuant to Section 3.1(d);
provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day,
such Interest Period shall be extended to the following Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day, and (ii) Borrower may not select
any Interest Period if after giving effect to such selection, the aggregate principal amount of the
portion of the outstanding principal balance of the applicable Notes having Interest Periods
ending after any date on which an installment of principal is scheduled to be repaid would
exceed the aggregate principal amount of such Notes scheduled to be outstanding after giving
effect to such repayment.
“Interest Rate Protection Agreement” shall mean any interest rate swap,
interest rate cap, interest rate collar or other interest rate hedging agreement or arrangement.
“Inventory” shall mean any and all “goods” (as defined in the Code) which shall
at any time constitute “inventory” (as defined in the Code) of any Loan Party, wherever located
(including without limitation, goods in transit and goods in the possession of third parties), or
which from time to time are held for sale, lease or consumption in such Loan Party’s business,
furnished under any contract of service or held as raw materials, work in process, finished
inventory or supplies (including without limitation, packaging and/or shipping materials).
“Investment” as applied to any Person shall mean an amount paid or agreed to be
paid or loaned, advanced or contributed to another Person, (i) as a direct or indirect purchase or
other acquisition of any notes, obligations, instruments, Equity Interests or (ii) as a capital
contribution.
“Investment Limit Amount” shall mean an amount not to exceed $5,000,000 for
the aggregate amount of Investments under Sections 7.2(i)(xvii), 7.2(i)(xviii) and 7.2(i)(xxi) at
any time outstanding, and, for the avoidance of doubt, does not include the proceeds of an Equity
Issuance in connection therewith.
“IRC” shall mean the Internal Revenue Code of 1986, as amended, and rules,
regulations, standards and guidelines issued thereunder.
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“IRS” shall mean the Internal Revenue Service and any Governmental Authority
succeeding to the functions thereof.
“Landlord Agreement” shall mean, with respect to a leased location of a Loan
Party, (i) while the Revolving Loans or commitments to make Revolving Loans are outstanding,
an agreement among Revolving Agent, Agent, such Loan Party and the applicable landlord
providing for, among other things, an acknowledgment of the validity of the Agent’s Lien, on
behalf of the Purchasers, on the Collateral, subject to the terms of the Intercreditor Agreement,
and certain other provisions relating to access rights to the leased location and the collateral
maintained therein, and (ii) thereafter, such agreements among Agent, such Loan Party and such
landlord on such similar terms but without subordination, in each case in form and substance
reasonably satisfactory to the Agent.
“Laws” shall mean all U.S. and foreign federal, state or local statutes, laws, rules,
regulations, ordinances, codes, requirements, rules of common law, and the like, now or
hereafter in effect, including any judicial or administrative interpretations thereof, and any
judicial or administrative orders, consents, decrees or judgments.
“LIBOR Loan” shall mean the portion of the outstanding principal balance of the
Notes which bears interest at a rate determined by reference to the LIBOR Rate.
“LIBOR Rate” means, for any Interest Period, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1.00%) equal to the London Inter Bank Offered
Rate for U.S. Dollar Deposits for such Interest Period as set and published by the British
Banker’s Association and as obtained by the Administrative Agent from a wire that is sent
through Bloomberg, L.P. (or, if unavailable, another service or publication selected by the
Agent) two Business Days prior to the first day of such Interest Period.
“Lien” shall mean any lien, security interest, pledge, bailment, mortgage,
hypothecation, deed of trust, conditional sales and title retention agreement (including any lease
in the nature thereof), charge, encumbrance or other similar arrangement or interest in real or
personal property, now owned or hereafter acquired, whether such interest is based on common
law, statute or contract.
“Loan” (or “Loans”) shall mean each advance made by a Purchaser to the
Borrowers in the form of a loan under and pursuant to this Agreement, as set forth in Section 2.1.
“Loan Account” shall have the meaning assigned to such term in Section 2.5.
“Loan Parties” shall have the meaning assigned to such term in the preamble
hereto.
“Manage” and “Management” shall mean generation, production, handling,
distribution, processing, use, storage, treatment, operation, transportation, recycling, reuse or
disposal, as those terms are defined in CERCLA, RCRA and other Environmental Laws
(including as those terms are further defined, construed, or otherwise used in rules, regulations,
standards, guidelines and publications issued pursuant to, or otherwise in implementation of,
such Environmental Laws).
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“Management Agreement” means the Amended and Restated Management
Services and Fee Agreement among the Management Services Provider and the Borrower dated
as of March 26, 2013, as amended through the Closing Date and as the same may be amended
from time to time.
“Management Fee Subordination Agreement” means a subordination
agreement in form and substance satisfactory to the Agent pursuant to which the Management
Services Provider agrees to subordinate the management and other fees (excluding reasonable
out-of-pocket expenses) payable to it under the Management Agreement to the prior payment in
full of the Obligations.
“Management Services Provider” means Littlejohn Managers, LLC, a Delaware
limited liability company.
“Material Adverse Effect” shall mean: (i) a material adverse change in, or a
material adverse effect upon, the operations, Business, properties, assets, or financial condition
of the Loan Parties and their Subsidiaries taken as a whole; (ii) a material impairment of the
ability of the Loan Parties and their Subsidiaries taken as a whole to perform any of their
material obligations under any Purchase Document; or (iii) a material adverse effect upon (A) the
legality, validity, binding effect or enforceability of any Purchase Document, or (B) the
perfection or priority of any Lien granted to the Purchasers or to Agent for the benefit of the
Purchasers under any of the Purchase Documents on a material portion of the Collateral.
“Material Contracts” shall have the meaning assigned to such term in Section
5.1(w).
“Moody’s” shall have the meaning assigned to such term in Section 7.2(i)(ii).
“Most Recent Statements” shall have the meaning assigned to such term in
Section 5.1(c)(i).
“Multiemployer Plan” shall mean a multiemployer plan (within the meaning of
Section 3(37) of ERISA) that is subject to Title IV of ERISA and is maintained for the benefit of
the employees of any of the Loan Parties or any member of the Controlled Group.
“Non-Recurring Expenses” shall mean non-operating losses, including, without
limitation, extraordinary or nonrecurring expenses and nonrecurring losses, losses from
discontinuance of operations and losses arising from the sale of assets other than Inventory.
“Note” (or “Notes”) shall have the meaning assigned to such terms in Section 2.1.
“Obligations” shall have the meaning assigned to such term in the Security
Agreement.
“Observer” shall have the meaning given to such term in Section 7.1(i).
“Operating Agreement” shall mean the operating agreement, limited liability
company agreement, partnership agreement, bylaws or analogous instrument governing the
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operations of each of the Loan Parties, as applicable, including all amendments and supplements
thereto.
“Other Taxes” shall have the meaning assigned to such term in Section 3.7(a).
“Payment Date” shall have the meaning assigned to such term in Section 3.2(a).
“Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 10756.
“PBGC” shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA, or any other governmental agency, department or
instrumentality succeeding to the functions thereof.
“Permitted Acquisition” shall have the meaning assigned to such term in Section
7.2(j)(ii).
“Permitted Indebtedness” shall have the meaning assigned to such term in
Section 7.2(a).
“Permitted Investments” shall have the meaning assigned to such term in
Section 7.2(i).
“Permitted Liens” shall have the meaning assigned to such term in Section
7.2(b).
“Person” shall mean any individual, partnership, limited partnership, corporation,
limited liability company, association, joint stock company, trust, joint venture, unincorporated
organization or Governmental Authority.
“Plan” shall mean any employee pension plan (within the meaning of
Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA
and is established or maintained by any of the Loan Parties or any member of the Controlled
Group.
“Pledge Agreement” shall mean a pledge agreement given by any Loan Party in
respect of its Subsidiaries in form and substance as set forth in Exhibit F attached hereto (as the
same may be amended, modified or supplemented from time to time in accordance with the
terms thereof), and shall include any joinder agreement executed from time to time in connection
therewith.
“Pollutant” shall include any “hazardous substance” and any “pollutant or
contaminant” as those terms are defined in CERCLA; any “hazardous waste” as that term is
defined in RCRA; and any “hazardous material” as that term is defined in the Hazardous
Materials Transportation Act (49 U.S.C. § 1801 et seq.), as amended (including as those terms
are further defined, construed, or otherwise used in rules, regulations, standards, guidelines and
publications issued pursuant to, or otherwise in implementation of, such Environmental Laws);
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and including without limitation any petroleum product or byproduct, solvent, flammable or
explosive material, radioactive material, asbestos, polychlorinated biphenyls (PCBs), dioxins,
dibenzofurans, heavy metals, and radon gas; and including any other substance or material that is
reasonably determined to present a threat, hazard or risk to human health or the environment.
“Post-Acquisition Period” means, with respect to any Permitted Acquisition, the
period beginning on the date such Permitted Acquisition is consummated and ending on the last
day of the fifth consecutive fiscal quarter immediately following the date on which such
Permitted Acquisition is consummated.
“Pre-Closing Stipulated Capital Expenditure Amounts” shall mean, for
purposes of calculating the financial covenants only on or prior to December 28, 2013, those
stipulated amounts of Capital Expenditures set forth on Schedule 1.1 attached hereto with
respect to the fiscal quarters ended June 30, 2012, September 29, 2012 and December 29, 2012.
“Pre-Closing Stipulated Debt Service Amounts” shall mean, for purposes of
calculating the financial covenants only on or prior to December 28, 2013, those stipulated
amounts of principal and interest set forth on Schedule 1.1 attached hereto with respect to the
fiscal quarters ended June 30, 2012, September 29, 2012 and December 29, 2012, and the fiscal
months ended January 31, 2013 and February 28, 2013.
“Pre-Closing Stipulated EBITDA Amounts” shall mean, for purposes of
calculating the financial covenants only on or prior to December 28, 2013, those stipulated
amounts of EBITDA set forth on Schedule 1.1 attached hereto with respect to the fiscal quarters
ended June 30, 2012, September 29, 2012 and December 29, 2012.
“Prime Rate” shall have the meaning assigned to such term in Section 3.1(i).
“Pro Forma Adjustment” means with respect to the EBITDA of the Loan
Parties (including the EBITDA of any entity or business acquired in a Permitted Acquisition) for
any period following the Permitted Acquisition during the Post-Acquisition Period, the pro
forma increase or decrease in such EBITDA following the consummation of the Specified
Transaction, as the case may be, projected by the Borrower (or to the extent applicable, Future
Holding Company) in good faith (which projections shall be reasonably satisfactory to the
Agent) as a result of (a) action taken or to be taken during such Post-Acquisition Period for the
purposes of realizing reasonable identifiable and factually supportable cost savings or (b) any
additional costs incurred or estimated to be incurred during such Post-Acquisition Period, in each
case in connection with the combination of the operations of such entity or business with the
operations of the Borrower and the Subsidiaries; provided that, so long as such actions are taken
during such Post-Acquisition Period or such costs are incurred during such Post-Acquisition
period, as applicable, the cost savings related to such actions or such additional costs, as
applicable, it may be assumed, for purposes of projecting such pro forma increase or decrease to
EBITDA or consolidated EBITDA, as the case may be, that such cost savings will be realized
during the entirety of the test period, or such additional costs, as applicable, will be incurred
during the entirety of such test period; provided further that any such pro forma increase or
decrease to EBITDA or consolidated EBITDA, as the case may be, shall be without duplication
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for cost savings or additional costs already included in such EBITDA or consolidated EBITDA,
as the case may be, for such period.
“Pro Forma Basis” means, (a) in respect of any Specified Transaction, that such
Specified Transaction and the following transactions in connection therewith shall be deemed to
have occurred as of the first day of the applicable period of measurement in such covenant: (i)
income statement items (whether positive or negative) attributable to the property or Person
subject to such Specified Transaction, (A) in the case of a Permitted Acquisition or Permitted
Investment described in the definition of “Specified Transaction”, shall be included and (B) in
the case of a disposition of all or substantially all of the assets of or all of the Equity Interests of
any Subsidiary of a Borrower (or to the extent applicable, Future Holding Company) or any
division or product line of a Borrower or any of its Subsidiaries, shall be excluded, (ii) any
retirement of Indebtedness, and (iii) any Indebtedness incurred or assumed by the Borrower (or
such Future Holding Company) or any of its Subsidiaries in connection therewith and if such
Indebtedness has a floating or formula rate, shall have an implied rate of interest for the
applicable period for purposes of this definition determined by utilizing the rate which is or
would be in effect with respect to such Indebtedness as at the relevant date of determination, and
(b) in addition, in respect of any Permitted Acquisition, after giving effect to any Pro Forma
Adjustments during the Post-Acquisition Period for such Permitted Acquisition.
“Pro Forma Projected Financial Information” shall mean, as to any Permitted
Acquisition, a statement executed by Borrower (supported in reasonable detail) setting forth the
total consideration to be paid in connection with the proposed acquisition, and to the extent the
consideration being paid for such Permitted Acquisition exceeds $10,000,000, pro forma
combined projected financial information for the Loan Parties and the acquisition target (if
applicable), including any Pro Forma Adjustment, consisting of projected balance sheets as of
the proposed closing date of the acquisition and as of the end of at least the next succeeding three
Fiscal Years following the acquisition and projected statements of income and cash flows for
each of those years, including sufficient detail to permit calculation of the ratios described in
Section 7.3 hereof, as projected as of the anticipated closing date of the acquisition and as of the
ends of those Fiscal Years and accompanied by (i) a statement setting forth a calculation of the
ratios so described, (ii) a statement in reasonable detail specifying all material assumptions
underlying the projections, and (iii) such other information as the Agent or the Purchasers shall
reasonably request.
“Properties and Facilities” shall have the meaning assigned to such term in
Section 5.1(l).
“Proprietary Rights” shall mean all present and future patents, patent
applications, trademarks, trade names, internet domain names, service marks, copyrights,
technology, trade secrets, proprietary information, domain names, know-how and processes
necessary for the conduct of Borrowers’ Business as currently conducted.
“Prospect” shall have the meaning assigned to such term in the preamble hereto.
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“Public Offering” shall mean any offer or sale of securities pursuant to any
registration statement filed and effective with the SEC or any other applicable Governmental
Authority.
“Purchase Documents” shall mean this Agreement, the Notes, any Guarantee
Agreement, the Security Documents, the Intercreditor Agreement, the Management Fee
Subordination Agreement, the Landlord Agreements, and all other agreements, instruments and
documents from time to time delivered in connection therewith as any or all of the foregoing
may be supplemented or amended from time to time.
“Purchaser” shall have the meaning assigned to such term in the preamble hereto
and in Section 6.2.
“RCRA” shall mean the Resource Conservation and Recovery Act (42 U.S.C.
§ 6901 et seq.), as amended, and all rules, regulations, standards and guidelines issued
thereunder.
“Related Persons” shall means, with respect to any Person, each Affiliate of such
Person and each director, officer, employee, agent, trustee, representative, attorney, accountant
and each insurance, environmental, legal, financial and other advisor and other consultants and
agents of or to such Person or any of its Affiliates.
“Removal,” “Remedial” and “Response” actions shall include the types of
activities covered by CERCLA, RCRA, and other Environmental Laws, and whether the
activities are those that might be taken by a Governmental Authority or those that a
Governmental Authority or any other Person might seek to require of waste generators, handlers,
distributors, processors, users, storers, treaters, owners, operators, transporters, recyclers, reusers,
disposers, or other Persons under “removal,” “remedial,” or other “response” actions.
“Reportable Event” shall mean any of the events that are reportable under
Section 4043 of ERISA and the regulations promulgated thereunder, other than an occurrence for
which the thirty day notice contained in 29 C.F.R. § 2615.3(a) is waived.
“Required Purchasers” shall mean, at any time, Purchasers holding more than
50% of the outstanding principal amount of the Notes at such time.
“Revolver Documents” shall mean the Revolving Credit Agreement, the
Intercreditor Agreement and all documents executed in connection therewith.
“Revolving Agent” shall mean the “Administrative Agent” as defined in the
Revolving Credit Agreement.
“Revolving Credit Agreement” shall mean the Third Amended and Restated
Credit Agreement dated on or about the date of this Agreement, by and among the Borrower, the
Revolving Agent, the Revolving Lender and certain other parties, as the same may be amended
from time to time in accordance with its terms and subject to the provisions of the Intercreditor
Agreement.
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“Revolving Lender” shall mean the “Lenders” as defined in the Revolving Credit
Agreement.
“Revolving Loans” shall mean the revolving loans to the Borrower from the
Revolving Lender under the Revolving Credit Agreement.
“Revolving Loan Liabilities” shall have the meaning assigned to the term
“Obligations” in the Revolving Credit Agreement.
“S&P” shall have the meaning assigned to such term in Section 7.2(i)(ii).
“SEC” shall mean the Securities and Exchange Commission and any
Governmental Authority succeeding to the functions thereof.
“Securities Act” shall mean the Securities Act of 1933, as amended, and rules,
regulations, standards and guidelines issued thereunder.
“Security Agreement” shall have the meaning assigned to such term in Section
4.1(c).
“Security Documents” shall mean the Security Agreement, the Trademark
Security Agreement, any Pledge Agreement, the Deposit Account Control Agreements, the
Financing Statements, any mortgages and all other Intellectual Property Security Agreements,
documents, instruments, agreements and other materials from time to time necessary or desirable
(as determined by Agent in its absolute discretion) to create, perfect, maintain or enhance any
Liens in the United States. For the avoidance of doubt and notwithstanding the terms of any
Purchase Document to the contrary, the Loan Parties shall not grant, and the Agent shall not
take, a lien upon and security interest in assets located outside the United States.
“Special Financial Covenants” shall have the meaning assigned to such term in
Section 8.5(a).
“Specified Transaction” means (a) any disposition of all or substantially all the
assets of or all the Equity Interests of any Subsidiary or of any division or product line of a
Borrower or any of its Subsidiaries, (b) any Permitted Acquisition or Permitted Investment,
(c) any proposed incurrence of Indebtedness or (d) the proposed making of a dividend permitted
hereunder.
“Sponsor Group” shall mean Littlejohn & Co., LLC and any other Person which
is (a) directly or indirectly controlled by Littlejohn & Co., LLC, and (b) organized primarily for
the purpose of making equity or debt investments in one or more companies, and includes
Littlejohn Fund IV, L.P., together with its Control Investment Affiliates. For purposes of this
definition the term “controlled by”, as used in respect of any Person, shall mean the power,
directly or indirectly, to direct or cause the direction of the management and policies of such
Person, whether through the ownership of Equity Interests or by contract or otherwise.
“Structuring Fee” shall mean a fee equal to $2,000,000.
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“Subsidiary” of any Person shall mean (i) any corporation of which more than
50% of the issued and outstanding securities having ordinary voting power to elect a majority of
the Board of such corporation (irrespective of whether at the time capital stock of any other class
or classes of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of such Person’s other
Subsidiaries, (ii) any partnership, limited liability company, joint venture or other association of
which more than 50% of the Equity Interest having the power to vote, direct or control the
management of such partnership, limited liability company, joint venture or other association is
at the time owned and controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person’s other Subsidiaries and (iii) any other Person that
is required under GAAP to be included in the financial statements of such Person on a
consolidated basis.
“Taxes” have the meaning assigned to such term in Section 3.7(a).
“Term Loan Priority Collateral” has the meaning assigned to such term in the
Intercreditor Agreement.
“Total Funded Debt” shall mean, as of any date of determination, the aggregate
outstanding principal amount of all Indebtedness (including incurred under this Agreement and
the Notes, but excluding (a) the amount of any outstanding and undrawn letter of credit exposure
to the extent such outstanding and undrawn letter of credit exposure does not exceed
$19,000,000, but including any outstanding and undrawn letter of credit exposure in excess of
$19,000,000 and any outstanding and drawn letter of credit exposure, if any, (b) Indebtedness
described in clause (vii) of the definition of such term, and (c) the Existing Notes to the extent
the Borrower deposits the full and proper amount necessary to effect an unconditional covenant
defeasance of such Existing Notes into a segregated trust account with the Trustee) of the Loan
Parties.
“Total Leverage Ratio” shall mean, for any date of determination, the ratio of
the Loan Parties’: (i) Total Funded Debt, divided by (ii) EBITDA for the then preceding four
Fiscal Quarters.
“Trademark Security Agreement” shall have the meaning assigned to such term
in Section 4.1(c).
“Transaction Documents” shall have the meaning assigned to such term in
Section 5.1(f).
“Transactions” shall mean the incurrence of debt and the issuance and sale of the
Notes in connection therewith, as contemplated by this Agreement and the consummation of the
transactions contemplated by the other Transaction Documents and all other agreements
contemplated hereby and thereby, including, without limitation, the Revolving Loans.
“Trust Agreement” shall mean that certain trust agreement dated the date hereof
between the Borrower and the Trustee.
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“Trustee” shall mean U.S. Bank National Association, a national banking
association.
“UST” shall mean an underground storage tank, including as that term is defined,
construed and otherwise used in RCRA or comparable state and local laws.
Section 1.2
Accounting Principles.
(a)
The character or amount of any asset, liability, capital account or reserve
and of any item of income or expense to be determined, and any consolidation or other
accounting computation to be made, and the construction of any definition containing a financial
term, pursuant to this Agreement shall be determined or made in accordance with generally
accepted accounting principles in the United States of America consistently applied (“GAAP”),
unless such principles are inconsistent with the express requirements of this Agreement. In the
event that any “Accounting Change” (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards or terms in this Agreement,
then the Borrower and the Agent agree to enter into negotiations in order to amend such
provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired
result that the criteria for evaluating the Loan Parties’ financial condition shall be the same after
such Accounting Changes as if such Accounting Changes had not been made. Until such time as
such an amendment shall have been executed and delivered by the Borrowers and the Required
Purchasers, all financial covenants, standards and terms in this Agreement shall continue to be
calculated or construed as if such Accounting Changes had not occurred. “Accounting
Changes” refers to changes in accounting principles required by the promulgation of any rule,
regulation, pronouncement or opinion by the Financial Accounting Standards Board of the
American Institute of Certified Public Accountants (or any successor governing body of
Certified Public Accountants thereto) or, if applicable, the Securities and Exchange Commission
(or successors thereto or agencies with similar functions).
(b)
Notwithstanding anything to the contrary contained herein, financial ratios
(including the Total Leverage Ratio and Fixed Charge Coverage Ratio) and other financial
calculations pursuant to this Agreement shall, following any Specified Transaction, be calculated
on a Pro Forma Basis with Pro Forma Adjustments. In addition, the financial ratios and related
definitions set forth in the Purchase Documents shall be computed to exclude (i) the effect of
purchase accounting adjustments, including the effect of any non-cash items resulting from any
amortization, write-up, write-down or write-off of assets (including intangible assets, goodwill
and deferred financing costs in connection with any Permitted Acquisition or any merger,
consolidation or similar transaction not prohibited by this Agreement), (ii) the application of
FAS 133, FAS 150 or FAS 123r (to the extent that the pronouncements in FAS 123r result in
recording an equity award as a liability on the Consolidated balance sheet of the Parent and its
Subsidiaries in the circumstance where, but for the application of the pronouncements, such
award would have been classified as equity), (iii) any mark-to-market adjustments to any
derivatives (including embedded derivatives contained in other debt or equity instruments under
FAS 133), (iv) any non-cash compensation charges resulting from the application of FAS 123r
and (v) the application of FAS 146.
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Section 1.3
Knowledge Qualification.
Whenever any representation or other statement of a Loan Party in this
Agreement is qualified as being giving to such Person’s “knowledge” or “with knowledge” or
words of similar import, such qualification shall mean to the actual individual and collective
knowledge of Persons then holding the position of Chief Executive Officer and Chief Financial
Officer, after due inquiry.
Section 1.4
Other Definitional Provisions; Construction.
Whenever the context so requires, neuter gender includes the masculine and
feminine, the singular number includes the plural and vice versa. 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 in any particular provision of this Agreement, and references to
section, article, annex, schedule, exhibit and like references are references to this Agreement
unless otherwise specified. A Default or Event of Default shall “continue” or be “continuing”
until such Default or Event of Default has been cured or waived in accordance with this
Agreement. References in this Agreement to any Persons shall include such Persons’ successors
and permitted assigns. Other terms (whether or not capitalized) contained in this Agreement,
which are not otherwise specifically defined herein, shall have meanings provided in the
New York Uniform Commercial Code on the date hereof (the “Code”) to the extent the same are
used or defined therein.
ARTICLE 2
ISSUANCE OF THE NOTES; CLOSING; FEES
Section 2.1
Authorization and Issuance of the Notes.
The Borrower has duly authorized the issuance and sale to Purchasers at the
Closing of $100,000,000 in principal amount of the Borrower’s Senior Secured Term Loan
Notes to be substantially in the form attached hereto as Exhibit A (including any Senior Secured
Term Loan Notes issued in substitution therefor pursuant to Sections 6.3 and 6.4 hereof)
(collectively, the “Notes” and singularly, a “Note”). Amounts borrowed pursuant to the Notes
and repaid or prepaid may not be reborrowed.
Section 2.2
Funding.
Subject to the terms and conditions and in reliance upon the representations,
warranties and agreements set forth herein, Borrower shall sell to Purchasers, and Purchasers
shall purchase from Borrower, severally but not jointly, the Notes in amounts equal to the pro
rata portion of the Notes allocable to each Purchaser as set forth in Annex B. The aggregate
purchase price for the Notes of $100,000,000, less the Structuring Fee, shall be paid to the
Trustee, for the benefit of Borrower, at the Closing by wire transfer of immediately available
funds to the account designated by Borrower. If Prospect’s allocation on Annex B is less than
$22,500,000, such allocation shall be reflected in a single Note. If Prospect’s allocation on
Annex B exceeds $22,500,000, such allocation shall be reflected in one Note for $22,500,000
and additional Notes in increments of $7,500,000, or any remainder amount if less than
$7,500,000.
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Section 2.3
The Closing.
Delivery of the Notes to the Purchasers and funding of the Loan (the “Closing”)
shall be made on March 27, 2013. The date of the Closing pursuant to this Section 2.3 is referred
to herein as the “Closing Date.” Delivery of the Notes shall be made to Purchasers in exchange
for the funding of the Loan, less the Structuring Fee and any other amounts payable on the
Closing Date pursuant to Section 4.1(f) hereof, by wire transfer of immediately available funds
in the manner agreed to by Borrower and Purchasers. The Notes shall be issued in such name or
names and in such permitted denomination or denominations as set forth in Annex B.
Section 2.4
(a)
the Closing Date.
Fees.
Structuring Fee. Borrower agrees to pay the Structuring Fee to Agent on
(b)
Prepayment Fee. Upon any prepayment of the Notes, other than
amortization payments pursuant to Section 3.2(a) and prepayments pursuant to Sections 3.2(b) or
3.5(b)(ii) and (iii), Borrower shall pay to Agent, for the ratable benefit of Purchasers holding a
Note, as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to
(i) 3.00% of the principal amount of the Note so prepaid if prepayment occurs at any time on or
before the first anniversary after the Closing Date, and (ii) 1.50% of the principal amount of the
Note so prepaid if prepayment occurs at any time after such first anniversary and on or before the
second anniversary after the Closing Date.
Section 2.5
Loan Account.
Agent shall maintain a loan account (each, a “Loan Account”) on its books in
which shall be recorded: (a) all Loans made by the Purchasers to Borrower pursuant to this
Agreement; (b) all payments made by Borrower; and (c) all other appropriate debits and credits
as provided in this Agreement, including without limitation, all receipts of cash proceeds of
collateral, fees, charges, expenses and interest. All entries in such Loan Account shall be made
in accordance with Agent’s customary accounting practices as in effect from time to time. The
Borrower promises to pay the amount reflected as owing by and under such Loan Account and
all other obligations hereunder as such amounts become due or are declared due pursuant to the
terms of this Agreement. The accounts or records maintained by the Agent and each Purchaser
shall be prima facie evidence absent manifest error of the amount of the Loans made by the
Purchasers to the Borrower and the interest and payments thereon. Any failure to so record or
any error in doing so shall not, however, limit or otherwise affect the obligation of the Loan
Parties hereunder to pay any amount owing with respect to the Obligations. In the event of any
conflict between the accounts and records maintained by any Purchaser and the accounts and
records of the Agent in respect of such matters, the accounts and records of the Agent shall
control in the absence of manifest error. Each Purchaser may attach schedules to its Note and
endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.
Section 2.6
Statements.
All Loans to Borrower, and all other debits and credits provided for in this
Agreement, shall be evidenced by entries made by Agent in its internal data control systems
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showing the date, amount and reason for each such debit or credit. Until such time as Agent
shall have rendered to Borrower written statements of account, the balance in Borrower’s Loan
Account, as set forth on Agent’s most recent printout, shall be rebuttable presumptive evidence
of the amounts due and owing by Borrower hereunder. Upon written request made by Borrower
(no more frequently than monthly), Agent shall mail or email to Borrower a statement setting
forth the balance of the Loan Account, including without limitation, principal, interest, expenses
and fees. Each such statement shall be subject to subsequent adjustment by Agent but shall,
absent manifest errors or omissions, be presumed correct and binding upon Borrower and shall
constitute an account stated unless, within ninety days after receipt of any statement, Borrower
shall deliver to Agent written objection specifying the error or errors, if any, contained in such
statement.
ARTICLE 3
INTEREST; REPAYMENT OF THE NOTES
Section 3.1
Interest Rates and Interest Payments.
(a)
The Borrower covenants and agrees to make payments to Agent for the
ratable benefit of applicable Purchasers, of accrued interest on the outstanding principal balance
of the Notes at a per annum rate of interest in cash at the greater of (i) LIBOR Rate plus
Applicable LIBOR Margin and (ii) 10.75%.
(b)
The outstanding principal balance of the Notes shall bear interest with
reference to the LIBOR Rate as designated by Borrower, from time to time, in accordance with
the provisions hereof. At the election of Required Purchasers, Borrower may not designate the
applicable Interest Period with respect to any Loan during the existence of any Default or Event
of Default and in any such event the Agent may, in its sole and absolute discretion, select a one
month Interest Period or convert any Loan to a Loan at the Prime Rate plus the Applicable
LIBOR Margin. No more than four different Interest Periods shall exist among outstanding
LIBOR Loans at any one time.
(c)
Subject to Section 3.1(b) above and Section 3.1(d) below, Borrower may,
upon irrevocable written notice to Agent in accordance with Section 3.1(d) below, elect as of the
last day of the applicable Interest Period, to continue any LIBOR Loans having Interest Periods
expiring on such day (or any part thereof in an aggregate amount not less than $500,000 or a
higher integral multiple of $100,000) for a new Interest Period.
(d)
Borrower shall give written notice, in the form of Exhibit B attached
hereto, to Agent of each proposed continuation not later than 2:00 p.m. New York time at least
three Business Days prior to the proposed date of such continuation, specifying: (i) the proposed
date of continuation; (ii) the aggregate amount of loans to be continued; and (iii) in the case of
continuation of LIBOR Loans, the duration of the requested Interest Period therefor.
(e)
If upon the expiration of any Interest Period applicable to LIBOR Loans,
Borrower shall have failed to select timely a new Interest Period to be applicable to such LIBOR
Loans, Borrower shall be deemed to have elected to continue such LIBOR Loan for a one month
Interest Period, effective on the last day of such Interest Period.
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(f)
Agent will promptly notify each applicable Purchaser of its receipt of a
notice of continuation pursuant to this Section 3.1 or, if no timely notice is provided by
Borrower, of the details of any continuation as determined by the Agent hereunder.
(g)
Commencing on March 30, 2013, accrued interest on each Loan shall be
payable quarterly in arrears on the last day of each Fiscal Quarter; provided however, that if any
Interest Period is one or two months, accrued interest with respect to such Loan shall be paid at
the end of such Interest Period.
(h)
After maturity, all accrued and unpaid interest on each of the Notes shall
be payable immediately on demand. During the existence of any Event of Default interest shall
accrue at the default rate in accordance with Section 8.2(c).
(i)
The applicable LIBOR Rate for each Interest Period shall be determined
by Agent in accordance with the definition thereof, and notice thereof shall be given by Agent
promptly to Borrower and each Purchaser. Each determination of the applicable LIBOR Rate by
Agent shall be conclusive and binding upon the parties hereto, in the absence of demonstrable
error. Agent shall, upon written request of Borrower or any Purchaser, deliver to Borrower or
such Purchaser a statement showing the computations used by Agent in determining any
applicable LIBOR Rate hereunder.
(j)
Interest shall be computed for the actual number of days elapsed on the
basis of a year of 360 days.
(k)
If, after the Closing Date, the adoption of, or any change in, any applicable
law, rule or regulation, or any change in the interpretation or administration of any applicable
Law by any Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Purchaser with any regulation or
directive (whether or not having the force of law) of any such Governmental Authority, central
bank or comparable agency (i) shall impose, modify or deem applicable any reserve (including
any reserve imposed by the FRB, but excluding any reserve included in the determination of the
LIBOR Rate), special deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by any Purchaser; or (ii) shall impose on any Purchaser any other
condition affecting its LIBOR Loans or its obligation to make LIBOR Loans; and the result of
anything described in clauses (i) and (ii) above is to actually increase the cost to (or to impose a
cost on) such Purchaser of making or maintaining any LIBOR Loan, or to reduce the amount of
any sum received or receivable by such Purchaser under this Agreement or under its Notes with
respect to any LIBOR Loan (other than reductions in the LIBOR Rate), then within fifteen
Business Days of notice by Agent (which notice shall be accompanied by a statement setting
forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a
copy of which shall be furnished by Purchaser to Agent and Borrower), the Borrower shall pay
directly to Agent, for the account of such Purchaser, such additional amount as will compensate
such Purchaser for such increased cost or such reduction, so long as such amounts have accrued
on or after the day which is 135 days prior to the date on which Agent first made demand
therefor; provided, that if the event giving rise to such costs or reductions has retroactive effect,
such 135-day period shall be extended to include the period of retroactive effect. Each
Purchaser’s method of determining any amount payable to such Purchaser under this subsection
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(k) shall be substantially similar to the method used by Purchaser in implementing similar
provisions for all of its borrowers of LIBOR Rate and/or Prime Rate loans, as the case may be.
No such amounts shall be charged to Borrower unless they are being charged to Purchaser’s
borrowers generally.
(l)
If Agent reasonably determines (which determination shall be binding and
conclusive on Borrower) that, by reason of circumstances affecting the interbank eurodollar
market, adequate and reasonable means do not exist for ascertaining the applicable LIBOR Rate,
then Agent shall promptly notify the Purchasers and Borrower thereof and, so long as such
circumstances shall continue, no Purchaser shall be under any obligation to make any LIBOR
Loan and on the last day of the current Interest Period for each LIBOR Loan, such loan shall,
unless then repaid in full, automatically convert to a loan at the prime rate of interest that under
current practice is listed as such under the heading “Money Rates” in the Eastern Edition of The
Wall Street Journal (the “Prime Rate”), plus the Applicable LIBOR Margin.
(m)
If Agent reasonably determines that any change in, or the adoption of any
new, law or regulation, or any change in the interpretation of any applicable Law by any
Governmental Authority or other regulatory body charged with the administration thereof, would
make it (or in the good faith judgment of any Purchaser cause a substantial question as to
whether it is) unlawful for any Purchaser to maintain or fund LIBOR Loans, then such Purchaser
shall promptly notify each of the other parties hereto and, so long as such circumstances shall
continue, (i) such Purchaser shall have no obligation to make any LIBOR Loan and (ii) on the
last day of the current Interest Period for each LIBOR Loan of such Purchaser (or, in any event,
on such earlier date as may be required by the relevant Law, regulation or interpretation), such
LIBOR Loan shall, unless then repaid in full, automatically convert to a loan at the Prime Rate,
plus the Applicable LIBOR Margin.
(n)
The Borrower hereby agrees that upon demand by any Purchaser (which
demand shall be accompanied by a statement setting forth the basis for the amount being
claimed, a copy of which shall be furnished to Agent), the Borrower will indemnify such
Purchaser against any actual net loss or expense which such Purchaser has or will sustain or
incur (including any net loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Purchaser to fund or maintain any LIBOR Loan, but
excluding lost profits), as reasonably determined by such Purchaser, as a result of (i) any
payment or prepayment of any LIBOR Loan of such Purchaser on a date other than the last day
of an Interest Period for such loan, or (ii) any failure of Borrower to continue any loan on a date
specified therefor in a notice of borrowing pursuant to this Agreement. For the purposes of this
Section 3.1(n), all determinations shall be made as if such Purchaser had actually funded and
maintained each LIBOR Loan during each Interest Period for such LIBOR Loan through the
purchase of deposits having a maturity corresponding to such Interest Period and bearing an
interest rate equal to the LIBOR Rate for such Interest Period.
(o)
Notwithstanding any provision of this Agreement to the contrary, each
Purchaser shall be entitled to fund and maintain its funding of all or any part of its Loans in such
manner as such Purchaser elects in its sole discretion. Each Purchaser may, if it so elects, fulfill
its commitment to make any LIBOR Loan by causing any branch or Affiliate of such Purchaser
to make such loan; provided that in such event, for the purposes of this Agreement, such Loan
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Section 3.2
Repayment of the Notes.
The Borrower covenants and agrees to repay, in cash, to Agent for the ratable
benefit of the Purchasers the principal amount of the Notes as follows:
(a)
Borrower shall make quarterly amortization payments on the Notes
pursuant to the following schedule (each date, a “Payment Date”):
Payment Date
Amount
June 29, 2013
September 28, 2013
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015
June 27, 2015
September 26, 2015
December 26, 2015
March 26, 2016
June 25, 2016
September 24, 2016
December 31, 2016
April 1, 2017
July 1, 2017
September 30, 2017
December 30, 2017
March 31, 2018
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
$500,000
Notwithstanding anything to the contrary herein, Borrower shall pay the entire outstanding
principal balance of the Notes, and all other amounts due hereunder, in full on June 27, 2018.
(b)
In addition, Borrower shall make a prepayment on the Notes equal to the
product of the ECF Rate multiplied by Excess Cash Flow (i) on or before April 30, 2015, for the
four Fiscal Quarter period ending December 27, 2014 (provided that any year-end adjustments
made in connection with the year-end audited financial statements shall be prorated equally over
the four fiscal quarters ending December 27, 2014), and (ii) thereafter on or before each April 30
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ME1 15090407v.18
(based on the delivery of audited financial statements for the preceding Fiscal Year), for the
preceding Fiscal Year. Such payments from Excess Cash Flow shall be applied by Agent to the
scheduled installments due with respect to the Notes in the inverse order of maturity until the
Notes are paid in full. As used in this section, “ECF Rate” means (i) 65%, or (ii) 50%, in the
event that the Total Leverage Ratio, tested as of the last day of the applicable Fiscal Year and
maintained through the last day of the Fiscal Quarter ending immediately prior to such
prepayment, on a trailing four quarter basis, is not more than 4.00 to 1.00, or (iii) 25%, in the
event that the Total Leverage Ratio, tested as of the last day of the applicable Fiscal Year and
maintained through the last day of the Fiscal Quarter ending immediately prior to such
prepayment, on a trailing four quarter basis, is not more than 3.25 to 1.00.
Section 3.3
Optional Prepayment of the Notes.
Subject to the terms of this Section 3.3 and Sections 2.4(b) and 3.4, Borrower may
prepay to Agent, for the ratable benefit of the applicable Purchasers, the outstanding principal
amount of the Notes in whole or in part in multiples of $500,000, or such lesser amount as is
then outstanding, together with all accrued and unpaid interest, if any, to the date set for
prepayment. All prepayments of the Notes made by Borrower under this Agreement shall be
applied by the Agent as directed by Borrower, after application of such prepayment to any
accrued and unpaid interest outstanding on the Notes and any applicable prepayment fee or other
unpaid fee or expense.
Section 3.4
Notice of Optional Prepayment.
If Borrower shall elect to prepay any Notes pursuant to Section 3.3 hereof,
Borrower shall give notice of such prepayment to Agent not less than 10 days nor more than 90
days prior to the date fixed for prepayment, specifying the date on which such prepayment is to
be made. Such notice shall be irrevocable and be accompanied by a certificate of a Financial
Officer of Borrower that such prepayment is being made in compliance with Section 3.3. Notice
of prepayment having been so given, the aggregate principal amount of the Notes being prepaid,
together with any accrued and unpaid interest thereon and any applicable prepayment premium
or other fees or expenses, shall become due and payable on the prepayment date set forth in such
notice. In the event that any Purchaser is entitled to and elects to charge Borrower a breakage
fee applicable (if at all) pursuant to Section 3.1(n), Borrower shall include such amount in its
prepayment, if advance notice has been given, or otherwise upon demand of the Purchasers.
Section 3.5
Mandatory Prepayment.
(a)
Change of Control. The outstanding principal amount of the Notes shall
be prepaid in full, together with all accrued and unpaid interest, fees and expenses, as if such
prepayment were a voluntary prepayment, in the event and at the time of a Change of Control.
(b)
Asset Dispositions and Events of Loss. If any of the Loan Parties shall
at any time or from time to time:
(i)
make or agree to make a Disposition;
(ii)
suffer an Event of Loss; or
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(iii)
receive any Extraordinary Receipts;
involving Term Loan Priority Collateral (or, following the termination of the Revolving Loan
Agreement and payment in full and other satisfaction of the Revolving Loan Liabilities, any
collateral), and the aggregate of the net proceeds received or to be received by the Loan Parties
in connection with such Disposition, Event of Loss or Extraordinary Receipts on account of such
Term Loan Priority Collateral (or all such collateral, as applicable), and all other Dispositions,
Events of Loss and Extraordinary Receipts, occurring or to occur during the then-current Fiscal
Year exceed $500,000, then (A) Borrower shall promptly notify Agent of such proposed
Disposition, Event of Loss or Extraordinary Receipts (including the amount of the estimated net
proceeds to be received by the Loan Parties in respect of such Disposition, Event of Loss or
Extraordinary Receipts), and (B) promptly upon receipt by the Loan Parties of the net proceeds
of such Disposition, Event of Loss or Extraordinary Receipts, the Loan Parties shall deliver, or
cause to be delivered, such net proceeds to Agent (or to the extent the net proceeds of such
Disposition, Event of Loss or Extraordinary Receipts are primarily on account of ABL Priority
Collateral, to Revolving Agent) for distribution as a prepayment of the Loans or the Revolving
Loans, subject to the terms of the Intercreditor Agreement, as if such prepayment were a
voluntary prepayment. Notwithstanding the foregoing and provided no Default or Event of
Default has occurred and is continuing, such prepayment shall not be required to the extent the
Loan Parties (w) reinvest the net proceeds of such Disposition or Event of Loss or Extraordinary
Receipts in productive assets of a kind then used or usable in the Business within 270 days after
the date of such Disposition, Event of Loss or Extraordinary Receipts.
(c)
Issuance of Securities. Immediately upon the receipt by any Loan Party
of the net proceeds of any capital contributions to such Person or of the issuance of equity
securities or debt securities (other than, in each case, such receipts from any other Loan Party,
and net proceeds from (i) capital contributions or equity or debt securities used in respect of
Capital Expenditures, Permitted Investments and Permitted Acquisitions (including any
transaction costs related thereto) or any other general corporate purposes, but excluding equity
issued in connection with an initial Public Offering of securities in excess of $50,000,000, (ii) the
issuance of equity securities pursuant to any employee stock option plan, and (iii) the issuance of
debt securities in respect of Indebtedness expressly permitted hereunder), the Loan Parties shall
deliver, or cause to be delivered, to Agent an amount equal to 100% of such net proceeds.
(d)
No Implied Consent. Provisions contained in this Section 3.5 for the
application of proceeds of certain transactions shall not be deemed to constitute consent of the
Agent or Purchasers to transactions that are not otherwise permitted by the terms hereof or the
other Purchase Documents.
Section 3.6
Home Office Payment.
Borrower will pay all sums becoming due on each Note for principal, premium, if
any, and interest to Agent by the method and at the address specified for such purpose in Annex
A, or by such other method or at such other address as Agent shall have from time to time
specified to Borrower in writing for such purpose, without the presentation or surrender of such
Note or the making of any notation thereon, except that upon written request of Borrower made
concurrently with or reasonably promptly after payment or prepayment in full of any Note, each
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ME1 15090407v.18
holder of a Note shall surrender such Note for cancellation, reasonably promptly after such
request, to Borrower at its principal executive office.
Section 3.7
Taxes.
(a)
Any and all payments by Borrower hereunder or under the Notes or other
Purchase Documents that are made to or for the benefit of Agent or Purchasers shall be made
free and clear of and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings imposed by any Governmental Authority and penalties,
interest and all other liabilities with respect thereto (collectively, “Taxes”), other than Excluded
Taxes (all such Taxes other than Excluded Taxes being hereinafter referred to as “Covered
Taxes”). If Borrower shall be required by Law to deduct any Covered Taxes from or in respect
of any sum payable hereunder or under any Notes or other Purchase Documents to Agent for the
benefit of Purchasers, or to Purchasers, the sum payable shall be increased as may be necessary
so that after making all required deductions of Covered Taxes (including deductions of Covered
Taxes applicable to additional sums payable under this paragraph), each Purchaser receives an
amount equal to the sum it would have received had no such deductions been made. Borrower
shall make such deductions and Borrower shall timely pay the full amount so deducted to the
relevant taxation authority in accordance with applicable Law. In addition, the Borrower agrees
to pay any present or future stamp, documentary, excise, privilege, intangible or similar levies
that arise at any time or from time to time from the execution or delivery by Borrower or from
the filing or recording or maintenance of, or otherwise with respect to the exercise by Agent or
Purchasers of their respective rights under any and all Purchase Documents (collectively, “Other
Taxes”). The Borrower will indemnify Agent and Purchasers for the full amount of Covered
Taxes imposed on or with respect to amounts payable hereunder and Other Taxes, and any
liability (including penalties, interest and expenses) arising therefrom or with respect thereto.
Payment of this indemnification shall be made within 30 days from the date Agent or Purchasers
provide Borrower with a certificate certifying and setting forth in reasonable detail the
calculation thereof as to the amount and type of such Taxes. Any such certificates submitted by
Agent or Purchasers in good faith to Borrower shall, absent manifest error, be final, conclusive
and binding on all parties. The obligation of Borrower under this Section 3.7 shall survive the
payment of the Notes and the termination of this Agreement until the lapse of any applicable
statute of limitation. Within 30 days after the Borrower receives a receipt for payment of
Covered Taxes or Other Taxes, Borrower shall furnish to Agent, the original or certified copy of
a receipt evidencing payment thereof.
(b)
If at any time a beneficial owner of a Note or other Purchase Document is
organized outside the United States, such owner shall provide to Borrower and to the Agent the
forms prescribed by the Internal Revenue Service (including, without limitation, an IRS Form
W-8BEN, IRS Form W-8ECI or IRS W-8IMY) certifying such owner’s exemption from or
reduction in United States withholding taxes with respect to all payments to be made on the
Notes or other Purchase Documents. Unless Borrower and the Agent have received forms or
other documents reasonably satisfactory to them indicating that payments hereunder or on any
Note or Purchase Document are not subject to United States withholding taxes, Borrower or the
Agent shall withhold taxes from any payment (without being required to indemnify the holder of
the Note or other Purchase Document under this Section 3.7) at the applicable statutory rate;
provided, however, that such withholding with respect to such Note or other Purchase Document
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shall cease upon delivery by such owner of an applicable form to Borrower and Agent, to the
extent such form evidences the owner’s exemption from or reduction in United States
withholding taxes.
(c)
If at any time a beneficial owner of a Note or other Purchase Document is
organized within the United States (unless such owner may be treated as an exempt recipient
based on the indicators described in United States Treasury Regulation Section 1.60494(c)(1)(ii)(A)(1)), such owner shall provide to Borrower and to the Agent the forms prescribed
by the Internal Revenue Service (including, without limitation, an IRS Form W-9) certifying
such owner’s exemption from United States backup withholding taxes with respect to all
payments to be made on the Notes or other Purchase Documents. Unless Borrower and the
Agent have received forms or other documents satisfactory to them indicating that payments
hereunder or on any Note or Purchase Document are not subject to United States backup
withholding taxes, Borrower or the Agent shall withhold taxes from any payment (without being
required to indemnify the holder of the Note or other Purchase Document under this Section 3.7)
at the applicable statutory rate; provided, however, that such withholding with respect to such
Note or other Purchase Document shall cease upon delivery by such owner of an applicable form
to Borrower and Agent, to the extent such form evidences the owner’s exemption from United
States backup withholding taxes.
(d)
If a payment made to a beneficial owner of a Note or other Purchase
Document would be subject to United States federal withholding tax imposed by FATCA if such
Purchaser fails to comply with the applicable reporting requirements of FATCA (including those
contained in Section 1471(b) or 1472(b) of the IRC, as applicable), such owner shall deliver to
Agent and Borrower documentation, at the time or times prescribed by law and at such time or
times reasonably requested by the Borrower or the Agent, prescribed by the Internal Revenue
Service (including as prescribed by Section 1471(b)(3)(C)(i) of the IRC) and such additional
documentation reasonably requested by the Borrower as may be necessary to demonstrate that
such owner has complied with applicable reporting requirements of FATCA so that payments
made to such owner hereunder would not be subject to U.S. federal withholding taxes under
FATCA, or, if necessary, to determine the amount to deduct and withhold from such payment.
(e)
If a beneficial owner of a Note or other Purchase Document determines, in
its sole discretion, that it has received a refund of any Covered Taxes or Other Taxes as to which
it has been indemnified by the Borrower or with respect to which the Borrower have paid
additional amounts pursuant to this Section 3.7, it shall pay to the Borrower an amount equal to
such refund (but only to the extent of indemnity payments made, or additional amounts paid, by
the Borrower under this Section 3.7 with respect to the Covered Taxes or Other Taxes giving rise
to such refund), net of all reasonable out-of-pocket expenses of such owner and without interest
(other than any interest paid by the relevant Governmental Authority with respect to such
refund); provided that (i) the Borrower, upon the request of such owner, agrees to repay the
amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the owner in the event the owner is required to repay such
refund to such Governmental Authority.
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Section 3.8
Maximum Lawful Rate.
This Agreement, the Notes and the other Purchase Documents are hereby limited
by this Section 3.8. In no event, whether by reason of acceleration of the maturity of the
amounts due hereunder or otherwise, shall interest and fees contracted for, charged, received,
paid or agreed to be paid to Purchasers exceed the maximum amount permissible under such
applicable Law. If, from any circumstance whatsoever, interest and fees would otherwise be
payable to Agent or Purchasers in excess of the maximum amount permissible under applicable
Law, the interest and fees shall be reduced to the maximum amount permitted under applicable
Law. If from any circumstance, Agent or Purchasers shall have received anything of value
deemed interest by applicable Law in excess of the maximum lawful amount, an amount equal to
any excess of interest shall be applied to the reduction of the principal amount of the Notes, in
such manner as may be determined by Agent, and not to the payment of fees or interest, or if
such excessive interest exceeds the unpaid balance of the principal amount of the Notes, such
excess shall be refunded to Borrower.
Section 3.9
Capital Adequacy.
If, after the date hereof, either the introduction of or any change of the
interpretation of any Law or the compliance by Agent or Purchasers (or any of them) with any
regulation or directive from any Governmental Authority (whether or not having the force of
Law) has or would have the effect of reducing the rate of return on the capital or assets of
Purchasers (or any of them) by more than five percent as a consequence of, as determined by
Agent or any Purchaser, the existence of Agent or any Purchaser’s obligations under this
Agreement or any other Purchase Documents, then within fifteen Business Days of notice by
Agent (which notice shall be accompanied by a statement setting forth the basis for such demand
and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished
by Purchaser to Agent and Borrower), Borrower shall pay to Agent or such Purchaser, from the
time as specified by Agent, so long as such amounts have accrued on or after the day which is
135 days prior to the date on which Agent first made demand therefore; provided that if the event
giving rise to such reduction in rate of return has retroactive effect, such 135 day period shall be
extended to include the period of retroactive effect. Each of Agent’s or any Purchaser’s method
of determining any amount payable to Agent or such Purchaser under this Section 3.9 shall be
substantially similar to the method used by Agent or such Purchaser in implementing similar
provisions for its borrowers. No such amount shall be charged to Borrower unless they are being
charged to Purchaser’s similarly-situated borrowers generally. The obligations of Borrower
under this Section 3.9 shall survive the payments of the Notes and the termination of this
Agreement.
Section 3.10 Certain Waivers.
The Borrower unconditionally waives, except as expressly required hereby, (a)
any rights to presentment, demand, protest or notice of any kind and (b) any rights of rescission,
setoff, counterclaim or defense to payment under the Notes or otherwise that Borrower may have
or claim against any Purchaser, the Agent or any prior Purchaser or Agent.
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ARTICLE 4
CONDITIONS
Section 4.1
Conditions to Purchase of Notes.
The obligation of Purchasers to purchase and pay for the Notes is subject to the
satisfaction, prior to or at the Closing, of the following conditions:
(a)
Representations and Warranties True; No Defaults.
The
representations and warranties contained in Article 5 hereof shall be true and correct in all
material respects at and as of the Closing Date, except to the extent such representations and
warranties expressly relate to an earlier date, then at and as of such earlier date, and there shall
exist no Default or Event of Default.
(b)
Material Adverse Effect. There has not occurred and there has not been
any event or occurrence since March 23, 2012 that is likely to have a Material Adverse Effect.
(c)
Security Agreement; Intellectual Property Security Agreements;
Pledge Agreement. The Borrower and Agent, for the benefit of the Purchasers, shall have
entered into (i) a security agreement, in form and substance as set forth in Exhibit D attached
hereto (as the same may be amended, modified or supplemented from time to time in accordance
with the terms thereof, the “Security Agreement”), (ii) a trademark security agreement, in form
and substance as set forth in Exhibit E-1 attached hereto (as the same may be amended, modified
or supplemented from time to time in accordance with the terms thereof, the “Trademark
Security Agreement”), and (iii) a copyright security agreement, in form and substance as set
forth in Exhibit E-3 attached hereto (as the same may be amended, modified or supplemented
from time to time in accordance with the terms thereof, the “Copyright Security Agreement”).
The Borrower shall have authorized Agent to file, for the benefit of the Purchasers, such
financing statements and other instruments (collectively, “Financing Statements”) as Agent
shall require in order to perfect and maintain the continued perfection of the security interest
created by the Security Agreement and the Intellectual Property Security Agreements. Agent
shall have received reports of filings with appropriate Governmental Authorities showing that
there are no Liens on the assets of the Borrower other than Permitted Liens or Liens relating to
credit facilities to be paid off and fully discharged as of the Closing Date.
(d)
Management Fee Subordination Agreement. Agent and Management
Services Provider shall have entered into the Management Fee Subordination Agreement, and
the Management Agreement shall have been amended, in each case in form and substance
reasonably satisfactory to the Agent.
(e)
Closing Documents. Borrower shall have delivered or caused to be
delivered to Agent all of the following documents in form and substance reasonably satisfactory
to Agent:
(i)
The Notes (as designated by Agent and Purchasers pursuant to
Section 2.1 and Annex B hereof) in aggregate original principal amounts as set forth herein, duly
executed by the Borrower;
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ME1 15090407v.18
(ii)
certificates of good standing dated not more than ten days prior to
the Closing Date for the Borrower issued by its jurisdiction of organization and each jurisdiction
where it is qualified to operate as a foreign corporation (except where the failure to qualify
would not result in a Material Adverse Effect);
(iii) a copy of the Charter Documents of the Borrower, certified by the
appropriate governmental official of its respective jurisdictions of organization as of a recent
date;
(iv)
a copy of the Bylaws of the Borrower, certified as of the Closing
Date by a secretary or assistant secretary of the Borrower as being true, complete and correct and
in full force and effect;
(v)
a certificate of the secretary or assistant secretary of the Borrower,
certifying as to the names and true signatures of the officers or other authorized representatives
of the Borrower authorized to sign this Agreement and the other Purchase Documents to be
delivered by such Persons hereunder;
(vi)
copies of the resolutions duly adopted by the Borrower’s Board
authorizing the execution, delivery and performance by it of this Agreement and each of the
other agreements, instruments and documents contemplated hereby to which it is a party, and the
consummation of all of the other Transactions, certified as of the Closing Date by the secretary
or assistant secretary of the Borrower;
(vii) a certificate dated as of the Closing Date from an officer of the
Borrower stating that the conditions specified in this Section 4.1 have been fully satisfied or
waived by Agent;
(viii) certificates of insurance evidencing the existence of all insurance
required to be maintained by the Borrower pursuant to Section 7.1(c);
(ix)
opinion of Sheppard Mullin Richter & Hamilton LLP, as counsel
to the Borrower in form and substance reasonably acceptable to Agent;
(x)
copies of all contracts set forth on the Material Contract
(xi)
the financial statements and projections described in Section
(xii)
a schedule of flow of funds; and
Schedule;
5.1(c);
(xiii) such other documents relating to the Transactions contemplated by
this Agreement as Agent or its special counsel may reasonably request; and
(f)
Purchasers’ Fees and Expenses.
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ME1 15090407v.18
(i)
Structuring Fee. On the Closing Date, Borrower shall pay the
Structuring Fee to Agent, and Borrower hereby authorizes Agent to deduct from the aggregate
proceeds from the sales of the Notes by Borrower, the unpaid amount of such fees, provided that
any amounts not paid on the Closing Date shall be paid by the Borrower pursuant to Section
10.4.
(ii)
Other Fees and Expenses. On the Closing Date, Borrower shall
have paid the fees and expenses of Agent and Purchasers, payable by Borrower pursuant to
Section 10.4 hereof, and Borrower hereby authorizes Agent to deduct from the aggregate
proceeds of the sale of the Notes by Borrower, all such amounts.
(g)
Legal Investment. On the Closing Date, Purchasers’ purchase of the
Notes shall not be prohibited by any applicable Law of any Governmental Authority (including,
without limitation, Regulations T, U or X of the FRB) as a result of the promulgation or
enactment thereof or any changes therein, or change in the interpretation thereof by any
Governmental Authority, subsequent to the date of this Agreement.
(h)
Release and Payoff Documentation. The Agent shall have received, in
each case in form and substance reasonably satisfactory to Agent, any UCC-3 termination
statements or amendments, intellectual property security interest terminations, and other
documentation necessary or appropriate to terminate (or amend) the security interest granted to
the Revolving Agent referenced in Section 4.1(k).
(i)
EBITDA.
Borrower shall have demonstrated to the reasonable
satisfaction of Agent that EBITDA of the Borrower, for the twelve month period ended March 2,
2013, including the acquisition of Imprints Wholesale on a pro forma basis and as otherwise
adjusted in a manner satisfactory to Agent, equals or exceeds $45,000,000.
(j)
Leverage.
Borrower shall have demonstrated to the reasonable
satisfaction of Agent that, after giving effect to the Transactions, the Total Leverage Ratio shall
not exceed 5.85 to 1.0. For the purposes of this Section 4.1(j), to calculate the Total Leverage
Ratio, for the fiscal quarters ended December 29, 2012, September 29, 2012 and June 30, 2012
only, the Pre-Closing Stipulated EBITDA Amounts shall be used in such determination.
(k)
Revolving Loans. The Loan Parties (and the Revolving Agent, as
applicable) shall enter into the Revolver Documents on the Closing Date, having a maturity date
no earlier than ninety days prior to the maturity date of the Notes and otherwise on terms and
conditions satisfactory to the Agent. As a condition to the Agent’s and Lender’s consent under
Section 7.2(a) to the Loan Parties’ incurring of the Indebtedness represented by the Revolving
Loans and the granting under Section 7.2(b) of Liens related thereto, the Loan Parties shall
acknowledge an Intercreditor Agreement duly executed by the Agent and the Revolving Agent,
in substantially the form set forth on Exhibit I. The Revolver Documents shall further contain,
among other things, Deposit Account Control Agreements in form and substance reasonably
satisfactory to the Agent over the deposit accounts of the Loan Parties (with customary
exceptions to be agreed upon). The aggregate principal balance outstanding of any Revolving
Loans on the Closing Date shall not exceed $175,000,000.
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ME1 15090407v.18
(l)
Litigation. There shall not be pending or threatened against the
Borrower, any litigation or other proceeding that if adversely determined could reasonably be
expected to have a Material Adverse Effect or materially affect the financing contemplated
hereunder.
(m)
Financial Statements. Ernst & Young LLP shall have prepared draft
financial statements for the Borrower for the Fiscal Year ended December 29, 2012, reflecting a
draft unqualified opinion as of the Closing Date.
(n)
Redemption of Existing Notes. Borrower shall have (i) directed the
Trustee to call for redemption of all of the Existing Notes pursuant to the terms of the Indenture
and (ii) substantially concurrently therewith taken all steps required under the Indenture in order
to effect a covenant defeasance of the Existing Notes, including, without limitation, causing the
sum of $27,358,120.15 to be deposited with the Trustee, together with the sum of $98,000,000
concurrently paid to the Trustee on the Borrower’s behalf by Agent pursuant to Section 2.2
hereof, and shall have taken all other necessary steps, but for the passage of time, in accordance
with the terms of the Indenture, so as to effectuate a redemption of all of the Existing Notes
pursuant to the terms of the Indenture, with all such arrangements to be satisfactory to the Agent.
Any condition specified in this Section 4.1 may be waived by Agent on behalf of the Purchasers;
provided that no such waiver will be effective against Agent unless it is set forth in a writing
executed by Agent. Each Purchaser, by delivering its signature page to this Agreement, shall be
deemed to have acknowledged receipt of, and consented to and approved, each Purchase
Document, each other agreement, instrument or document required in connection with the
Transactions, and the satisfaction of each condition set forth above.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES
Section 5.1
Representations and Warranties of Loan Parties.
As a material inducement to Agent and Purchasers to enter into this Agreement
and purchase the Notes, each Loan Party hereby represents and warrants, jointly and severally
with each other Loan Party, to Agent and Purchasers as of the date hereof, that both before and
after giving effect to the consummation of the Transactions:
(a)
Organization and Power. Each of the Loan Parties (i) is a corporation or
limited liability company, as the case may be, duly organized, validly existing and in good
standing under the Laws of its state of incorporation or formation, as the case may be, as set forth
on the “Organization Schedule” attached hereto as Schedule 5.1(a), and (ii) has all requisite
organizational power and authority and all licenses, permits, approvals and authorizations
necessary to own and operate its properties and carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the Transactions, except as would otherwise
result in a Material Adverse Effect. Each Loan Party is qualified to do business in the
jurisdictions (including its jurisdiction of organization) listed on the Organization Schedule,
which includes every jurisdiction where the failure to so qualify could reasonably be expected to
have a Material Adverse Effect. Each of the Loan Parties has its principal place of business as
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set forth on the Organization Schedule. The copies of the Charter Documents and Operating
Agreements of the Loan Parties that have been furnished to Agent reflect all amendments made
thereto at any time prior to the date of this Agreement and are correct and complete.
(b)
in the Business.
(c)
Principal Business. The Loan Parties on a consolidated basis are engaged
Financial Statements and Financial Projections.
(i)
Financial Statements; Historical Statements. The Borrower has
made available to Agent copies of its year-end audited financial statements (including a balance
sheet, statements of operations, stockholders’ equity and cash flows) for and as of the end of the
fiscal period ended December 31, 2011 (the “Annual Statements”), the unaudited financial
statements for the quarterly periods ended March 31, 2012, June 30, 2012, September 29, 2012
and December 29, 2012 (the “Historical Quarterly Statements”) and the unaudited financial
statements for the period that commenced on December 30, 2012 and ended on February 2, 2013
(the “Most Recent Statements”). The Annual Statements, the Historical Quarterly Statements
and the Most Recent Statements were compiled from the books and records maintained by the
management of the Borrower, present fairly in all material respects, the financial condition of the
Borrower as of their dates and the results of operations for the fiscal periods then ended and have
been prepared in accordance with GAAP (except, with respect to the Historical Quarterly
Statements and the Most Recent Statements, for the absence of notes thereto and other normal
and customary year-end adjustments thereto, consistent with past practice).
(ii)
Financial Projections. The Borrower has made available to
Agent financial projections of the Borrower for the period from December 30, 2012 to December
29, 2018 that were prepared by the Borrower in good faith based upon assumptions the Borrower
believed to be reasonable at the time of such preparation (the “Financial Projections”). It is
understood and agreed by the parties hereto that Financial Projections are subject to uncertainties
and contingencies many of which are beyond the control of the Borrower and that actual results
may differ from the Financial Projections and such differences may be material.
(iii) Accuracy of Financial Statements. Other than pursuant to the
Purchase Documents and the Revolver Documents, the Loan Parties do not have, and the Loan
Parties have not assumed, any material liabilities, contingent or otherwise, or forward or longterm commitments that are not disclosed in the Annual Statements or the Most Recent
Statements or in the notes thereto, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments that could reasonably be expected to cause a Material
Adverse Effect.
(d)
Capitalization and Related Matters. The “Capitalization Schedule”
attached hereto as Schedule 5.1(d) sets forth all issued and outstanding Equity Interests of each
Loan Party, including the number of authorized, issued and outstanding Equity Interests of each
Loan Party and the holders of such Equity Interests, all on and as of the Closing Date. Each
outstanding share or unit of Equity Interests of each Loan Party have been duly authorized,
validly issued, and have not been issued in violation of any preemptive or similar rights created
by applicable Law, any Loan Party’s Charter Documents, Operating Agreement or by any
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agreement to which any Loan Party is a party or by which it is bound, and have been issued in
compliance with applicable federal and state securities or “blue sky” Laws. Except as identified
on Schedule 5.1(d), all issued and outstanding Equity Interests of each Loan Party are free and
clear of all Liens (except for the security interests created by the Purchase Documents and
Permitted Liens). Except as identified on Schedule 5.1(d), no Loan Party has outstanding any
Equity Interests convertible or exchangeable for any shares or units of its Equity Interests or any
rights or options to subscribe for or to purchase its Equity Interests convertible into or
exchangeable for its Equity Interests. Except as identified on Schedule 5.1(d), no Loan Party is
subject to any obligation (contingent or otherwise) to repurchase or acquire or retire any Equity
Interests or to make any payments related to stock appreciation or similar rights of any Person.
None of the Loan Parties has violated any applicable federal or state securities Laws in
connection with the offer, sale or issuance of any of its Equity Interests, and the offer, sale and
issuance of the Notes hereunder does not require registration under the Securities Act or any
applicable state securities Laws. Except as set forth in their respective Operating Agreements,
there are no agreements with respect to the voting or transfer of the Equity Interests of any Loan
Party.
(e)
Subsidiaries. None of the Loan Parties owns, or holds any rights to
acquire, any Equity Interests or any other security or interest in any other Person, and the Loan
Parties have no Subsidiaries, except in each case as set forth on the Organization Schedule.
(f)
Authorization; No Breach. The execution, delivery and performance of
this Agreement, the other Purchase Documents and all other agreements contemplated hereby
and thereby to which any Loan Party is a party including, without limitation, the Revolver
Documents (collectively, the “Transaction Documents”), and the consummation of the
Transactions have been duly authorized by each of the Loan Parties. The execution and delivery
by the Loan Parties of the Transaction Documents and the consummation of the Transactions do
not and will not (A) (i) conflict with or result in a breach of the terms, conditions or provisions
of, (ii) constitute a material default under, or (iii) result in a material violation of, the Charter
Document or Operating Agreement of any Loan Party; or (B) (i) conflict with or result in a
material breach of the terms, conditions or provisions of, (ii) constitute a material default under,
(iii) except as created pursuant to the Security Documents or the Revolver Documents, result in
the creation of any Lien upon any of the Loan Parties’ Equity Interests or assets pursuant to,
(iv) give any third party the right to accelerate any obligation under, (v) result in a material
violation of, or (vi) require any authorization, consent, approval, exemption or other action by or
notice to any Governmental Authority pursuant to, any Law to which any Loan Party is subject,
or any agreement, instrument, order, judgment or decree to which any Loan Party is a party or to
which its assets are subject.
(g)
Governmental Approvals. Except as specifically provided by the
Transaction Documents, no registration with or consent or approval of, or other action by, any
Governmental Authority is or will be required in connection with the consummation of the
Transactions by the Loan Parties.
(h)
Enforceability. This Agreement constitutes, and each of the other
Transaction Documents when duly executed and delivered by each of the Loan Parties who are
parties thereto will constitute, legal, valid and binding obligations of each of the Loan Parties
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enforceable in accordance with their respective terms, subject to bankruptcy, insolvency and
similar laws affecting the enforceability of creditors’ rights generally and to general principles of
equity.
(i)
No Material Adverse Change. Since March 23, 2012, there has been no
event or occurrence that would reasonably be expected to have a Material Adverse Effect.
(j)
Litigation. Except as described in the “Litigation Schedule” attached
hereto as Schedule 5.1(j), there are no actions, suits or proceedings at law or in equity or by or
before any arbitrator or any Governmental Authority now pending, or to the knowledge of the
Loan Parties threatened, against any of the Loan Parties which are individually or in the
aggregate material to the Loan Parties in dispute. Borrower shall promptly provide Agent with a
copy of all material pleadings of all material lawsuits filed by any Loan Party against others or
filed by others against any Loan Party and, in the case of other actions, a letter stating the nature
of such suits and a copy of all pleadings.
(k)
Compliance with Laws. (i) None of the Loan Parties is in violation in
any material respect of any applicable Law or is in default with respect to, or in violation of, any
judgment, order, writ, injunction, decree, rule or regulation of any Governmental Authority,
(ii) the consummation of the Transactions will not cause any violation of any applicable
judgment, order, writ, injunction or decree of any Governmental Authority, (iii) there is no
investigation, enforcement action or regulatory action pending or, to Borrower’s knowledge,
threatened against or affecting any of the Loan Parties by any Governmental Authority, except as
set forth in writing on the Litigation Schedule or the Tax Matters Schedule, and (iv) there is no
remedial or other corrective action that any of the Loan Parties is required to take to remain in
compliance with any applicable judgment, order, writ, injunction or decree of any Governmental
Authority or to maintain any applicable material permits, approvals or licenses granted by any
Governmental Authority in full force and effect except as set forth in the Litigation Schedule,
except in the case of each of the foregoing that could not reasonably be expected to have a
Material Adverse Effect.
(l)
Environmental Protection. Except as specified in the “Environmental
Schedule” attached hereto as Schedule 5.1(l), (i) the Business of the Loan Parties, the methods
and means employed by the Loan Parties in the operation thereof (including all operations and
conditions at or in the properties of the Loan Parties), and the assets owned, leased, managed,
used, controlled, held or operated by such Person in connection therewith, comply in all respects
with all applicable Environmental Laws, (ii) with respect to the assets and properties used or
useful by the Loan Parties in the Business (collectively, the “Properties and Facilities”), the
Loan Parties have obtained, and the Loan Parties possess and are in material compliance with all
permits, licenses, reviews, certifications, approvals, registrations, consents and any other
authorizations required under any Environmental Laws, (iii) none of the Loan Parties has
received (A) any claim or notice of violation, lien, complaint, suit, order or other claim or notice
to the effect that any such Person is or may be liable to any other Person as a result of (1) the
environmental condition of any of its Properties and Facilities or any other property or (2) the
release or threatened release of any Pollutant or (B) any letter or request for information under
Section 104 of the CERCLA, or comparable state laws, and none of the operations of the Loan
Parties were or are the subject of any investigation by a Governmental Authority evaluating
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whether any remedial action is needed to respond to a release or threatened release of any
Pollutant at the Properties and Facilities or at any other location, including any location to which
the Loan Parties have transported, or arranged for the transportation of, any Pollutants with
respect to the Properties and Facilities, (iv) to the knowledge of the Loan Parties, none of the
Loan Parties nor any prior owner or operator of any of the Properties and Facilities has incurred,
with respect to the Properties and Facilities, in the past, or is now subject to, any Environmental
Liabilities, (v) to the knowledge of the Loan Parties, there are no Liens, covenants, deed
restrictions, notice or registration requirements, or other limitations applicable to the Properties
and Facilities, based upon any Environmental Laws, (vi) to the knowledge of the Loan Parties,
there are no USTs located in, at, on or under the Properties and Facilities, and, each UST
disclosed in the Environmental Schedule is in compliance with all Environmental Laws and
other legal obligations, and (vii) to the knowledge of the Loan Parties, there are no PCBs, lead
paint, asbestos (of any type or form), or materials, articles or products containing PCBs, lead
paint or asbestos, located in, at, on, under, a part of, or otherwise related to the Properties and
Facilities (including, without limitation, any building, structure, or other improvement that is a
part of the Properties and Facilities) that singly or in the aggregate could have a Material
Adverse Effect, and all of the PCBs, lead paint, asbestos, and materials, articles and products
containing PCBs, lead paint or asbestos identified in the Environmental Schedule are in material
compliance with all Environmental Laws and other legal obligations.
(m)
Legal Investments; Use of Proceeds. The Loan Parties will use the
proceeds from each of the sales of the Notes to refinance existing indebtedness of Borrower and
to pay the transaction fees and expenses of the Loan Parties related thereto, and for other proper
company purposes (subject to the limitations set forth in this Agreement). The Loan Parties are
not engaged in the business of extending credit for the purpose of purchasing or carrying any
“margin stock” or “margin security” (within the meaning of Regulations T, U or X issued by the
FRB), and no proceeds of the sale of the Notes will be used to purchase or carry any margin
stock or margin security or to extend credit to others for the purpose of purchasing or carrying
any margin stock or margin security.
(n)
Taxes. Each of the Loan Parties has filed or caused to be filed all Federal,
and all other material state, local and foreign tax returns that are required to be filed by it, and
has paid or caused to be paid all taxes shown to be due and payable on such returns or on any
assessments received by it, including payroll taxes, except to the extent the validity or amount
thereof are being contested in good faith by appropriate proceedings and the Loan Parties have
set aside on their books adequate reserves with respect thereto and have fully disclosed the
nature of such amounts to the Agent and the Purchasers. Except as otherwise disclosed on the
“Tax Matters Schedule” attached hereto as Schedule 5.1(n), no tax return is under audit or
examination by any Governmental Authority, and no notice of any audit or examination or any
assertion of any claim for taxes has been given or made by any Governmental Authority within
the past three years. Except as otherwise disclosed on the “Tax Matters Schedule” attached
hereto as Schedule 5.1(n), proper and accurate amounts have been withheld in all material
respects by each Loan Party from their respective employees for all periods in material
compliance with the tax, social security and unemployment withholding provisions of applicable
Laws and such withholdings have been timely paid to the respective Governmental Authorities.
None of the Loan Parties has participated in a “listed transaction” within the meaning of IRC
Section 6707A(c)(2) and United States Treasury Regulation Section 1.6011-4(b)(2) or has been a
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member of an affiliated, combined or unitary group other than the group of which an Affiliate is
the common parent.
(o)
Labor and Employment. Except as set forth on the “Labor and
Employment Schedule” attached hereto as Schedule 5.1(o), the Loan Parties are and each of
their Plans is in material compliance with those provisions of ERISA, the IRC, the Age
Discrimination in Employment Act of 1967, and the regulations and published interpretations
thereunder that are applicable to any such Person or any such Plan. As of the date hereof, no
Reportable Event has occurred with respect to any Plan as to which any of the Loan Parties is or
was required to file a report with the PBGC. No Plan has any accumulated funding deficiency
(within the meaning of Section 302(a)(2) of ERISA), whether or not waived, and none of the
Loan Parties, nor any member of the Controlled Group, has incurred or expects to incur any
withdrawal liability under Subtitle E of Title IV of ERISA to a Multiemployer Plan. Except as
set forth on Schedule 5.1(o), each of the Loan Parties is in material compliance with all labor
and employment Laws of all applicable domestic and foreign jurisdictions. There are no pending
or threatened labor disputes, work stoppages or strikes.
(p)
Investment Company Act. None of the Loan Parties is an “investment
company” or “controlled” by an investment company within the meaning of the Investment
Company Act of 1940, as amended.
(q)
Properties; Security Interests. (i) Each Loan Party has good and
marketable title to, or valid leasehold interests in, all of the Properties and Facilities, subject to
Permitted Liens, (ii) all of the Properties and Facilities are in good repair, working order and
condition (except for ordinary course wear and tear) and all such assets and properties are owned
or leased by the Loan Parties free and clear of all Liens except for Permitted Liens, (iii) the
Properties and Facilities constitute substantially all of the assets, properties and rights of any type
necessary for the conduct of the Business and (iv) no Loan Party owns real estate, and all real
estate leased by any of the Loan Parties is listed on the “Properties Schedule,” attached hereto
as Schedule 5.1(q). The Loan Parties’ interests in the Properties and Facilities are not subject to
any Liens other than Permitted Liens.
(r)
Intellectual Property; Licenses. Each of the Loan Parties possesses all
Proprietary Rights necessary to conduct the Business as heretofore conducted by it except as
could not reasonably be expected to have a Material Adverse Effect. All Proprietary Rights
registered in the name of any of the Loan Parties and applications therefor filed by any of the
Loan Parties are listed on the “Intellectual Property Schedule,” attached hereto as Schedule
5.1(r). To the knowledge of the applicable Loan Party, no event has occurred that permits, or
after notice or lapse of time or both would permit, the revocation or termination of any of the
foregoing, which taken in isolation or when considered with all other such revocations or
terminations could have a Material Adverse Effect. None of the Loan Parties has knowledge of
any facts or any past, present or threatened occurrence that could preclude or impair the Loan
Parties’ ability to retain or obtain any authorization necessary for the operation of the Business
except as could not reasonably be expected to have a Material Adverse Effect. Except as set
forth on the Intellectual Property Schedule, to the knowledge of the applicable Loan Party there
is no claim by any third party contesting the validity, enforceability, use or ownership of any of
the Proprietary Rights that has been made, is currently outstanding or is threatened. Except as
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ME1 15090407v.18
set forth on the Intellectual Property Schedule, the Loan Parties have not received any written
notices of, nor are the Loan Parties aware of any facts which indicate a likelihood of, any
infringement or misappropriation by, or conflict with, any third party with respect to the
Proprietary Rights, including any demand or request that the Loan Parties license rights from a
third party. The Loan Parties have no knowledge of any infringement, misappropriation or
conflict which will occur as a result of the continued operation of the Business as conducted as
of the date of this Agreement except as could not reasonably be expected to have a Material
Adverse Effect. Except as listed on Schedule 5.1(r), no Loan Party has sold, assigned, licensed,
sublicensed, transferred or encumbered any Proprietary Rights or other intangible assets, other
than in the ordinary course of business and by Permitted Liens.
(s)
Solvency. Both immediately before and after giving effect to the
Transactions (i) the fair value of the assets of the Loan Parties, on a consolidated basis, at a fair
valuation as a going concern, exceed their debts and liabilities, subordinated, contingent or
otherwise, (ii) the present fair saleable value of the property of the Loan Parties, on a
consolidated basis, is greater than the amount that will be required to pay the probable liability of
their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other
liabilities become absolute and matured, (iii) the Loan Parties, on a consolidated basis, are able
to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, and (iv) the Loan Parties, on a consolidated basis, do
not have unreasonably small capital with which to conduct the Business as now conducted and as
proposed to be conducted following the Closing Date.
(t)
Complete Disclosure. All factual information furnished by or on behalf
of any Loan Party to Agent for purposes of or in connection with this Agreement or the
Transactions is, and all other such factual information hereafter furnished by or on behalf of any
Loan Party will be, true and accurate in all material respects on the date as of which such
information is furnished and not incomplete by omitting to state any fact necessary to make such
information not misleading at such time in light of the circumstances under which such
information was provided.
(u)
Broker’s or Finder’s Commissions. No broker’s or finder’s or
placement fee or commission will be payable to any broker or agent engaged by any Loan Party
or any of its officers, directors, managers or agents with respect to the issuance and sale of the
Notes or the transactions contemplated by this Agreement, including without limitation the
Transactions, except for fees payable to Purchasers and Agent hereunder. Each Loan Party
jointly and severally agrees to indemnify Agent and Purchasers and hold them harmless from and
against any claim, demand or liability for broker’s or finder’s or placement fees or similar
commissions, whether or not payable by the Loan Parties, alleged to have been incurred in
connection with such transactions, other than any broker’s or finder’s fees payable to Persons
engaged by Agent or Purchasers.
(v)
Absence of Undisclosed Liabilities. None of the Loan Parties has any
liabilities or obligations, either accrued, absolute, contingent or otherwise, except:
(i)
those liabilities or obligations arising hereunder and those set forth
on the Most Recent Statements and not heretofore paid or discharged,
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ME1 15090407v.18
(ii)
liabilities arising in the ordinary course of business under any
agreement, contract, commitment, lease or plan specifically disclosed on the schedules or not
required to be disclosed because of the term or amount involved or otherwise,
(iii) those liabilities or obligations incurred, consistently with past
business practice, in or as a result of the normal and ordinary course of business,
(iv)
liabilities permitted to be incurred under the terms of this
Agreement, and
(v)
any other liabilities that considered collectively could not
reasonably be expected to have a Material Adverse Effect.
(w)
Material Agreements. As of the Closing Date, all material contracts of
each of the Loan Parties (“Material Contracts”) are set forth on the “Material Contracts
Schedule” attached hereto as “Schedule 5.1(w)” and copies thereof have been provided to the
Agent. To the best knowledge of the Loan Parties, none of the Loan Parties is in breach or
default under such Material Contracts, except for such breach or default that would not be
reasonably expected to cause the respective counterparty to terminate the applicable Material
Contract.
(x)
Anti-Terrorism Laws. No Loan Party is in violation of any Law relating
to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No.
13224 on Terrorism Financing, effective September 24, 2001 (the “Executive Order”), and the
Patriot Act. No Loan Party or other agents acting or benefiting in any capacity in connection
with the Loans hereto is any of the following: (i) a Person that is listed in the Annex to, or is
otherwise subject to the provisions of, the Executive Order, (ii) a Person owned or controlled by,
or acting for or on behalf of, any Person that is listed in the Annex to, or is otherwise subject to
the provisions of, the Executive Order, (iii) a Person with whom any Purchaser is prohibited
from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (iv) a Person
who commits, threatens or conspires to commit or supports “terrorism” as defined in the
Executive Order, or (v) a Person that is named as a “specially designated national and blocked
person” on the most current list published by the United States Treasury Department Office of
Foreign Asset Control at its official website or any replacement website or other replacement
official publication of such list. No Loan Party or, to the Loan Parties’ knowledge, other agents
acting or benefiting in any capacity in connection with the Loans advanced pursuant hereto (i)
conducts any business or engages in making or receiving any contribution of funds, goods or
services to or for the benefit of any Person described in the preceding sentence, (ii) deals in, or
otherwise engages in any transaction relating to, any property or interests in any property
blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any
transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, any of the prohibitions set forth in the Anti-Terrorism Laws.
(y)
Customers and Suppliers. There exists no actual or, to the knowledge of
the Borrower, threatened in writing, termination, cancellation or limitation of, or modification to
or change in, the business relationship between any Loan Party and any customer or supplier or
any group thereof, the loss of which would reasonably be expected to, individually or in the
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aggregate, result in a Material Adverse Effect; and there exists no present state of facts or
circumstances that could give rise to or result in any such termination, cancellation, limitation,
modification or change which would reasonably be expected to, individually or in the aggregate,
result in a Material Adverse Effect.
(z)
Potential Conflicts of Interest. Except as described in the “Potential
Conflicts of Interest Schedule” attached hereto as Schedule 5.1(z), none of the Loan Parties,
nor any of their respective officers or directors, (i) owns, directly or indirectly, any interest in
(excepting passive holdings for investment purposes of not more than two percent of the
securities of any publicly held and traded company), or is an officer, director, manager,
employee or consultant of, any Person that is a competitor, lessor, lessee, customer, client or
supplier of the Borrower or any Affiliate of the Borrower; or (ii) owns, directly or indirectly, any
interest in any material tangible or intangible property used in or necessary to the Business.
(aa) Accounts. The “Deposit Accounts Schedule” attached hereto as
Schedule 5.1(aa) lists all banks and other financial institutions at which any Loan Party
maintains deposit or other accounts as of the Closing Date, and such Schedule correctly
identifies the name, address and any other relevant contact information reasonably requested by
Agent with respect to each depository, the name in which the account is held, a description of the
purpose of the account, and the complete account number therefor.
(bb) Bonding. As of the Closing Date, no Loan Party is a party to any bonding
requirement with respect to products or services sold by it other than as permitted hereunder or
as otherwise could not reasonably be expected to have a Material Adverse Effect.
(cc) Perfection of Security Interests in the Collateral. The Security
Documents create valid security interests in, and Liens on, the collateral purported to be covered
thereby, which security interests and Liens (to the extent provided thereby) are perfected security
interests and Liens, prior to all other Liens, other than Permitted Liens.
(dd) No Default. No Default or Event of Default has occurred or will have
occurred at the time of or immediately after the consummation of the Transactions contemplated
hereby.
Section 5.2
Absolute Reliance on the Representations and Warranties.
All representations and warranties contained in this Agreement and any financial
statements, instruments, certificates, schedules or other documents delivered in connection
herewith, shall survive the execution and delivery of this Agreement, regardless of any
investigation made by Agent or Purchasers or on Agent’s or Purchasers’ behalf.
ARTICLE 6
TRANSFER OF NOTES
Section 6.1
Restricted Notes.
Purchasers acknowledge that the Notes have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions of the Securities
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ME1 15090407v.18
Act or if an exemption from registration is available, and that Borrower is not required to register
the Notes.
Section 6.2
Legends; Purchaser’s Representations.
Each of the Purchasers hereby represents and warrants to Borrower that it is an
“accredited investor” within the meaning of Rule 501(a) under the Securities Act and is
acquiring the Notes for investment for its own account, with no present intention of dividing its
participation with others (except for a potential transfer or transfers of the Notes to an Affiliate or
Affiliates of Purchasers) or reselling or otherwise distributing the same in violation of the
Securities Act or any applicable state securities laws. Agent shall place an appropriate legend on
the Notes owned by Purchasers concerning the restrictions set forth in this Article 6. Upon the
assignment or transfer by a Purchaser or any of its successors or assignees of all or any part of
the Notes as permitted hereunder, the term “Purchaser” as used herein shall thereafter mean, to
the extent thereof, the then holder or holders of such Notes, or portion thereof.
Section 6.3
Transfer of Notes.
Subject to Sections 6.2 and 10.18 hereof, a holder of a Note may transfer such
Note to a new holder, or may exchange such Note for Notes of different denominations (but in
no event of denominations of less than $1,000,000 in original principal amount and in increments
of $250,000 (or any remaining residual amount thereof)), by surrendering such Note to Borrower
duly endorsed for transfer or accompanied by a duly executed instrument of transfer naming the
new holder (or the current holder if submitted for exchange only), together with written
instructions for the issuance of one or more new Notes specifying the respective principal
amounts of each new Note and the name of each new holder and each address therefor.
Borrower shall simultaneously deliver to such holder or its designee such new Notes, shall mark
the surrendered Notes as canceled and shall provide notice of such transfer to Agent. In the
event that the Borrower fails, within two Business Days of a holder’s compliance with the terms
of this Section 6.3, to issue Notes of different denominations upon a holder’s exchange of any
Note, the Borrower hereby consents to the execution of such different Notes by the holder
thereof as its attorney in fact, which designation is coupled with an interest and is irrevocable. In
lieu of the foregoing procedures, a holder may assign a Note (in whole but not in part) to a new
holder by sending written notice to Borrower and Agent of such assignment specifying the new
holder’s name and address; in such case, Borrower shall promptly acknowledge such assignment
in writing to both the old and new holder. Borrower shall not be required to recognize any
subsequent holder of a Note unless and until the assignment of such Note satisfies the
requirements of Section 10.18 (including, to the extent required by Section 10.18, receipt of
Borrower’s consent to such assignment of a Note or Notes to such holder, such consent not to be
unreasonably delayed, conditioned, burdened or withheld; provided that no such consent shall be
required at any time that an Event of Default has occurred and is continuing), and Borrower has
received reasonable assurance that all applicable transfer taxes have been paid and, if the
subsequent holder is organized outside the United States, it has provided the forms required
under Section 3.7(b).
Nothing contained in this Agreement shall prevent, impair, limit or otherwise
restrict the ability of a Purchaser to collaterally assign or pledge all or any portion of its interests
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in the Notes and the other rights and benefits under the Purchase Documents to an unaffiliated
third party lender of such Purchaser (each such Person, a “Collateral Assignee”); provided that
unless and until Borrower receives notification from a Collateral Assignee of such assignment
directing payments to be made to such Collateral Assignee, any payment made by Borrower for
the benefit of such Purchaser in accordance with the terms of the Purchase Documents shall
satisfy Borrower’s obligations thereunder to the extent of such payment. Any such Collateral
Assignee, upon foreclosure of its security interests in the Notes pursuant to the terms of such
assignment and in accordance with applicable Law, shall succeed to all the interests of or shall
be deemed to be a Purchaser, with all the rights and benefits afforded thereby, and such transfer
shall not be deemed to be a transfer for purposes of and otherwise subject to the provisions of
this Section 6.3. Notwithstanding the foregoing, Purchaser shall remain responsible for all
obligations and liabilities arising hereunder or under any other Purchase Document, and, except
as otherwise expressly set forth in any applicable pledge or assignment, nothing herein is
intended or shall be construed to impose any obligations upon or constitute an assumption by a
Collateral Assignee thereof.
Section 6.4
Replacement of Lost Notes.
Upon receipt of evidence reasonably satisfactory to Borrower of the mutilation,
destruction, loss or theft of any Notes and the ownership thereof (including providing an
affidavit with respect thereto), Borrower shall, upon the written request of the holder of such
Notes, execute and deliver in replacement thereof new Notes in the same form, in the same
original principal amount and dated the same date as the Notes so mutilated, destroyed, lost or
stolen; and such Notes so mutilated, destroyed, lost or stolen shall then be deemed no longer
outstanding hereunder. If the Notes being replaced have been mutilated, they shall be
surrendered to Borrower; and if such replaced Notes have been destroyed, lost or stolen, such
holder shall furnish Borrower with an indemnity in writing to save it harmless in respect of such
replaced Notes.
Section 6.5
No Other Representations Affected.
Nothing contained in this Article 6 shall limit the full force or effect of any
representation, agreement or warranty made herein or in connection herewith to Purchasers.
Section 6.6
Register.
Except with respect to collateral pledges described in Section 6.3 hereof,
Borrower shall keep at its principal office a register in which Borrower shall provide for the
registration of the Notes and for the transfer of the same; provided, however, that with respect to
any Notes pledged to or held by a Collateral Assignee, upon written notice to Borrower, such
Collateral Assignee or its designee shall have the right to maintain the register for such Notes.
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ARTICLE 7
COVENANTS
Section 7.1
Affirmative Covenants.
The Borrower and each other Loan Party covenants that, so long as any
Obligations remain outstanding, Borrower and each other Loan Party shall:
(a)
Existence. Do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence.
(b)
Businesses and Properties; Compliance with Laws. At all times:
(i)
(A) do or cause to be done all things necessary to preserve, renew
and keep in full force and effect the agreements, licenses, registrations, permits, certifications,
approvals, consents, franchises, patents, copyrights, trademarks and trade names, (B) comply in
all respects with all Laws applicable to the operation of the Business, including but not limited
to, all Environmental Laws, whether now in effect or hereafter enacted and with all other
applicable Laws, (C) take all action that may be required to obtain, preserve, renew and extend
all patents, copyrights, trademarks, trade names, franchises, registrations, certifications,
approvals, consents, licenses, permits and any other authorizations, in each case, as are necessary
for the continued operation of the Business, (D) maintain, preserve and protect all property
necessary for the continued operation of the Business, and (E) except for obsolete or worn out
equipment or equipment that is easily replaceable, keep its property in good repair, working
order and condition (except for ordinary course wear and tear) and from time to time make, or
cause to be made, all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order for the continued operation of the Business carried on in
connection therewith, except, in each case, as would not otherwise cause a Material Adverse
Effect.
(c)
Insurance. Maintain insurance required by the Purchase Documents and
any and all contracts entered into by the Loan Parties, consistent with coverage existing on the
Closing Date (which insurance coverage for the avoidance of doubt is hereby acknowledged as
being reasonably satisfactory to Agent). Each of the Loan Parties shall pay all insurance
premiums payable by it prior to the same becoming delinquent and shall deliver certificates of
insurance to Agent as required hereunder and otherwise upon the reasonable request of the
Agent. All insurance policies of the Loan Parties shall contain endorsements, in form and
substance reasonably satisfactory to Agent, providing that the insurance shall not be cancelable
except upon 30 days’ prior written notice to Agent. Agent, on behalf of Purchasers, shall be
shown as a loss payee and an additional insured party, as their interests may appear under all
such insurance policies, as applicable.
(d)
Obligations and Taxes. Pay and discharge promptly when due all taxes,
assessments and governmental charges or levies imposed upon them or upon their income or
profits or in respect of their properties before the same shall become delinquent or in default, as
well as all lawful material claims for labor, materials and supplies or otherwise, which, if unpaid,
could reasonably be expected to give rise to Liens or charges upon such properties or any part
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thereof; provided, however, that the Loan Parties shall not be required to pay and discharge or to
cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate Proceedings and the
Loan Parties shall have set aside on their books adequate reserves with respect thereto.
(e)
Financial Statements; Reports. Furnish to Agent:
(i)
Annual Statements. As soon as practicable and in any case
within 120 days after the end of each Fiscal Year (the “Delivery Date”), consolidated balance
sheets and consolidated statements of operations, stockholders’ equity and cash flows of the
Loan Parties showing the financial condition of the Loan Parties as of the close of such Fiscal
Year and the results of operations during such Fiscal Year, all of the foregoing financial
statements to be audited by Ernst & Young LLP or a firm of independent certified public
accountants of recognized national standing reasonably acceptable to Agent and accompanied by
an opinion of such accountants without material exceptions or qualifications, stating that such
financial statements were prepared in accordance with GAAP and present fairly in all material
respects the financial position of the Loan Parties and the results of their operations as of the
relevant date.
(ii)
Monthly Statements. As soon as practicable and in any case
within 30 calendar days after the end of each fiscal month commencing on May 4, 2013 (except
when such month is also the end of a Fiscal Quarter, in which case, within 50 calendar days),
consolidated financial statements (including a balance sheet and stockholders’ equity, cash flow
and operations statements) showing, in all material respects, the financial condition and results of
operations of the Loan Parties as of the end of each such month and for the then elapsed portion
of the current Fiscal Year, together with comparisons to the corresponding periods in the
preceding Fiscal Year and the budget for such periods, accompanied by a certificate signed by a
Financial Officer of each Loan Party indicating that such financial statements have been
prepared in accordance with GAAP (subject to the absence of notes thereto and other normal and
customary year-end adjustments thereto).
(iii) Format; Management Report; Certificate of Compliance. Each
balance sheet, operations statement, stockholders’ equity statement and cash flow statement
furnished to Agent or Purchasers pursuant to subsections (i) and (ii) of this Section 7.1(e) will be
furnished by an electronic means in Excel (if reasonably feasible) spreadsheet format containing
such line items and other formatting requirements as may reasonably be specified by Agent.
Each financial statement furnished to Agent pursuant to subsection (i) of this Section 7.1(e) and
financial statements furnished to Agent pursuant to subsection (ii) of this Section 7.1(e) as of the
end of each Fiscal Quarter of the Borrower (or, in the case of a Future Holding Company, the
Future Holding Company), shall be accompanied by (A) a written narrative report by the
management of the Loan Parties explaining material developments in the Business and such
financial statements in a manner consistent with past practice, (B) a written certificate signed by
a Financial Officer of each Loan Party to the effect that no Default or Event of Default has
occurred during the period covered by such financial statements or, if any such Default or Event
of Default has occurred during such period, setting forth a description of such Default or Event
of Default and specifying the action, if any, taken by the Loan Parties to remedy the same, (C) a
compliance certificate in the form of Exhibit G showing compliance with the covenants set forth
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in Section 7.3 and (D) in the case of financial statements furnished pursuant to subsection (i) of
this Section 7.1(e) at any time that a determination of Excess Cash Flow is required to be
calculated pursuant to Section 3.2(b), an excess cash flow certificate in the form of Exhibit H
showing a correct calculation of Excess Cash Flow and the prepayment required pursuant to
Section 3.2(b) hereof. Each financial statement furnished to the Agent pursuant to subsection (ii)
of this Section 7.1(e) with respect to a date other than as of the end of each fiscal quarter of the
Borrower (or such Future Holding Company) shall be accompanied by items (A) and (B), as
applicable, of the preceding sentence.
(iv)
Accountant Reports. Promptly upon the receipt thereof, copies of
all final reports submitted to the Loan Parties by independent certified public accountants in
connection with each annual, interim or special audit or review of the financial statements of the
Loan Parties or related internal control systems of the Loan Parties made by such accountants,
including but not limited to, any final comment letters submitted by such accountants to
management in connection with any annual review.
(v)
Projections. As soon as available, but in no event later than 90
days after the end of each Fiscal Year, a projection of the Loan Parties’ combined balance sheet,
and operations, retained earnings and cash flow statements, respectively, for the current year.
Each such projection shall be accompanied by a written certificate signed by each Loan Party’s
Financial Officer to the effect that it has been prepared in good faith based upon assumptions the
Loan Parties believed to be reasonable at the time of such preparation (it being understood and
agreed that such projection will be subject to uncertainties and contingencies many of which are
beyond the control of the Loan Parties and that actual results may differ from such projections
and such differences may be material).
(vi)
Government Filings, Notices and Correspondence. Promptly
after the sending or filing or receipt thereof, copies of any material filings, notices and written
correspondence with, or notices and written correspondence from, any Governmental Authority,
other than routine or ordinary course filings, notices and correspondence.
(vii) Other Notices. Promptly after the sending or filing or receipt or
any knowledge thereof (and in any event no later than five days after the date thereof): (A)
copies of any notices of a “default” or “event of default” pursuant to the terms of the Revolver
Documents or notes evidencing any subordinated Indebtedness in respect of other Permitted
Acquisitions, (B) notice of any request for a borrowing under the Revolving Credit Agreement
that was rejected or delayed and, to the extent known, the reason for such rejection or delay, or
any waivers of any terms of or amendments to the Revolver Documents, (C) the occurrence of a
Cash Dominion Event (as defined in the Revolving Credit Agreement), and (D) copies of all
amendments or modifications to such Loan Party’s Charter Documents or Operating Agreement.
In addition, the Loan Parties hereby consent to receipt by the Agent and Purchasers of any audit
reports relating to the Loan Parties prepared by, on behalf of, or for, the Revolving Agent or
Revolving Lenders and will cooperate with any requests by the Agent therefor.
(viii) Additional Information. Promptly, from time to time, such other
information available to the Loan Parties regarding the compliance by the Loan Parties with the
terms of this Agreement and the other Purchase Documents or the affairs, operations or financial
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condition of the Loan Parties as Agent or Required Purchasers may reasonably request (other
than information which is subject to an attorney-client privilege or would result in a breach of a
confidentiality obligation of the Loan Parties to any other Person).
(f)
Litigation and Other Notices. Upon obtaining knowledge thereof, give
Agent prompt written notice of the following:
(i)
Orders; Injunctions. The issuance by any court or Governmental
Authority of any written injunction, order, decision or other restraint prohibiting, or having the
effect of prohibiting, the making of any Loan or the initiation of any litigation or similar
proceeding seeking any such injunction, order or other restraint, or the commencement of any
investigation with respect to the Loan Parties or the Business by any Governmental Authority.
(ii)
Litigation. The notice, filing, commencement or written threat of
(A) any action, suit or proceeding in writing against any of the Loan Parties whether at law or in
equity or by or before any court or any Governmental Authority and that, (x) seeks class action
status, or (y) if adversely determined against any of the Loan Parties, could result in uninsured
liability in excess of $750,000 in the aggregate, or (B) any investigation or inquiry by any
Governmental Authority which if adversely determined could reasonably be expected to result in
a Material Adverse Effect.
(iii) Environmental Matters. (A) Any release or threatened release of
any Pollutant required to be reported to any Governmental Authority under any applicable
Environmental Laws, (B) any Removal, Remedial or Response action taken by any of the Loan
Parties or any other Person in response to any Pollutant in, at, on or under, a part of or about any
of the Loan Parties’ properties or any other property, (C) any violation by any of the Loan Parties
of any Environmental Law, in each case, that could result in a Material Adverse Effect, or (D)
any notice, claim or other information that any of the Loan Parties might be subject to
Environmental Liability.
(iv)
Default. Any Default or Event of Default, specifying the nature
and extent thereof and the action (if any) that is proposed to be taken with respect thereto.
(v)
Material Adverse Effect. Any development, occurrence or event
that would reasonably be expected to have a Material Adverse Effect.
(g)
ERISA. Comply in all material respects with the applicable provisions of
ERISA and the provisions of the IRC relating thereto and furnish to Agent (i) as soon as
possible, and in any event within 30 days after the Loan Parties know or have reason to know
thereof, notice of (A) the establishment by the Loan Parties of any Plan that is subject to Title IV
of ERISA or the funding requirements of Section 302 of ERISA, (B) the commencement by the
Loan Parties of contributions to a Multiemployer Plan, (C) any failure by the Loan Parties or any
member of the Controlled Group to make contributions required by Section 302 of ERISA
(whether or not such requirement is waived pursuant to Section 303 of ERISA), or (D) the
occurrence of any Reportable Event with respect to any Plan or Multiemployer Plan, together
with a statement of an officer setting forth details as to such Reportable Event and the action that
the Loan Parties propose to take with respect thereto, together with a copy of the notice of such
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Reportable Event given to the PBGC if any such notice was provided by the Loan Parties,
(ii) promptly after receipt thereof, a copy of any notice the Loan Parties may receive from the
PBGC relating to the intention of the PBGC to terminate any Plan or Multiemployer Plan, or to
appoint a trustee to administer any Plan or Multiemployer Plan, and (iii) promptly after receipt
thereof, a copy of any notice of withdrawal liability from any Multiemployer Plan.
(h)
Maintaining Records; Access to Premises and Inspections. Maintain
financial records in accordance with generally accepted practices and, upon reasonable notice
and solely during reasonable business hours (and at any time after the occurrence and during the
continuation of an Event of Default), permit any authorized representatives designated by Agent
to visit and inspect the properties and financial records of the Loan Parties and to make extracts
from such financial records, and to conduct one field audit and one appraisal of Inventory of the
Loan Parties’ assets per Fiscal Year, and permit any authorized representative designated by
Agent to visit and discuss the affairs, finances and conditions of the Loan Parties with each Loan
Party’s chief financial officer and such other officers as the Loan Parties shall deem appropriate,
and the Loan Parties’ independent public accountants (provided, that a representative of the Loan
Parties shall be entitled to be present during any discussion with the Loan Parties’ independent
public accountants); provided, however, that until the Revolving Loan is paid in full and the
Revolving Credit Agreement has been terminated, the Agent and the Purchasers shall rely on the
audits and appraisals performed by the Revolving Agent and such audits and appraisals shall
count towards the one audit and appraisal permitted hereunder.
(i)
Intentionally Deleted.
(j)
Future Subsidiaries; Additional Collateral.
(i)
With respect to each Person which becomes a Subsidiary of the
Borrower (directly or indirectly) (other than Subsidiaries created in advance for the purpose of
consummating a potential Permitted Acquisition so long as such Subsidiary does not own any
material assets (but only until the consummation of such acquisition)) subsequent to the Closing
Date, whether by Permitted Acquisition or otherwise, cause such new Subsidiary (other than a
foreign Subsidiary) promptly after becoming such a new Subsidiary to execute and deliver to the
Agent, for and on behalf of each of the Purchasers (unless waived by the Agent):
(A)
(1) a joinder agreement to the Guarantee Agreement
whereby such Subsidiary becomes obligated as a Guarantor under the Guarantee Agreement; or
(2) a joinder agreement to the Loan Agreement whereby such Person becomes a Borrower
hereunder;
(B)
(1) a joinder agreement to the Security Agreement whereby
such Subsidiary grants a Lien over its assets (other than Equity Interests which should be
governed by clause (D) of this Section 7.1(j)(i)) as set forth in the Security Agreement, and (2)
such other Intellectual Property Security Agreements in the form of Exhibits E-1, E-2 and E-3, as
applicable, and such Subsidiary shall take such additional actions as may be necessary to ensure
a valid first priority perfected Lien in the United States over such assets of such Subsidiary,
subject only to Permitted Liens;
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(C)
to the extent required by the Agent in its sole discretion, a
mortgage with respect to any real estate owned by such Subsidiary that, together with any
improvements thereon, individually has a fair market value of at least $1,000,000;
(D)
to the extent a Landlord Agreement has not been delivered
to Agent with respect to any leased Properties and Facilities leased after the Closing Date,
Borrower shall use commercially reasonable efforts to obtain Landlord Agreements substantially
in the form of Exhibit J attached hereto to the extent collateral located at such location is valued
in excess of $1,000,000; provided, that if the real estate is leased from an Affiliate and such
Affiliate owns such real estate, Borrower shall obtain a Landlord Agreement from such Affiliate
and such other documents as may be reasonably required to be delivered in connection therewith;
(E)
with respect to the Equity Interests of each Person which
becomes a Subsidiary subsequent to the Closing Date, cause the Loan Party that holds such
Equity Interests to execute and deliver such Pledge Agreements in the form of Exhibit F, and
take such actions as may be necessary to ensure a valid first priority perfected Lien over one
hundred percent (100%) of the Equity Interests of such Subsidiary held by the Loan Party (or
65% in the case of a foreign Subsidiary), such Pledge Agreements to be executed and delivered
(unless waived by the Agent) within 30 days after the date such Person becomes a Subsidiary (or
such longer time period as Agent may determine);
in each case in form reasonably satisfactory to the Agent, in its discretion, together with such
supporting documentation as reasonably required by the Purchasers. Upon the Agent’s
reasonable request, the Loan Parties shall take, or cause to be taken, such additional steps as are
necessary or advisable under applicable Law to perfect and ensure the validity and priority of the
Liens granted as required by this Section 7.1(j).
(k)
Senior Credit Enhancements. Following the execution of the Revolver
Documents, if the Revolving Lender receives any additional guaranty, letter of credit, or any
other credit enhancement after the Closing Date which relates to the Term Loan Priority
Collateral (excluding any credit enhancement provided to a Revolving Lender specifically for the
purpose of providing additional credit enhancement for such Revolving Lender’s letter of credit
exposure or borrowing base exposure), the Borrower shall cause the same to be granted to the
Agent for the benefit of the Purchasers.
(l)
Revolver. On the Closing Date, the Borrower shall provide to the Agent
(i) copies of the executed Revolver Documents (or amendments thereto) including all schedules
and exhibits thereto, certified by Loan Parties as of the date thereof as being true, complete and
correct, in full force and effect, with all conditions specified therein having been satisfied or
waived by the Revolving Lender, and that no default or event of default exists thereunder, and
(ii) a legal opinion reasonably satisfactory to Agent upon which it may rely solely as to the
enforceability of the Deposit Account Control Agreements against the Loan Parties in effect on
the Closing Date, and such other matters as the Agent shall reasonably request, in form and
substance reasonably satisfactory to the Agent.
(m)
Future Holding Company. In the event that the stockholders of Broder
desire to create a Future Holding Company to own directly 100% of the Equity Interests of
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ME1 15090407v.18
Broder, such stockholders shall cause the Future Holding Company to, simultaneously with the
transfer of the Equity Interests of Broder to the Future Holding Company, (a) execute the
documentation required of a Subsidiary under Sections 7.1((j)(i)(A) and (B) as if such Future
Holding Company were such a Subsidiary, (b) take all actions necessary in the reasonable
opinion of the Agent to cause the Lien created by the Security Agreement to be duly perfected to
the extent required by such agreement in accordance with all applicable Laws, including, without
limitation, the filing of financing statements under the Code in such jurisdictions as may be
reasonably requested by the Agent, (c) deliver to the Agent the certificates representing 100% of
the Equity Interests of Broder, together with undated stock powers or other appropriate
instruments of transfer executed and delivered in blank by a duly authorized officer of the Future
Holding Company, and (iv) deliver to the Agent such legal opinions, certificates and other
documents as are reasonably requested by the Agent.Post-Closing Deliverables; Agreements.
(i)
Deposit Account Control Agreements and Landlord
Agreements. Within sixty (60) days after the Closing Date (or such longer period agreed to by
the Agent) the Borrower shall (a) deliver a Deposit Account Control Agreement with respect to
each deposit account of the Loan Parties to perfect the Agent’s security interest in such deposit
accounts, subject to the Intercreditor Agreement; provided, however, that after using its
reasonably commercial efforts to obtain such Deposit Account Control Agreements, the
Borrower may have deposit accounts not subject to a Deposit Account Control Agreement (such
accounts, the “Excluded Accounts”) so long as no Excluded Account shall have more than
$75,000 on deposit therein at the close of business on any day during the term of this Agreement
and all Excluded Accounts shall not have, on an aggregate basis, more than $1,500,000 on
deposit therein at the close of business on any day during the term of this Agreement, and (b) use
commercially reasonable efforts to deliver a Landlord Agreement between Agent, Revolving
Agent, Borrower and certain landlords with respect to each of the Borrower’s leased facilities
specified on Schedule 7.1(n), providing that Agent may exercise the rights thereunder upon the
termination of the Revolving Loan Liabilities, to the reasonable satisfaction of the Agent.
(ii)
Compliance Certificate. Within five (5) Business Days after the
Closing Date, the Borrower shall deliver to the Agent a certificate signed by a Financial Officer
of the Borrower to the effect that the Borrower was in compliance, as at the Closing Date, with
all of its financial covenants set forth in this Agreement based upon the most recent financial
statements available to it.
(iii) Insurance Documents. Within 15 Business Days after the
Closing Date, the Borrower shall deliver to the Agent any required endorsements to insurance
policies not otherwise delivered at Closing.
(iv)
Future Leased Facilities. In the event the Loan Parties lease any
additional Properties and Facilities following the Closing Date, they shall use commercially
reasonable efforts to obtain a Landlord Agreement as referenced at Section 7.1(j)(i)(D).
Section 7.2
Negative Covenants.
Each Loan Party covenants that, so long as all or any part of the principal amount
of the Notes or any interest, fees or expenses thereon shall remain outstanding:
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ME1 15090407v.18
(a)
Indebtedness. None of the Loan Parties shall create, incur, assume,
guarantee or be or remain liable for, contingently or otherwise, or suffer to exist, any
Indebtedness, except the following (collectively, “Permitted Indebtedness”):
(i)
Indebtedness incurred under this Agreement;
(ii)
the Revolving Loans (and renewals, refinancings, and extensions
thereof); provided, however, that the principal amount of such Revolving Loans shall not exceed
$315,000,000; notwithstanding the foregoing, the Revolving Loans shall not exceed
$280,500,000 unless (A) the Agent consents thereto, or (B) the terms and conditions applicable
to such Revolving Loans are no more adverse to the Agent and the Purchasers than the terms and
conditions of the Revolving Credit Agreement existing on the Closing Date; for the sake of
clarity, any reduction or lessening of borrowing base eligibility requirements and standards shall
be deemed to be adverse to the Agent and the Purchasers;
(iii) Indebtedness incurred in the ordinary course of business with
respect to customer deposits, trade payables and other unsecured current liabilities not the result
of borrowing and not evidenced by any note or other evidence of Indebtedness;
(iv)
intercompany Indebtedness outstanding to the extent permitted by
Section 7.2(i);
(v)
Indebtedness (whether secured (pursuant to Section 7.2(b)(iv)) or
unsecured) incurred to procure services or to purchase or lease on a capitalized lease basis
equipment or other capital assets (A) pursuant to the leases permitted under Section 7.2(d) or (B)
following the Closing Date, in an amount at any time outstanding not to exceed $10,000,000;
provided that, in each such case recourse under such Indebtedness is limited to the equipment or
other capital asset acquired or leased;
(vi)
Indebtedness in the form of Guaranties otherwise permitted by this
Section 7.2(a), other than Section 7.2(a)(xxii);
(vii) to the extent permitted hereunder and pursuant to the Management
Fee Subordination Agreement, accrued but unpaid management fees payable to the Management
Services Provider;
(viii) Indebtedness set forth on Schedule 7.2(a) hereto;
(ix)
Indebtedness representing reimbursement obligations and other
liabilities of Borrower with respect to surety bonds, performance bonds, workers’ compensation
claims, self-insurance obligations, governmental contracts, export or import indemnitees or
similar instruments, customs bonds, completion guarantees, letters of credit, banker’s
acceptances, drafts (other than checks in the ordinary course or to make payments permitted by
this Agreement) or similar documents or instruments issued for Borrower’s account, including:
(A) letters of credit issued under the Revolving Credit Agreement, (B) letters of credit issued by
a third-party financial institution to the extent expressly permitted by the Revolving Credit
Agreement, (C) cash deposits in connection with bids, tenders or leases or as security for surety
bonds, license bonds, permit bonds, or appeal bonds, incurred in the ordinary course of business,
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ME1 15090407v.18
(D) Indebtedness incurred by endorsement of checks, drafts, or similar instruments for deposit in
the ordinary course of business, (E) appeal bonds or surety bonds arising with respect to an
Account of Borrower, which surety bond is issued in the ordinary course of business in an
aggregate amount not to exceed, as of any date, $100,000, and (F) license bonds or permit bonds
which are issued in the ordinary course of business;
(x)
Indebtedness evidenced by notes, bonds, debentures, installment
contracts, capitalized leases, synthetic leases, or similar obligations to the extent permitted under
clauses (i), (ii), (iv), (v), and (viii) of this Section 7.2(a);
(xi)
Reserved.
(xii)
Reserved.
(xiii) Indebtedness to the Revolving Agent and Revolving Lenders in
respect of netting services and overdraft protections in connection with deposit accounts, in each
case in the ordinary course of business;
(xiv) Indebtedness consisting of deferred purchase price or notes issued
to officers, directors and employees to purchase or redeem equity interests (or option or warrants
or similar instruments) of a Loan Party provided such Indebtedness is subordinated to the
Obligations in form and substance reasonably satisfactory to Agent and does not exceed
$2,000,000 outstanding at any time;
(xv) unsecured indebtedness owed to stockholders of the Borrower (or
any Future Holding Company) and their respective Affiliates (excluding the Borrowers, any
Future Holding Company or any of their Subsidiaries), provided that such Indebtedness does not
require the payment in cash of principal prior to the maturity date of the Notes, is subordinated to
the Obligations on terms reasonably acceptable to Agent, and does not exceed $500,000
outstanding at any time;
(xvi) Indebtedness of any of the Loan Parties under Interest Rate
Protection Agreements or hedging or derivative agreements or arrangements to fix the effective
rate of interest on the Loans and other non-speculative Interest Rate Protection Agreements
which may be entered into from time to time by any Loan Party and which such Loan Party in
good faith believes will provide protection against fluctuations in interest rates with respect to
floating rate Indebtedness then outstanding;
(xvii) Indebtedness in respect of taxes, assessments or governmental
charges to the extent that payment thereof shall not at the time be required to be made in
accordance with Section 3.7;
(xviii) Indebtedness of the target of a Permitted Acquisition that was
outstanding on the date of such Permitted Acquisition (or Indebtedness assumed at the time of a
Permitted Acquisition and permitted refinancings of any such Indebtedness) in an amount not to
exceed $20,000,000 in the aggregate outstanding at any time; provided that such Indebtedness
was not incurred in connection with, or in anticipation or contemplation of, such Permitted
Acquisition and any Liens on such purchased property or assets comply with Section 7.2(b);
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(xix) Indebtedness (including the deferred purchase price for such
Permitted Acquisition) incurred at the time of a Permitted Acquisition which meets the following
requirements: (i) the proceeds of such Indebtedness are used to finance such Permitted
Acquisition, (ii) any such Indebtedness shall contain terms and conditions acceptable to Agent,
(iii) such Indebtedness shall not be issued or guaranteed by any Loan Party except the Borrower
or any Future Holding Company, (iv) the holders of such Indebtedness shall enter into a
subordination agreement with the Agent containing terms and conditions (including, without
limitation, standstill and blockage rights) acceptable to Agent, and (v) such Indebtedness shall be
issued otherwise in compliance with Section 7.2(j);
(xx) Indebtedness constituting the obligation to make purchase price
adjustments in connection with Permitted Acquisitions;
(xxi) Indebtedness due to any landlord in connection with the financing
by such landlord or leasehold improvements not to exceed $1,000,000 in the aggregate at any
time outstanding;
(xxii) subject to Section 7.2(a)(vi), Indebtedness incurred by any foreign
Subsidiary of the Loan Parties or non-wholly owned Subsidiary of the Loan Parties in an
aggregate amount not to exceed $20,000,000 at any time outstanding, provided that no Loan
Party shall have any obligation or liability, contingent or otherwise, for repayment of any such
Indebtedness, including all interest thereon and all costs and expenses related thereto;
(xxiii) Indebtedness consisting of incentive, non-compete, consulting,
compensation, or other similar arrangements entered in the ordinary course of business and not
to exceed $3,500,000 in the aggregate at any time;
(xxiv) Indebtedness incurred for construction or acquisition or
improvement of, or to finance or refinance, any real property (excluding therein any
Indebtedness incurred in connection with a sale leaseback transaction) not to exceed $500,000 in
the aggregate at any time outstanding;
(xxv) Indebtedness incurred in connection with sale leaseback
transactions permitted hereunder not to exceed $1,000,000 in the aggregate outstanding at any
time;
(xxvi) Indebtedness incurred in the ordinary course of business in
connection with the financing of insurance premiums;
(xxvii) without duplication of any other Indebtedness, non-cash accruals
of interest, accretion or amortization of original issue discount and payment-in-kind interest with
respect to Indebtedness permitted hereunder provided that the permitted payment date thereof
shall be on a date following the maturity date of the Notes;
(xxviii)other unsecured Indebtedness up to a maximum aggregate amount
not to exceed as of any date $2,000,000 outstanding so long as after giving effect to the
incurrence of such Indebtedness, no Event of Default is created thereby;
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(xxix) Indebtedness of the Future Holding Company permitted under
Section 7.2(t);
(xxx) extensions, renewals and replacements of any such Indebtedness
described above; and
(xxxi) the Existing Notes so long as Borrower irrevocably deposits with
the Trustee the full and proper amount necessary to effect an unconditional covenant defeasance
pursuant to the terms of the Indenture.
(b)
Negative Pledge; Liens. None of the Loan Parties shall create, incur,
assume or suffer to exist any Lien of any kind on any of its properties or assets of any kind,
except the following (collectively, “Permitted Liens”):
(i)
Liens created by the Purchase Documents, including without
limitation those securing the Notes;
(ii)
Liens for or priority claims imposed by Law that are incidental to
the conduct of business or the ownership of properties and assets (including mechanics’,
warehousemen’s, materialmen’s, repairmen’s, attorneys’ and statutory landlords’ liens) and
deposits, pledges or liens to secure statutory or contractual obligations; provided, however, that
in each case, the obligation secured thereby shall not be overdue, or, if overdue, is being
contested in good faith and adequate reserves have been set up by the Loan Parties, as the case
may be;
(iii) Liens subject to the Intercreditor Agreement securing the
Revolving Loans (and renewals, refinancings and extensions thereof) and Indebtedness under
Section 7.2(a)(vi) and Section 7.2(a)(xvi);
(iv)
purchase money Liens securing Indebtedness permitted to be
incurred under Section 7.2(a)(v) (provided that no such purchase money Liens shall extend to or
cover other property of the Loan Parties other than the items of equipment or other capital assets
so acquired);
(v)
Liens consisting of zoning restrictions, easements, licenses,
covenants and other restrictions affecting the use of the Loan Parties’ real property, which do
not, in the Agent’s determination (A) materially impair the use of such property, or
(B) materially lessen the value of such property for the purposes for which the same is held by
the Loan Parties; provided that the lien and security interest provided in the Security Documents
or any portion thereof created or intended to be created thereby is not, in the opinion of Agent,
unreasonably jeopardized thereby;
(vi)
Liens securing the payments of taxes, fees, assessments and
governmental charges or levies incurred in the ordinary course of business that either (A) are not
delinquent or in respect of which the non-payment is permitted hereunder and (B) are being
contested in good faith by appropriate legal or administrative Proceedings and as to which
adequate reserves have been set aside on the Loan Parties’ books in accordance with GAAP, and
so long as during the period of any such contest, the Loan Parties shall suffer no loss of any
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privilege of doing business or any other right, power or privilege necessary and material to the
operation of the Business;
(vii)
hereto as Schedule 7.2(b);
Liens listed on the “Permitted Encumbrances Schedule” attached
(viii) Liens consisting of judgment or judicial attachment liens (other
than for payment of taxes, assessments or other governmental charges) that do not result in a
Default or an Event of Default hereunder;
(ix)
Liens securing obligations under Capitalized Leases permitted
hereunder;
(x)
Liens from precautionary Uniform Commercial Code (or similar
statute) financing statements (or similar filing) filed under any lease permitted hereunder;
(xi)
Liens arising solely by virtue of any contractual or statutory or
common law provision relating to banker’s liens, rights of set-off or similar rights and remedies
as to deposit accounts and other funds maintained with a creditor depository institution;
provided, that any such deposit account is not a dedicated cash collateral account in favor of such
depository institution and not otherwise intended to provide collateral security (other than for
customary account commissions, fees and reimbursable expenses relating solely to such deposit
account, and for returned items);
(xii) Liens consisting of prepayments and security deposits in
connection with leases and utility services and similar transactions entered into by the applicable
Loan Party in the ordinary course of business and not required as a result of a breach of any
agreement or default in payment of any obligation;
(xiii) leases or subleases granted by any Loan Parties to other Persons
with respect to the assets or properties of such Loan Party, in each case entered into in the
ordinary course of business of such Loan Party and not interfering, alone or in the aggregate,
with the conduct of the business of the Loan Parties;
(xiv) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by a Loan Party in the ordinary course of
business in accordance with the past practices of such Loan Party and not interfering, alone or in
the aggregate, with the conduct of the business of the Loan Parties;
(xv) Non-exclusive licenses or sublicenses of Proprietary Rights
granted by a Loan Party in the ordinary course of business and not interfering, alone or in the
aggregate, with the conduct of the business of the Loan Parties;
(xvi) Liens in favor of customs and revenues authorities imposed by
Applicable Law arising in the ordinary course of business in connection with the importation of
goods and securing obligations (i) that are not overdue by more than thirty (30) days, (ii)(A) that
are being contested in good faith by appropriate proceedings, (B) the applicable Loan Party or
Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with
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GAAP and (C) such contest effectively suspends collection of the contested obligation and
enforcement of any Lien securing such obligation;
(xvii) Liens which arise under Article 4 of the UCC on items in
collection and documents and proceeds related thereto;
(xviii) the filing of financing statements solely as a precautionary measure
in connection with operating leases or consignment of goods;
(xix) Liens in the nature of the right of setoff in favor of counterparties
to contractual agreements with Loan Parties in the ordinary course of business;
(xx) landlords’ and lessors’ Liens arising in the ordinary course of
business that are either: (A) not delinquent, (B) secure obligations that remain payable without
penalty, (C) being contested in good faith, or (D) delinquent not longer than 60 days and secure
not more than $500,000 of claims and liabilities in the aggregate at any time;
(xxi) Possessory liens in favor of brokers and dealers arising in
connection with the acquisition or disposition of Investments owned as of the date hereof and
other permitted Investments, provide that such Liens (a) attach only to such Investment and (b)
secure only obligations incurred in the ordinary course of business and arising in connection with
the acquisition or disposition of such Investments and not in connection with any margin
financing;
(xxii) any interest or title of a licensor, sublicensor, lessor or sublessor
under any license or operating or true lease agreement in which a Loan Party is the licensee or
lessee;
(xxiii) Liens on property of any foreign Subsidiary to secure any
Permitted Indebtedness pursuant to Section 7.2(a);
(xxiv) any Lien related to Indebtedness permitted under Section
7.2(a)(xviii) or any other Lien existing on property at the time of the acquisition thereof not to
exceed $1,500,000, and any Lien securing obligations incurred to refinance, replace, refund,
renew or extend the obligations secured by such Liens, provided that in each case (i) such Lien is
not created in contemplation or in connection with such Permitted Acquisition and (ii) such Lien
does not extend to property not subject to such Liens at the time of acquisition (other than
fixtures on and improvements to such property), unless otherwise permitted hereby;
(xxv) the replacement, extension or renewal of any Permitted Lien;
provided that such Lien shall at no time be extended to cover any assets or property other than
such assets or property subject thereto on the Closing Date or the date such Lien was incurred
(other than proceeds and accessions), as applicable, unless otherwise permitted hereby;
(xxvi) other Liens securing Indebtedness permitted hereunder or other
liabilities and not exceeding $1,500,000 in the aggregate at any time outstanding; and
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(xxvii) Liens on the deposit referenced at Section 7.2(a), so long as such
Liens only attach to such deposit and the segregated trust account related thereto.
(c)
Intentionally Deleted.]
(d)
Leases. No Loan Party shall enter into an operating lease without the
prior written consent of the Agent if the aggregate amount of annualized payments on all
operating leases during any Fiscal Year exceeds $25,000,000.
(e)
Sale-Leaseback. None of the Loan Parties shall enter into a saleleaseback or similar financing transaction unless (a) (i) the sale of such Property is permitted by
Section 7.2(f) and (ii) any Liens arising in connection with its use of such Property are permitted
by Section 7.2(b) or (b) to the extent such transaction is not by and among Loan Parties, in an
amount not to exceed $1,000,000 in the aggregate.
(f)
Mergers, Dispositions, etc. None of the Loan Parties shall merge into or
consolidate or combine with any other Person, or purchase, lease or otherwise acquire (in one
transaction or a series of related transactions) all or substantially all of the assets of another
Person, or of a division or line of business of another Person, other than (x) subject to Section
7.2(l), mergers of one Loan Party into another Loan Party, provided, that, in the event of any
merger, consolidation or combination involving the Borrower (or, in the case of a Future Holding
Company, the Future Holding Company), the Borrower (or such Future Holding Company) is
the surviving entity, (y) purchases or other acquisitions of inventory, materials, leases, property
and equipment in the ordinary course of business, or (z) in connection with a Permitted
Acquisition. Except (i) for the sale of assets that are obsolete or no longer used or useful in the
Business, (ii) for the sale, license, abandonment or other disposition of Proprietary Rights that
are no longer material to the Business, (iii) for the sale of assets with a net book value of less
than $10,000,000 in the aggregate per year, so long as all proceeds thereof are paid in cash and
remain subject to Section 3.5(b), or (iv) as expressly permitted by the Security Documents, none
of the Loan Parties shall effectuate a Disposition.
(g)
Affiliate Transactions. Except as set forth on the “Affiliate Transaction
Schedule” attached hereto as Schedule 7.2(g), none of the Loan Parties shall enter into or be a
party to any transaction or arrangement with any Affiliate of any of the Loan Parties, including,
without limitation, the purchase from, sale to or exchange of property with, any merger or
consolidation with or into, or the rendering of any service by or for, any such party, except as
otherwise permitted by the terms of this Agreement and upon fair and reasonable terms no less
favorable to the Loan Parties than would be obtained in a comparable arm’s-length transaction
with a Person other than any Affiliate; provided, that the Loan Parties may (1) reimburse the
Management Services Provider for reasonable out of pocket expenses incurred by the
Management Services Provider in connection with providing management services to the Loan
Parties, and (2) provided that no Default relating to the payment of any Obligation under this
Agreement or any Purchase Document or no Event of Default exists at such time or would exist
upon the payment of the following, enter into the following transactions: (i) payment of
dividends and other amounts permitted by Section 7.2(h), (ii) issuance of stock option, stock
incentive, equity, bonus and other compensation plans of the Loan Parties and their Subsidiaries
and the issuance of shares thereunder, (iii) loans (and interest thereon) may be made and paid
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and other transactions may be entered into between and among any Loan Party and its Affiliates
to the extent permitted hereunder, (iv) employment contracts with officers and management of
the Loan Parties and their Subsidiaries, (v) other transactions with Affiliates specifically
permitted under this Agreement, and (vi) subject at all times to the Management Fee
Subordination Agreement payment of management fees to the Management Services Provider
pursuant to the Management Agreement in an amount not to exceed $750,000 in Fiscal Year
2013 and $500,000 in any Fiscal Year thereafter, it being agreed that except as provided in the
proviso at clause (1) above, the Loan Parties may not make payments in respect of any other
management fees; and provided further that for the purposes of this subsection (g) no Loan Party
shall be considered an Affiliate of another Loan Party.
(h)
Dividends and Stock Purchases; Board Payments.
(i)
None of the Loan Parties shall directly or indirectly declare or pay
any dividends or make any distribution of any kind on its outstanding Equity Interests (including
any redemption, payment of liquidation preference, purchase or acquisition of, whether in cash
or in property, securities or a combination thereof, of any Equity Interests or capital accounts or
warrants, options or any of their other securities), or set aside any sum for any such purpose;
provided, that (i) Subsidiaries of Loan Parties may pay dividends to and make distributions to
their corporate or entity parent which is a Loan Party; (ii) the Loan Parties may pay dividends
solely with the proceeds of a Designated Equity Issuance; (iii) payments in cash or notes may be
made by a Loan Party to former employees, officers or directors of a Loan Party in connection
with the redemption or repurchase of Equity Interests in a Loan Party from such former
employees, officers or directors upon termination of employment with a Loan Party or their
death or disability in an aggregate amount not to exceed $10,000,000 in the aggregate during the
term of this Agreement (and $5,000,000 in the aggregate in any Fiscal Year) and provided that
any such notes are subordinated to the Obligations in form and substance reasonably acceptable
to the Agent; (iv) the Loan Parties may make Dispositions permitted hereunder; (v) the Loan
Parties may make dividends constituting repurchases of Equity Interests in a Borrower or any
Subsidiary in connection with the exercise of stock options or warrants; provided that such
payments shall not exceed $5,000,000 in the aggregate in any Fiscal Year and $10,000,000 in the
aggregate after the Closing Date; (vi) any Person that is not a Loan Party may pay dividends or
make other distributions of Property to any Loan Party or other Person that is not a Loan Party;
and (vii) Borrower may pay management fees and other out of pocket expenses to Sponsor
Group to the extent permitted by Section 7.2(g).
(ii)
Borrower (or following the formation thereof, the Future Holding
Company) shall not pay, or cause or permit any other Loan Party to pay, any fees or expenses
(other than indemnification and directors and officers insurance with respect thereto) of the
members of Borrower’s (or such Future Holding Company’s) Board other than (i) the reasonable
travel and other out-of-pocket expenses of such Persons and (ii) with respect to outside directors
or managers, as applicable, not exceeding $75,000 in the aggregate per Fiscal Year per director
with respect to director fees.
(i)
Advances, Investments and Loans. None of the Loan Parties shall
purchase, or hold beneficially any Investment, or make or permit to exist any loan, Guaranty or
advance to, or make any investment or acquire any interest whatsoever in, any other Person
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(including, but not limited to, the formation or acquisition of any Subsidiaries), except (each of
the following, individually a “Permitted Investment”):
(i)
cash and securities issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof having
maturities of not more than six months from the date of acquisition;
(ii)
United States dollar-denominated time deposits, certificates of
deposit and bankers acceptances of any bank or any bank whose short-term debt rating from
Standard & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), is
at least A-1 or the equivalent or from Moody’s Investors Service, Inc. (“Moody’s”) is at least P1 or the equivalent with maturities of not more than six months from the date of acquisition;
(iii) commercial paper with a rating of at least A-1 or the equivalent by
S&P or at least P-1 or the equivalent by Moody’s maturing within six months after the date of
acquisition;
(iv)
marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public instrumentality
thereof maturing within six months from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;
(v)
Investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (i) through (iv) above;
(vi)
deposit accounts maintained with the Loan Parties’ existing
financial institutions, which financial institutions, subject to Section 7.1(n), have entered into
depository account control agreements with Agent on terms satisfactory to Agent;
(vii) Investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the ordinary course of
business;
(viii) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases, utilities, suppliers or in connection with
bidding on government contracts;
(ix)
receivables owing to the Loan Parties created or acquired in the
ordinary course of business and payable on customary trade terms of the Loan Parties;
(x)
a Loan Party may enter into Interest Rate Protection Agreements or
hedging or derivative agreements or arrangements to the extent permitted by Section 7.2(a);
(xi)
advances to employees, officers, directors and managers in the
ordinary course of business for business expenses (including travel, relocation and entertainment
related advances); provided, however, that the aggregate amount of such advances at any time
outstanding shall not exceed $500,000;
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(xii) loans to employees of Borrower (or following the formation
thereof, the Future Holding Company) primarily for personal, family or household purposes in
an amount not exceeding in the aggregate $50,000 outstanding at any one time so long as, in
each case, no Event of Default exists as of the making of any such loan;
(xiii) any Loan Party may make Investments in any other Loan Party;
(xiv) any Loan Party may sell or transfer amounts and acquire assets to
the extent permitted by Section 7.2(f);
(xv) Investments (including the deposit of earnest money) in connection
with Permitted Acquisitions;
(xvi) to the extent permitted by applicable Law, Investments in the form
of notes not to exceed $1,000,000 outstanding at any time, payable to a Loan Party, from officers
and employees in exchange for Equity Interests of a Loan Party purchased by such officers or
employees pursuant to a stock ownership or purchase plan or compensation plan or in connection
with compensation of such Loan Party so long as such notes are pledged (and delivered) to the
Agent pursuant to the Security Agreement (to the extent required therein);
(xvii) Investments in foreign Subsidiaries or other Subsidiaries, in each
case which are not Loan Parties; in an amount not exceeding the Investment Limit Amount (plus
the amount of any net cash proceeds of any Designated Equity Issuance actually used for such
purpose);
(xviii) the Loan Parties may establish (i) Subsidiaries that are whollyowned by Borrower (or following the formation thereof, the Future Holding Company) to the
extent they comply with Section 7.1(j) and (ii) non-wholly owned Subsidiaries and/or joint
ventures to the extent that Investments in such non-wholly owned Subsidiaries and/or joint
ventures, when combined with Investments made pursuant to clause (xv) of this Section, shall
not exceed the Investment Limit Amount (plus the amount of any net cash proceeds of any
Designated Equity Issuance actually used for that purpose), after taking into account amounts
returned in cash (including upon disposition);
(xix)
Capital Expenditures permitted under Section 7.3(c);
(xx)
Loan Parties may capitalize or forgive any Indebtedness owed to it
by other Loan Parties;
(xxi) Guaranties of Indebtedness (or other obligations) of Subsidiaries
that are not Loan Parties in an amount not exceeding the Investment Limit Amount (plus the
amount of any net cash proceeds of any Designated Equity Issuance actually used for that
purpose); and
(xxii) the Loan Parties may hold Investments to the extent such
Investments reflect an increase in the value of Investments otherwise permitted under this
Section 7.2(i).
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(j)
Acquisitions.
(i)
Except for Permitted Acquisitions, no Loan Party shall purchase or
otherwise acquire or become obligated for the purchase of all or substantially all or any material
portion of the assets or business interests or a division or other business unit of any Person, or
any Equity Interest of any Person, or any business or going concern.
(ii)
As used in this Agreement, “Permitted Acquisition” means any
acquisition by any Loan Party on or after the September 28, 2013 (or such earlier date consented
to by the Agent) of all or substantially all of the assets of another Person, or of a division or line
of business of another Person, or any Equity Interests of another Person (i) as to which the Agent
has granted its prior written consent, or (ii) which satisfies and is conducted in accordance with
the following requirements:
(A)
Such acquisition is of a business engaged in a line of
business that is compatible with, or complementary to, the Business;
(B)
If such acquisition is structured as an acquisition of the
Equity Interests of any Person, then the Person so acquired shall (1) become a wholly-owned
direct Subsidiary of a Loan Party and the applicable Loan Party shall cause such acquired Person
to comply with Section 7.1(j) hereof or (2) be merged with and into such Loan Party (and, in the
case of the Borrower, with Borrower being the surviving entity);
(C)
If such acquisition is structured as the acquisition of assets,
such assets shall be acquired directly by a Loan Party;
(D)
The Loan Parties shall have delivered to Agent not less
than 10 days (or such shorter period of time agreed to by the Agent) nor more than 90 days prior
to the date of such acquisition, notice of such acquisition together with Pro Forma Projected
Financial Information, copies of all material documents relating to such acquisition (including
the acquisition agreement and any related document), the terms of any earn-out payments, and
historical financial information (including income statements, balance sheets and cash flows)
covering at least three complete Fiscal Years of the acquisition target, to the extent available (and
in no case less than two), prior to the effective date of the acquisition, in each case in form and
substance satisfactory to the Agent; provided that, the Loan Parties shall only be required to
deliver Pro Forma Projected Financial Information if the aggregate purchase price for such
acquisition will be in excess of $10,000,000;
(E)
Both immediately before and after the consummation of
such acquisition and after giving effect to the Pro Forma Projected Financial Information, no
Default or Event of Default shall have occurred and be continuing;
(F)
Agent and Purchasers shall have received from the Loan
Parties evidence that the business or Person being acquired has positive EBITDA (based on Pro
Forma Adjustments)
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(G)
The Board of the seller of the assets or issuer of the Equity
Interests being acquired shall not have disapproved such transaction or recommended that such
transaction be disapproved;
(H)
All licenses, authorizations, exemptions, qualifications,
consents and approvals of any Governmental Authority necessary under any laws applicable to
such Loan Party that is making the acquisition, or the acquisition target (if applicable) for or in
connection with the proposed acquisition and all necessary non-governmental and other thirdparty approvals which, in each case, are material to such acquisition shall have been obtained,
and all necessary or appropriate declarations, registrations or other filings with any court,
Governmental Authority, securities exchange or any other Person, which in each case, are
material to the consummation of such acquisition or to the acquisition target, if applicable, have
been made, and evidence thereof reasonably satisfactory in form and substance to Agent shall
have been delivered, or caused to have been delivered, by the Loan Parties to the Agent;
(I)
There shall be no actions, suits or proceedings pending or,
to the knowledge of any Loan Party threatened in writing against or affecting the acquisition
target in any court or before or by any Governmental Authority which would reasonably be
expected to have, after giving effect to the acquisition, a Material Adverse Effect;
(J)
Either (i) the total acquisition consideration paid for such
proposed new acquisition is funded solely using the proceeds of a Designated Equity Issuance or
such other assets that are contributed to the Borrower for the purpose of funding such total
acquisition consideration or (ii) the portion of the purchase price of such proposed new
acquisition funded using assets other than those contributed pursuant to clause (i) above,
computed on the basis of total acquisition consideration paid or incurred, or required to be paid
or incurred with respect thereto (including any earn-outs, the amount of Indebtedness (such
Indebtedness being otherwise permitted under this Agreement) assumed or to which such assets,
businesses or business or Equity Interests, or any Person so acquired is subject and any portion
of the purchase price allocated to any non-compete agreements, but not including any amounts
paid pursuant to the issuance of Equity Interests of any Loan Party), when added to such
amounts for each other Permitted Acquisition as the applicable acquisition (not including any
other acquisitions specifically consented to which fall outside of the terms of this definition),
does not exceed $70,000,000 in the aggregate during the term of this Agreement and
$35,000,000 during any Fiscal Year, and no more than $15,000,000 of which may be used for
non-U.S. acquisitions; and
(K)
As of the Fiscal Quarter immediately preceding such
acquisition, the Total Leverage Ratio on a Pro Forma Basis shall be no more than 5.85 to 1.00
and no more than the applicable ratio in effect at such time under Section 7.3(b), except that (i)
in Fiscal Year 2013 and 2014, if the Total Leverage Ratio for the Loan Parties in the Fiscal
Quarter immediately preceding the acquisition (without giving pro forma effect to such
acquisition) was less than 4.5 to 1.0, the consolidated Total Leverage Ratio of the Loan Parties
and the acquisition target shall be no more than 4.25 to 1.0, and (ii) the Total Leverage Ratio
shall be no more than 4.0 to 1.0 as of the immediately preceding Fiscal Quarter (on a Pro Forma
Basis) with respect to any acquisition occurring during Fiscal Year 2015 or thereafter.
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(k)
Use of Proceeds. The Loan Parties will use the proceeds from each of the
sales of the Notes to refinance existing indebtedness of Borrower and to pay the transaction fees
and Expenses of Borrower related thereto, and for other proper company purposes (subject to the
limitations set forth in this Agreement). None of the Loan Parties shall use any proceeds from
the sale of the Notes hereunder, directly or indirectly, for the purposes of purchasing or carrying
any “margin securities” within the meaning of Regulations T, U or X promulgated by the FRB or
for the purpose of arranging for the extension of credit secured, directly or indirectly, in whole or
in part by collateral that includes any “margin securities.”
(l)
Prepayment or Modification of Certain Agreements. No Loan Party
shall, nor shall it permit any of its Subsidiaries to, (i) make any voluntary or optional payment or
prepayment on or redemption or acquisition for value of (including, without limitation, by way
of defeasing or otherwise depositing with a trustee with respect thereto money or securities
before due for the purpose of paying when due) any Indebtedness prior to its scheduled maturity,
other than (A) the Obligations, (B) liabilities under the Revolving Credit Agreement (and
renewals, refinancings and extensions thereof), (C) Indebtedness secured by a Permitted Lien if
the asset securing such Indebtedness has been sold or otherwise disposed of in a transaction
permitted hereunder, and (D) prepayment of intercompany Indebtedness of the Loan Parties, (ii)
amend, modify or grant any consent or waiver under the Management Agreement in any way
that would be adverse to the Agent and the Purchasers, or (iii) amend, terminate, modify or
waive or agree to the amendment, modification or waiver of any term or provision of the
Revolver Documents in a manner expressly prohibited by the terms of the Intercreditor
Agreement.
(m)
Amendment of Charter Documents or Change in Legal Structure.
None of the Loan Parties shall (i) amend, terminate, modify or waive or agree to the amendment,
modification or waiver of any term or provision of its Charter Documents or Operating
Agreement in a manner determined by the Agent to be adverse to the Purchasers or (ii) change
its jurisdiction of formation or cease to be a corporation or limited liability company, as
applicable, other than as permitted in the Security Documents.
(n)
Business. None of the Loan Parties shall engage, directly or indirectly, in
any business other than the Business, including reasonable extensions of the Business and
activities compatible with, or complementary thereto.
(o)
Fiscal Year; Accounting. None of the Loan Parties shall change its
Fiscal Year to a date other than (i) for fiscal year 2013, December 28, 2013, (ii) for fiscal year
2014, December 27, 2014, (iii) for fiscal year 2015, December 26, 2015, (iv) for fiscal year
2016, December 31, 2016, (v) for fiscal year 2017, December 30, 2017, and (vi) for fiscal year
2018, December 29, 2018, except as required by GAAP.
(p)
Establishment of New or Changed Business Locations. None of the
Loan Parties shall relocate its principal executive offices or other facilities or establish new
business locations or store any inventory or other assets with a value in excess of $1,000,000 in
the aggregate at a location not identified to Agent on or before the date hereof, without providing
at least 10 days’ advance written notice to Agent.
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(q)
Changed or Additional Business Names. None of the Loan Parties shall
change its name other than as permitted in the Security Documents.
(r)
Stay, Extension or Usury Law. Each Loan Party covenants (to the extent
that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other
law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the
performance of its obligations under the Notes, the Guarantee Agreement or this Agreement, and
each Loan Party hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Agent and Purchasers, but shall suffer and permit the execution of every
such power as though no such law has been enacted.
(s)
Anti-Layering. Except as otherwise expressly permitted herein, (i) no
Loan Party will create or incur any Indebtedness (other than the Obligations) which is
subordinated or junior in right of payment to any other Indebtedness of the Loan Parties, unless
such Indebtedness is also subordinated or junior in right of payment, in the same manner and to
the same extent, to the Obligations, and (ii) no Loan Party shall have outstanding, create or incur
any Indebtedness owing to any other Loan Party or any Affiliate of any Loan Party unless such
Indebtedness is expressly subordinated to the Notes and other Obligations in a manner and on
terms satisfactory to the Agent.
(t)
Future Holding Company. Notwithstanding anything to the contrary set
forth herein, the Future Holding Company, if any, shall not be permitted to engage in any
business or own any personal property or assets except for (i) the direct ownership of 100% of
the Equity Interests of Broder, (ii) de minimus administrative and corporate governance
functions and assets incidental thereto, (iii) incurrence of Indebtedness hereunder, (iv) incurrence
of Indebtedness under the Revolving Loan Documents, (v) the incurrence of other Indebtedness
in compliance with the terms of, and not exceeding when aggregated therewith the limits set
forth in, Section 7.2(a), and (vi) with the prior consent of the Agent, the direct ownership of the
Equity Interests of any other Subsidiary.Financial Covenants.
The Loan Parties shall maintain at the end of each Fiscal Quarter, on a
Consolidated basis:
(a)
Minimum Fixed Charge Coverage Ratio. A Fixed Charge Coverage
Ratio, tested as of the last day of each Fiscal Quarter, commencing with the Fiscal Quarter
ending June 29, 2013, on a trailing four quarter basis, of not less than the following:
Applicable Rate
Date
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
1.30:1.00
June 29, 2013
September 28, 2013
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
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1.30:1.00
1.25:1.00
December 27, 2014
March 28, 2015 and
each Fiscal Quarter thereafter
(b)
Maximum Total Leverage Ratio. A Total Leverage Ratio, tested as of
the last day of each Fiscal Quarter ending on the dates specified below, on a trailing four quarter
basis, of not more than the following:
Applicable Ratio
6.40:1.00
6.75:1.00
6.40:1.00
6.25:1.00
5.50:1.00
5.50:1.00
5.25:1.00
5.00:1.00
4.50:1.00
4.50:1.00
4.25:1.00
4.00:1.00
4.00:1.00
4.00:1.00
Date
December 28, 2013
March 29, 2014
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015
June 27, 2015
September 26, 2015
December 26, 2015
March 26, 2016
June 25, 2016
September 24, 2016
December 31, 2016
Each Fiscal Quarter end thereafter
(c)
Capital Expenditures. (i) The Loan Parties and their Subsidiaries shall
not make or commit to make Capital Expenditures for any Fiscal Year (or shorter period) in
excess of $3,500,000 with respect to Fiscal Years 2013 and 2014, $4,000,000 with respect to
Fiscal Year 2015, and $4,500,000 with respect to Fiscal Year 2016 and each Fiscal Year
thereafter.
(ii)
Notwithstanding anything to the contrary in Section 7.3(c)(i), if the
amount of Capital Expenditures permitted to be made by the Loan Parties thereunder in any
Fiscal Year is greater than the amount of Capital Expenditures actually made by the Loan Parties
during such Fiscal Year (without giving effect to any carry forward permitted by this Section
7.3(c)(ii)), 50% of such excess for such Fiscal Year (the “Carried-Forward Amount”) may be
carried forward and utilized by the Loan Parties to make Capital Expenditures solely in the
immediately succeeding Fiscal Year. For the avoidance of doubt, (1) if any portion of the
Carried-Forward Amount for any Fiscal Year is not used in the immediately succeeding Fiscal
Year to make Capital Expenditures, such amount shall not be included in any subsequent Fiscal
Year and (2) in determining the Carried-Forward Amount, the amount expended in any Fiscal
Year shall first be deemed to be from any Carried-Forward Amount and then from the amount
allocated to such Fiscal Year (before giving effect to any Carried-Forward Amount).
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(d)
Minimum Liquidity. Excess Availability of at least $20,000,000 as of
the last day of each Fiscal Quarter during the Fiscal Year 2013.
ARTICLE 8
EVENTS OF DEFAULT
Section 8.1
Events of Default.
An “Event of Default” shall mean the occurrence of one or more of the following
described events:
(a)
Borrower shall default in the payment of (i) interest on the Notes,
(ii) principal of the Notes when due, whether at maturity, upon notice of prepayment in
accordance with Sections 3.3 or 3.4, upon any scheduled payment date or by acceleration or
otherwise (including mandatory prepayment pursuant to Section 3.5), or (iii) within ten days
after the same becomes due any fee, expense, or any other amount payable hereunder or under
any Purchase Document;
(b)
any Loan Party shall default under any agreement (including, without
limitation, the Revolver Documents) under which any Indebtedness in an aggregate principal
amount of $5,000,000 or more is or was created (after the expiration of any cure or grace periods
thereunder) in a manner entitling the holder of such Indebtedness to accelerate the maturity of
such Indebtedness;
(c)
any representation or warranty herein or in any other Purchase Document
made by any Loan Party, or any certificate or financial statement furnished pursuant to the
provisions hereof or any other Purchase Document, shall prove to have been false or misleading
in any respect as of the time made or furnished or deemed made or furnished;
(d)
any Loan Party shall default in the performance of any covenant, condition
or provision of Sections 7.1(c), 7.1(h) (with respect to a failure to permit Agent the inspection
rights as set forth therein), 7.2 or 7.3 (after the expiration of the Cure Right set forth in Section
8.5);
(e)
any Loan Party shall default in the performance of any other covenant,
condition or provision of this Agreement, the Notes or the other Purchase Documents, and such
default is not remedied for a period of thirty days after written notice from Agent of the
occurrence of such default (or, in the case of a default under Section 7.1(e), five days after
written notice from the Agent of the occurrence of such default);
(f)
a proceeding shall have been instituted in a court having jurisdiction in the
premises seeking a decree or order for relief in respect of any Loan Party in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or
for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of any Loan Party or for any substantial part of its property, or for the winding-up or
liquidation of its affairs, and such petition is either (i) consented to by the applicable Loan Party,
or (ii) not dismissed within sixty (60) days of the date of filing thereof;
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(g)
any Loan Party shall, or the Board of any Loan Party shall vote to:
commence a voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of any Loan Party or for any
substantial part of its property, or make a general assignment for the benefit of creditors, or fail
generally to pay its debts as they become due, or take any action in furtherance of any of the
foregoing;
(h)
both the following events shall occur: (i) a Reportable Event, the
occurrence of which could reasonably be expected to have a Material Adverse Effect that could
cause the imposition of a Lien under Section 4068 of ERISA, shall have occurred with respect to
any Plan or Plans; and (ii) the aggregate amount of the then “current liability” (as defined in
Section 412(l)(7) of the IRC) of all accrued benefits under such Plan or Plans exceeds the then
current value of the assets allocable to such benefits by more than $1,000,000 at such time;
(i)
a final judgment (excluding judgments to the extent the applicable Loan
Party is fully insured and with respect to which the insurer has not denied responsibility) that,
together with any other undischarged final judgments against any Loan Party during the term of
this Agreement, exceeds an aggregate of $2,000,000, if within thirty days after the entry thereof,
such judgment shall not have been discharged or execution thereof stayed pending appeal, or if,
within thirty days after the expiration of any such stay, such judgment shall not have been
discharged;
(j)
any Security Document or other Purchase Documents shall at any time
after the Closing Date, other than with the consent of the Agent or pursuant to the terms of such
agreement, cease for any reason to be in full force and effect or shall cease to create perfected
security interests in favor of Agent in collateral with an aggregate value of greater than
$1,500,000, subject or purported to be subject thereto, subject to no other Liens other than
Permitted Liens, or such collateral shall have been transferred to any Person in violation of the
terms of the Purchase Documents without the prior written consent of the Agent;
(k)
the obligation of any Guarantor under the Guaranty is limited or
terminated by operation of law or by such Guarantor (other than in accordance with the terms of
this Agreement);
(l)
the validity or enforceability of any Purchase Document shall at any time
for any reason (other than solely as the result of an action or failure to act on the part of Agent)
be declared to be null and void, or a proceeding shall be commenced by a Loan Party or its
Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan Party or its
Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a Loan Party or its
Subsidiaries shall deny that such Loan Party or its Subsidiaries has any liability or obligation
purported to be created under any Purchase Document;
(m)
a Change of Control shall have occurred; or
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(n)
the redemption of all of the Existing Notes contemplated by Section 4.1(n)
hereof shall not have been completed within forty-five (45) calendar days following the Closing
Date.
Section 8.2
Consequences of Event of Default.
(a)
Bankruptcy. If an Event of Default specified in paragraphs (f) or (g) of
Section 8.1 hereof shall occur, the unpaid balance of the Notes and interest accrued thereon and
all other liabilities of Borrower to the holders thereof hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or (except as expressly
required hereby) notice of any kind, all of which are hereby expressly waived.
(b)
Other Defaults. If any other Event of Default shall occur, Agent or
Required Purchasers may at their option, by written notice to Borrower, declare the entire unpaid
balance of the Notes, and interest accrued thereon and all other liabilities of Borrower hereunder
and thereunder to be forthwith due and payable, and the same shall thereupon become
immediately due and payable, without presentment, demand, protest or (except as expressly
required hereby) notice of any kind, all of which are hereby expressly waived.
(c)
Post-Default Interest.
Following the occurrence and during the
continuance of any Event of Default, the Required Purchasers may elect to receive (retroactive to
the date of the occurrence of such Event of Default), to the extent permitted by applicable Law,
interest on the outstanding principal of, and premium and overdue interest, if any, on, the Notes
at a rate per annum equal to the interest rate thereon (determined as provided in Section 3.1) plus
two hundred (200) basis points.
Section 8.3
Security.
Payments of principal of, and premium, if any, and interest on, the Notes and all
other obligations of Borrower under this Agreement or the Notes are secured pursuant to the
terms of the Security Documents.
Section 8.4
Order of Payment.
At such time as the unpaid balance of the Notes and interest accrued thereon and
all other liabilities of Borrower to the holders thereof hereunder and thereunder shall become due
and payable pursuant to the provisions of Section 8.2(a) or (b) hereof, subject to the terms of the
Intercreditor Agreement, all proceeds of collateral under any Security Documents and all
payments made hereunder or under any other Purchase Document shall be applied as follows:
First, to the payment of all costs, fees and expenses of Agent and Purchasers and
their agents, representatives and attorneys incurred pursuant to this Agreement
and the other Purchase Documents, including but not limited to, the out-of-pocket
fees and expenses of Agent’s and each Purchaser’s agents and attorneys and court
costs (whether at trial, appellate or administrative levels), if any, incurred
pursuant to this Agreement and the other Purchase Documents;
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Second, to the payment of the outstanding principal balance, accrued interest,
dividends, any redemption payments and fees on the Notes;
Third, to the payment of all other Obligations; and
Fourth, to Borrower or to such other Person as a court of competent jurisdiction in
any pending proceeding may direct.
Section 8.5
Financial Covenant Cure.
(a)
Subject to the limitations set forth in clause (d) below, the Loan Parties
may cure (and shall be deemed to have cured) an Event of Default arising out of a breach of the
financial covenants set forth in Section 7.3(a) and 7.3(b) (the “Specified Financial Covenants”)
as provided in this Section 8.5 (such cure, the “Cure Right”). The Cure Right shall be deemed
to have been validly exercised, and no Default or Event of Default shall be deemed to have
existed, so long as (i) the Borrower (or the extent applicable, Future Holding Company) shall
have given Agent notice of Borrower’s (or such Future Holding Company’s) intent to exercise
the Cure Right (the “Cure Right Notice”) within five (5) days following the date on which the
compliance certificate is required to be delivered pursuant to Section 7.1(e)(iii) (the Fiscal
Quarter covered by such compliance certificate during which the breach of such Specified
Financial Covenant occurred being the “Breached Period”), (ii) the Borrower (or such Future
Holding Company) receives the cash proceeds of Curative Capital prior to the date that is ten
(10) days following the date on which such compliance certificate is required to be so delivered
in respect of the Breached Period (such date the “Required Contribution Date”), (iii) the Cure
Right shall be contingent on the timely delivery of such compliance certificate as required by
Section 7.1(e)(iii), and (iv) the Borrower (or such Future Holding Company) shall promptly
notify Agent of its receipt of any proceeds of Curative Capital by delivering, within the ten (10)
day time frame specified in clause (ii) above, an updated compliance certificate with respect to
the Fiscal Quarter end on which Curative Capital is received by the Borrower (or such Future
Holding Company). Such updated compliance certificate shall include evidence satisfactory to
Agent of the Borrower’s (or such Future Holding Company’s) receipt of the proceeds of such
Curative Capital within the required time frame, and shall confirm that on a pro forma basis after
taking into account the receipt of such proceeds, the Loan Parties would have been in compliance
with the Specified Financial Covenants as of such date. In the event the Borrower (or such
Future Holding Company) exercises the Cure Right upon the delivery of a compliance certificate
pursuant to Section 7.1(e)(iii) and upon the delivery of a compliance certificate pursuant to
Section 7.1(e)(iii) with respect to the same Fiscal Quarter ending in December, then for the
purposes of complying with the requirements in subsection (d) below, the Borrower (or such
Future Holding Company) shall be deemed to have exercised the Cure Right only once with
respect to such Fiscal Quarter.
(b)
Any investment of Curative Capital shall be in immediately available
funds and, subject to the limitations set forth in clause (d) below, shall be in an amount that is
sufficient to cause the Borrower (or such Future Holding Company) to be in compliance with the
Specified Financial Covenants upon its inclusion in the calculation of EBITDA as at the last day
of the most recently ended Fiscal Quarter.
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(c)
In the event the Borrower (or such Future Holding Company) does not
cure such financial covenant violation as provided in this Section 8.5, the existing Event of
Default shall continue unless waived by the Required Purchasers in writing.
(d)
Notwithstanding the foregoing, the Borrower’s (or such Future Holding
Company’s) rights under this Section 8.5 shall be subject to the following:
(i)
there shall be no more than two consecutive Fiscal Quarters in any
four Fiscal Quarter period in which a Cure Right is exercised pursuant to this Section 8.5;
(ii)
no more than four Curative Capital contributions shall be made
during the term of this Agreement;
(iii) the proceeds of each Curative Capital contribution shall promptly
be used to prepay the Notes pursuant to Section 3.5(c); and
(iv)
the proceeds of Curative Capital shall be counted solely for the
purposes of the Specified Financial Covenants, and shall be disregarded when determining, if
applicable, availability or amount of any covenant baskets or carve-outs or the amount of any
Excess Cash Flow; and
(v)
for the purposes of calculating the Total Leverage Ratio, the
prepayment of the Notes using the proceeds of Curative Capital shall be deemed to reduce the
Indebtedness of the Borrowers solely for the purposes of calculating the Total Leverage Ratio as
of any Fiscal Quarter after the Breached Period.
(e)
From the effective date of delivery of the Cure Right Notice until the
earlier to occur of the Required Contribution Date and the date on which Agent is notified that
Curative Capital will not be received, neither Agent nor any Purchaser shall impose default
interest, accelerate the Obligations, or exercise any enforcement remedy against any Loan Party
or any of its Subsidiaries or any of their respective Properties and Facilities on the basis of the
applicable Specified Financial Covenant Default in respect of which the Cure Right Notice was
delivered. Upon the Loan Parties’ failure to effectively exercise a Cure Right, default interest
shall be imposed from the date of the event giving rise to the Cure Right.
ARTICLE 9
THE AGENT
Section 9.1
Authorization and Action.
Each Purchaser and each subsequent holder of any Note by its acceptance thereof,
hereby designates and appoints Prospect as Agent hereunder and authorizes Prospect to take such
actions as agent on its behalf and to exercise such powers as are delegated to Agent by the terms
of this Agreement and the other Purchase Documents, together with such powers as are
reasonably incidental thereto. Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Purchaser, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on the part of Agent shall
be read into this Agreement or otherwise exist for Agent. In performing its functions and duties
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hereunder, Agent shall act solely as agent for Purchasers and does not assume, nor shall be
deemed to have assumed, any obligation or relationship of trust or agency (fiduciary or
otherwise) with or for the Loan Parties or any of their respective successors or assigns. Agent
shall not be required to take any action that exposes Agent to personal liability or that is contrary
to this Agreement or applicable Laws. The appointment and authority of Agent hereunder shall
terminate at the indefeasible payment in full of the Notes and related obligations. Each
Purchaser hereby designates, appoints and authorizes Agent to enter into a subordination and
intercreditor agreement pertaining to any Indebtedness of the Loan Parties, on its behalf and to
take such action on its behalf under the provisions of any such agreement. Each Purchaser
further agrees to be bound by the terms and conditions of each such subordination or
intercreditor agreement. Each Purchaser hereby authorizes Agent to issue blockages notices in
connection with any Indebtedness only at the direction of Required Purchasers.
Section 9.2
Delegation of Duties.
Agent may execute any of its duties under this Agreement by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to
such duties. Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
Section 9.3
Exculpatory Provisions.
Neither Agent nor any of its directors, officers, agents or employees shall be
(i) liable for any action taken or omitted to be taken by it or them under or in connection with
this Agreement (except for its, their or such Person’s own gross negligence or willful misconduct
or, in the case of Agent, the breach of its obligations expressly set forth in this Agreement, unless
such action was taken or omitted to be taken by Agent at the direction of the Required
Purchasers), or (ii) responsible in any manner to any of Purchasers for any recitals, statements,
representations or warranties made by the Loan Parties contained in this Agreement, any other
Purchase Document or in any certificate, report, statement or other document referred to or
provided for in, or received under or in connection with, this Agreement or any other Purchase
Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Purchase Document or any other document furnished in connection
herewith, or for any failure of any of the Loan Parties to perform their respective obligations
hereunder and under the other Purchase Documents, or for the satisfaction of any condition
specified in Article 4. Agent shall not be under any obligation to any Purchaser to ascertain or to
inquire as to the observance or performance of any of the agreements or covenants contained in,
or conditions of, this Agreement, or to inspect the properties, books or records of any of the Loan
Parties.
Section 9.4
Reliance.
Agent shall in all cases be entitled to rely, and shall be fully protected in relying,
upon any document or conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to the Loan Parties and Agent’s internal legal
counsel), independent accountants and other experts selected by Agent. Agent shall in all cases
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be fully justified in failing or refusing to take any action under this Agreement, the other
Purchase Documents or any other document furnished in connection herewith unless it shall first
receive such advice or concurrence of the Required Purchasers or all of the Purchasers, as
applicable, as it deems appropriate or it shall first be indemnified to its satisfaction by the
Purchasers; provided, that, unless and until Agent shall have received such advice, Agent may
take or refrain from taking any action, as Agent shall deem advisable and in the best interests of
the Purchasers. Agent shall in all cases be fully protected in acting, or in refraining from acting,
in accordance with a request of the Required Purchasers or all of the Purchasers, as applicable,
and such request and any action taken or failure to act pursuant thereto shall be binding upon all
of the Purchasers.
Section 9.5
Non-Reliance on Agent and Other Purchasers.
Each Purchaser expressly acknowledges that neither Agent, nor any of its officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by Agent previously taken or hereafter taken, including, without
limitation, any review of the affairs of the Loan Parties, shall be deemed to constitute any
representation or warranty by Agent. Each Purchaser represents and warrants to Agent that it has
and will have, independently and without reliance upon Agent or any other Purchaser and based
on such documents and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, prospects, financial and other conditions
and creditworthiness of the Loan Parties and made its own decision to enter into this Agreement.
Section 9.6
Agent in its Individual Capacity.
Agent, and each of its Affiliates may make loans to, purchase securities from,
provide services to, accept deposits from and generally engage in any kind of business with the
Loan Parties or any Affiliate of the Loan Parties as though Agent were not Agent hereunder.
Purchasers acknowledge that conflicts of interest may be inherent in any of such activities and
that none of Agent or any of its Affiliates shall be liable to the Purchasers for any action taken or
omitted to be taken by them under or in connection therewith.
Section 9.7
Successor Agent.
(a)
Agent may, upon 60 days’ notice to Borrower and each Purchaser, and
Agent will, at the direction of the Required Purchasers (or if Prospect is the Agent and any of the
Notes are pledged to a pledgee as collateral for any obligations of Prospect, then immediately
upon the direction of such pledgee), resign as Agent. If Agent shall resign, then the Required
Purchasers during such 60 day period shall appoint a successor Agent and if the Required
Purchasers direct Agent to resign, such direction shall include an appointment of a successor
Agent. So long as no Event of Default has occurred and is continuing, the appointment of a
successor Agent shall be subject to the prior written consent of the Borrower (such consent not to
be unreasonably delayed, conditioned, burdened or withheld). If for any reason no successor
Agent is appointed by the Required Purchasers during such 60 day period, then effective upon
the expiration of such 60 day period, Purchasers shall perform all of the duties of Agent
hereunder and Borrower shall make all payments in respect of the Notes directly to the
applicable Purchaser and for all purposes shall deal directly with Purchasers. After any retiring
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Agent’s resignation hereunder as Agent, the provisions of this Article 9 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.
(b)
Notwithstanding, but without limiting the foregoing, if and to the extent
Prospect is a holder of Notes, unless and until Agent resigns or is replaced in accordance with the
provisions hereof, upon notice of the occurrence of any event of default under any of the
documents or agreements pursuant to which any Notes were pledged by Prospect to a Collateral
Assignee, Agent agrees to act on behalf of and serve as agent for and to take direction from such
Collateral Assignee and shall no longer serve as agent for or on behalf of Prospect. In
furtherance of the provisions hereof, subject to the provisions of Section 9.10, Agent agrees to
execute and deliver such documents or to take such other actions as are reasonably requested by
any such Collateral Assignee, in order to enforce, perfect, protect, realize upon or otherwise
preserve any of its interests hereunder or in any of the Notes, including, without limitation, upon
the removal of Prospect as Agent, the filing of such amendments to the UCC financing
statements in order to reflect such Collateral Assignee as the new secured party of record. Any
such Collateral Assignee shall be entitled to specific performance with respect to, and is made an
express third party beneficiary of, the provisions of this Section 9.7.
Section 9.8
Collections and Disbursements.
(a)
Except as otherwise expressly provided herein, Agent will have the right
to collect and receive all payments of the Notes, and to collect and receive all reimbursements
due hereunder, together with all fees, charges or other amounts due under this Agreement and the
other Purchase Documents with regard to the Notes, and, as applicable, Agent will remit to each
Purchaser, according to its pro rata percentage, all such payments actually received by Agent
(other than expense reimbursements of Agent or of a particular Purchaser) in accordance with the
settlement procedures established from time to time. Settlements shall occur on such dates as
Agent may elect in its sole discretion, but which shall be no later than two Business Days
following receipt thereof.
(b)
If any such payment received by Agent or any Purchaser is rescinded or
otherwise required to be returned for any reason at any time, whether before or after termination
of this Agreement or the other Purchase Documents, each Purchaser will, upon written notice
from Agent, promptly pay over to Agent its applicable pro rata percentage of the amounts so
rescinded or returned, together with interest and other fees thereon so rescinded or returned.
(c)
All payments by Agent and Purchasers to each other hereunder shall be in
immediately available funds. Agent may treat the payees of any Note as the holder thereof until
written notice of the transfer thereof shall have been received by Agent in accordance with
Section 6.3 or 10.18. In the event that any Purchaser shall receive any payment in reduction of
the Notes in an amount greater than its applicable pro rata percentage in respect of obligations to
such Purchaser evidenced hereby (including, without limitation amounts obtained by reason of
setoffs) such Purchaser shall hold such excess in trust for Agent (on behalf of all other
Purchasers) and shall promptly remit to Agent such excess amount so that the amounts received
by each Purchaser hereunder shall at all times be in accordance with its applicable pro rata
percentage. If, however, any Purchaser that has received any such excess amount fails to remit
such amount to the Agent, the Agent shall reallocate subsequent amounts paid to Agent or each
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Purchaser so that, after giving effect to such payments, the pro rata obligations owed by
Borrower to each Purchaser shall be in an amount equal to the pro rata amount owed by
Borrower before the date of the payment of such excess amount. In no event shall any Purchaser
be deemed to have a participation or other right in, to or against any other Purchaser’s Note as a
result of the payment of any excess amount.
Section 9.9
Reporting.
During the term of this Agreement, Agent will promptly furnish each Purchaser
with copies of all notices of Default and Event of Default and financial statements of the Loan
Parties required to be delivered or obtained hereunder and such other financial statements and
reports and other information in Agent’s possession as any Purchaser may reasonably request.
Agent will promptly notify Purchasers when it receives actual knowledge of any Event of
Default under the Purchase Documents.
Section 9.10 Consent of Purchasers.
(a)
Except as expressly provided herein, Agent shall have the sole and
exclusive right to service, administer and monitor the Notes and the Purchase Documents,
including, without limitation, the right to exercise all rights, remedies, privileges and options
under this Agreement and under the other Purchase Documents, including, without limitation,
the credit judgment with respect to the purchasing of the Notes and the determination as to the
basis on which and extent to which purchases of Notes may be made.
(b)
Notwithstanding anything to the contrary contained in Section 9.10(a)
above, Agent shall not without the prior written consent of all Purchasers then holding Notes:
(i) extend any payment date under the Notes, (ii) reduce any interest rate applicable to any of the
Notes or any fee payable to Purchasers hereunder (except by virtue of a waiver of an Event of
Default), (iii) waive any Event of Default under Section 8.1(a), (iv) compromise or settle all or a
portion of the Indebtedness under the Notes, (v) release any obligor from the Indebtedness under
the Notes except in connection with full payment and satisfaction of all Indebtedness under the
Notes, (vi) release all or substantially all of the collateral for the Obligations, (vii) amend the
definition of Required Purchasers, or (viii) amend this Section 9.10(b).
(c)
Notwithstanding anything to the contrary contained in Section 9.10(a)
above, and subject to any applicable limitation set forth in Section 9.10(b) above, Agent shall
not, without the prior written consent of Required Purchasers: (i) waive any Event of Default,
(ii) consent to any Loan Parties’ taking any action that, if taken, would constitute an Event of
Default under this Agreement or under any of the other Purchase Documents, or (iii) materially
amend or modify or agree to an amendment or modification of this Agreement or any other
Purchase Document.
(d)
After an acceleration of the Indebtedness hereunder and under the Notes,
Agent shall have the sole and exclusive right, after consultation (to the extent reasonably
practicable under the circumstances) with all Purchasers and, unless otherwise directed in writing
by Required Purchasers, to exercise or refrain from exercising any and all rights, remedies,
privileges and options under this Agreement or the other Purchase Documents and available at
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law or in equity to protect the rights of Agent and Purchasers and collect the Indebtedness
hereunder and under the Notes, including, without limitation, instituting and pursuing all legal
actions brought against any Loan Party or to collect the Indebtedness hereunder and under the
Notes, or defending any and all actions brought by any Loan Party or other Person; or incurring
expenses or otherwise making expenditures to protect or realize upon the collateral, the Notes or
Agent’s or any Purchaser’s rights or remedies.
Section 9.11 No Liability of Purchasers.
Except with respect to any consent rights granted under this Article 9, the Loan
Parties are not intended to be third party beneficiaries of this Article 9. As a result, except for
any violations or breach of consent rights to be granted to the Borrower in this Article 9 only,
Purchasers shall have no liability to any of the Loan Parties or any other entity (other than
Agent) as a result of any actions or failures to act by Agent hereunder or otherwise.
ARTICLE 10
MISCELLANEOUS
Section 10.1 Successors and Assigns.
This Agreement shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns and of the indemnified parties hereunder and their successors
and permitted assigns and representatives and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective successors and permitted
assigns, except that (i) no Loan Party may assign or transfer any of its rights hereunder or under
any other Purchase Document to which it is a party, or any interest herein or therein or delegate
any of its duties hereunder or thereunder and (ii) Purchasers shall have the right to assign their
rights hereunder, and under the Notes and any other Purchase Document, in accordance with the
terms hereof.
Section 10.2 Modifications and Amendments.
Neither this Agreement nor any other Purchase Document may be modified or
amended except by a formal written instrument (and not by an email or series of emails) signed
by Loan Parties and John F. Barry III as Chief Executive Officer of Prospect, or his successor, or
M. Grier Eliasek as Chief Operating Officer of Prospect, or his successor, in blue ink on behalf
of Agent upon satisfaction of the conditions set forth in Section 9.10. No term or provision of
this Agreement may be waived except by a formal written instrument signed (and not by an
email or series of emails) by the party against whom such waiver is sought; provided, that in case
of Prospect, such waiver must be signed by John F. Barry III as Chief Executive Officer of
Prospect, or his successor, or M. Grier Eliasek as Chief Operating Officer of Prospect, or his
successor, in blue ink. Prospect’s failure to insist at any time upon strict compliance with this
Agreement or with any of the terms of this Agreement or any continued course of such conduct
on its part will not constitute or be considered a waiver by Prospect of any of its rights or
privileges. A waiver or consent, express or implied, of or to any breach or default by any party
in the performance by that party of its obligations with respect to this Agreement is not a waiver
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or consent of or to any other breach or default in the performance by that party of the same or
any other obligations of that party.
Section 10.3 No Implied Waivers; Cumulative Remedies; Writing Required.
No delay or failure in exercising any right, power or remedy hereunder shall
affect or operate as a waiver thereof; nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power or remedy preclude any
further exercise thereof or of any other right, power or remedy. The rights and remedies
hereunder are cumulative and not exclusive of any rights or remedies that Agent or Purchasers or
any holder of Notes would otherwise have. Any waiver, permit, consent or approval of any kind
or character of any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing, satisfy the conditions set forth in Section 9.10
and shall be effective only to the extent in such writing specifically set forth.
Section 10.4 Reimbursement of Expenses.
The Loan Parties upon demand shall, jointly and severally, pay or reimburse
Agent for all reasonable fees and expenses incurred or payable by Agent (including without
limitation the reasonable fees and expenses of counsel for Agent (and at the Agent’s election, the
allocated, reasonable and documented costs, fees and expenses of internal counsel for any such
matter)), from time to time (i) arising in connection with the negotiation, preparation and
execution of this Agreement, the Notes, the other Purchase Documents and all other instruments
and documents to be delivered hereunder or thereunder or arising in connection with the
transactions contemplated hereunder or thereunder, (ii) relating to any amendments, waivers or
consents pursuant to the provisions hereof or thereof, (iii) arising in connection with the
administration and enforcement of this Agreement and the transactions contemplated hereby
including, without limitation, collection of the Notes, (iv) incurred in connection with visits to
facilities of Loan Parties, and inspection of records and collateral (provided, however, that unless
an Event of Default exists, the Loan Parties shall only be responsible for one visit and inspection
and one field audit and one appraisal of inventory per Fiscal Year), (v) incurred in connection
with audits of property of Loan Parties (provided, however, that unless an Event of Default
exists, the Loan Parties shall only be responsible for one visit and inspection and one field audit
and one appraisal of inventory per Fiscal Year), (vi) arising in connection with the sale of
participations in the Loans, and (vii) incurred in connection with bank meetings after the
occurrence of an Event of Default. In addition, the Loan Parties agree to pay to the Agent the
allocated, reasonable costs, fees and expenses of internal counsel in connection with any
amendment, waiver or consent delivered hereunder (but, in any event, not to exceed $750 per
hour and $5,000 in the aggregate for any single amendment, waiver or consent), in addition to
any other applicable fee that may be payable in connection with any such amendment, waiver or
consent; provided, however, that if the Loan Parties are paying for costs, fees, and expenses of
internal counsel, the Loan Parties shall not be responsible or liable for any duplicative costs, fees
and expenses of outside counsel in connection with such amendment, waiver, or consent.
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Section 10.5 Holidays.
Subject to the definition of “Interest Period” governing the payment of interest,
whenever any payment or action to be made or taken hereunder or under the Notes shall be
stated to be due on a day that is not a Business Day, such payment or action shall be made or
taken on the subsequent Business Day.
Section 10.6 Notices.
(a)
Subject to Section 10.6(c) below, all notices and other communications
provided for herein shall be in writing and shall be delivered either by hand, by overnight courier
service, by certified or registered mail, by telefacsimile or by email (in portable document format
(“pdf”) or tagged image file format (“TIFF”)) as follows:
to Borrower (which shall be deemed to constitute notice to all Loan Parties):
Broder Bros., Co.
Six Neshaminy Interplex
6th Floor
Trevose, Pennsylvania 19053
Attention: Martin Matthews
Telephone: (215) 244-5753
Facsimile: (734) 354-1323
Email: [email protected]
with a copy to:
Littlejohn & Co., LLC
8 Sound Shore Drive, Suite 303
Greenwich, Connecticut 06830
Attention: David Simon
Telephone: (203) 552-3500
Facsimile: (203) 552-3550
Email: [email protected]
-andSheppard Mullin Richter & Hampton LLP
1300 I Street, N.W.
11th Floor East
Washington, DC 20005
Attention: James Ritter
Telephone: (202) 469.4995
Facsimile: (202) 318.9437
Email: [email protected]
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if to Agent or to Prospect in its capacity as a Purchaser hereunder, to it at:
Prospect Capital Corporation
10 East 40th Street, 44th Floor
New York, New York 10016
Attention: Richard T. Carratu
Telephone: (212) 616-4868
Facsimile: (212) 448-9652
Email: [email protected]
-andAttention: Joseph Ferraro, Esq.
Telephone: (212) 616-4868
Facsimile: (212) 448-9652
Email: [email protected]
and
Email: [email protected]
with a copy to:
McCarter & English, LLP
245 Park Avenue, 27th Floor
New York, New York 10167
Attn: Stephen M. Fields
Telephone: (212) 609-6803
Facsimile: (212) 935-1398
Email: [email protected]
to other Purchasers:
As set forth on Annex A.
(b)
Any party hereto may change its address, facsimile number or email
address for notices and other communications hereunder by notice to all of the other parties
hereto in accordance with Section 10.6(a) above.
(c)
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been given (i) in the
case of notices and other communications delivered by hand or overnight courier service, upon
actual receipt thereof, (ii) in the case of notices and other communications delivered by certified
or registered mail, upon the earlier of actual delivery and the third Business Day after the date
deposited in the U.S. mail with postage prepaid and properly addressed, provided, that no notice
or communication to the Agent or to Prospect in its capacity as a Purchaser shall be effective
until actually received by the Agent or Prospect, as applicable, (iii) in the case of notices and
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other communications delivered by telefacsimile, upon receipt by the sender of an
acknowledgment or transmission report generated by the machine from which the telefacsimile
was sent indicating that the telefacsimile was sent in its entirety to the recipient’s telefacsimile
number and (iv) in the case of notices and other communications delivered by email, upon
receipt by the sender of an acknowledgement from the intended recipient (such as by the “return
receipt requested” function, a return email or other written acknowledgement), in each case, that
if a notice or other communication would be deemed to have been given in accordance with the
foregoing at any time other than during the recipient’s normal business hours on a Business Day
for such recipient, such notice or other communication shall be deemed given on the next
succeeding Business Day for such recipient.
(d)
Each Loan Party acknowledges and agrees that the use of electronic
transmission in general, and email in particular, is not necessarily secure and that there are risks
associated with the use thereof, including risks of interception, disclosure and abuse, and each
indicates it assumes and accepts such risks by hereby authorizing the use of electronic
transmission.
Section 10.7 Survival.
All representations, warranties, covenants and agreements of the Loan Parties
contained herein or made in writing in connection herewith shall survive the execution and
delivery of this Agreement and the purchase of the Notes and shall continue in full force and
effect so long as any Note is outstanding and until payment in full of all of the Loan Parties’
obligations hereunder or thereunder. All obligations relating to indemnification hereunder shall
survive any termination of this Agreement and shall continue for the length of any applicable
statute of limitations.
Section 10.8 Governing Law.
The internal laws of the State of New York shall govern all matters arising out of,
in connection with or relating to this Agreement, including its validity, interpretation,
construction, performance and enforcement (including any claims sounding in contract or tort
law arising out of the subject matter hereof and any determinations with respect to post-judgment
interest).
Section 10.9 Severability.
All provisions of this Agreement are severable, and the unenforceability or
invalidity of any of the provisions of this Agreement shall not affect the validity or enforceability
of the remaining provisions of this Agreement. Should any part of this Agreement be held
invalid or unenforceable in any jurisdiction, the invalid or unenforceable portion or portions shall
be removed (and no more) only in that jurisdiction, and the remainder shall be enforced as fully
as possible (removing the minimum amount possible) in that jurisdiction.
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Section 10.10 Headings.
Article, section and subsection headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement for any other
purpose.
Section 10.11 Indemnity.
Each Loan Party hereby jointly and severally agrees to indemnify, defend and
hold harmless Agent and Purchasers and their Affiliates, officers, directors, employees, agents
and representatives, and their respective successors and assigns (collectively, the “Indemnified
Parties”) in connection with any losses, claims, damages, liabilities and expenses, including
attorneys’ fees, to which any Indemnified Party may become subject, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) arise out of or by reason of
any investigation, litigation or other proceedings related to or resulting from any act of, or
omission by, the Loan Parties or their Affiliates or any officer, director, employee, agent or
representative of the Loan Parties or their Affiliates with respect to the Transactions, the
operation of their business, the Notes or the Purchase Documents and to reimburse Agent and
Purchasers and each Indemnified Party, upon demand, for any legal or other expenses incurred in
connection with investigating or defending any such loss, claim, damage, liability, expense or
action. This indemnity and agreement to defend and hold harmless shall survive any termination
or satisfaction of the Notes or the sale, assignment or foreclosure thereof or the sale, transfer or
conveyance of all or part of the past and present Properties and Facilities or any other
circumstances that might otherwise constitute a legal or equitable release or discharge, in whole
or in part, of the Borrower under the Notes. To the extent that the foregoing undertakings may
be unenforceable for any reason, each Loan Party agrees to make the maximum contribution to
the payment and satisfaction of indemnified liabilities set forth in this Section 10.11 that is
permissible under applicable Law. No Loan Party shall, without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld conditioned or delayed,
consent to entry of any judgment or enter into any settlement or other compromise which (i) does
not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such Indemnified Liabilities or
litigation, (ii) requires any admission of wrongdoing by such Indemnified Party, or (iii) obligates
or requires an Indemnified Party to take, or refrain from taking, any action. Furthermore, each
Loan Party waives and agrees not to assert against any Indemnified Party any right of
contribution with respect to any liabilities that may be imposed on, incurred by or asserted
against any Related Person, and waives any right to assert any claim for punitive, special or
consequential damages. Notwithstanding the foregoing, this indemnity and agreement shall not
apply to any losses, claims, damages, liabilities or expenses arising directly or indirectly from the
gross negligence or willful misconduct by any Indemnified Party.
Section 10.12 Environmental Indemnity.
Each Loan Party hereby releases and discharges, and jointly and severally agrees
to indemnify, defend and hold harmless each Indemnified Party from and against any and all
Environmental Liabilities, whenever and by whomever asserted, to the extent that such
Environmental Liabilities are based upon, or otherwise relate to: (i) any condition at any time in,
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at, on, under, a part of, involving or otherwise related to the Properties and Facilities (including
any of the properties, materials, articles, products, or other things included in or otherwise a part
of the Properties and Facilities), (ii) any action or failure to act of any Person, including any prior
owner or operator of the Properties and Facilities (including any of the properties, materials,
articles, products, or other things included in or otherwise a part of the Properties and Facilities),
involving or otherwise related to Environmental Liabilities arising from the Properties and
Facilities or operations of the Loan Parties, (iii) the Management of any Pollutant (including
Management of any material, article or product containing a Pollutant) in any physical state and
at any time, involving or otherwise related to the Properties and Facilities, (iv) any violation of or
noncompliance with or the assertion of any Lien under Environmental Laws, (v) the presence of
any Pollutants in, at, on, under, a part of, or otherwise related to the Properties and Facilities,
including, without limitation, human exposure thereto, (vi) any spill, release, discharge or
emission of any Pollutant affecting the Properties and Facilities, whether or not the same
originates or emanates from such Properties and Facilities or any contiguous real estate,
including, without limitation, any loss of value of such Properties and Facilities as a result
thereof, or (vii) a misrepresentation in any representation or warranty or breach of or failure to
perform any covenant made by any Loan Party in this Agreement or any other Purchase
Document relative to environmental matters. This indemnity and agreement to defend and hold
harmless shall (x) survive any termination or satisfaction of the Notes or the sale, assignment or
foreclosure thereof or the sale, transfer or conveyance of all or part of the past and present
Properties and Facilities or any other circumstances that might otherwise constitute a legal or
equitable release or discharge, in whole or in part, of Borrower under the Notes, and (y) not be
effective with respect to any matter, condition, violation of Environmental Law, or the presence
of any Pollutant caused by an Indemnified Party. To the extent that the foregoing undertakings
may be unenforceable for any reason, each Loan Party agrees to make the maximum contribution
to the payment and satisfaction of indemnified liabilities set forth in this Section 10.12 that is
permissible under applicable Law. No Loan Party shall, without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld conditioned or delayed,
consent to entry of any judgment or enter into any settlement or other compromise which (i) does
not include as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such Indemnified Liabilities or
litigation, (ii) requires any admission of wrongdoing by such Indemnified Party, or (iii) obligates
or requires an Indemnified Party to take, or refrain from taking, any action.
Section 10.13 Counterparts.
Any number of counterparts of this Agreement, including facsimiles or other
electronic transmission (including “pdf”), may be executed by the parties hereto. Each such
counterpart shall be, and shall be deemed to be, an original instrument, but all such counterparts
taken together shall constitute one and the same agreement.
Section 10.14 Integration.
This Agreement and the other Purchase Documents contain the entire agreement
of the parties with respect to the subject matter hereof and thereof and supersedes all prior
negotiations, agreements and understandings with respect thereto, both written and oral. This
Agreement may not be contradicted by evidence of prior, contemporaneous or subsequent oral
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agreements of the parties. There are no unwritten or oral agreements between the parties. When
this Agreement refers to a party’s “sole discretion”, such phrase means that party’s sole and
absolute discretion as to process and result, which shall be final for all purposes hereunder, to be
exercised (to the fullest extent the law permits) as arbitrarily and capriciously as that party may
wish, for any reason, subject to no standard of reasonableness or review and part of no claim
before any court, arbitrator or other tribunal or forum or otherwise.
Section 10.15 Confidentiality; Press Releases.
Agent and Purchasers shall each use commercially reasonable efforts to keep
confidential, in accordance with its customary procedures for handling confidential information,
any confidential information of Borrower; provided that Agent and Purchasers may disclose any
such information reasonably believed by Agent or any Purchaser to be necessary or appropriate
(i) to enable it to comply with any Laws applicable to it including, without limitation, applicable
SEC rules and regulations, (ii) in connection with the defense of any litigation or other
proceeding brought against it arising out of the transactions contemplated by this Agreement and
the other Purchase Documents, (iii) in connection with the supervision and enforcement of the
rights and remedies of Agent and Purchasers under any Purchase Documents, (iv) as set forth in
Section 10.18 or elsewhere herein, or (v) is requested or required by (A) any court of competent
jurisdiction or any competent judicial, governmental, supervisory or regulatory body (including,
without limitation, the SEC and local public service commission), (B) the rules of any stock
exchange, or (C) any applicable laws or regulations. Subject in all respects to the provisions of
Section 7.1(i)(iii) hereof, Agent and Purchasers shall have no obligation to keep information
confidential if such information: (i) is or becomes generally known to the public from a source
other than Agent or a Purchaser, or one of Agent’s or a Purchasers’ legal or financial advisors,
(ii) is, was or becomes known on a non-confidential basis to or discovered by Agent, Purchasers
or any of their legal or financial advisors independently from communications by or on behalf of
any Loan Party or (iii) is independently developed by Agent without use of such confidential
information, provided, that, the source of such information was not known to be bound by a
confidentiality agreement with (or subject to any other contractual, legal or fiduciary obligation
of confidentiality to) the relevant Loan Party.
Section 10.16 Facsimile Signatures.
Facsimile signatures on this Agreement, any other Purchase Documents and any
subsequent amendment to any of them shall be considered as original signatures.
Section 10.17 Set-off.
The Borrower gives and confirms to Agent and each Purchaser, a right of set-off
of all moneys, securities and other property of Borrower (whether special, general or limited) and
the proceeds thereof, at any time delivered to remain with or in transit in any manner to Agent or
any Purchaser, whether for safekeeping, custody, pledge, transmission, collection or otherwise or
coming into possession of Agent or any Purchaser in any way, and also, any balance of any
deposit accounts and credits of Borrower with, and any and all claims of security for the payment
of liabilities owed by Borrower pursuant to the Purchase Documents, whether such liabilities and
obligations be joint, several, absolute, contingent, secured, unsecured, matured or unmatured,
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and Borrower authorizes Agent at any time or times, without prior notice, to apply such money,
securities, other property, proceeds, balances, credits of claims, or any part of the foregoing, to
such liabilities in such amounts as it may select, whether such liabilities be contingent,
unmatured or otherwise, and whether any collateral security therefor is deemed adequate or not.
The rights described herein shall be in addition to any collateral security described in any
separate agreement executed by Borrower.
Section 10.18 Assignment and Participation.
(a)
Subject to Article 6, with the prior consent of Agent, and so long as no
Event of Default has occurred and is continuing, with the prior consent of Borrower (such
consent not to be unreasonably delayed, conditioned, burdened or withheld) and subject to
documentation satisfactory to Agent in its discretion, each Purchaser may from time to time
assign to any Person (each, an “Assignee”) all or a portion of its rights and obligations under this
Agreement. Notwithstanding the foregoing, no consent of Borrower shall be required for any
such assignment to Prospect Capital Funding LLC, or to any other Affiliate of Prospect in
connection with a collateral assignment as referenced in Section 6.3.
(b)
Each Purchaser may sell participations to one or more banks or other
Persons in or to all or a portion of its rights and obligations under this Agreement; provided,
however, that (i) such Purchaser’s obligations under this Agreement shall remain unchanged,
(ii) such Purchaser shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) the sale of the participation will not cause Borrower to incur any
additional liability, and (iv) Borrower shall continue to deal solely and directly with Agent in
connection with such Purchaser’s rights and obligations under this Agreement, provided that no
participant shall be entitled to recover under the above-described provisions an amount in excess
of the proportionate share which such participant holds of the original aggregate principal
amount hereunder to which such Purchaser would otherwise be entitled.
(c)
Each Purchaser may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 10.18, disclose to the assignee or
participant or proposed assignee or participant, any information relating to the Loan Parties
furnished to such Purchaser by or on behalf of any Loan Party; provided that, prior to any such
disclosure, the assignee or participant or proposed assignee or participant shall agree in writing
to preserve the confidentiality of any confidential information relating to the Loan Parties
received by it from such Purchaser.
(d)
Notwithstanding anything to the contrary contained in this Section 10.18
or any other provision of this Agreement, so long as no Default or Event of Default has occurred
and is continuing, Sponsor Group shall not be prohibited from purchasing or receiving
assignments of outstanding Loans pursuant to terms and conditions which may be agreed to by
the party selling or assigning or granting a participation in the Loans and the Sponsor Group, in
their sole discretion, provided that:
(A)
upon and as a condition to giving effect to such purchase or
assignment or participation, Sponsor Group and each member thereof shall have entered into an
agreement, in form and substance solely and exclusively satisfactory to the Agent and in Agent’s
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sole and complete discretion, that neither Sponsor Group nor any member thereof nor any
Affiliate thereof shall have the right, so long as Agent or any Purchaser (who is not the Sponsor
Group, a member or an Affiliate thereof) own any Loans and so long as Sponsor Group or any
of its Affiliates is a purchaser, assignee, participant or transferee of Loans from Agent, any
Purchaser, any Affiliate thereof or any third party whether pursuant to a restructuring of
Borrower, or otherwise, to (1) consent to any amendment, modification, waiver, consent or other
action with respect to any of the terms of this Agreement or any other Purchase Document and
all Loans held by Sponsor Group or any of its members or any of its Affiliates (however
acquired) shall be disregarded for purposes of such amendment, modification, waiver, consent or
other action (including with respect to all aspects of the determination of “Required Purchasers”
thereunder), (2) require the Agent or any other Purchaser to undertake any action (or refrain from
taking any action) with respect to this Agreement or any other Purchase Document, (3) attend (or
receive any notice of) any meeting, conference call or correspondence with the Agent or any
Purchaser or receive any information from the Agent or any Purchaser, or (4) make or bring any
claim, in its capacity as a Purchaser, against the Agent or any Purchaser with respect to the duties
and obligations of such Persons under the Purchase Documents, but no amendment, modification
or waiver shall deprive the Sponsor Group or any of its members or Affiliates of its share of any
payments which the Purchasers would be entitled to share on a pro rata basis pursuant to such
purchase. By purchasing or being assigned a Purchaser’s rights under this Agreement and by
acceptance of the benefits of this Agreement, Sponsor Group acknowledges and agrees that the
Loans owned by it shall be non-voting under sections 1126 and 1129 and any other relevant
provision of the U.S. Bankruptcy Code in the event that any proceeding thereunder shall be
instituted by or against any Loan Party;
(B)
in connection with and in furtherance of (A) above,
Sponsor Group and its members does each hereby grant the Agent an irrevocable power of
attorney, coupled with an interest, to vote any interest in Loans acquired by any of them pursuant
to this Agreement, or otherwise, however acquired, in connection with any and all matters as to
which a holder of Loans would otherwise be entitled to vote in any bankruptcy, insolvency,
restructuring or related matters, or otherwise, and this power of attorney and the provisions of
this Section 10.18 shall apply to and be binding upon and be a condition of a transfer to any
permitted transferee of Sponsor Group and any member thereof, by way of purchase, assignment
or participation of or in any Loan however acquired. Sponsor Group also agrees that if it
transfers, sells, assigns, or participates any of the Loans to an Affiliate of the Sponsor Group, it
will cause such Affiliate to agree to the terms of this Section 10.18. Any such transfer, purchase,
assignment or participation not in compliance with this Section 10.18 shall be null and void;
(C)
after giving effect to all Loans acquired by Sponsor Group
or any of its members or Affiliates, whether purchased pursuant to this Section 10.18(d) or
otherwise, the aggregate principal amount of all Loans held by Sponsor Group members or their
Affiliates (whether by assignment, participation, or other derivative transaction) shall not exceed
20% of the sum of the aggregate unpaid principal amount of Loans then outstanding;
(D)
notwithstanding anything to the contrary contained herein,
this Section 10.18 shall not operate as an option on behalf of the Sponsor Group nor any member
thereof nor any Affiliate thereof nor shall it be deemed a right of first refusal and shall not
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operate to hinder, impair, prevent or condition any of the rights granted to Agent or Purchasers
pursuant to Section 10.18;
(E)
It is the intention of this Section 10.18 that no other
provision of this Agreement shall contravene, prevent ,hinder or impede the enforcement of
restrictions imposed herein as a condition to the right of ownership of outstanding Loans by the
Sponsor Group or its members or Affiliates, directly or indirectly, as described in this Section
10.18 (d).
Section 10.19 Nonliability of Agent and Purchasers.
The relationship between Borrower on the one hand and Purchasers and Agent on
the other hand shall be solely that of borrower and lenders. This Agreement does not give rise
now or in the future to an agency, joint venture or partnership relationship between any Loan
Party on the one hand and Agent or any Purchaser or any of their Affiliates on the other hand.
Neither Agent nor any Purchaser shall have any fiduciary responsibility to Borrower. Neither
Agent nor any Purchaser (i) undertakes any responsibility to Borrower or any other Loan Party to
review or inform Borrower or any other Loan Party of any matter in connection with any phase
of any such Person’s business or operations or (ii) consents to any right of any Loan Party,
Purchaser or their Affiliates to inspect or audit any records or documents of the Agent or its
Affiliates. Execution of this Agreement by Borrower constitutes a full, complete and irrevocable
release of any and all claims which Borrower or any other Loan Party may have at law or in
equity in respect of all prior discussions and understandings, oral or written, relating to the
subject matter of this Agreement and the other Purchase Documents. Neither Agent nor any
Purchaser shall have any liability with respect to, and the Borrower (on behalf of itself and each
other Loan Party) hereby waives, releases and agrees not to sue for, any special, indirect,
punitive or consequential damages or liabilities. No Loan Party shall rely on any work or
analysis by Agent or any Purchaser.
ARTICLE 11
DISPUTE RESOLUTION; JURISDICTION; JURY TRIAL WAIVER
(a)
EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE FOLLOWING PROVISIONS OF
THIS SECTION 11(a):
(i)
EACH LOAN PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE
EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL
COURT OF THE UNITED STATES OF AMERICA SITTING IN THE BOROUGH OF
MANHATTAN IN THE STATE OF NEW YORK, AND ANY APPELLATE COURT FROM
ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT, THE NOTES OR ANY OTHER PURCHASE DOCUMENT, OR
FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
89
ME1 15090407v.18
DETERMINED IN SUCH STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN
ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL
AFFECT ANY RIGHT THAT AGENT AND PURCHASERS MAY OTHERWISE HAVE TO
BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE
NOTES OR ANY OTHER PURCHASE DOCUMENT AGAINST THE LOAN PARTIES OR
THEIR PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(ii)
EACH LOAN PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND
EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE
TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY OTHER PURCHASE
DOCUMENT IN ANY STATE OR FEDERAL COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT.
(iii) EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN
SECTION 10.6 HEREOF. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT
OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW.
(iv)
EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE
OR DEFEND ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT,
THE NOTES OR ANY OTHER PURCHASE DOCUMENT, OR (II) ARISING FROM ANY
DISPUTE OR CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS
AGREEMENT, THE NOTES OR ANY OTHER PURCHASE DOCUMENT AND AGREES
THAT ANY SUCH ACTION OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT
AND NOT BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
THE PURCHASERS GRANTING ANY FINANCIAL ACCOMMODATIONS TO THE LOAN
PARTIES.
(b)
No provision of, nor the exercise of any rights under, subsection (a) above
shall limit the right of any party (i) to foreclose against any real or personal property collateral
through judicial foreclosure, by the exercise of a power of sale under a deed of trust, mortgage or
other security agreement or instrument, pursuant to applicable provisions of the Code, or
otherwise pursuant to applicable Law, (ii) to exercise self help remedies including but not limited
to setoff and repossession, or (iii) to request and obtain from a court having jurisdiction
provisional or ancillary remedies and relief including but not limited to injunctive or mandatory
relief or the appointment of a receiver. The institution and maintenance of an action or judicial
proceeding for, or pursuit of, provisional or ancillary remedies or exercise of self help remedies
90
ME1 15090407v.18
shall not constitute a waiver of the right of Agent, even if Agent would otherwise have such
right.
(c)
The losing party shall pay all costs of any proceeding.
The remainder of this page is intentionally blank.
91
ME1 15090407v.18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
LOAN PARTIES:
BORROWER:
BRODER BROS., CO., a Delaware corporation
By: ____________________________________
Name: Martin Matthews
Title: Chief Financial Officer
AGENT:
PROSPECT CAPITAL CORPORATION,
a Maryland corporation
By: ______________________________________
Name: M. Grier Eliasek
Title: President and Chief Operating Officer
PURCHASER:
PROSPECT CAPITAL CORPORATION,
a Maryland corporation
By: ______________________________________
Name: M. Grier Eliasek
Title: President
92
ME1 15090407v.18
ANNEX A
INFORMATION RELATING TO PURCHASERS
Name and Address of Agent
Prospect Capital Corporation
10 East 40th Street, 44th Floor
New York, New York 10016
Telecopier: (212) 213-1488 and (212) 616-4868
Email: [email protected]
and
Email:[email protected]
Name and Address of Purchasers
Prospect Capital Corporation
10 East 40th Street, 44th Floor
New York, New York 10016
Telecopier: (212) 448-9652
(1)
All payments shall be made by wire to:
Account Name:
Prospect Capital Corporation
Account #:
821637949
Account of: U.S. Bank Trust Services
Attention: David Neumann
Bank:
U.S. Bank, N.A.
Milwaukee, WI
ABA#:
ABA 042000013
F/F/C Account
Account: 19-7057
Prospect Capital Corporation
Reference:
Reference: Broder Bros.
with sufficient information to identify the source and application of such funds.
(2)
All notices of payments and written confirmations of wire transfers:
Prospect Capital Corporation
10 East 40th Street, 44th Floor
1
ME1 15090407v.18
New York, New York 10016
Attn: Richard T. Carratu
Telecopier: (212) 448-9652
Email: [email protected]
and
Email:[email protected]
(3)
All other communications:
Prospect Capital Corporation
10 East 40th Street, 44th Floor
New York, New York 10016
Attn: Richard T. Carratu
Telecopier: (212) 448-9652
Email: [email protected]
and
Email:[email protected]spectstreet.com
2
ME1 15090407v.18
ANNEX B
PURCHASER ALLOCATIONS
Purchaser:
Notes:
Notes %
Note Amount
Prospect Capital
Corporation
$100,000,000
Senior Secured Term
Loan Note
100%
$100,000,000
3
ME1 15090407v.18
Exhibit 10.2
$255,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
dated as of March 27, 2013,
among
BRODER BROS., CO.,
as
THE LEAD BORROWER
FOR THE BORROWERS NAMED HEREIN
THE GUARANTORS PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO
and
BANK OF AMERICA, N.A.
as Administrative Agent, Issuing Bank and Swingline Lender
BANK OF AMERICA, N.A.
and
WELLS FARGO CAPITAL FINANCE, LLC
as Co-Collateral Agents
WELLS FARGO CAPITAL FINANCE, LLC
as Syndication Agent
JPMORGAN CHASE BANK, N.A.
as Documentation Agent
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
and
WELLS FARGO CAPITAL FINANCE, LLC
as Joint Lead Arrangers and Joint Bookrunners
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS .......................................................................................................... 2 Section 1.01 Section 1.02 Section 1.03 Section 1.04 Section 1.05 Section 1.06 Section 1.07 Defined Terms ...................................................................................................2 Terms Generally...............................................................................................40 Accounting Terms; GAAP...............................................................................41 Certifications. ...................................................................................................42 Rounding ..........................................................................................................42 Times of Day....................................................................................................42 Letter of Credit Amounts .................................................................................42 ARTICLE II THE CREDITS ...................................................................................................... 42 Section 2.01 Section 2.02 Section 2.03 Section 2.04 Section 2.05 Section 2.06 Section 2.07 Section 2.08 Section 2.09 Section 2.10 Section 2.11 Section 2.12 Section 2.13 Section 2.14 Section 2.15 Section 2.16 Section 2.17 Section 2.18 Section 2.19 Section 2.20 Section 2.21 Section 2.22 Commitments and Borrowing Base Determination. ........................................42 Loans. ...............................................................................................................43 Borrowing Procedure .......................................................................................45 Evidence of Debt; Repayment of Loans. .........................................................45 Fees. .................................................................................................................47 Interest on Loans. .............................................................................................48 Termination and Reduction of Commitments..................................................49 Interest Elections. .............................................................................................49 Optional and Mandatory Prepayments of Revolving Loans. ...........................51 Alternate Rate of Interest .................................................................................54 Increased Costs. ...............................................................................................55 Breakage Payments ..........................................................................................56 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. ......................57 Taxes. ...............................................................................................................58 Mitigation Obligations; Defaulting Lenders; Replacement of Lenders. ..........63 Swingline Loans...............................................................................................67 Letters of Credit. ..............................................................................................68 Determination of Borrowing Base. ..................................................................74 Increase in Commitments. ...............................................................................78 Reserves; Changes to Reserves. .......................................................................80 Designation of the Lead Borrower as the Borrowers’ Agent. .........................80 Settlement Amongst Lenders ...........................................................................81 ARTICLE III REPRESENTATIONS AND WARRANTIES.................................................... 82 Section 3.01 Section 3.02 Section 3.03 Section 3.04 Section 3.05 Section 3.06 Section 3.07 Section 3.08 Section 3.09 Organization; Powers .......................................................................................82 Authorization; Enforceability ..........................................................................82 Governmental Approvals; No Conflicts ..........................................................82 Financial Statements. .......................................................................................83 Properties. ........................................................................................................83 Equity Interests and Subsidiaries .....................................................................84 Litigation; Compliance with Laws...................................................................84 Material Indebtedness ......................................................................................84 Federal Reserve Regulations............................................................................85 i
Section 3.10 Section 3.11 Section 3.12 Section 3.13 Section 3.14 Section 3.15 Section 3.16 Section 3.17 Section 3.18 Section 3.19 Investment Company Act. ...............................................................................85 Taxes. ...............................................................................................................85 No Material Misstatements ..............................................................................85 Labor Matters ...................................................................................................86 Solvency ...........................................................................................................86 Employee Benefit Plans ...................................................................................86 Environmental Matters.....................................................................................87 Insurance ..........................................................................................................88 Security Documents. ........................................................................................88 Supply Agreements ..........................................................................................89 ARTICLE IV CONDITIONS TO CREDIT EXTENSIONS ...................................................... 89 Section 4.01 Section 4.02 Conditions to Initial Credit Extension .............................................................89 Conditions to All Credit Extensions ................................................................93 ARTICLE V AFFIRMATIVE COVENANTS ........................................................................... 93 Section 5.01 Section 5.02 Section 5.03 Section 5.04 Section 5.05 Section 5.06 Section 5.07 Section 5.08 Section 5.09 Section 5.10 Section 5.11 Section 5.12 Section 5.13 Section 5.14 Section 5.15 Section 5.16 Financial Statements and Non-Collateral Reports, etc. ...................................94 Litigation and Other Notices............................................................................95 Existence; Businesses and Properties. .............................................................96 Insurance. .........................................................................................................96 Obligations and Taxes......................................................................................97 Physical Inventories .........................................................................................98 Maintaining Records; Access to Properties and Inspections ...........................98 Use of Proceeds................................................................................................98 Compliance with Environmental Laws; Environmental Reports. ...................99 Future Holding Company ................................................................................99 Additional Collateral; Additional Guarantors. .................................................99 Security Interests; Further Assurances...........................................................101 Information Regarding Collateral. .................................................................102 Post-Closing Collateral Matters .....................................................................102 Borrowing Base-Related Reports ..................................................................102 Borrowing Base Verification; Inventory Appraisals .....................................103 ARTICLE VI NEGATIVE COVENANTS .............................................................................. 103 Section 6.01 Section 6.02 Section 6.03 Section 6.04 Section 6.05 Section 6.06 Section 6.07 Section 6.08 Section 6.09 Section 6.10 Section 6.11 Indebtedness ...................................................................................................103 Liens ...............................................................................................................106 Sale and Leaseback Transactions...................................................................109 Investment, Loan and Advances ....................................................................109 Mergers, Consolidations, Sales of Assets and Acquisitions ..........................112 Dividends; Prepayments of Indebtedness ......................................................114 Transactions with Affiliates ...........................................................................116 Consolidated Fixed Charge Coverage Ratio. .................................................117 Limitation on Modifications of Indebtedness; Modifications of Certificate
of Incorporation, or Other Constitutive Documents, By-laws and Certain
Other Agreements, etc. ..................................................................................117 Limitation on Certain Restrictions .................................................................117 Business .........................................................................................................118 ii
Section 6.12 Section 6.13 Section 6.14 Limitation on Accounting Changes ...............................................................118 Fiscal Year .....................................................................................................118 Future Holding Company ..............................................................................118 ARTICLE VII GUARANTEE .................................................................................................. 118 Section 7.01 Section 7.02 Section 7.03 Section 7.04 Section 7.05 Section 7.06 Section 7.07 Section 7.08 Section 7.09 The Guarantee ................................................................................................118 Obligations Unconditional .............................................................................119 Reinstatement.................................................................................................120 Subrogation; Subordination ...........................................................................121 Remedies ........................................................................................................121 Instrument for the Payment of Money ...........................................................121 Continuing Guarantee ....................................................................................121 General Limitation on Guarantee Obligations ...............................................121 Release of Subsidiary Guarantors ..................................................................122 ARTICLE VIII EVENTS OF DEFAULT ................................................................................ 122 ARTICLE IX LC COLLATERAL ACCOUNT; APPLICATION OF COLLATERAL
PROCEEDS ....................................................................................................... 125 Section 9.01 Section 9.02 LC Collateral Account. ..................................................................................125 Application of Proceeds .................................................................................126 ARTICLE X THE ADMINISTRATIVE AGENT AND THE CO-COLLATERAL AGENTS127 Section 10.01 Appointment. .................................................................................................127 Section 10.02 Administrative Agent and Co-Collateral Agents in their Individual
Capacity .........................................................................................................127 Section 10.03 Exculpatory Provisions ..................................................................................128 Section 10.04 Reliance by Agents ........................................................................................128 Section 10.05 Delegation of Duties ......................................................................................129 Section 10.06 Successor Agent .............................................................................................129 Section 10.07 Non-Reliance on Agents and Other Lenders .................................................129 Section 10.08 No Other Agent ..............................................................................................130 Section 10.09 Indemnification ..............................................................................................130 Section 10.10 Additional Loans ............................................................................................130 Section 10.11 Collateral Matters...........................................................................................131 ARTICLE XI MISCELLANEOUS........................................................................................... 132 Section 11.01 Section 11.02 Section 11.03 Section 11.04 Section 11.05 Section 11.06 Section 11.07 Section 11.08 Section 11.09 Section 11.10 Section 11.11 Notices ...........................................................................................................132 Waivers; Amendment. ...................................................................................134 Expenses; Indemnity. .....................................................................................136 Successors and Assigns..................................................................................137 Survival of Agreement ...................................................................................141 Counterparts; Integration; Effectiveness........................................................141 Severability ....................................................................................................142 Right of Setoff................................................................................................142 Governing Law; Jurisdiction; Consent to Service of Process. .......................142 Waiver of Jury Trial .......................................................................................143 Headings ........................................................................................................143 iii
Section 11.12 Section 11.13 Section 11.14 Section 11.15 Section 11.16 Section 11.17 Section 11.18 Confidentiality ...............................................................................................143 Interest Rate Limitation .................................................................................144 Press Releases and Related Matters. ..............................................................144 Patriot Act. .....................................................................................................144 Foreign Asset Control Regulations. ...............................................................145 Additional Waivers. .......................................................................................145 Existing Credit Agreement Amended and Restated ......................................147 iv
ANNEXES
Annex I
Lenders and Commitments
SCHEDULES
Schedule 1.01(a)
Schedule 1.01(b)
Schedule 3.03
Schedule 3.05
Schedule 3.06
Schedule 3.07(a)
Schedule 3.07(b)
Schedule 3.16
Schedule 3.17
Schedule 3.19
Schedule 5.14
Schedule 6.01(b)
Schedule 6.02(c)
Schedule 6.04(b)
Schedule 6.05
Schedule 6.07
Schedule 6.10
Schedule 6.11
Existing Letters of Credit
Subsidiary Guarantors
Governmental Approvals; Compliance with Laws
Real Property
Subsidiaries
Litigation
Compliance with Laws
Environmental Matters
Insurance
Supply Contracts
Post-Closing Matters
Existing Indebtedness
Existing Liens
Existing Investments
Permitted Dispositions
Transaction with Affiliates
Documents with Certain Restrictions
Certain Secured Obligations
EXHIBITS
Exhibit A-1
Exhibit A-2
Exhibit A-3
Exhibit B
Exhibit C
Exhibit D
Exhibit E
Exhibit F
Exhibit G-1
Exhibit G-2
Exhibit H-1
Exhibit H-2
Exhibit I
Exhibit J
Exhibit K
Exhibit L-1
Exhibit L-2
Exhibit L-3
Exhibit L-4
Form of Administrative Questionnaire
Form of Compliance Certificate
Form of LC Request
Form of Assignment and Acceptance
Form of Borrowing Request
Form of Interest Election Request
Form of Joinder Agreement
Form of Landlord Lien Waiver and Access Agreement
Form of Revolving Note
Form of Swingline Note
Form of Perfection Certificate
Form of Perfection Certificate Supplement
Form of Security Agreement
Form of Opinion of Company Counsel
Form of Borrowing Base Certificate
Foreign Lender Exemption Certificate
Foreign Lender U.S. Tax Compliance Certificate
Alternative Form Foreign Lender U.S. Tax Compliance Certificate
Foreign Partnership U.S. Tax Compliance Certificate
v
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this
“Agreement”) dated as of March 27, 2013, among BRODER BROS., CO., a Delaware
corporation (in such capacity, the “Lead Borrower”), the Borrowers party hereto (such term and
each other capitalized term used but not defined herein having the meaning given to it in Article
I), the Subsidiary Guarantors party hereto, the Lenders party hereto from time to time, BANK
OF AMERICA, N.A., as Administrative Agent for the Lenders and the other Secured Parties,
Swingline Lender and Issuing Bank, BANK OF AMERICA, N.A. and WELLS FARGO
CAPITAL FINANCE, LLC, as Co-Collateral Agents for the Lenders and the other Secured
Parties, and WELLS FARGO CAPITAL FINANCE, LLC (the “Co-Collateral Agents”),
WELLS FARGO CAPITAL FINANCE, LLC, as Syndication Agent (the “Syndication Agent”),
and JPMORGAN CHASE BANK, N.A., as Documentation Agent (the “Documentation
Agent”).
WITNESSETH:
WHEREAS, the Lead Borrower, certain of the Lenders and Bank of America, N.A., as
administrative agent for the Lenders, are party to that certain Second Amended and Restated
Credit Agreement (the “Existing Credit Agreement”) dated as of October 13, 2010; and
WHEREAS, the Lead Borrower, on behalf of the Borrowers, has requested that the
Lenders amend and restate the Existing Credit Agreement, to provide for, among other things,
credit in the form of Revolving Loans at any time and from time to time prior to the Maturity
Date, in an aggregate principal amount at any time outstanding not in excess of $255,000,000;
and
WHEREAS, the Lead Borrower, on behalf of the Borrowers, has requested that the
Swingline Lender make Swingline Loans, at any time and from time to time prior to the Maturity
Date, in an aggregate principal amount at any time outstanding not in excess of $25,000,000; and
WHEREAS, the Lead Borrower, on behalf of the Borrowers, has requested that the
Issuing Bank issue letters of credit, in an aggregate face amount at any time outstanding not in
excess of $50,000,000, to support payment obligations incurred in the ordinary course of
business by the Lead Borrower and its Subsidiaries; and
WHEREAS, the proceeds of the Loans are to be used in accordance with Section 5.08;
and
WHEREAS, certain of the commitments under the Existing Credit Agreement are being
terminated contemporaneously herewith; and
WHEREAS, General Electric Capital Corporation is contemporaneously herewith
resigning as a co-collateral agent, and the Lenders, with the consent of the Lead Borrower, have
agreed to appoint Bank of America, N.A. and Wells Fargo Capital Finance, LLC as co-collateral
agents.
1
NOW, THEREFORE, the Lenders are willing to extend such credit to the Borrowers and
the Issuing Bank is willing to issue letters of credit for the account of the Borrowers on the terms
and subject to the conditions set forth herein. Accordingly, the parties hereto agree that the
Existing Credit Agreement shall be amended and restated in its entirety to read as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms. As used in this Agreement, the following terms shall have
the meanings specified below:
“ABL Priority Collateral” shall have the meaning set forth in the Intercreditor
Agreement as in effect on the Effective Date.
“ABR”, when used in reference to any Loan or Borrowing, is used when such Loan, or
the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to
the Prime Rate.
“ABR Revolving Borrowing” shall mean a Borrowing comprised of ABR Revolving
Loans.
“ABR Revolving Loan” shall mean any Revolving Loan bearing interest at a rate
determined by reference to the Prime Rate in accordance with the provisions of Article II.
“Accounting Changes” shall have the meaning assigned to such term in Section 1.03.
“Accounts” shall mean all “accounts,” as such term is defined in the UCC as in effect on
the date hereof in the State of New York, in which any Person now or hereafter has rights.
“Account Debtor” shall mean any Person who may become obligated to another Person
under, with respect to, or on account of, an Account.
“Acquired EBITDA” means, with respect to any entity or business acquired in a
Permitted Acquisition for any period, the amount for such period of Consolidated EBITDA of
such entity or business (determined as if references to the Lead Borrower (or the extent
applicable, Future Holding Company) and the Subsidiaries in the definition of Consolidated
EBITDA were references to such entity or business and its Subsidiaries), all as determined on a
consolidated basis for such entity or business.
“Acquisition Consideration” shall mean the purchase consideration for any Permitted
Acquisition and all other payments paid to or for the benefit of the seller by the Borrowers or any
of their Subsidiaries in exchange for, or as part of, any Permitted Acquisition, whether paid in
cash or by exchange of Equity Interests or of assets or otherwise and whether payable at or prior
to the consummation of such Permitted Acquisition or deferred for payment at any future time,
whether or not any such future payment is subject to the occurrence of any contingency, and
which represents the purchase price and any assumptions of Indebtedness, “earn-outs” and other
agreements to make any payment the amount of which is, or the terms of payment of which are,
2
in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the
like) of any Person or business (valued in mutual agreement between Administrative Agent and
Lead Borrower).
“Acquisition Projections” shall have the meaning assigned to such term in the definition
of “Permitted Acquisition.”
“Acquisition Related Indebtedness” shall mean with respect to any Permitted
Acquisition, without duplication, (a) all Indebtedness incurred or assumed by any Borrower
and/or any of its Subsidiaries in connection with such acquisition and (b) all Indebtedness
pertaining to the acquired Person or Property which remained outstanding upon giving effect to
the consummation of such acquisition.
“Adjusted LIBOR Rate” shall mean, with respect to any Eurodollar Revolving
Borrowing for any Interest Period, (a) an interest rate per annum (rounded upward, if necessary,
to the next 1/8th of 1%) determined by the Administrative Agent to be equal to the LIBOR Rate
for such Interest Period multiplied by the Statutory Reserve Rate. The Adjusted LIBOR Rate
will be adjusted automatically as to all Eurodollar Revolving Borrowings then outstanding as of
the effective date of any change in the Statutory Reserve Rate.
“Administrative Agent” shall mean Bank of America and includes each other Person
appointed as the successor pursuant to Article X.
X
“Administrative Agent Fees” shall have the meaning assigned to such term in Section
2.05(b).
“Administrative Questionnaire” shall mean an Administrative Questionnaire in the
form of Exhibit A-1, or such other form as may be supplied from time to time by the
Administrative Agent.
“Affiliate” shall mean, when used with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is
under common Control with the Person specified; provided, however, that for purposes of
Section 6.07, “Affiliate” shall also include any Person that directly or indirectly owns more than
10% of any class of Equity Interests of the Person specified.
“Agent” or “Agents” shall mean the Administrative Agent or the Co-Collateral Agents,
or both collectively.
“Agreement” shall have the meaning assigned to such term in the preamble hereto.
“Applicable Fee” shall mean the applicable percentage set forth in the grid below:
Average daily balance of the Credit Extensions
in the immediately preceding fiscal quarter
Applicable Fee
Less than 50% of the Commitments
0.375%
3
Greater than or equal to 50% of the
Commitments
0.25%
“Applicable Law” shall means as to any Person: (a) all laws, statutes, rules, regulations,
orders, codes, ordinances or other requirements having the force of law; and (b) all court orders,
decrees, judgments, injunctions, enforceable notices, binding agreements and/or rulings, in each
case of or by any Governmental Authority which has jurisdiction over such Person, or any
property of such Person, including, without limitation, (i) all U.S. economic sanctions laws,
executive orders and implementing regulations as promulgated by the U.S. Treasury
Department’s Office of Foreign Assets Control, and all applicable anti-money laundering and
counter-terrorism financing provisions of the Bank Secrecy Act and all regulations issued
pursuant thereto, (ii) the Trading with the Enemy Act, and each of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B Chapter V, as
amended) and any other enabling legislation or executive order relating thereto, (iii) the Patriot
Act and (iv) other federal or state laws relating to “know your customer” and anti-money
laundering rules and regulations.
“Applicable Margin” shall mean, with respect to ABR Revolving Loans and Eurodollar
Revolving Loans, (x) from the Effective Date through the fiscal quarter ending June 30, 2013,
the percentages set forth in Level II below, and (y) thereafter, the applicable percentages set forth
in the pricing grid below:
Level
Average Daily
Excess
Availability
for the
immediately
preceding
fiscal quarter
Adjusted LIBOR
Rate Applicable
Margin (other
than Seasonal
Overadvances
made between
August 1 through
January 31 of
each year, but
including
Seasonal
Overadvances
made between
February 1
through July 31
of each year)
ABR Applicable
Margin (other
than Seasonal
Overadvances
made between
August 1 and
January 31 of
each year, but
including
Seasonal
Overadvances
made between
February 1
through July 31
of each year)
Adjusted
LIBOR Rate
Applicable
Margin for
Seasonal
Overadvances
made
between
August 1 and
January 31 of
each year
ABR
Applicable
Margin for
Seasonal
Overadvances
made
between
August 1 and
January 31 of
each year
I
Equal to or
greater than
$70,000,000
1.50%
0.50%
2.25%
1.25%
II
Equal to or
greater than
1.75%
0.75%
2.50%
1.50%
4
$25,000,000
but less than
$70,000,000
III
Less than
$25,000,000
2.00%
1.00%
2.75%
1.75%
On the first day of each fiscal quarter (each, an “Adjustment Date”), commencing with the fiscal
quarter beginning immediately after the fiscal quarter ending June 30, 2013, the Applicable
Margin for Eurodollar Revolving Loans and ABR Revolving Loans shall be determined from
such pricing grid based upon average daily Excess Availability for the most recently ended fiscal
quarter immediately preceding such Adjustment Date.
“Arranger” shall mean MLPFS.
“Asset Sale” shall mean (a) any conveyance, sale, lease, sublease, assignment, transfer or
other disposition (including by way of merger or consolidation and including any sale and
leaseback transaction) of any Property (including stock of any Subsidiary of a Borrower by the
holder thereof) by the Borrowers or any of their Subsidiaries to any Person other than to a
Borrower or any Subsidiary Guarantor (excluding (i) Inventory sold in the ordinary course of
business, (ii) any sale or discount, in each case without recourse, of accounts receivable arising
in the ordinary course of business, but only in connection with the compromise or collection
thereof, (iii) the leasing (including subleases) or licensing (including sublicensing) of Intellectual
Property, personal Property or real Property in the ordinary course of business and for
consideration which is not reasonably anticipated to exceed $1,000,000 in any fiscal year, or the
abandonment of Intellectual Property in the ordinary course of business, (iv) disposals of
obsolete, uneconomical, negligible, worn out or surplus property in the ordinary course of
business, (v) sales of Cash Equivalents and marketable securities), (vi) sales, transfers and
dispositions as set forth on Schedule 6.05, and (vii) sales, transfers, leases, exchanges, and
dispositions amongst the Loan Parties so long as the Administrative Agent has a perfected first
priority lien (subject only to Permitted Liens) after giving effect to such sale, transfer or
disposition; and (b) any issuance or sale by any Subsidiary of a Borrower of its Equity Interests
to any Person (other than (i) to a Borrower or any Subsidiary Guarantor or (ii) any issuance by
any Subsidiary that is not a Loan Party to another Subsidiary that is not a Loan Party); provided,
that Asset Sale shall not include any Casualty Event). For the avoidance of doubt, no Designated
Equity Issuance shall be deemed to be an Asset Sale hereunder.
“Assignment and Acceptance” shall mean an assignment and acceptance entered into by
a Lender and an assignee, and accepted by the Administrative Agent, substantially in the form of
Exhibit B, or such other form as shall be approved by the Administrative Agent.
“Attributable Indebtedness” shall mean, when used with respect to any sale and
leaseback transaction, as at the time of determination, the present value (discounted at a rate
equivalent to the Borrowers’ then-current weighted average cost of funds for borrowed money as
at the time of determination, compounded on a semi-annual basis) of the total obligations of the
5
lessee for rental payments during the remaining term of the lease included in any such sale and
leaseback transaction.
“Availability Reserves” means, without duplication of any other Reserves or items that
are otherwise addressed or excluded through eligibility criteria, such reserves as any CoCollateral Agent, from time to time determines in its Permitted Discretion.
“Bank of America” means Bank of America, N.A., a national banking association and
its successors.
“Bank Products Agreement” means any agreement for services provided to any Loan
Party by any Lender or any of its Affiliates (other than those constituting a Cash Management
Agreement), on account of (a) credit cards, (b) purchase cards, (c) leasing, and (d) Hedging
Agreements.
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy”, as
amended from time to time or any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect and all rules and regulations promulgated thereunder.
“Board” shall mean the Board of Governors of the Federal Reserve System of the United
States.
“Borrower” means, collectively, the Lead Borrower, the Borrowers identified on the
signature pages hereto and each other Person who becomes a Borrower hereunder pursuant to
Section 5.11.
“Borrowing” shall mean (a) Loans of the same Type, made, converted or continued on
the same date and, in the case of Eurodollar Revolving Loans, as to which a single Interest
Period is in effect, or (b) a Swingline Loan.
“Borrowing Base” shall mean at any time, subject to adjustment as provided in Section
2.18, an amount equal to the sum of, without duplication:
(a)
the book value of Eligible Accounts of the Loan Parties, net of Receivables
Reserves, multiplied by 85%, provided that, during the Seasonal Overadvance Period, such
advance rate shall be increased by the applicable percentage set forth in the definition of
Seasonal Advance Rate Increase Percentage, plus
(b)
the lesser of (i) 75% multiplied by the Cost of Eligible Inventory of the Loan
Parties, net of Inventory Reserves, or (ii) 85% (provided that, during the Seasonal Overadvance
Period, such advance rate under this clause (ii) shall be increased by the applicable percentage
set forth in the definition of Seasonal Advance Rate Increase Percentage) of the Net Recovery
Cost Percentage multiplied by the Cost of Eligible Inventory of the Loan Parties, net of
Inventory Reserves, minus
(c)
the Hedging Reserve, minus
6
(d)
any Availability Reserves established from time to time by any Co-Collateral
Agent in accordance with Section 2.20.
The Borrowing Base at any time shall be determined by reference to the most recent
Borrowing Base Certificate theretofore delivered to the Co-Collateral Agents.
“Borrowing Base Certificate” shall mean an Officers’ Certificate from the Lead
Borrower, substantially in the form of, and containing the information prescribed by, Exhibit K
(or such other form approved by the Co-Collateral Agents) delivered to the Co-Collateral Agents
setting forth the Borrowers’ calculation of the Borrowing Base.
“Borrowing Request” shall mean a request by the Lead Borrower, on behalf of the
Borrowers, in accordance with the terms of Section 2.03 and substantially in the form of Exhibit
C, or such other form as shall be approved by the Administrative Agent.
“Business” shall mean the sale, marketing or distribution of promotional products,
including, without limitation, blank imprintable activewear (including, without limitation, Tshirts, sweatshirts and sport shirts), hard goods or decorative products, and reasonable extensions
thereof, ancillary activities related thereto or complementary thereof.
“Business Day” shall mean any day other than a Saturday, Sunday or other day on which
banks in New York City are authorized or required by law to close; provided, however, that
when used in connection with a Eurodollar Revolving Loan, the term “Business Day” shall also
exclude any day on which banks are not open for dealings in dollar deposits in the London
interbank market.
“Capital Expenditures” shall mean, for any period, the additions to property, plant and
equipment and other capital expenditures that are (or would be) set forth in a consolidated
statements of cash flows of the Loan Parties for such period prepared in accordance with GAAP;
provided, that “Capital Expenditures” shall not include any such expenditures (a) which
constitute a Permitted Acquisition, (b) made with the proceeds of any equity securities issued or
capital contributions received by any Loan Party or any Subsidiary in connection with such
capital expenditures, (c) made with the proceeds from any Casualty Event to the extent that the
proceeds therefrom are utilized for Capital Expenditures within twelve months of the receipt of
such proceeds, (d) made with the proceeds from any sale or other disposition of any Loan Party’s
assets (other than assets constituting Collateral consisting of Inventory and Accounts and the
proceeds thereof), to the extent that the proceeds therefrom are utilized for Capital Expenditures
within twelve months of the receipt of such proceeds, (e) any such expenditures which constitute
the purchase price of equipment purchased during such period to the extent the consideration
therefore consists of any combination of (1) used or surplus equipment traded in at the time of
such purchase and (2) the proceeds of a concurrent sale of used or surplus equipment, in each
case, in the ordinary course of business, or (f) any such expenditures which constitute normal
replacement and maintenance programs charged to current results.
“Capital Lease Obligations” means, with respect to any Person for any period, the
obligations of such Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal Property, or a combination thereof, which obligations
7
are required to be classified and accounted for as capital leases on a balance sheet of such Person
under GAAP; for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof determined in accordance with GAAP (except for temporary
treatment of construction related expenditures under EITF 97-10, “The Effects of Lessee
Involvement in Asset Construction” which will ultimately be treated as operating leases upon a
sale-leaseback transaction).
“Cash Dominion Event” shall mean the occurrence of either (a) a Specified Default, or
(b) Excess Availability being less than the greater of (i) $25,000,000, or (ii) ten percent (10%) of
the Loan Cap. The occurrence of a Cash Dominion Event shall be deemed continuing (i) so long
as such Specified Default is continuing, and/or (ii) if the Cash Dominion Event arises as a result
of the Borrowers’ failure to achieve Excess Availability as required hereunder, until Excess
Availability has exceeded the amounts set forth in clause (b) above for thirty (30) consecutive
days, in which case a Cash Dominion Event shall no longer be deemed to be continuing for
purposes of this Agreement; provided that a Cash Dominion Event shall be deemed continuing
(even if a Specified Default is no longer continuing and/or Excess Availability exceeds the
required amount for thirty (30) consecutive days) at all times during any twelve month period
after a Cash Dominion Event has occurred and been discontinued three (3) times in such twelve
month period. The termination of a Cash Dominion Event as provided herein shall in no way
limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the
conditions set forth in this definition again arise.
“Cash Equivalents” shall mean, as to any Person: (a) securities issued, or directly,
unconditionally and fully guaranteed or insured, by the United States or any agency or
instrumentality thereof (provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date of acquisition by such
Person; (b) securities issued, or directly, unconditionally and fully guaranteed or insured, by any
state of the United States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition thereof and, at the
time of acquisition, having one of the two highest ratings obtainable from either Standard &
Poor’s Ratings Group or Moody’s Investors Services, Inc.; (c) time deposits, certificates of
deposit or bankers’ acceptances of any Lender or any commercial bank having, or which is the
principal banking subsidiary of a bank holding company organized under the laws of the United
States, any state thereof or the District of Columbia or any U.S. branch of a foreign bank having,
capital and surplus aggregating in excess of $1,000,000,000 and a rating of “A” (or such other
similar equivalent rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act) with maturities of not more than
one year from the date of acquisition by such Person; (d) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in clause (a) above entered
into with any bank meeting the qualifications specified in clause (c) above, which repurchase
obligations are secured by a valid perfected security interest in the underlying securities; (e)
commercial paper issued by any Person incorporated in the United States rated at least A-1 or the
equivalent thereof by Standard & Poor’s Rating Service or at least P-1 or the equivalent thereof
by Moody’s Investors Service, Inc., and in each case maturing not more than one year after the
date of acquisition by such Person; (f) investments in money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (a) through (e) above;
and (g) demand deposit accounts maintained in the ordinary course of business.
8
“Cash Interest Expense” shall mean, for any period, Consolidated Interest Expense to
extent paid in cash for such period less (i) the sum of items described in clauses (b), (c) and (g)
of the definition of “Consolidated Interest Expense”, less (ii) the sum of fees paid to the
Administrative Agent in connection with this Agreement and the transactions contemplated
hereby and less (iii) any payments made to enter into a Hedging Agreement or Interest Rate
Protection Agreement, as applicable.
“Cash Management Agreement” means any agreement evidencing one or more cash
management services provided to any Loan Party by any Lender or any of its Affiliates,
including, without limitation: (a) ACH transactions, (b) cash management services, including,
without limitation, controlled disbursement services, (c) foreign exchange facilities, (d) credit
cards, (e) deposit and other accounts and (f) merchant services (other than those constituting a
line of credit).
“Casualty Event” shall mean, with respect to any Property (including Real Property) of
any Person, any loss of title with respect to such Property (other than dispositions constituting
Asset Sales and dispositions permitted under Section 6.05 hereof) or any loss of or damage to or
destruction of, or any condemnation or other taking (including by any Governmental Authority)
of, such Property for which such Person or any of its Subsidiaries receives insurance proceeds or
proceeds of a condemnation award or other compensation. “Casualty Event” shall include, but
not be limited to, any taking of all or any part of any Real Property of any Person or any part
thereof, in or by condemnation or other eminent domain proceedings pursuant to any law, or by
reason of the temporary requisition of the use or occupancy of all or any part of any Real
Property of any Person or any part thereof by any Governmental Authority, civil or military.
“CERCLA” shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq.
A “Change in Control” shall be deemed to have occurred if: (a) any “change of control”
occurs under and as defined in any documentation relating to any Indebtedness in excess of
$50,000,000; (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that for purposes of this clause such person or group shall be
deemed to have “beneficial ownership” of all securities that any such person or group has the
right to acquire, whether such right is exercisable immediately or only after the passage of time),
directly or indirectly, of (x) Voting Stock representing more than 50% of the voting power of the
total outstanding Voting Stock of the Lead Borrower or following the formation thereof, the
Future Holding Company provided that the foregoing provisions of this clause (x) shall not apply
to Cetus Capital II, LLC and its Affiliates (collectively, “Cetus”),or (y) Cetus fails to beneficially
own at least 30% (which percentage shall be calculated without giving effect to the exercise of
certain warrants existing on the Effective Date in favor of the Bain Holders (as defined on
Schedule 3.06 hereto) and any resulting dilution of the Lead Borrower’s Voting Stock as a result
thereof) of the Voting Stock of the Lead Borrower or following the formation thereof, the Future
Holding Company, or (z) a majority of the members of the Board of Directors of the Lead
Borrower or following the formation thereof, the Future Holding Company, cease to be
composed of individuals whose election or nomination to the Board of Directors was approved
by Cetus; (c) following an IPO, during any period of two consecutive years, individuals who at
9
the beginning of such period constituted the Board of Directors of the Lead Borrower or,
following the formation thereof, the Future Holding Company (other than vacant seats, together
with any new directors whose election to such Board of Directors or whose nomination for
election was approved by a vote of 51% of the directors of the Person who is the subject of the
IPO then still in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Person who is the subject of the IPO, (d)
following the formation of the Future Holding Company, the Future Holding Company at any
time ceases to own directly 100% of the Equity Interests of the Lead Borrower (unless the Lead
Borrower is the subject of an IPO), or (e) the Lead Borrower at any time ceases to own, directly
or indirectly, 100% of the Equity Interests of each other Loan Party (other than the Future
Holding Company).
“Change in Law” shall mean (a) the adoption of any Applicable Law after the date of
this Agreement, (b) any change in any Applicable Law or in the interpretation or application
thereof by any Governmental Authority after the date of this Agreement or (c) compliance by
any Lender or Issuing Bank (or for purposes of Section 2.11(b), by any lending office of such
Lender or by such Lender’s or Issuing Bank’s holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any Governmental Authority
first made or issued after the date of this Agreement; provided that notwithstanding anything
herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and
all requests, rules, guidelines or directives thereunder or issued by a Governmental Authority in
connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank
for International Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities, in each case pursuant to
Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted,
adopted or issued.
“Charges” shall have the meaning assigned to such term in Section 11.13.
“Chattel Paper” shall mean all “chattel paper,” as such term is defined in the UCC as in
effect on the date hereof in the State of New York, in which any Person now or hereafter has
rights.
“Code” shall mean the Internal Revenue Code of 1986, and the Treasury Regulations
promulgated thereunder (including proposed Treasury Regulations upon which a taxpayer may
rely), each as amended from time to time.
“Co-Collateral Agents” has the meaning set forth in the preamble.
“Collateral” shall mean, collectively, all of the Security Agreement Collateral, the
Mortgaged Real Property and all other Property of whatever kind and nature pledged as
collateral under any Security Document.
“Commercial Letter of Credit” shall mean any letter of credit or similar instrument
issued for the account of a Borrower for the benefit of a Borrower or any of its Subsidiaries, for
the purpose of providing the primary payment mechanism in connection with the purchase of
10
materials, goods or services by a Borrower or any of their Subsidiaries in the ordinary course of
their businesses.
“Commitment” shall mean, with respect to each Lender, the commitment, if any, of such
Lender to make Revolving Loans and to participate in Swingline Exposure and LC Exposure
hereunder up to the amount set forth on Annex I, or in the Assignment and Acceptance pursuant
to which such Lender assumed its Commitment, as applicable, as the same may be (a) reduced
from time to time pursuant to Section 2.07, (b) increased from time to time pursuant to Section
2.19 and (c) reduced or increased from time to time pursuant to assignments by or to such Lender
pursuant to Section 11.04. The aggregate amount of the Lenders’ Commitments on the Effective
Date is $255,000,000. The aggregate amount of the Lenders’ Commitments may be increased as
set forth in Section 2.19.
“Commitments” shall mean the aggregate sum of each Lender’s Commitment.
“Commitment Fee” shall have the meaning assigned to such term in Section 2.05(a).
“Companies” shall mean Lead Borrower, its Subsidiaries and any Future Holding
Company; and “Company” shall mean any one of them.
“Compliance Certificate” shall mean a certificate of a Financial Officer substantially in
the form of Exhibit A-2 or in a form approved by the Administrative Agent.
“Consolidated Companies” shall mean the Lead Borrower (or following the formation
thereof, the Future Holding Company) and its Consolidated Subsidiaries.
“Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such
period, adjusted, in each case only to the extent (and in the same proportion) deducted or
excluded in determining such Consolidated Net Income (and with respect to the portion of
Consolidated Net Income attributable to any Subsidiary of a Borrower only if a corresponding
amount would be permitted at the date of determination to be distributed to a Borrower (or any
acquired Person, as applicable) by such Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its organizational documents and all agreements, instruments,
judgments, decrees, orders, statutes, rules and regulations applicable to such Subsidiary or its
stockholders), by (a) adding thereto (i) the amount of Consolidated Interest Expense, (ii)
provision for income Taxes (including without duplication, and to the extent included in GAAP,
any foreign withholding Taxes, single business or unitary Taxes or other similar state Taxes, in
each case in the nature of an income Tax), (iii) amortization expense, (iv) depreciation expense
(including goodwill and other intangible asset impairment charges), (v) all other non-cash
charges, non-cash expenses or non-cash losses (including, but not limited to, amortization of
deferred financing fees, non-cash GAAP restructuring charges, non-cash expense from any
employee benefit or stock option plan, non-cash loss on sale or disposition of fixed assets,
purchase accounting adjustments with respect to re-valuing assets and liabilities which reduces
EBITDA and subsequent non-cash impairment charges), (vi) unusual or non-recurring charges,
fees and expenses which are reasonably acceptable to the Administrative Agent (including,
without limitation the following (which are reasonably acceptable to the Administrative Agent),
any cash losses arising in connection with any Asset Sales permitted by Section 6.05(b)(ii)
11
hereof during such period, (vii) costs, fees, expenses, charges and any one time payments made
related to any Permitted Acquisition (including, without limitation, one time cash compensation
charges related to any Permitted Acquisitions to the extent identified contemporaneously with
the closing of such Permitted Acquisition and paid within twelve months following such
closing), any Indebtedness permitted under Section 6.01(o), any Investments permitted under
Section 6.04(r), any Equity Issuances permitted hereunder, any disposition permitted hereunder
or the Transactions and the repayment of the Senior Notes (as defined in the Existing Credit
Agreement) in an amount not to exceed $5,000,000 in respect of the Transactions and the
repayment of the Senior Notes, (viii) to the extent not already included in Consolidated Net
Income and actually indemnified or reimbursed, any costs or expenses which are covered by
indemnification or reimbursement provisions in connection with any Permitted Acquisition or
permitted disposition, (provided that any such costs or expenses actually indemnified or
reimbursed following such period may be added to Consolidated EBITDA at the time of actual
receipt of such indemnification or reimbursement), (ix) all one time compensation charges,
including without limitation, stay bonuses paid to existing management and severance and
executive level recruiting costs, in an aggregate amount not to exceed $1,000,000 per fiscal year,
(x) any portion of management fees actually paid by or on behalf of (if not previously accrued),
or accrued by, the Borrower or any of its Subsidiaries to the Sponsor in an aggregate amount not
to exceed $500,000 per fiscal year, plus reasonable out-of-pocket expenses payable to Sponsor in
connection therewith, and (xi) to the extent not already included in Consolidated Net Income,
proceeds from business interruption insurance, and (b) subtracting the aggregate amount of all
non-cash items other than (A) the accrual of revenue in the ordinary course of business and in
accordance with GAAP and (B) reversals of prior accruals or reserves for cash items previously
excluded in accordance with GAAP from Consolidated EBITDA pursuant to clause (v) above,
determined on a consolidated basis, to the extent such items increased Consolidated Net Income
for such period.
“Consolidated Fixed Charge Coverage Ratio” means, with respect to any Person for
any period, the ratio of (a) (i) Consolidated EBITDA for such period minus (ii) Capital
Expenditures (excluding those financed under Capital Lease Obligations) made during such
period, minus (iii) all cash payments in respect of federal, state and foreign income Taxes paid
during such period (net of any cash refund in respect of income Taxes actually received during
such period), to (b) the sum of (i) the principal amount of all scheduled amortization payments
on all Indebtedness (including the principal component of all Capital Lease Obligations and
scheduled amortization payments of Indebtedness under the Term Facility (but excluding
payments of Excess Cash Flow under the Term Facility), payable in cash during such period),
plus (ii) Cash Interest Expense accrued or paid in cash during such period, plus (iii) Dividends
paid in cash during such period, in each case determined on a consolidated basis in accordance
with GAAP. For the avoidance of doubt, in no event shall interest paid in kind and payable at
maturity constitute “Cash Interest Expense”.
“Consolidated Interest Expense” shall mean, for any period, without duplication, the
total consolidated interest expense of the Lead Borrower (or following the formation thereof, the
Future Holding Company ) and its Consolidated Subsidiaries for such period (calculated (i)
without regard to any limitations on the payment thereof and (ii) including amortization of debt
discount and deferred financing costs, capitalized interest, interest paid in kind, commitment
fees, letter of credit fees and net amounts payable under Interest Rate Protection Agreements,
12
appraisal fees and fees in connection with collateral audits, determined in accordance with
GAAP plus, without duplication, (a) the portion of Capital Lease Obligations of the Lead
Borrower (or following the formation thereof, the Future Holding Company ) and its
Consolidated Subsidiaries representing the interest factor for such period, (b) imputed interest on
Attributable Indebtedness, (c) cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or trust to pay interest or fees
to any Person (other than a Borrower or Wholly Owned Subsidiaries) in connection with
Indebtedness incurred by such plan or trust, (d) all interest paid or payable with respect to
discontinued operations, (e) the product of (i) all dividend payments on any series of any
Preferred Stock of any Subsidiary of a Borrower (other than any Preferred Stock held by a
Borrower or a Wholly Owned Subsidiary), multiplied by (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined federal, state and
local statutory tax rate of the Lead Borrower (or following the formation thereof, the Future
Holding Company) and its Subsidiaries, expressed as a decimal, (f) all interest on any
Indebtedness of the type described in clause (f) or (k) of the definition of “Indebtedness” with
respect to the Lead Borrower (or following the formation thereof, the Future Holding Company )
or any of its Subsidiaries and (g) the interest component on consulting agreements.
“Consolidated Net Income” shall mean, for any period, the consolidated net income of
the Lead Borrower (or following the formation thereof, the Future Holding Company ) and its
Consolidated Subsidiaries determined in accordance with GAAP, but excluding in any event (a)
after-tax extraordinary gains or extraordinary losses; (b) after-tax gains or losses realized from (i)
the acquisition of any securities, or the extinguishment or conversion of any Indebtedness or
Equity Interest, of a Borrower or any of its Subsidiaries or (ii) any sales of assets (other than
inventory in the ordinary course of business); (c) net earnings or loss of any other Person (other
than a Subsidiary of a Borrower) in which the Borrowers or any Consolidated Subsidiary has an
ownership interest, except (in the case of any such net earnings) to the extent such net earnings
shall have actually been received by a Borrower or such Consolidated Subsidiary (subject to the
limitation in clause (d) below) in the form of cash dividends or distributions; (d) the net income
of any Consolidated Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Consolidated Subsidiary of its net income is not at the time of
determination permitted without approval under Applicable Law or under such Consolidated
Subsidiary’s organizational documents or any agreement or instrument applicable to such
Consolidated Subsidiary or its stockholders; (e) gains or losses from the cumulative effect of any
change in accounting principles; (f) earnings resulting from any reappraisal, revaluation or writeup or write-down of assets; (g) cash losses attributable to discontinued operations or business
lines of Borrower or any of its Subsidiaries; and (h) the income (or loss) of any Person accrued
prior to the date it becomes a Subsidiary of a Borrower or any Consolidated Subsidiary or is
merged into or consolidated with a Borrower or any Consolidated Subsidiary or that Person’s
assets are acquired by a Borrower or such Consolidated Subsidiary (other than for the calculation
of Consolidated EBITDA for covenant purposes). In addition, Consolidated Net Income shall be
calculated without giving effect to (i) any write-off of deferred financing costs incurred as a
result of the refinancing of Indebtedness, (ii) purchase accounting or similar adjustments
required or permitted by GAAP, in connection with any Permitted Acquisitions, (iii) any gain or
loss recognized in determining consolidated net income (or net loss) for such period in respect of
pension and other post-retirement benefits and (iv) any gain or loss recognized in determining
consolidated net income (or loss) for such period in respect of pension assets.
13
“Consolidated Subsidiary” shall mean, as to any Person, all Subsidiaries of such Person
which are consolidated with such Person for financial reporting purposes in accordance with
GAAP.
“Contested Collateral Lien Conditions” shall mean, with respect to any Permitted Lien
of the type described in clauses (a), (b) and (f) of Section 6.02, the following conditions:
(a)
a Borrower shall be contesting such Lien in good faith;
(b)
to the extent such Lien is in an amount in excess of $1,000,000 in the
aggregate with all other such Liens, the Co-Collateral Agents shall have established a
Reserve (to the extent of such Lien on Borrowing Base assets) with respect thereto or
obtained a bond in an amount sufficient to pay and discharge such Lien and the CoCollateral Agents’ reasonable estimate of all interest and penalties related thereto; and
(c)
only to the extent that such Lien includes ABL Priority Collateral, such
Lien shall in all respects be subject and subordinate in priority to the Lien and security
interest created and evidenced by the Security Documents, except to the extent that the
law or regulation creating, permitting or authorizing such Lien provides that such Lien is
or must be superior to the Lien and security interest created and evidenced by the
Security Documents.
“Contingent Obligation” shall mean, as to any Person, any obligation, agreement,
understanding or arrangement of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other Person
(the “primary obligor”) in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any Property constituting direct or indirect security therefor; (b) to advance
or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor; (c) to purchase Property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation; (d) with respect to bankers’ acceptances
and letters of credit, until a reimbursement obligation arises; or (e) otherwise to assure or hold
harmless the holder of such primary obligation against loss in respect thereof; provided,
however, that the term “Contingent Obligation” shall not include (i) endorsements of instruments
for deposit or collection, or (ii) standard contractual indemnities in the ordinary course of
business or any product warranties or deposit or collection in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Contingent Obligation is
made (or, if less, the maximum amount of such primary obligation for which such Person may be
liable, whether severally or jointly, pursuant to the terms of the instrument evidencing such
Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform thereunder) as
determined by such Person in good faith.
14
“Control” means the possession, directly or indirectly, of the power (a) to vote 50% or
more of the securities having ordinary voting power for the election of directors (or any similar
governing body) of a Person, or (b) to direct or cause the direction of the management or policies
of a Person, whether through the ability to exercise voting power, by contract or otherwise. The
terms “Controlling” and “Controlled” have meanings correlative thereto.
“Control Investment Affiliate” shall mean, with respect to any Person, an Affiliate of
such Person that is organized by such Person primarily for the purpose of making equity or debt
investments in one or more companies or for providing management services to portfolio
companies of such Person.
“Cost” shall mean, as reasonably determined by the Co-Collateral Agents in good faith,
with respect to Inventory, the lower of (a) cost computed on a specific identification or first in
first out basis (taking into account devaluation Reserves as set forth in Section 2.20(a) hereof) or
(b) market value, provided that for purposes of the calculation of the Borrowing Base, the Cost
of Inventory shall not include (A) the portion of the cost of Inventory equal to the profit earned
by any Affiliate on the sale thereof to any Loan Party, or (B) write ups or write downs in cost
with respect to currency exchange rates.
“Credit Extension” shall mean, as the context may require, (i) the making of a Loan by a
Lender or (ii) the issuance of any Letter of Credit by the Issuing Bank or the amendment;
extension or renewal of any Existing Letter of Credit; provided that “Credit Extensions” shall not
include conversions and continuations of outstanding Loans.
“Default” shall mean any event, occurrence or condition which is, or upon notice, lapse
of any grace period or both would constitute, without cure or waiver, an Event of Default.
“Defaulting Lender” shall mean, subject to Section 2.15(b), any Lender that (a) has
failed to (i) fund all or any portion of its Loans on the date such Loans were required to be
funded hereunder, or (ii) pay to the Administrative Agent, the Issuing Bank, the Swingline
Lender or any other Lender any other amount required to be paid by it hereunder (including in
respect of its participation in Letters of Credit or Swingline Loans) within two Business Days of
the date when due, (b) has notified the Lead Borrower, the Administrative Agent, the Issuing
Bank or the Swingline Lender in writing that it does not intend to comply with its funding
obligations hereunder, or has made a public statement to that effect, (c) has failed, within three
Business Days after written request by the Administrative Agent or the Lead Borrower, to
confirm in writing to the Administrative Agent and the Lead Borrower that it will comply with
its prospective funding obligations hereunder (provided that such Lender shall cease to be a
Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the
Administrative Agent and the Lead Borrower), or (d) has, or has a direct or indirect parent
company that has, (i) become the subject of a proceeding under the Bankruptcy Code, or (ii) had
appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit
of creditors or similar Person charged with reorganization or liquidation of its business or assets,
including the Federal Deposit Insurance Corporation or any other state or federal regulatory
authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender
solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any
direct or indirect parent company thereof by a Governmental Authority so long as such
15
ownership interest does not result in or provide such Lender with immunity from the jurisdiction
of courts within the United States or from the enforcement of judgments or writs of attachment
on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate,
disavow or disaffirm any contracts or agreements made with such Lender. Any determination by
the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses
(a) through (d) above, and of the effective date of such status, shall be conclusive and binding
absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to
Section 2.15(b)) as of the date established therefor by the Administrative Agent in a written
notice of such determination, which shall be delivered by the Administrative Agent to the Lead
Borrower, the Issuing Bank, the Swingline Lender and each other Lender promptly following
such determination.
“Designated Equity Issuance” shall mean an Equity Issuance as to which the Borrowers
notify the Administrative Agent in writing at or prior to the issuance thereof that all Net Cash
Proceeds to be derived therefrom will be used to finance any of the following purposes: (a) a
Permitted Acquisition, (b) Investments otherwise permitted to be incurred in Section 6.04,
(c) Capital Expenditures; (d) payments of Dividends in accordance with Section 6.06, or (e)
general corporate purposes of Borrower or any of its Subsidiaries, including without limitation
the repayment or prepayment of any Obligations or any Permitted Indebtedness.
“Dividend” with respect to any Person shall mean that such Person has declared or paid a
dividend or returned any equity capital to its stockholders or authorized or made any other
distribution, payment or delivery of Property (other than common stock of such Person) or cash
to its stockholders as such in respect of any Equity Interest, or redeemed, retired, purchased or
otherwise acquired, directly or indirectly, for a consideration any shares of any class of its Equity
Interests outstanding (or any options or warrants issued by such Person with respect to its Equity
Interests), or set aside any funds for any of the foregoing purposes. Without limiting the
foregoing, “Dividends” with respect to any Person shall also include all payments made or
required to be made by such Person with respect to any stock appreciation rights, plans, equity
incentive or achievement plans or any similar plans or setting aside of any funds for the
foregoing purposes.
“Documentation Agent” has the meaning set forth in the preamble.
“Documents” shall mean all “documents,” as such term is defined in the UCC as in
effect on the date hereof in the State of New York, in which any Person now or hereafter has
rights.
“Dollars” or “$” shall mean lawful money of the United States.
“Effective Date” shall mean the date all conditions precedent pursuant to Section 4.01
have been satisfied or waived in accordance with the terms hereunder.
“Eligible Accounts” shall have the meaning assigned to such term in Section 2.18(a).
“Eligible Assignee” means (i) a commercial bank, insurance company, or company
engaged in the business of making asset based commercial loans or a commercial finance
company engaged in the business of making asset based commercial loans in the ordinary course
16
of business, which Person, together with its Affiliates, has a combined capital and surplus in
excess of $5,000,000,000, (ii) any Affiliate of any Lender under common control with such
Lender, or any Lender Affiliate, (iii) any Person to whom a Lender assigns its rights and
obligations under this Agreement as part of an assignment and transfer of such Lender’s rights in
and to a material portion of such Lender’s portfolio of asset based credit facilities, or (iv) subject
to Section 11.04(h), any Sponsor; provided that in any event, “Eligible Assignee” shall not
include any natural person, any Loan Party or any Affiliate thereof (other than a Sponsor).
“Eligible Inventory” shall mean, subject to adjustment as set forth in Section 2.18(b),
items of Inventory of any Loan Party, as applicable, held for sale in the ordinary course
(excluding packing or shipping materials or maintenance supplies) and as reported on such Loan
Party’s inventory management reports delivered pursuant to Section 5.15.
“Environment” shall mean ambient air, surface water and groundwater (including,
without limitation, potable water, navigable water and wetlands), the land surface or subsurface
strata, natural resources, or as otherwise defined in any Environmental Law.
“Environmental Claim” shall mean any claim, notice, demand, order, action, suit,
proceeding or other communication in each case alleging liability for investigation, remediation,
removal, cleanup, response, corrective action, damages to natural resources, personal injury,
Property damage, fines, penalties or other costs resulting from, related to or arising out of (i) the
presence, Release or threatened Release in or into the Environment of Hazardous Material at any
location or (ii) any violation of Environmental Law, and shall include, without limitation, any
claim seeking damages, contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from, related to or arising out of the presence, Release or threatened Release of
Hazardous Material or alleged injury or threat of injury to health, safety, or the Environment.
“Environmental Law” shall mean any and all Applicable Laws relating to protection of
public health from environmental hazards or the Environment, or the Release or threatened
Release of Hazardous Material, natural resources or natural resource damages.
“Environmental Permit” shall mean any permit, license, approval, consent or other
authorization required under Environmental Law.
“Equity Interest” shall mean, with respect to any Person, any and all shares, interests,
participations or other equivalents, including membership interests (however designated, whether
voting or non-voting), of equity of such Person, including, if such Person is a partnership,
partnership interests (whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of, or distributions of
assets of, such partnership, whether outstanding on the date hereof or issued after the Effective
Date, but excluding (i) debt securities convertible or exchangeable into such equity and
(ii) compensation for services rendered that is payable in cash or property other than an Equity
Interest.
“Equity Issuance” shall mean, without duplication, any issuance or sale by the Lead
Borrower or the Future Holding Company after the Effective Date of (a) any Equity Interests
(including any Equity Interests issued upon exercise of any warrant or option) or any warrants or
17
options to purchase Equity Interests or (b) any other security or instrument representing an
Equity Interest (or the right to obtain any Equity Interest) in the issuing or selling Person.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same
may be amended from time to time.
“ERISA Affiliate” shall mean any trade or business (whether or not incorporated) that,
together with the Lead Borrower, is treated as a single employer under Section 414(b) or (c) of
the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section
412 of the Code).
“ERISA Event” shall mean (a) any “reportable event,” as defined in Section 4043(c) of
ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which
the 30-day notice period is waived by regulation); (b) the existence with respect to any Plan of an
“accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of
ERISA) in excess of $25,000,000 or such lesser amount as would be reasonably expected to
result in a Material Adverse Effect, whether or not waived, the failure to make by its due date a
required installment under Section 412(m) of the Code with respect to any Plan or the failure to
make any required contribution to a Multiemployer Plan; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (d) the incurrence by the Lead Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Lead Borrower or any of its ERISA Affiliates from the PBGC or a plan
administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan, or the occurrence of any event or condition which could
reasonably be expected to constitute grounds under ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (f) the incurrence by the Lead Borrower or any
of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or
Multiemployer Plan in excess of $25,000,000 or such lesser amount that would reasonably be
expected to result in a Material Adverse Effect; (g) the determination that any Plan is considered
an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431
and 432 of the Code or Sections 303, 304 and 305 of ERISA; and (h) the receipt by any
Company or its ERISA Affiliates of any notice, concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
“Eurodollar Revolving Borrowing” shall mean a Borrowing comprised of Eurodollar
Revolving Loans.
“Eurodollar Revolving Loan” shall mean any Revolving Loan bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate in accordance with the provisions of
Article II.
“Event of Default” shall have the meaning assigned to such term in Article VIII.
“Excess Availability” shall mean the difference between (a) the Loan Cap and (b) the
sum of all outstanding Revolving Loans and all outstanding LC Exposure.
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“Excess Cash Flow” shall have the meaning set forth in the Term Loan Agreement.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“Excluded Taxes” shall mean, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment made or to be made by or on account of any
obligation of any Loan Party under any Loan Document, (a) income, franchise or other Taxes
imposed on or with respect to (or measured by) its net income by the United States, or by the
jurisdiction under the laws of which such recipient is organized or in which its principal office is
located or, in the case of any Lender, in which its applicable lending office is located, or imposed
by any political subdivision of such jurisdiction, and any withholding required in respect of any
such Tax, (b) any branch profits Tax imposed by the United States or any similar Tax imposed
by any other jurisdiction in which any Borrower is located or imposed by any political
subdivision of such jurisdiction, and any withholding required in respect of any such Tax, (c) in
the case of a Foreign Lender (other than an assignee pursuant to a request by a Borrower under
Section 2.15), any withholding Tax that is imposed on or with respect to amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Foreign Lender’s failure to comply
with Section 2.14(e), except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to receive additional
amounts from the Borrowers with respect to such withholding Tax pursuant to Section 2.14(a) (it
being understood and agreed, for the avoidance of doubt, that any withholding Tax (other than a
withholding tax imposed under FATCA) imposed on a Foreign Lender as a result of a Change in
Law or regulation or interpretation thereof occurring after the time such Foreign Lender became
a party to this Agreement shall not be an Excluded Tax), (d) any United States federal
withholding Tax that would not have been imposed but for a failure by such recipient (or any
financial institution through which any payment is made to such recipient) to comply with the
applicable requirements of FATCA, (e) Taxes imposed as a result of a present or former
connection between the Administrative Agent, any Lender, the Issuing Bank or any other such
recipient, respectively, and the jurisdiction imposing such Tax (other than connections arising
from having executed, delivered, become a party to, performed its obligations under, received
payments under, received or perfected a security interest under, engaged in any other transaction
pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan
Document), and any withholding required in respect of any such Tax, and (f) in the case of a
U.S. Lender, any withholding Tax that is imposed on or with respect to amounts payable to such
U.S. Lender attributable to such U.S. Lender’s failure to comply with Section 2.14(e).
“Existing Credit Agreement” shall have the meaning assigned to such term in the
Recitals.
“Existing Letters of Credit” means those Letters of Credit issued under the Existing
Credit Agreement described on Schedule 1.01(a) hereto.
“FATCA” shall mean Sections 1471 through 1474 of the Code and the United States
Treasury Regulations or published guidance with respect thereto.
19
“Federal Funds Effective Rate” shall mean, for any day, the weighted average of the
rates on overnight federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for the day for such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing selected by it.
“Fee Letter” means the Fee Letter dated as of February 28, 2013 by and among the Lead
Borrower, the Administrative Agent and MLPFS, as amended, supplemented or replaced and in
effect from time to time.
“Fees” shall mean the Commitment Fees, the Administrative Agent Fees, the LC
Participation Fees and the Fronting Fees.
“Financial Officer” of any Person shall mean the Chief Executive Officer, Chief
Financial Officer, principal accounting officer, Treasurer, Vice President of Finance, Controller
or Assistant Controller of such Person.
“FIRREA” shall mean the Federal Institutions Reform, Recovery and Enforcement Act
of 1989, as amended.
“Foreign Lender” shall mean any Lender that is not, for United States federal income
tax purposes, a United States person as defined in Section 7701(a)(30) of the Code.
“Foreign Subsidiary” shall mean a Subsidiary that is organized under the laws of a
jurisdiction other than the United States or any state thereof or the District of Columbia.
“Fronting Exposure” shall mean, at any time there is a Defaulting Lender, (a) with
respect to the Issuing Bank, such Defaulting Lender’s Pro Rata Percentage of the outstanding LC
Exposure other than LC Exposure as to which such Defaulting Lender’s participation obligation
has been reallocated to other Lenders or cash collateralized in accordance with the terms hereof
or other arrangements acceptable to the Issuing Bank are made, and (b) with respect to the
Swingline Lender, such Defaulting Lender’s Pro Rata Percentage of Swingline Loans other than
Swingline Loans as to which such Defaulting Lender’s participation obligation has been
reallocated to other Lenders in accordance with the terms hereof or other arrangements
acceptable to the Swingline Lender are made.
“Fronting Fees” shall have the meaning assigned to such term in Section 2.05(c)(ii).
“Future Holding Company” means a corporation organized under any State of the
United States at any time after Effective Date which directly owns 100% of the Equity Interests
of the Lead Borrower.
“GAAP” shall mean generally accepted accounting principles in effect from time to time
in the United States of America which are consistent with those promulgated or adopted by the
Financial Accounting Standards Board and its predecessors (or successors) in effect and
applicable to that accounting period in respect of which reference to GAAP is being made.
20
“Governmental Authority” shall mean any federal, state, local or foreign court, central
bank or governmental agency, authority, instrumentality or regulatory body.
“Guaranteed Obligations” shall have the meaning assigned to such term in Section
7.01.
“Guarantees” shall mean the guarantees issued pursuant to Article VII by the Subsidiary
Guarantors.
“Guarantors” shall mean the Subsidiary Guarantors.
“Hazardous Materials” shall mean all explosive or radioactive substances or wastes and
all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
mold, fungi or similar bacteria, and all other substances or wastes of any nature regulated
pursuant to any Environmental Law because of their dangerous or deleterious properties,
including any material listed as a hazardous substance under Section 101(14) of CERCLA.
“Hedging Agreement” shall mean any Interest Rate Protection Agreement, foreign
currency exchange agreement, commodity price protection agreement or other interest or
currency exchange rate or commodity price hedging arrangement.
“Hedging Reserve” shall mean a reserve determined by the Co-Collateral Agents in their
Permitted Discretion and giving effect to the aggregate amount owing to the applicable Borrower
by a counterparty to a Hedging Agreement, less the amount the applicable Borrower owes such
counterparty thereunder, less the aggregate amount of Property pledged to cash collateralize such
obligation (other than the Collateral granted under the Loan Documents), in each case valued on
a mark-to-market basis as of the last Business Day of the month (or if not available, the nearest
prior Business Day for which such evaluation is available).
“Immaterial Subsidiary” means a Subsidiary of the Lead Borrower (or following the
formation thereof, any Future Holding Company) for which (a) the assets of such Subsidiary
constitute less than or equal to 1% of the total assets of the Lead Borrower (or such Future
Holding Company) and its Subsidiaries on a consolidated basis and collectively with all
Immaterial Subsidiaries, less than or equal to 5% of the total assets of the Lead Borrower (or
such Future Holding Company) and its Subsidiaries on a consolidated basis, and (b) the revenues
of such Subsidiary account for less than or equal to 1% of the total revenues of the Lead
Borrower (or such Future Holding Company) and its Subsidiaries on a consolidated basis and
collectively with all Immaterial Subsidiaries, less than or equal to 5% of the total revenues of the
Lead Borrower (or such Future Holding Company) and its Subsidiaries on a consolidated basis
and (c) no assets of the type included in the Borrowing Base are owned by such Subsidiary. In
no event shall the Lead Borrower or any Future Holding Company be deemed an “Immaterial
Subsidiary.”
“Increase Effective Date” shall have the meaning assigned to such term in Section
2.19(b).
21
“Indebtedness” of any Person shall mean, without duplication, (a) all obligations of such
Person for borrowed money or advances (other than trade payables and accrued expenses in the
ordinary course of business), including any obligations which are without recourse to the credit
of such Person; (b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments; (c) all obligations of such Person under conditional sale or other title
retention agreements relating to Property purchased by such Person; (d) all obligations of such
Person issued or assumed as the deferred purchase price of Property or services (excluding trade
accounts payable and accrued obligations incurred in the ordinary course of business); (e) all
Indebtedness of others described in clauses (a) through (d) and (f) through (l) herein secured by
(or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on Property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed; (f) all Capital Lease Obligations, Purchase
Money Obligations and synthetic lease obligations of such Person; (g) all obligations of such
Person in respect of Interest Rate Protection Agreements and other Hedging Agreements to the
extent required to be reflected on a balance sheet of such Person; (h) all Attributable
Indebtedness of such Person; (i) all obligations for the reimbursement of any obligor in respect
of letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions; (j) all
earn-out obligations in connection with Permitted Acquisitions, but only to the extent that the
contingent consideration relating thereto is not paid within thirty (30) days after the amount due
is finally determined; (k) all mandatory obligations of such Person to purchase, redeem, retire,
defease or otherwise make any payment in respect of any Equity Interests of such Person; and (l)
all Contingent Obligations of such Person in respect of Indebtedness or obligations of others in
each case of the kinds referred to in clauses (a) through (k) above. The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any partnership in which
such Person is a general partner) to the extent such Person is liable therefor as a result of such
Person’s ownership interest in or other relationship with such entity, except to the extent that
terms of such Indebtedness provide that such Person is not liable therefor. Indebtedness of any
Person shall not include any amounts relating to Preferred Stock required to be included in
Indebtedness in accordance with GAAP, any sale-leaseback transactions to the extent the lease or
sublease thereunder is not required to be recorded under GAAP as a Capital Lease, any
obligations relating to overdraft protection and netting services, items that would appear as a
liability on a balance sheet prepared in accordance with GAAP as a result of the application of
EITF 97-10, “The Effects of Lessee Involvement in Asset Construction”.
“Indemnified Taxes” shall mean (a) Taxes, other than Excluded Taxes, imposed on or
with respect to any payment made by or on account of any obligation of any Loan Party under
any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” shall have the meaning assigned to such term in Section 11.03(b).
“Information” shall have the meaning assigned to such term in Section 11.12.
“Instruments” shall mean all “instruments,” as such term is defined in the UCC as in
effect on the date hereof in the State of New York, in which any Person now or hereafter has
rights.
22
“Intellectual Property” shall mean all present and future patents, patent applications,
trademarks, trade names, internet domain names, service marks, copyrights, technology, trade
secrets, proprietary information, domain names, know-how and processes necessary for the
conduct of Borrowers' business as currently conducted.
“Intercreditor Agreement” shall mean (i) the Intercreditor Agreement dated as of the
Effective Date by and among the Administrative Agent and the Term Agent, as it may be
amended, amended and restated, supplemented or otherwise modified from time to time in
accordance with the terms hereof and thereof or (ii) any other intercreditor agreement among the
Administrative Agent and the lender or lenders (or an agent or trustee for such lenders) under the
Term Facility or any Permitted Refinancing thereof, as it may be amended, amended and
restated, supplemented or otherwise modified from time to time in accordance with the terms
hereof and thereof.
“Interest Election Request” shall mean a request by the Lead Borrower, on behalf of the
Borrowers, to convert or continue a Revolving Borrowing in accordance with Section 2.08(b),
substantially in the form of Exhibit D or such other form approved by Administrative Agent.
“Interest Payment Date” shall mean (a) with respect to any ABR Revolving Loan (other
than a Swingline Loan), the first day after the end of each March, June, September and
December to occur during the period that such Loan is outstanding and the Maturity Date of such
ABR Revolving Loan, (b) with respect to any Eurodollar Revolving Loan, the last day of the
Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Revolving Loan with an Interest Period of more than three months’ duration, each
day prior to the last day of such Interest Period that occurs at intervals of three months’ duration
after the first day of such Interest Period, and (c) with respect to any Swingline Loan, the day
that such Loan is required to be repaid.
“Interest Period” shall mean, with respect to any Eurodollar Revolving Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically corresponding
day in the calendar month that is one, two, three, or six months thereafter, or, if available by all
Lenders, two weeks, nine or twelve months thereafter, as the Lead Borrower, on behalf of the
Borrowers, may elect; provided that (a) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day, (b) any Interest Period that
commences on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest Period) shall end on
the last Business Day of the last calendar month of such Interest Period, and (c) no Interest
Period shall end on a date which is after the Maturity Date. For purposes hereof, the date of a
Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the
effective date of the most recent conversion or continuation of such Borrowing.
“Interest Rate Protection Agreement” shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or similar agreement or arrangement
designed to protect the Borrowers or any of their Subsidiaries against fluctuations in interest
rates and not entered into for speculation.
23
“Inventory” shall mean all “inventory,” as such term is defined in the UCC as in effect
on the date hereof in the State of New York, wherever located, in which any Person now or
hereafter has rights.
“Inventory Appraisal” shall mean the most recent inventory appraisal conducted by an
independent appraisal firm and delivered pursuant to Section 5.16 hereof.
“Inventory Reserves” means such reserves against Inventory as may be established from
time to time by any Co-Collateral Agent in its Permitted Discretion.
“Investments” shall have the meaning assigned to such term in Section 6.04.
“IPO” shall mean the first underwritten public offering of Equity Interests of Lead
Borrower or, following the formation thereof, the Future Holding Company after the Effective
Date pursuant to a registration statement filed with the Securities and Exchange Commission in
accordance with the Securities Act.
“Issuing Bank” shall mean, as the context may require, (a) Bank of America, with
respect to Letters of Credit issued by it; (b) any other Lender that may become an Issuing Bank
pursuant to Sections 2.18(i) and (k), with respect to Letters of Credit issued by such Lender; (c),
with respect to the Existing Letters of Credit, the Lender which issued each such Letter of Credit,
or (d) collectively, all of the foregoing.
“Joinder Agreement” shall mean a joinder agreement substantially in the form of
Exhibit E or such other form approved by the Administrative Agent.
“Junior Permitted Acquisition Indebtedness” shall have the meaning assigned to such
term in Section 6.01(o).
“Landlord Lien State” means any state in which a landlord’s claim for rent has priority
by operation of Applicable Law over the Lien of the Administrative Agent in any of the
Collateral.
“Landlord Lien Waiver and Access Agreement” shall mean a Landlord Lien Waiver
and Access Agreement, substantially in the form of Exhibit F or such other form approved by the
Administrative Agent. It is agreed that all Landlord Lien Waiver and Access Agreements in
existence on the Effective Date are acceptable to the Administrative Agent and need not be
amended or replaced as of such date.
“LC Collateral Account” shall mean a collateral account in the form of a deposit
account established and maintained by the Administrative Agent for the benefit of the Secured
Parties, in accordance with the provisions of Section 9.01.
“LC Commitment” shall mean the commitment of the Issuing Bank to issue Letters of
Credit pursuant to Section 2.17.
“LC Disbursement” shall mean a payment or disbursement made by the Issuing Bank
pursuant to a Letter of Credit.
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“LC Exposure” shall mean at any time the sum of (a) the aggregate undrawn amount of
all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all LC
Disbursements that have not yet been reimbursed at such time. The LC Exposure of any
Revolving Lender at any time shall mean its Pro Rata Percentage of the aggregate LC Exposure
at such time.
“LC Participation Fee” shall have the meaning assigned to such term in Section
2.05(c)(i).
“LC Request” shall mean a request by the Lead Borrower, on behalf of the Borrowers, in
accordance with the terms of Section 2.17(b) and substantially in the form of Exhibit A-3, or
such other form as shall be approved by the Issuing Bank.
“Lead Borrower” shall have the meaning assigned to such term in the Recitals.
“Leases” means any and all leases, subleases, tenancies, concession agreements, rental
agreements, occupancy agreements, access agreements, and any other agreements (including all
amendments, extensions, replacements, renewals, and modifications thereof), whether or not of
record, in existence, affecting the use or occupancy of all or any portion of Real Property.
“Lender Affiliate” shall mean with respect to any Lender that is a fund that invests in
bank loans, any other fund that invests in commercial loans and is managed or advised by the
same investment advisor as such Lender or by an Affiliate of such advisor or such advisor under
common control with such Lender or advisor, as applicable.
“Lenders” shall mean (a) the financial institutions that have become a party hereto on the
Effective Date (other than any such financial institution that has ceased to be a party hereto
pursuant to an Assignment and Acceptance) and (b) any financial institution that has become a
party hereto pursuant to an Assignment and Acceptance. Unless the context clearly indicates
otherwise, the term “Lenders” shall include the Swingline Lender and the Revolving Lenders.
“Letter of Credit” shall mean any (a) Standby Letter of Credit and (b) Commercial
Letter of Credit, in each case, issued or to be issued by an Issuing Bank for the account of a
Borrower or any of its Subsidiaries pursuant to Section 2.17.
“Letter of Credit Expiration Date” shall mean the date which is five (5) Business Days
prior to the Maturity Date.
“LIBOR Rate” shall mean:
(a) for any Interest Period with respect to a Eurodollar Revolving Loan, the rate per
annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by
Reuters (or other commercially available source providing quotations of BBA LIBOR as
designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits
(for delivery on the first day of such Interest Period) with a term equivalent to such Interest
Period. If such rate is not available at such time for any reason, then the “LIBOR Rate” for such
Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate
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at which deposits in Dollars for delivery on the first day of such Interest Period in same day
funds in the approximate amount of the Eurodollar Revolving Loan being made, continued or
converted by Bank of America and with a term equivalent to such Interest Period would be
offered by Bank of America’s London Branch to major banks in the London interbank eurodollar
market at their request at approximately 11:00 a.m. (London time) two Business Days prior to
the commencement of such Interest Period; and
(b) for any interest calculation with respect to an ABR Revolving Loan on any date, the
rate per annum equal to (i) BBA LIBOR, at approximately 11:00 a.m., London time determined
two London Banking Days prior to such date for Dollar deposits being delivered in the London
interbank market for a term of one month commencing that day or (ii) if such published rate is
not available at such time for any reason, the rate per annum determined by the Administrative
Agent to be the rate at which deposits in Dollars for delivery on the date of determination in
same day funds in the approximate amount of the ABR Revolving Loan being made or
maintained and with a term equal to one month would be offered by Bank of America’s London
Branch to major banks in the London interbank Eurodollar market at their request at the date and
time of determination.
“Lien” shall mean, with respect to any Property, (a) any mortgage, deed of trust, lien
(statutory or otherwise), pledge, encumbrance, collateral assignment, hypothecation, security
interest of any kind, (b) the interest of a vendor or a lessor under any conditional sale agreement,
capital lease or title retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such Property and (c) in the case of
securities, any purchase option, call or similar right or a third party with respects to such
securities.
“Loan Cap” means, at any time of determination, the lesser of (a) the Commitments of
all Revolving Lenders or (b) the Borrowing Base.
“Loan Documents” shall mean this Agreement, any Borrowing Base Certificate, the
Letters of Credit, the Notes (if any), the Security Documents, the Fee Letter, the Intercreditor
Agreement and each Hedging Agreement entered into with any counterparty that was a Lender
or an Affiliate of a Lender at the time such Hedging Agreement was entered into.
“Loan Parties” shall mean the Borrowers, the Subsidiary Guarantors and any Future
Holding Company.
“Loans” shall mean advances made to or at the instructions of the Lead Borrower, on
behalf of the Borrowers, pursuant to Article II hereof and may constitute Revolving Loans or
Swingline Loans.
“Margin Stock” shall have the meaning assigned to such term in Regulation U.
“Material Adverse Effect” shall mean any event, facts or circumstances which has (a) a
material adverse effect on the business, Property, or financial condition of the Loan Parties and
their Subsidiaries, taken as a whole; or (b) a material adverse effect on the validity or
enforceability of the Loan Documents, taken as a whole; or (c) a material impairment of the
rights of or benefits or remedies taken as a whole (including value of Collateral and perfection
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and priority of Liens in favor of the Administrative Agent (for its benefit and the benefit of the
other Secured Parties)) available to the Lenders or the Agents under the Loan Documents.
“Material Indebtedness” shall mean any Indebtedness (other than the Loans and Letters
of Credit), of any Loan Party evidencing an aggregate outstanding principal amount exceeding
$25,000,000. In all events, Indebtedness under the Term Facility shall be deemed to constitute
Material Indebtedness.
“Maturity Date” shall mean March 27, 2018.
“Maximum Rate” shall have the meaning assigned to such term in Section 11.13.
“MLPFS” shall mean Merrill Lynch, Pierce, Fenner & Smith Incorporated.
“Mortgage” shall mean an agreement, including, but not limited to, a mortgage, deed of
trust or any other document, creating and evidencing a Lien on a Mortgaged Real Property, in
form and substance reasonably acceptable to the Administrative Agent.
“Mortgaged Real Property” shall mean each owned Real Property, if any, which shall
be subject to a Mortgage delivered after the Effective Date pursuant to Section 5.11.
“Multiemployer Plan” shall mean a multiemployer plan within the meaning of Section
4001(a)(3) or Section 3(37) of ERISA (a) to which any Company or any ERISA Affiliate is then
making or accruing an obligation to make contributions; (b) to which any Company or any
ERISA Affiliate has within the preceding five plan years made contributions; or (c) with respect
to which any Company could incur liability.
“Net Cash Proceeds” shall mean:
(a)
with respect to any Asset Sale, the cash proceeds received by any Loan
Party (including cash proceeds subsequently received (as and when received by any Loan
Party) in respect of noncash consideration initially received) net of (i) selling expenses
(including brokers’ fees or commissions, legal, accounting and other professional and
transactional fees, transfer and similar Taxes and Lead Borrower’s good faith estimate of
income Taxes and other Taxes (other than transfer and similar Taxes) paid or payable in
connection with such sale (calculated by taking into account any Tax credits or
deductions available in that connection); provided that either Co-Collateral Agent may, in
its Permitted Discretion establish an Availability Reserve in the amount of any Taxes so
deducted in calculating Net Cash Proceeds); (ii) amounts provided as a cash reserve, in
accordance with GAAP, or amounts placed in a funded escrow, against any liabilities
under any indemnification obligations or purchase price adjustments associated with such
Asset Sale (provided that, to the extent and at the time any such amounts are released
from such reserve, such amounts shall constitute Net Cash Proceeds, including, without
limitation, pension and other post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with such
transaction); (iii) the Lead Borrower’s good faith estimate of payments required to be
made with respect to unassumed liabilities relating to the assets sold (provided that, to the
extent such cash proceeds are not so used within 180 days of such Asset Sale, such cash
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proceeds shall constitute Net Cash Proceeds); and (iv) the principal amount, premium or
penalty, if any, interest and other amounts on any Indebtedness which is secured by a
senior Lien on the asset sold in such Asset Sale and which is repaid with such proceeds
(other than any such Indebtedness assumed by the purchaser of such asset); and
(b)
with respect to any Casualty Event, the cash insurance proceeds,
condemnation awards and other compensation received in respect thereof, net of all taxes,
costs and expenses incurred in connection with the collection of such proceeds, awards or
other compensation and repayment of Indebtedness which is secured by a senior Lien on
the Property subject to such Casualty Event and which is repaid with such proceeds in
respect of such Casualty Event.
“Net Recovery Cost Percentage” shall mean the fraction, expressed as a percentage, (a)
the numerator of which is the amount equal to the blended recovery on the aggregate amount of
the Eligible Inventory at such time on a “net orderly liquidation value” basis as set forth in the
most recent Inventory Appraisal received by Administrative Agent in accordance with Section
5.16, net of operating expenses, liquidation expenses and commissions reasonably anticipated in
the disposition of such assets, and (b) the denominator of which is the original Cost of the
aggregate amount of the Eligible Inventory subject to appraisal.
“Non-Defaulting Lender” shall mean, at any time, each Lender that is not a Defaulting
Lender at such time.
“Notes” shall mean any notes evidencing the Revolving Loans or Swingline Loans issued
pursuant to this Agreement, if any, substantially in the form of Exhibit G-1 or G-2, as the case
may be.
“Obligations” shall mean, without duplication, (a) obligations of the Borrowers and any
and all of the other Loan Parties from time to time arising under or in respect of the due and
punctual payment of (i) the principal of and premium, if any, and interest (including interest
accruing during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when
and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or
otherwise, (ii) each payment required to be made by the Borrowers and any and all of the other
Loan Parties under this Agreement in respect of any Letter of Credit, when and as due, including
payments in respect of reimbursement of disbursements, interest thereon and obligations to
provide cash collateral and (iii) all other obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including
monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership
or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of
the Borrowers and any and all of the other Loan Parties under this Agreement and the other Loan
Documents, (b) the due and punctual payment of all obligations of the Borrowers and any and all
of the other Loan Parties under each Hedging Agreement entered into with any counterparty that
is a Lender or an Affiliate of a Lender, and (c) all Other Liabilities.
“Officer’s Certificate” shall mean a certificate executed by the Chairman of the Board
(if an officer), the Chief Executive Officer, the President, one of the Financial Officers, or a
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Secretary, Controller or Assistant Treasurer, each in his or her official (and not individual)
capacity.
“Other Liabilities” means outstanding liabilities with respect to or arising from (a) any
Cash Management Agreements and/or (b) any Bank Products Agreements.
“Other Taxes” shall mean any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies (including interest, fines, penalties
and additions to tax) arising from any payment made or required to be made under any Loan
Document or from the execution, delivery or enforcement of, or otherwise with respect to, any
Loan Document.
“Participant” shall have the meaning assigned to such term in Section 11.04(e).
“Participant Register” shall have the meaning assigned to such term in Section 11.04(e).
“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in
ERISA.
“Perfection Certificate” shall mean a certificate in the form of Exhibit H-1 or any other
form approved by the Administrative Agent, as the same shall be supplemented from time to
time by a Perfection Certificate Supplement or otherwise.
“Perfection Certificate Supplement” shall mean a certificate supplement in the form of
Exhibit H-2 or any other form approved by the Administrative Agent.
“Permitted Acquisition” shall mean, with respect to a Borrower or any Subsidiary
Guarantor, any transaction or series of related transactions for the direct or indirect (a)
acquisition of (x) all or substantially all of the Property of any other Person, or (y) any other
Property of any other Person that is not made in the ordinary course of the Lead Borrower’s
Business), or of any business or division of any other Person; (b) acquisition of in excess of 50%
of the Equity Interests of any other Person, or otherwise causing any other Person to become a
Subsidiary of such Person; or (c) any merger or consolidation of such Person with any other
Person or other transaction or series of transactions resulting in the acquisition of all or
substantially all of the assets, or a 50% or greater interest in the Equity Interests of, any Person,
in each case in any transaction or group of transactions which are part of a common plan (other
than a merger, consolidation, or acquisition of assets or Equity Interests in another Loan Party),
if each of the following conditions are met:
(i)
the Administrative Agent receives at least 10 Days’ prior notice of such
proposed Permitted Acquisition, which notice shall include a reasonably detailed
description of such proposed Permitted Acquisition;
(ii)
no Default or Event of Default then exists or would result therefrom;
(iii)
Such acquisition shall have been approved by the Board of Directors of
the Person (or similar governing body if such Person is not a corporation) which is the
subject of such acquisition and such Person shall not have announced that it will oppose
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such acquisition or shall not have commenced any action which alleges that such
acquisition will violate Applicable Law;
(iv) Any material assets acquired shall be utilized in, and if the acquisition
involves a merger, consolidation or acquisition of Equity Interests, the Person which is
the subject of such acquisition shall be engaged in, a business otherwise permitted to be
engaged in by a Borrower under this Agreement;
(v)
the Property acquired in connection with any such acquisition (to the
extent that it is required to become Collateral under Section 5.11 hereof or under the
Security Documents) shall be made subject to the Lien of the Security Documents on
terms reasonably satisfactory to the Administrative Agent, and shall be free and clear of
any Liens, other than Permitted Liens, and the Administrative Agent shall have received
all opinions, certificates, lien search results and other documents reasonably requested by
the Administrative Agent;
(vi)
concurrent with delivery of the notice referred to in clause (i) above, the
Lead Borrower shall have delivered to the Administrative Agent, in form and substance
reasonably satisfactory to Administrative Agent:
(a)
for Permitted Acquisitions with Acquisition Consideration in an
amount less than or equal to $15,000,000, evidence that the Borrowers have Excess
Availability equal to or greater than $20,000,000 before, and Excess Availability is
projected to be equal to or greater than $20,000,000 for the subsequent three fiscal month
ends after giving effect to, such Permitted Acquisition;
(b)
for Permitted Acquisitions with Acquisition Consideration in an
amount greater than $15,000,000, evidence that (i) average daily Excess Availability,
calculated on a Pro Forma Basis after giving effect to such Permitted Acquisition, shall
be equal to or greater than twelve and one-half percent (12.5%) of the Loan Cap for the
thirty (30) day period immediately preceding such Permitted Acquisition and
immediately after giving effect to such Permitted Acquisition, and (iii) after giving effect
to such Permitted Acquisition, the Consolidated Fixed Charge Coverage Ratio, as
calculated on a Pro Forma Basis for the trailing twelve month period, is not less than 1.0
to 1.0, provided that if average daily pro forma Excess Availability (after giving effect to
such Permitted Acquisition) is equal to or greater than 25% of the Loan Cap for the thirty
(30) days prior to such Permitted Acquisition and immediately after giving effect to such
Permitted Acquisition, the Borrower shall not be obligated to satisfy the provisions of
clause (b)(iii) in connection with such Permitted Acquisition;
(c)
for Permitted Acquisitions with Acquisition Consideration in an amount
greater than $15,000,000, reasonably detailed projections of balance sheets, income
statements and cash flow statements covering the period commencing on the date of such
Permitted Acquisition and ending on the Maturity Date reasonably satisfactory to the
Administrative Agent, taking into account such Permitted Acquisition (the “Acquisition
Projections”);
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(d)
for Permitted Acquisitions with Acquisition Consideration in an amount
greater than $15,000,000, (x) historical financial statements for the last three fiscal years
of the Person to be acquired (audited if available without undue cost or delay) and
unaudited financial statements thereof for the most recent interim period which are
available, (y) a reasonably detailed description of all material information relating thereto
and copies of all material documentation pertaining to such acquisition, and (z) all such
other information and data relating to such acquisition or to the Person to be acquired as
may be reasonably requested by the Administrative Agent; and
(e)
a certificate of a Financial Officer of the Lead Borrower certifying
that (w) upon the consummation of the Permitted Acquisition, the Loan Parties will have
sufficient cash liquidity to conduct their business and pay their respective debts and other
liabilities as they come due, (x) the Acquisition Projections (if required to be delivered
pursuant to this definition) are reasonable estimates of future financial performance of the
Loan Parties and their Subsidiaries and the acquired Person, and (y) such acquisition
complies with all of the terms of this definition.
“Permitted Discretion” shall mean the Administrative Agent’s or any Co-Collateral
Agent’s reasonable judgment exercised in good faith based upon its consideration of any factor
which the Administrative Agent or any Co-Collateral Agent believes in good faith: (a) will or
could adversely affect the value of any Collateral, the enforceability or priority of the
Administrative Agent’s Liens thereon or the amount which the Agents and the Lenders would be
likely to receive (after giving consideration to delays in payment, costs of enforcement and
claims that the Administrative Agent or any Co-Collateral Agent determines in its reasonable
judgment will need to be satisfied in connection with the realization upon any Collateral) in the
liquidation of such Collateral; (b) suggests that any collateral report or financial information
delivered to the Agents, by or on behalf of, the Borrowers is incomplete, inaccurate or
misleading in any material respect; (c) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrowers or any of their
Subsidiaries or any of the Collateral, or (d) takes into consideration the Loan Parties’ obligations
with respect to Bank Products Agreements and Cash Management Agreements. The parties
agree that there is a rebuttable presumption that the Administrative Agent and the Co-Collateral
Agents have acted in good faith in their determination of Permitted Discretion.
“Permitted Indebtedness” shall have the meaning assigned to such term in Section 6.01.
“Permitted Liens” shall have the meaning assigned to such term in Section 6.02.
“Permitted Refinancing” means any Indebtedness that replaces, extends, renews or
refinances any other Permitted Indebtedness, as long as, after giving effect thereto (i) the
principal amount of the Indebtedness outstanding at such time is not increased (except by the
amount of any accrued interest, reasonable closing costs, expenses, fees, and premium paid in
connection with such extension, renewal, replacement or refinancing), (ii) the result of such
refinancing, replacement, renewal or extension shall not be an earlier maturity date or decreased
weighted average life, (iii) the holders of such extension, renewal, replacement or refinancing
Indebtedness are not afforded covenants, defaults, rights or remedies, taken as a whole, which
are materially more burdensome to the obligor or obligors than those contained in the
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Indebtedness being extended, renewed, replaced or refinanced, (iv) the obligor or obligors under
any such replacement, extension, renewal or refinancing Indebtedness and the collateral, if
applicable, granted pursuant to any such replacement, extension, renewal or refinancing
Indebtedness are the same (or in the case of collateral, the same or less than) as the obligor(s)
and collateral under the Indebtedness being extended, renewed, replaced or refinanced, (v) the
subordination, to the extent applicable, and other material provisions of the extension, renewal,
replacement or refinancing Indebtedness are no less favorable to the Lenders (taken as a whole)
than those terms of the Indebtedness being extended, renewed, replaced or refinanced, and (vi)
the extension, renewal, replacement or refinancing Indebtedness is not exchangeable or
convertible into any other Indebtedness which does not comply with clauses (i) through (v)
above.
“Person” shall mean any natural person, corporation, business trust, joint venture,
association, company, limited liability company, partnership or government, or any agency or
political subdivision thereof.
“Plan” shall mean any “employee pension benefit plan” as such term is defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) subject to the provisions of Title IV of
ERISA or Section 412 of the Code or Section 302 of ERISA which is maintained or contributed
to by any Company or its ERISA Affiliate or with respect to which any Company could incur
liability (including, without limitation, under Section 4069 of ERISA).
“Post-Acquisition Period” means, with respect to any Permitted Acquisition, the period
beginning on the date such Permitted Acquisition is consummated and ending on the last day of
the sixth full consecutive fiscal quarter immediately following the date on which such Permitted
Acquisition is consummated.
“Preferred Stock” shall mean, with respect to any Person, any and all preferred or
preference Equity Interests (however designated) of such Person whether now outstanding or
issued after the Effective Date.
“Prime Rate” means, as to any Borrowing of ABR Revolving Loans, for any day, the
highest of: (a) the variable annual rate of interest then most recently announced by Bank of
America at its head office in Charlotte, North Carolina as its “Prime Rate”; (b) the Federal Funds
Effective Rate in effect on such day plus ½ of 1% (0.50%) per annum; and (c) the LIBOR Rate
for a 30 day interest period as determined on such day, plus 1.0%. The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate being charged to any customer.
The Prime Rate is a rate set by Bank of America based upon various factors including Bank of
America’s costs and desired return, general economic conditions and other factors, and is used as
a reference point for pricing some loans, which may be priced at, above, or below such
announced rate. If for any reason the Administrative Agent shall have reasonably determined
(which determination shall be conclusive absent manifest error) that it is unable to ascertain the
Federal Funds Effective Rate for any reason, including the inability or failure of the
Administrative Agent to obtain sufficient quotations thereof in accordance with the terms hereof,
the Prime Rate shall be determined without regard to clause (b) of the first sentence of this
definition, until the circumstances giving rise to such inability no longer exist. Any change in the
Prime Rate due to a change in Bank of America’s Prime Rate or the Federal Funds Effective
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Rate shall be effective on the effective date of such change in Bank of America’s Prime Rate or
the Federal Funds Effective Rate.
“Prior Lien” shall have the meaning assigned to such term in the applicable Security
Document.
“Pro Forma Adjustment” means, for any period for which the financial covenants are
measured that includes all or any part of a fiscal quarter included in any Post-Acquisition Period,
with respect to the Acquired EBITDA of the applicable entity or business acquired in a Permitted
Acquisition or the Consolidated EBITDA of the Loan Parties, the pro forma increase or decrease
in such Acquired EBITDA or such Consolidated EBITDA, as the case may be, projected by the
Borrowers in good faith (which projections shall be reasonably satisfactory to the Administrative
Agent) as a result of (a) action taken during such Post-Acquisition Period for the purposes of
realizing reasonable identifiable and factually supportable cost savings or (b) any additional costs
incurred during such Post-Acquisition Period, in each case in connection with the combination of
the operations of such entity or business with the operations of the Borrowers (or the extent
applicable, Future Holding Company) and the Subsidiaries; provided that, so long as such
actions are taken during such Post-Acquisition Period or such costs are incurred during such
Post-Acquisition period, as applicable, the cost savings related to such actions or such additional
costs, as applicable, it may be assumed, for purposes of projecting such pro forma increase or
decrease to such Acquired EBITDA or such Consolidated EBITDA, as the case may be, that
such cost savings will be realized during the entirety of such period, or such additional costs, as
applicable, will be incurred during the entirety of such period; provided further that any such pro
forma increase or decrease to such Acquired EBITDA or such Consolidated EBITDA, as the
case may be, shall be without duplication for cost savings or additional costs already included in
such Acquired EBITDA or such Consolidated EBITDA, as the case may be, for such period.
“Pro Forma Basis” means, in respect of a Specified Transaction, that such Specified
Transaction and the following transactions in connection therewith shall be deemed to have
occurred as of the first day of the applicable period of measurement in such covenant: (a)
income statement items (whether positive or negative) attributable to the property or Person
subject to such Specified Transaction, (i) in the case of a Permitted Acquisition or permitted
Investment described in the definition of “Specified Transaction”, shall be included and (ii) in
the case of a disposition of all or substantially all of the assets of or all of the Equity Interests of
any Subsidiary of a Borrower or any division or product line of a Borrower or any of its
Subsidiaries, shall be excluded, (b) any retirement of Indebtedness, and (c) any Indebtedness
incurred or assumed by a Borrower or any of its Subsidiaries in connection therewith and if such
Indebtedness has a floating or formula rate, shall have an implied rate of interest for the
applicable period for purposes of this definition determined by utilizing the rate which is or
would be in effect with respect to such Indebtedness as at the relevant date of determination.
“Pro Rata Percentage” of any Revolving Lender at any time shall mean the percentage
of the total Commitment represented by such Lender’s Commitment.
“Property” shall mean any right, title or interest in or to property or assets of any kind
whatsoever, whether real, personal or mixed and whether tangible or intangible and including
33
Equity Interests or other ownership interests of any Person and whether now in existence or
owned or hereafter entered into or acquired, including, without limitation, all Real Property.
“Purchase Money Obligation” shall mean, for any Person, the obligations of such
Person in respect of Indebtedness incurred for the purpose of financing all or any part of the
purchase price of any Property (including Equity Interests of any Person) or the cost of
installation, construction or improvement of any Property or assets and any refinancing thereof;
provided, however, that such Indebtedness is incurred within 90 days after such acquisition of
such Property by such Person.
“Real Property” shall mean, collectively, all right, title and interest (including any
leasehold estate) in and to any and all parcels of or interests in real property owned, leased or
operated by any Person, whether by lease, license or other means, together with, in each case, all
easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant
fixtures and equipment, all general intangibles and contract rights and other Property and rights
incidental to the ownership, lease or operation thereof.
“Receivables Reserves” means such reserves as may be established with respect to
Accounts from time to time by any Co-Collateral Agent, in its Permitted Discretion.
“Register” shall have the meaning assigned to such term in Section 11.04(c).
“Regulation D” shall mean Regulation D of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.
“Regulation T” shall mean Regulation T of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.
“Regulation U” shall mean Regulation U of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.
“Regulation X” shall mean Regulation X of the Board as from time to time in effect and
all official rulings and interpretations thereunder or thereof.
“Release” shall mean any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating
or migrating of any Hazardous Material in, into, onto or through the Environment.
“Required Lenders” shall mean, at any time, at least two (2) Lenders having
Commitments aggregating more than 50% of the aggregate Commitments, or if the
Commitments have been terminated, Lenders whose percentage of Revolving Exposure
represents at least a majority of the sum of all Revolving Exposure; provided that the
Commitment of, and the portion of Revolving Exposure held or deemed held by, any Defaulting
Lender or Sponsor shall be excluded for purposes of making a determination of Required
Lenders.
“Requirements of Law” shall mean, collectively, any and all requirements of any
Governmental Authority including any and all Applicable Laws.
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“Reserves” means all (if any) Receivables Reserves, Inventory Reserves and Availability
Reserves.
“Response” shall mean (a) “response” as such term is defined in CERCLA, 42 U.S.C. §
9601(24), and (b) all other actions required by any Governmental Authority or voluntarily
undertaken to: (i) clean up, remove, treat, abate or in any other way address any Hazardous
Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further
Release, of any Hazardous Material; or (iii) perform studies and investigations in connection
with, or as a precondition to, clause (i) or (ii) above.
“Responsible Officer” of any corporation shall mean the Chief Executive Officer, Chief
Financial Officer or Chief Restructuring Officer of such corporation.
“Revolving Availability Period” shall mean the period from and including the Effective
Date to but excluding the earlier of the Maturity Date and the date of termination of the
Commitments.
“Revolving Borrowing” shall mean a Borrowing comprised of Revolving Loans.
“Revolving Exposure” shall mean, with respect to any Lender at any time, the aggregate
principal amount at such time of all outstanding Revolving Loans of such Lender, plus the
aggregate amount at such time of such Lender’s LC Exposure, plus the aggregate amount at such
of such Lender’s Swingline Exposure.
“Revolving Lender” shall mean a Lender with a Commitment.
“Revolving Loans” shall mean a Loan made by the Lenders to the Borrowers pursuant to
Section 2.01(a).
“Sarbanes-Oxley Act” shall mean the United States Sarbanes-Oxley Act of 2002, as
amended.
“Seasonal Advance Rate Increase Percentages” shall mean the following percentages
for the Seasonal Overadvance Periods set forth below:
Seasonal Overadvance Period During
Seasonal Advance
Rate Increase
Percentage Eligible
Inventory
Seasonal Advance
Rate Increase
Percentage Eligible
Accounts
2013
10.0%
7.5%
2014
10.0%
5.0%
2015
7.5%
5.0%
35
2016
5.0%
5.0%
2017
2.5%
2.5%
provided that notwithstanding the foregoing, in no event shall the amounts available to be
borrowed during any applicable Seasonal Overadvance Period exceed $25,000,000 in the
aggregate at any time outstanding over the amounts otherwise available to be borrowed during
such Seasonal Overadvance Period, without giving effect to the Seasonal Advance Rate Increase
Percentages.
“Seasonal Overadvance” shall mean any Revolving Loans made and Letters of Credit
issued during a Seasonal Overadvance Period in excess of the amounts available to be borrowed
or issued under the Borrowing Base during any period other than a Seasonal Overadvance Period
solely to the extent such Revolving Loans or Letters of Credit are the result of an overadvance
due to the increased advance rates available to the Borrowers during the Seasonal Overadvance
Period.
“Seasonal Overadvance Period” shall mean a consecutive 120 day period selected by
the Borrower in each calendar year. The Lead Borrower shall furnish the Agent with at least
three (3) Business Days prior written notice of its election to commence a Seasonal Overadvance
Period.
“Secured Parties” shall mean, collectively, the Administrative Agent, the Co-Collateral
Agents, each other Agent, the Lenders, and, to the extent provided in the Security Agreement,
each party to a Hedging Agreement, Cash Management Agreement or Bank Products Agreement
that Borrower and such party have agreed in writing is a Secured Obligation (as defined in the
Security Agreement); provided that the Borrower acknowledges and agrees that (x) the Hedging
Agreements, Cash Management Agreements and Bank Products Agreements described on
Schedule 6.11 hereto, entered into on or prior to the Effective Date, and (y) any Hedging
Agreements, Cash Management Agreements and Bank Products Agreements entered into by and
between any Loan Party and any of the Administrative Agent or its Affiliates after the Effective
Date, in each case shall constitute a Secured Obligation.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Security Agreement” shall mean a Security Agreement substantially in the form of
Exhibit I among the Loan Parties and the Administrative Agent for the benefit of the Secured
Parties.
“Security Agreement Collateral” shall mean all Property pledged or granted as
collateral pursuant to the Security Agreement or pursuant to Section 5.11.
“Security Documents” shall mean the Security Agreement, the Mortgages, the
Perfection Certificate and each other security document or pledge agreement delivered in
accordance with applicable local or foreign law to grant a valid, perfected security interest in any
Property, and all UCC or other financing statements or instruments of perfection required by this
36
Agreement, the Security Agreement or any Mortgage to be filed with respect to the security
interests in Property and fixtures created pursuant to the Security Agreement or any Mortgage
and any other document or instrument utilized to pledge as collateral for the Obligations any
Property of whatever kind or nature.
“Settlement Date” has the meaning set forth in Section 2.22(b).
“Special Agent Advance” shall have the meaning assigned to such term in Section
10.11.
“Specified Default” means the occurrence of any Event of Default specified in Article
VIII, clauses (a), (b), (c) (but only with respect to any representation made or deemed to be made
by or on behalf of any Loan Party in any Borrowing Base Certificate or any certificate of a
Financial Officer accompanying any financial statement), (d) (but only with respect to Section
2.04(f), Section 5.04, Section 5.07 (but only with respect to a wrongful denial by a Loan Party of
access required under such Section to any Agent or Lender or representative thereof), Section
5.08, Section 5.15 or Section 6.08), (g) or (h).
“Specified Transaction” means (a) any disposition of all or substantially all the assets of
or all the Equity Interests of any Subsidiary or of any division or product line of a Borrower or
any of its Subsidiaries, (b) any Permitted Acquisition, (c) any proposed incurrence of
Indebtedness or (d) the proposed making of a Dividend permitted hereunder.
“Sponsor” shall mean Littlejohn Fund IV, L.P., together with its Control Investment
Affiliates.
“Standby Letter of Credit” shall mean any standby letter of credit or similar instrument
issued for the purpose of supporting (a) workers’ compensation liabilities of a Borrower or any
of its Subsidiaries, (b) the obligations of third-party insurers of a Borrower or any of its
Subsidiaries arising by virtue of the laws of any jurisdiction requiring third-party insurers to
obtain such letters of credit, (c) performance, payment, deposit or surety obligations of a
Borrower or any of its Subsidiaries if required by law or governmental rule or regulation or in
accordance with custom and practice in the industry or (d) any other general corporate purpose.
“Statutory Reserve Rate” shall mean a fraction (expressed as a decimal), the numerator
of which is the number one and the denominator of which is the number one minus the aggregate
of the maximum reserve percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject with respect to the Adjusted LIBOR Rate, for eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in Regulation D). Such reserve
percentages shall include those imposed pursuant to such Regulation D. Eurodollar Revolving
Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective
date of any change in any reserve percentage.
37
“Subsidiary” shall mean, with respect to any Person (the “parent”) at any date, any
corporation, limited liability company, partnership, association or other entity the accounts of
which would be consolidated with those of the parent in the parent’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP as of such date,
as well as any other Person (a) of which securities or other ownership interests representing more
than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of
such date, otherwise Controlled, by the parent or one or more Subsidiaries of the parent or by the
parent and one or more Subsidiaries of the parent. Unless otherwise set forth herein, references
in this Agreement to “Subsidiary” shall mean the Borrowers’ (and any Future Holding
Company’s) direct and indirect Subsidiaries.
“Subsidiary Guarantor” shall mean each domestic Subsidiary listed on Schedule
1.01(b), and each other domestic Subsidiary (other than any Immaterial Subsidiary) that is or
becomes a party to this Agreement as a “Subsidiary Guarantor” pursuant to Section 5.11.
“Swingline Commitment” shall mean the commitment of the Swingline Lender to make
loans pursuant to Section 2.16, as the same may be reduced from time to time pursuant to
Section 2.07 or Section 2.16.
“Swingline Exposure” shall mean at any time the aggregate principal amount at such
time of all outstanding Swingline Loans. The Swingline Exposure of any Revolving Lender at
any time shall equal its Pro Rata Percentage of the aggregate Swingline Exposure at such time.
“Swingline Lender” shall mean Bank of America.
“Swingline Loan” shall mean any Loan made by the Swingline Lender pursuant to
Section 2.16.
“Syndication Agent” has the meaning set forth in the preamble.
“Tax Return” shall mean all returns, statements, filings, attachments and other
documents or certifications required to be filed in respect of Taxes or any amendments thereof or
thereto.
“Tax Sharing Agreements” shall mean all Tax sharing, Tax allocation and other similar
agreements entered into by any Future Holding Company, a Borrower or any Subsidiary of a
Borrower.
“Taxes” shall mean (a) any and all present or future taxes, duties, levies, fees, imposts,
assessments, deductions, withholdings or other charges imposed by any Governmental
Authority, whether computed on a separate, consolidated, unitary, combined or other basis and
any and all liabilities (including interest, fines, penalties or additions to tax) with respect to the
foregoing, and (b) any transferee, successor, joint and several, contractual or other liability
(including, without limitation, liability pursuant to Treasury Regulation §1.1502-6 (or any
similar provision of state, local or non-U.S. law)) in respect of any item described in clause (a).
38
“Term Facility” shall mean the term loan financing facility in the amount of up to
$100,000,000 evidenced by the Term Loan Agreement, and any Permitted Refinancing thereof.
“Term Loans” shall mean the term loans made and incurred from time to time under the
Term Facility.
“Term Loan Agreement” shall mean that certain Credit Agreement dated as of the
Effective Date among the Lead Borrower, as borrower, and Prospect Capital Corporation.
“Term Loan Documents” means the Term Loan Agreement and the notes (if any),
security agreements, mortgages and other agreements, instruments and documents entered into or
delivered in connection therewith from time to time.
“Test Period” shall mean, at any time, the four consecutive fiscal quarters of the Loan
Parties then last ended (in each case taken as one accounting period) for which financial
statements have been or are required to be delivered to the Administrative Agent pursuant to
Section 5.01(a) or (b).
“Title Company” shall mean any title insurance company as shall be retained by the
Lead Borrower and reasonably acceptable to the Administrative Agent.
“Title Policy” shall mean a policy (or commitment to issue a policy) of title insurance
insuring (or committing to insure) the Lien of any Mortgage as a valid mortgage Lien on the
Mortgaged Real Property and fixtures described therein in the amount equal to 107% of the fair
market value of such Mortgaged Real Property which policies (or commitments) be issued by the
Title Company and otherwise reasonably acceptable to the Administrative Agent.
“Transactions” shall mean, collectively, the transactions to occur on or prior to the
Effective Date pursuant to the Loan Documents, including (a) the execution and delivery of the
Loan Documents and the initial borrowings hereunder; (b) the execution and delivery of the
Term Loan Agreement and the other Loan Documents (as defined therein) and the borrowing of
the Term Loan (as defined therein); and (c) the payment of all fees and expenses to be paid on or
prior to the Effective Date and invoiced and owing in connection with the foregoing.
“Treasury Regulation” means the regulations promulgated under the Code (including
proposed regulations on which a taxpayer is permitted to rely).
“Type” when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to
the Adjusted LIBOR Rate or the Prime Rate.
“UCC” shall mean the Uniform Commercial Code as in effect in the applicable state or
jurisdiction.
“U.S. Lender” shall mean each Lender that is a United States person as defined in
Section 7701(a)(30) of the Code.
39
“Voting Stock” shall mean any class or classes of Equity Interests of the Lead Borrower
(or, after formation thereof, the Future Holding Company) pursuant to which the holders thereof
have the general voting power under ordinary circumstances to elect at least a majority of the
Board of Directors of the Lead Borrower.
“Wholly Owned Subsidiary” shall mean, as to any Person, (a) any corporation 100% of
whose Equity Interests (other than directors’ qualifying shares or nominal shares required to be
held by someone other than such Person under Applicable Law) is at the time owned by such
Person and/or one or more Wholly Owned Subsidiaries of such Person and (b) any partnership,
association, joint venture, limited liability company or other entity in which such Person and/or
one or more Wholly Owned Subsidiaries of such Person have a 100% equity interest at such
time.
“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I
of Subtitle E of Title IV of ERISA.
Section 1.02 Terms Generally.
(a)
The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word “shall”. Unless the context
requires otherwise (a) any definition of or reference to any Loan Document, agreement,
instrument of other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, restated, supplemented, refinanced,
renewed, replaced or otherwise modified (subject to any restrictions on such amendments,
restatements, supplements, refinancing, renewals, replacements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to include such Person’s
successors and permitted assigns, (c) the words “herein”, “hereof” and “hereunder”, and words
of similar import, shall be construed to refer to this Agreement in its entirety and not to any
particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement, (f) the words “asset” and “property” shall be construed to have the same meaning
and effect and to refer to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights, (g) references to “knowledge” of any Loan Party means
the actual knowledge of a Responsible Officer and (h) references to any Law shall include all
statutory and regulatory provisions consolidating, amending, replacing, supplementing or
interpreting such Law (including by succession of comparable successor laws). In the event that
payment or performance of an obligation herein or in any other Loan Document is required to
occur on any day that is not a Business Day, such payment or performance obligation shall be
required to occur on the first Business Day immediately following such day.
(b)
Any reference herein or in any other Loan Document to the satisfaction,
repayment, or payment in full of the Obligations shall mean the repayment in Dollars in full in
cash or immediately available funds (or, in the case of contingent reimbursement obligations
40
with respect to Letters of Credit and, only to the extent required under Section 11.05, Obligations
under Bank Products Agreements and Cash Management Agreements (other than Hedging
Agreements), providing cash collateral) of all of the Obligations (including the payment of any
termination amount then applicable (or which would or could become applicable as a result of
the repayment of the other Obligations) under Hedging Agreements) other than (i) unasserted
contingent indemnification Obligations, (ii) Obligations relating to Bank Products Agreements
and Cash Management Agreements that are not required to be cash collateralized pursuant to
Section 11.05 hereof, (iii) any Obligations relating to Bank Products Agreements required to be
cash collateralized under Section 11.05 (including Hedging Agreements) that, at such time, are
allowed by the applicable provider under such Bank Products Agreement to remain outstanding
without being required to be repaid or cash collateralized, and (iv) any Obligations under Cash
Management Agreements required to be cash collateralized under Section 11.05 that, at such
time, are allowed by the applicable counterparty to such Cash Management Agreements to
remain outstanding without being required to be repaid. For clarity, while certain Bank Products
Agreements and certain Cash Management Agreements are not required to be cash collateralized
under Section 11.05 hereof, such Obligations are secured by the Collateral and the proceeds
realized from the Collateral will be applied to such Obligations in accordance with the provisions
of Section 9.02.
Section 1.03 Accounting Terms; GAAP. (a) Except as otherwise expressly provided
herein, all financial statements to be delivered pursuant to this Agreement shall be prepared in
accordance with GAAP as in effect from time to time and all terms of an accounting or financial
nature shall be construed in accordance with GAAP unless otherwise defined herein. In the
event that any “Accounting Change” (as defined below) shall occur and such change results in a
change in the method of calculation of financial covenants, standards or terms in this Agreement,
then the Lead Borrower and the Administrative Agent agree to enter into negotiations in order to
amend such provisions of this Agreement so as to equitably reflect such Accounting Changes
with the desired result that the criteria for evaluating the Loan Parties’ financial condition shall
be the same after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by the Borrowers
and the Required Lenders, all financial covenants, standards and terms in this Agreement shall
continue to be calculated or construed as if such Accounting Changes had not occurred.
“Accounting Changes” refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board
of the American Institute of Certified Public Accountants (or any successor governing body of
Certified Public Accountants thereto) or, if applicable, the Securities and Exchange Commission
(or successors thereto or agencies with similar functions).
(b)
Notwithstanding anything to the contrary contained herein, financial ratios
and other financial calculations pursuant to this Agreement shall, following any Specified
Transaction, be calculated on a Pro Forma Basis with Pro Forma Adjustments. In addition, the
financial ratios and related definitions set forth in the Loan Documents shall be computed to
exclude (i) the effect of purchase accounting adjustments, including the effect of any non-cash
items resulting from any amortization, write-up, write-down or write-off of assets (including
intangible assets, goodwill and deferred financing costs in connection with any Permitted
Acquisition or any merger, consolidation or similar transaction not prohibited by this
Agreement), (ii) the application of FAS 133, FAS 150 or FAS 123r (to the extent that the
41
pronouncements in FAS 123r result in recording an equity award as a liability on the
Consolidated balance sheet of the Parent and its Subsidiaries in the circumstance where, but for
the application of the pronouncements, such award would have been classified as equity), (iii)
any mark-to-market adjustments to any derivatives (including embedded derivatives contained in
other debt or equity instruments under FAS 133), (iv) any non-cash compensation charges
resulting from the application of FAS 123r and (v) the application of FAS 146.
Section 1.04 Certifications.
All certifications to be made hereunder by an officer or representative of a Loan Party
shall be made by such person in his or her capacity solely as an officer or a representative of
such Loan Party, on such Loan Party’s behalf and not in such person’s individual capacity.
Section 1.05 Rounding. Any financial ratios required to be maintained by the
Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component
by the other component, carrying the result to one place more than the number of places by
which such ratio is expressed herein and rounding the result up or down to the nearest number
(with a rounding-up if there is no nearest number).
Section 1.06 Times of Day. Unless otherwise specified, all references herein to times
of day shall be references to Eastern time (daylight or standard, as applicable).
Section 1.07 Letter of Credit Amounts. Unless otherwise specified, all references
herein to the amount of a Letter of Credit at any time shall be deemed to mean the maximum
face amount of such Letter of Credit (including any amendments thereto) after giving effect to all
increases thereof contemplated by such Letter of Credit, whether or not such maximum face
amount is in effect at such time.
ARTICLE II
THE CREDITS
Section 2.01 Commitments and Borrowing Base Determination.
(a)
Subject to the terms and conditions and relying upon the representations
and warranties herein set forth, each Lender agrees, severally and not jointly, to make Revolving
Loans to the Borrowers, at any time and from time to time on and after the Effective Date until
the earlier of one Business Day prior to the Maturity Date and the termination of the
Commitment of such Lender in accordance with the terms hereof, in an aggregate principal
amount at any time outstanding that will not result in such Lender’s Revolving Exposure
exceeding the lesser of (A) such Lender’s Commitment, and (B) such Lender’s Pro Rata
Percentage multiplied by the Borrowing Base then in effect. Within the limits set forth above
and subject to the terms, conditions and limitations set forth herein, the Borrowers may borrow,
pay or prepay and reborrow Revolving Loans (without any premium, penalty or commitment
reduction).
(b)
(i) The Administrative Agent shall promptly notify the Lead Borrower in
writing (including via e-mail) whenever any Co-Collateral Agent determines that the Borrowing
42
Base set forth on a Borrowing Base Certificate differs from the Borrowing Base, (ii) such CoCollateral Agent shall discuss the basis for any such deviation and any changes proposed with
the Lead Borrower, including the reasons for any impositions of or changes in Reserves or any
change in advance rates or eligibility criteria with respect to Eligible Accounts or Eligible
Inventory (in such Co-Collateral Agent’s Permitted Discretion and subject to Sections 2.18 and
2.20) with the Lead Borrower, (iii) such Co-Collateral Agent shall consider, in the exercise of its
Permitted Discretion, any additional factual information provided by the Lead Borrower relating
to the determination of the Borrowing Base and (iv) such Co-Collateral Agent shall promptly
notify the Lead Borrower of its decision with respect to such changes. Pending a decision by any
Co-Collateral Agent to make any requested change, the initial determination of the Borrowing
Base by the Co-Collateral Agents shall continue to constitute the Borrowing Base.
Section 2.02 Loans.
(a)
Each Loan (other than Swingline Loans) shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with their applicable
Commitments; provided that the failure of any Lender to make any Loan shall not in itself
relieve any other Lender of its obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other Lender to make any Loan required to
be made by such other Lender). Except for Loans deemed made pursuant to Section 2.02(f),
Loans (other than Swingline Loans) comprising any Borrowing shall be in an aggregate principal
amount that is (i) (A) in the case of ABR Revolving Loans, integral multiples of $100,000 and
(B) in the case of Eurodollar Revolving Loans, an integral multiple of $250,000 and not less than
$1,000,000, or (ii) equal to the remaining available balance of the applicable Commitments.
(b)
Subject to Sections 2.11 and 2.12, each Borrowing shall be comprised
entirely of ABR Revolving Loans or Eurodollar Revolving Loans as the Lead Borrower, on
behalf of the Borrowers, may request pursuant to Section 2.03. Each Lender may at its option
make any Eurodollar Revolving Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrowers to repay such Loan in accordance with the terms of this Agreement.
Borrowings of more than one Type may be outstanding at the same time; provided further that
the Lead Borrower, on behalf of the Borrowers, shall not be entitled to request any Borrowing
that, if made, would result in more than ten Eurodollar Revolving Loans outstanding hereunder
at any one time. For purposes of the foregoing, Borrowings having different Interest Periods,
regardless of whether they commence on the same date, shall be considered separate
Borrowings.
(c)
Except with respect to Loans made pursuant to Section 2.02(f), each
Lender shall make each Loan (other than Swingline Loans) to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds to such account in New
York City as the Administrative Agent may designate not later than 3:00 p.m., New York City
time, and the Administrative Agent shall promptly credit the amounts so received to an account
as directed by the Lead Borrower, on behalf of the Borrowers, in the applicable Borrowing
Request maintained with the Administrative Agent or, if a Borrowing shall not occur on such
date because any condition precedent herein specified shall not have been met or waived, return
the amounts so received to the respective Lenders.
43
(d)
Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make available to the Administrative
Agent such Lender’s portion of such Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date of such
Borrowing in accordance with paragraph (c) above, and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrowers on such date a corresponding
amount. If the Administrative Agent shall have so made funds available then, to the extent that
such Lender shall not have made such portion available to the Administrative Agent, such
Lender and the Borrowers severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrowers until the date such amount is repaid to the
Administrative Agent at (i) in the case of the Borrowers, the interest rate applicable at the time to
the Loans comprising such Borrowing (without any prepayment fees on such repayment), and
(ii) in the case of such Lender, a rate determined by the Administrative Agent to represent its
cost of overnight or short-term funds (which determination shall be conclusive absent manifest
error). If such Lender shall repay to the Administrative Agent such corresponding amount, such
amount shall constitute such Lender’s Loan as part of such Borrowing for purposes of this
Agreement.
(e)
Notwithstanding any other provision of this Agreement, the Lead
Borrower, on behalf of the Borrowers, shall not be entitled to request, or to elect to convert or
continue, any Borrowing if the Interest Period requested with respect thereto would end after the
Maturity Date.
(f)
If the Issuing Bank shall not have received from the Lead Borrower, on
behalf of the Borrowers, the payment required to be made by Section 2.17(e) within the time
specified in such Section, the Issuing Bank will promptly notify the Administrative Agent of the
LC Disbursement and the Administrative Agent will promptly notify each Revolving Lender of
such LC Disbursement and its Pro Rata Percentage thereof. Each Revolving Lender shall pay by
wire transfer of immediately available funds to the Administrative Agent on such date (or, if
such Revolving Lender shall have received such notice later than 12:00 (noon), New York City
time, on any day, not later than 11:00 a.m., New York City time, on the immediately following
Business Day), an amount equal to such Lender’s Pro Rata Percentage of such LC Disbursement
(it being understood that such amount shall be deemed to constitute an ABR Revolving Loan of
such Lender, and such payment shall be deemed to have reduced the LC Exposure), and the
Administrative Agent will promptly pay to the Issuing Bank amounts so received by it from the
Revolving Lenders. The Administrative Agent will promptly pay to the Issuing Bank any
amounts received by it from the Borrowers pursuant to Section 2.17(e) prior to the time that any
Revolving Lender makes any payment pursuant to this paragraph (f); any such amounts received
by the Administrative Agent thereafter will be promptly remitted by the Administrative Agent to
the Revolving Lenders that shall have made such payments and to the Issuing Bank, as their
interests may appear. If any Revolving Lender shall not have made its Pro Rata Percentage of
such LC Disbursement available to the Administrative Agent as provided above, such Lender
and the Borrowers severally agree to pay interest on such amount, for each day from and
including the date such amount is required to be paid in accordance with this paragraph (f) to but
excluding the date such amount is paid, to the Administrative Agent for the account of the
Issuing Bank at (i) in the case of the Borrowers, a rate per annum equal to the interest rate
44
applicable to Revolving Loans pursuant to Section 2.06(a), and (ii) in the case of such Lender,
for the first such day, the Federal Funds Effective Rate, and for each day thereafter, the Prime
Rate.
Section 2.03 Borrowing Procedure. To request a Revolving Borrowing, the Lead
Borrower, on behalf of the Borrowers, shall notify the Administrative Agent of such request by
telecopy or electronic transmission (if arrangements for doing so have been approved by the
Administrative Agent, which approval shall not be unreasonably withheld, conditioned or
delayed) or telephone (promptly confirmed by telecopy) (i) in the case of a Eurodollar Revolving
Borrowing, not later than 1:00 p.m., New York City time, three Business Days before the date of
the proposed Borrowing or (ii) in the case of an ABR Revolving Borrowing (other than
Swingline Loans), not later than 1:00 p.m., New York City time, on the Business Day of the
proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable, subject to
Section 2.09 and 2.10, and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the Administrative
Agent and signed by the Lead Borrower. Each such telephonic and written Borrowing Request
shall specify the following information in compliance with Section 2.02:
(a)
the aggregate amount of such Borrowing;
(b)
the date of such Borrowing, which shall be a Business Day;
(c)
whether such Borrowing is to be an ABR Revolving Borrowing or a
Eurodollar Revolving Borrowing;
(d)
in the case of a Eurodollar Revolving Borrowing, the initial Interest Period
to be applicable thereto, which shall be a period contemplated by the definition of the
term “Interest Period”;
(e)
the location and number of the account to which funds are to be disbursed,
which shall comply with the requirements of Section 2.02; and
(f)
that the conditions set forth in Section 4.02 are satisfied or waived as of
the date of the notice.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an
ABR Revolving Borrowing. If no Interest Period is specified with respect to any requested
Eurodollar Revolving Borrowing, then the Lead Borrower shall be deemed to have selected an
Interest Period of one month’s duration (subject to the proviso in clause (d) above). Promptly
following receipt of a Borrowing Request in accordance with this Section 2.03, the
Administrative Agent shall advise each Lender of the details thereof and of the amount of such
Lender’s Loan to be made as part of the requested Borrowing. No Lender shall be required to
make any Loan unless it has received the foregoing instructions from the Administrative Agent.
Section 2.04 Evidence of Debt; Repayment of Loans.
(a)
The Borrowers hereby unconditionally promise to pay (i) to the
Administrative Agent for the account of each Revolving Lender, the then unpaid principal
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amount of each Revolving Loan of such Lender on the Maturity Date, and (ii) to the Swingline
Lender the then unpaid principal amount of each Swingline Loan on the Maturity Date.
(b)
Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of the Borrowers to such Lender resulting from
each Loan made by such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time under this Agreement. The Lead
Borrower shall be entitled to review records of such accounts with prior reasonable notice during
normal business hours.
(c)
The Administrative Agent shall maintain accounts in which it will record
(i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable
thereto; (ii) the amount of any principal or interest due and payable or to become due and
payable from the Borrowers to each Lender hereunder; and (iii) the amount of any sum received
by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share
thereof. Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrowers to such Lender. The Lead Borrower shall be
entitled to review records of such accounts with prior reasonable notice during normal business
hours.
(d)
The entries made in the accounts maintained pursuant to paragraphs (b)
and (c) above shall be prima facie evidence of the existence and amounts of the obligations
therein recorded absent manifest error; provided that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in any manner
affect the obligations of the Borrowers to repay the Loans in accordance with their terms.
(e)
Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Borrowers shall promptly prepare, execute and deliver to
such Lender a promissory note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) substantially in the form of Exhibit G-1 or G2, as the case may be. Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 11.04) be represented
by one or more promissory notes in such form payable to the order of the payee named therein
(or, if such promissory note is a registered note, to such payee and its registered permitted
assigns).
(f)
All funds held by the Borrowers or any other Loan Party (other than petty
cash accounts funded in the ordinary course of business, the deposits in which shall not be more
than $3,000,000 in the aggregate or exceed $75,000 with respect to any one account (or in each
case, such greater amounts to which the Administrative Agent may agree), and payroll, trust and
tax withholding accounts funded in the ordinary course of business and required by Applicable
Law) shall be deposited in one or more bank or investment accounts, subject to account control
agreements in form and substance reasonably satisfactory to Administrative Agent. Upon the
occurrence and during the continuance of a Cash Dominion Event, such funds shall be applied
daily first, to the repayment of the Swingline Loans; second, to any Revolving Loans which
become due, without a reduction in the Commitments; third, after the occurrence and during the
continuance of an Event of Default or if the sum of all Lenders’ Revolving Exposures exceeds
46
the Loan Cap then in effect, to cash collateralize outstanding Letters of Credit in accordance with
the procedures set forth in Section 2.17(j); and, fourth, the amount remaining, if any, after the
prepayment in full of all Swingline Loans and Revolving Loans outstanding at such time and the
cash collateralization of the outstanding Letters of Credit (to the extent required hereunder) in
full shall be deposited by the Administrative Agent in a deposit account of the Lead Borrower
and may be utilized by the Borrowers in the ordinary course of their business to the extent
otherwise permitted hereunder.
Section 2.05 Fees.
(a)
Commitment Fee. The Borrowers agree to pay to the Administrative
Agent for the account of each Revolving Lender (except as otherwise provided in Section
2.15(b)) a commitment fee (a “Commitment Fee”), equal to the Applicable Fee per annum
multiplied by the average daily unused amount of each Commitment of such Revolving Lender
during the period from and including the Effective Date to but excluding the date on which such
Commitment terminates. Accrued Commitment Fees shall be payable in arrears on the first day
after the end of each March, June, September and December of each year and on the date on
which the Commitments terminate, commencing on the first such date to occur after the
Effective Date. All Commitment Fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day but excluding the
last day). For purposes of computing Commitment Fees with respect to Commitments, a
Commitment of a Lender shall be deemed to be used to the extent of the outstanding Revolving
Loans and LC Exposure of such Lender (and the Swingline Exposure of such Lender shall be
disregarded for such purpose).
(b)
Administrative Agent Fees. The Borrowers agree to pay to the
Administrative Agent, for its own account, the fees set forth in the Fee Letter or such other fees
payable in the amounts and at the times separately agreed upon between the Borrowers and the
Administrative Agent (the “Administrative Agent Fees”).
(c)
LC and Fronting Fees. The Borrowers agree to pay (i) to the
Administrative Agent for the account of each Revolving Lender a participation fee (“LC
Participation Fee”) with respect to its participations in Letters of Credit, which shall accrue at a
rate equal to the Applicable Margin from time to time used to determine the interest rate on
Eurodollar Revolving Loans pursuant to Section 2.06, on the average daily amount of such
Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC
Disbursements) during the period from and including the Effective Date to but excluding the
later of the date on which such Lender’s Commitment terminates and the date on which such
Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee (“Fronting
Fee”), which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC
Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during
the period from and including the Effective Date to but excluding the later of the date of
termination of the Commitments and the date on which there ceases to be any LC Exposure, as
well as the Issuing Bank’s standard and reasonable fees with respect to the issuance, amendment,
renewal or extension of any Letter of Credit or processing of drawings thereunder as agreed
among the Lead Borrower and the Issuing Bank from time to time. LC Participation Fees and
Fronting Fees accrued through and including the last day of March, June, September and
47
December of each year shall be payable on the first day following such last day, commencing on
the first such date to occur after the Effective Date; provided that all such fees shall be payable
on the date on which the Commitments terminate and any such fees accruing after the date on
which the Commitments terminate shall be payable on demand (including documentation
reasonably supporting such request). Any other fees payable to the Issuing Bank pursuant to this
paragraph shall be payable within 10 days after written demand (together with backup
documentation supporting such reimbursement request). All LC Participation Fees and Fronting
Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).
(d)
All Fees shall be paid on the dates due, in immediately available funds, to
the Administrative Agent for distribution, if and as appropriate, among the Revolving Lenders
(other than Defaulting Lenders), except that the Fronting Fees shall be paid directly to the
Issuing Bank. Once paid, none of the Fees shall be refundable under any circumstances.
Section 2.06 Interest on Loans.
(a)
Subject to the provisions of Section 2.06(c), the Loans comprising each
ABR Revolving Borrowing, including each Swingline Loan, shall bear interest at a rate per
annum equal to the Prime Rate plus the Applicable Margin in effect from time to time.
(b)
Subject to the provisions of Section 2.06(c), the Loans comprising each
Eurodollar Revolving Borrowing shall bear interest at a rate per annum equal to the Adjusted
LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin in
effect from time to time.
(c)
Notwithstanding the foregoing, effective upon written notice from the
Administrative Agent (at the direction of the Required Lenders) during a Specified Default, (a)
all Obligations shall bear interest, after as well as before judgment, at a per annum rate equal to
(i) in the case of principal of any Loan, 2% in excess of the rate in effect from time to time, (ii) in
the case of LC Participating Fees, 2% plus the otherwise applicable rate thereof, or (iii) in the
case of any other amount, 2% plus the rate in effect from time to time applicable to ABR
Revolving Loans as provided in paragraph (a) of this Section 2.06.
(d)
Accrued interest on each Loan shall be payable in arrears on each Interest
Payment Date for such Loan and upon termination of the Commitments; provided that (i) interest
accrued pursuant to paragraph (c) of this Section 2.06 shall be payable on demand and, absent
demand, on each Interest Payment Date and upon termination of the Commitments, (ii) in the
event of any repayment or prepayment of any Loan (other than a prepayment of an ABR
Revolving Loan prior to the end of the Revolving Availability Period), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment
and (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the
current Interest Period therefor, accrued interest on such Loan shall be payable on the effective
date of such conversion.
(e)
All interest hereunder shall be computed on the basis of a year of 365/366
days, except that interest computed by reference to the Adjusted LIBOR Rate and all Fees shall
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be computed on the basis of a year of 360 days, and in each case shall be payable for the actual
number of days elapsed (including the first day but excluding the last day). The applicable
Prime Rate or Adjusted LIBOR Rate shall be determined by the Administrative Agent in
accordance with the provisions of this Agreement and such determination shall be conclusive
absent manifest error.
Section 2.07 Termination and Reduction of Commitments.
(a)
The Commitments, the Swingline Commitment, and the LC Commitment
shall automatically terminate on the Maturity Date.
(b)
After the Effective Date, the Borrowers may at any time terminate
(without premium or penalty), or from time to time reduce, the Commitments; provided that (i)
each reduction of the Commitments shall be in an amount that is an integral multiple of
$1,000,000 and (ii) the Commitments shall not be terminated or reduced if, after giving effect to
any concurrent prepayment of the Revolving Loans in accordance with Section 2.09, the sum of
the Revolving Exposures would exceed the aggregate amount of Commitments.
(c)
The Lead Borrower shall notify the Administrative Agent of any election
to terminate or reduce the Commitments under paragraph (c) of this Section 2.07 at least two
Business Days prior to the effective date of such termination or reduction, specifying such
election and the effective date thereof. Promptly following receipt of any notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by
the Lead Borrower pursuant to this Section 2.07 shall be irrevocable except that, to the extent
delivered in connection with a refinancing of the Obligations (or other specified condition), such
notice shall not be irrevocable until such refinancing is closed and funded or such condition is
satisfied. Any effectuated termination or reduction of the Commitments shall be permanent.
Each reduction of the Commitments shall be made ratably among the Revolving Lenders in
accordance with their respective Pro Rata Percentages.
Section 2.08 Interest Elections.
(a)
Each Revolving Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have
an initial Interest Period as specified in such Borrowing Request. Thereafter, the Lead Borrower,
on behalf of the Borrowers, may elect to convert such Revolving Borrowing to a different Type
or to continue such Revolving Borrowing and, in the case of a Eurodollar Revolving Borrowing,
may elect Interest Periods therefor, all as provided in this Section 2.08. The Lead Borrower, on
behalf of the Borrowers, may elect different options with respect to different portions of the
affected Revolving Borrowing, in which case each such portion shall be allocated ratably among
the Lenders holding the Loans comprising such Revolving Borrowing, and the Loans comprising
each such portion shall be considered a separate Revolving Borrowing. Notwithstanding
anything to the contrary, the Lead Borrower, on behalf of the Borrowers, shall not be entitled to
request any conversion or continuation that, if made, would result in more than ten Eurodollar
Revolving Loans outstanding hereunder at any one time. This Section 2.08 shall not apply to
Swingline Borrowings, which may not be converted or continued.
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(b)
To make an election pursuant to this Section 2.08, the Lead Borrower, on
behalf of the Borrowers, shall notify the Administrative Agent of such election by telephone or
electronic transmission (if arrangements for doing so have been approved by the Administrative
Agent, which approval shall not be unreasonably withheld, delayed or conditioned) by the time
that a Borrowing Request would be required under Section 2.03 if the Lead Borrower was
requesting a Revolving Borrowing of the Type resulting from such election to be made on the
effective date of such election, subject to Section 2.10. Each such telephonic Interest Election
Request shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent
of a written Interest Election Request substantially in the form of Exhibit D, unless otherwise
agreed to by the Administrative Agent and the Lead Borrower.
(c)
Each telephonic and written Interest Election Request shall specify the
following information in compliance with Section 2.02:
(i)
the Revolving Borrowing to which such Interest Election Request
applies and, if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Revolving Borrowing (in
which case the information to be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Revolving Borrowing);
(ii)
the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii) whether the resulting Revolving Borrowing is to be an ABR
Revolving Borrowing or a Eurodollar Revolving Borrowing; and
(iv)
if the resulting Revolving Borrowing is a Eurodollar Revolving
Borrowing, the Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Eurodollar Revolving Borrowing but does not
specify an Interest Period, then the Lead Borrower shall be deemed to have selected an Interest
Period of one month’s duration.
(d)
Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such Lender’s
portion of each resulting Revolving Borrowing.
(e)
If an Interest Election Request with respect to a Eurodollar Revolving
Borrowing is not timely delivered prior to the end of the Interest Period applicable thereto, then,
unless such Revolving Borrowing is repaid as provided herein, at the end of such Interest Period
such Revolving Borrowing shall be converted to an ABR Revolving Borrowing.
(f)
Notwithstanding any contrary provision hereof, if an Event of Default has
occurred and is continuing and the Administrative Agent, at the request of the Required Lenders,
so notifies the Lead Borrower, then, after the occurrence and during the continuance of such
Event of Default (i) no outstanding Revolving Borrowing may be converted to or continued as a
Eurodollar Revolving Borrowing, and (ii) unless repaid, each Eurodollar Revolving Borrowing
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shall be converted to an ABR Revolving Borrowing at the end of the Interest Period applicable
thereto.
Section 2.09 Optional and Mandatory Prepayments of Revolving Loans.
(a)
Optional Prepayments. The Borrowers shall have the right at any time and
from time to time to prepay, without premium or penalty, any Revolving Borrowing or other
Obligation, in whole or in part, subject to the requirements of this Section 2.09; provided that
each partial prepayment shall be in an amount that is an integral multiple of $100,000.
(b)
Revolving Loan Prepayments.
(i)
In the event of the termination of all the Commitments, the
Borrowers shall, on the date of such termination, repay or prepay all the outstanding Revolving
Borrowings and all outstanding Swingline Loans, replace all outstanding Letters of Credit and/or
deposit an amount equal to the LC Exposure in the LC Collateral Account, and comply with the
provisions of Section 11.05 hereof.
(ii)
In the event of any partial reduction of the Commitments, then (A)
at or prior to the effective date of such reduction, the Administrative Agent shall notify the Lead
Borrower and the Revolving Lenders of the sum of the Revolving Exposures after giving effect
thereto and (B) if the sum of the Revolving Exposures would exceed the aggregate amount of
Commitments after giving effect to such reduction, then the Borrowers shall, on the date of such
reduction, first, repay or prepay all Swingline Loans, second, repay or prepay Revolving
Borrowings and third, replace or cash collateralize outstanding Letters of Credit in accordance
with the procedures set forth in Section 2.17(j), in an amount sufficient to eliminate such excess.
(iii) In the event that the sum of all Lenders’ Revolving Exposures
exceeds the Loan Cap then in effect, the Borrowers shall, after demand (or, if such overadvance
is due to the imposition of a new Reserve or a change in the methodology of calculating an
existing Reserve, or change in eligibility standards, within six Business Days following notice),
immediately apply an amount equal to such excess to prepay the Revolving Loans and any
interest accrued thereon, in accordance with this Section 2.09(b)(iii). The Borrowers shall, first,
repay or prepay Revolving Borrowings, and second replace or cash collateralize outstanding
Letters of Credit in accordance with the procedures set forth in Section 2.17(j), in an amount
sufficient to eliminate such excess.
(iv)
In the event that the aggregate LC Exposure exceeds the LC
Commitment then in effect, the Borrowers shall, without notice or demand, immediately replace
or cash collateralize outstanding Letters of Credit in accordance with the procedures set forth in
Section 2.17(j), in an amount sufficient to eliminate such excess.
(v)
The Borrowers shall repay or prepay the Swingline Loans and the
Revolving Borrowings during the continuance of a Cash Dominion Event in accordance with the
provisions of Section 2.04(f), and thereafter shall replace or cash collateralize outstanding Letters
of Credit Obligations to the extent required by Section 2.04(f).
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(c)
Asset Sales. Not later than two Business Days (or such later date as
reasonably acceptable to Administrative Agent) following the receipt of any Net Cash Proceeds
of any Asset Sale, the Borrowers shall, and shall cause their domestic Subsidiaries to, in each
case subject to the Intercreditor Agreement, apply 100% of the Net Cash Proceeds representing
ABL Priority Collateral (and if the Term Facility has been paid in full, all other Collateral)
received with respect thereto to make prepayments in accordance with Sections 2.09(f) and (g);
provided that:
(i)
no such prepayment shall be required with respect to (A) the
disposition of assets subject to a condemnation or eminent domain proceeding or
insurance settlement to the extent it does not constitute a Casualty Event, (B) Asset Sales
for fair market value resulting in no more than $1,000,000 in Net Cash Proceeds per
Asset Sale (or series of related Asset Sales), or (C) Asset Sales until all Asset Sales
subject to such prepayment in the aggregate from the date of the last prepayment from
Asset Sales equals or exceeds $10,000,000; and
(ii)
subject to Section 2.09(e), and so long as no Cash Dominion Event
shall then exist or would arise therefrom, and the aggregate of such Net Cash Proceeds
from Asset Sales representing ABL Priority Collateral (and if the Term Facility has been
paid in full, all other Collateral) does not exceed $10,000,000 in any fiscal year of the
Borrowers, such proceeds shall not be required to be so applied on such date to the extent
that the Lead Borrower shall have delivered an Officers’ Certificate to the Administrative
Agent on or prior to such date stating that such Net Cash Proceeds shall be used or
committed to be used to purchase assets useful in the business of the Loan Parties or
Equity Interests of any Person that owns such assets to be purchased (in each case, as
long as such acquisition is not prohibited hereunder) no later than 270 days following the
date of receipt of the Net Cash Proceeds such Asset Sale; provided that if the Property
subject to such Asset Sale constituted Collateral, then all Property purchased with the Net
Cash Proceeds thereof pursuant to this subsection shall be made subject to the Lien of the
applicable Security Documents in favor of the Administrative Agent, for its benefit and
for the benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12;
provided further that, if a Cash Dominion Event shall then exist or would arise therefrom,
such Net Cash Proceeds shall be paid by the Borrowers to the Administrative Agent to
temporarily reduce the Obligations as set forth in Section 2.04 hereof, provided further
that, unless the Obligations have been accelerated in accordance with Article VII hereof,
upon delivery by the Borrowers to the Administrative Agent of the Officers’ Certificate
referenced above, such Net Cash Proceeds shall be released to the Borrowers (so long as
the conditions precedent to Borrowing have been met hereunder) to reinvest such Net
Cash Proceeds as set forth above.
(d)
Casualty Events. Not later than two Business Days following the receipt
of any Net Cash Proceeds from a Casualty Event involving ABL Priority Collateral (and if the
Term Facility has been paid in full, all other Collateral), the Borrowers shall, and shall cause
their domestic Subsidiaries to apply an amount equal to 100% of such Net Cash Proceeds
representing ABL Priority Collateral (and if the Term Facility has been paid in full, all other
Collateral) to make prepayments in accordance with Sections 2.09(f) and (g); provided that
subject to Section 2.09(e), and as long as no Cash Dominion Event the exists or would arise
52
therefrom, and, except as the Administrative Agent may otherwise agree, the aggregate of such
Net Cash Proceeds from Casualty Events involving ABL Priority Collateral (and if the Term
Facility has been paid in full, all other Collateral) does not exceed $10,000,000 in any fiscal year
of the Borrowers, such proceeds shall not be required to be so applied on such date to the extent
that, the Lead Borrower shall have delivered an Officers’ Certificate to the Administrative Agent
on or prior to such date stating that such proceeds shall be used or committed to be used to
repair, replace or restore any Property the subject of a Casualty Event within 270 days of receipt
of such Net Cash Proceeds; provided that if the Property subject to such Casualty Event
constituted Collateral under the Security Documents, then all Property purchased with the Net
Cash Proceeds thereof pursuant to this subsection shall be made subject to the Lien of the
applicable Security Documents in favor of the Administrative Agent, for its benefit and for the
benefit of the other Secured Parties in accordance with Sections 5.11 and 5.12; provided further
that, if a Cash Dominion Event shall then exist or would arise therefrom, such Net Cash Proceeds
shall be paid by the Borrowers to the Administrative Agent to temporarily reduce the Obligations
as set forth in Section 2.04 hereof, provided further that, unless the Obligations have been
accelerated in accordance with Article VII hereof, upon delivery by the Borrowers to the
Administrative Agent of the Officers’ Certificate referenced above, such Net Cash Proceeds shall
be released to the Borrowers (so long as the conditions precedent to Borrowing have been met
hereunder) to reinvest such Net Cash Proceeds as set forth above.
(e)
If any portion of such Net Cash Proceeds with respect to Section 2.09(c)
or (d) shall not be so applied within such 270 day period, such unused or uncommitted portion
shall be applied on the last day of such period as a mandatory prepayment as provided in this
Section 2.09.
(f)
Application of Prepayments.
(i)
Prior to any optional or mandatory prepayment of Borrowings
hereunder, the Lead Borrower shall select the Borrowing or Borrowings to be prepaid and shall
specify such selection in the notice of such prepayment pursuant to Section 2.09(g). Unless a
Cash Dominion Event then exists and is continuing (in which event such prepayments shall be
applied as set forth in Section 2.04(f)), except as provided in Section 2.09(b)(iii) hereof, all
mandatory prepayments shall be applied as follows: first, to Fees and reimbursable expenses of
Agents then due and payable pursuant to the Loan Documents; second, to interest then due and
payable on outstanding Swingline Loans; third, to the principal balance of the Swingline Loans
outstanding until the same has been prepaid in full; fourth, to interest then due and payable on
the Borrowers’ Revolving Loans and other amounts due pursuant to Sections 2.11, 2.12 and
2.14; fifth, to the principal balance of Revolving Loans outstanding until the same has been
prepaid in full; sixth, to cash collateralize all LC Exposures plus any accrued and unpaid interest
thereon (to be held and applied in accordance with Section 2.17(j) hereof); seventh, to all other
Obligations (other than on account of Cash Management Agreements and Bank Products
Agreements) pro rata in accordance with the amounts that such Lender certifies is outstanding
based on its Pro Rata Percentage thereof, eighth, to any amounts then due and payable on
account of Cash Management Agreements and Bank Products Agreements to the extent
constituting Secured Obligations (as defined in the Security Agreement), and ninth, returned to
the Borrowers or to such party as otherwise required by law.
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(ii)
Amounts to be applied pursuant to this Section 2.09 to the
prepayment of Revolving Loans shall be applied, as applicable, first to reduce outstanding ABR
Revolving Loans. Any amounts remaining after each such application shall be applied to prepay
Eurodollar Revolving Loans. Notwithstanding the foregoing, if the amount of any prepayment
of Revolving Loans required under this Section 2.09 shall be in excess of the amount of the ABR
Revolving Loans at the time outstanding, only the portion of the amount of such prepayment as
is equal to the amount of such outstanding ABR Revolving Loans shall be immediately prepaid
and, at the election of the Lead Borrower, the balance of such required prepayment shall be
either (A) deposited in the LC Collateral Account and applied to the prepayment of Eurodollar
Revolving Loans on the last day of the then next-expiring Interest Period for Eurodollar
Revolving Loans (with all interest accruing thereon for the account of the Borrowers) or (B)
prepaid immediately, together with any amounts owing to the Lenders under Section 2.12.
Notwithstanding any such deposit in the LC Collateral Account, interest shall continue to accrue
on such Loans until prepayment.
(g)
Notice of Prepayment. The Lead Borrower shall notify the Administrative
Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone
(confirmed by telecopy) or electronic transmission of any prepayment pursuant to this Section
2.09 (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 1:00 p.m.,
New York City time, three Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Revolving Borrowing, not later than 4:00 p.m., New York City time, on
the date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00
p.m., New York City time, on the date of prepayment. Each such notice shall specify the
prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in
the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such
prepayment. Each notice of prepayment shall be revocable, provided that, within five (5)
Business Days of receiving a written demand for reimbursement which sets forth the calculation
of breakage costs in reasonable detail, the applicable Borrower shall reimburse the Lenders for
all breakage costs associated with the revocation of any notice of prepayment. Promptly
following receipt of any such notice (other than a notice relating solely to Swingline Loans), the
Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Borrowing shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02, except as necessary to apply fully the
required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied
ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by
accrued interest to the extent required by Section 2.06.
Section 2.10 Alternate Rate of Interest. If after the date hereof but prior to the
commencement of any Interest Period for a Eurodollar Revolving Borrowing:
(a)
the Administrative Agent reasonably determines (which determination
shall be conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBOR Rate for such Interest Period; or
(b)
the Administrative Agent is advised by the Required Lenders that the
Adjusted LIBOR Rate for such Interest Period will not adequately and fairly reflect the
54
cost to such Lenders of making or maintaining their Loans included in such Borrowing
for such Interest Period; or
(c)
any order, judgment or decree of any Governmental Authority or any Law
applicable to any Lender shall prohibit such Lender from making Eurodollar Revolving
Borrowings (including, without limitation, for the Interest Period requested);
then the Administrative Agent shall give notice thereof to the Lead Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Lead Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Revolving Borrowing shall be ineffective (but,
in the case of clause (c), only as to each such affected Lender) and (ii) if any Borrowing Request
requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR
Revolving Borrowing (but, in the case of clause (c), only as to each such affected Lender) unless
withdrawn by the Lead Borrower.
Section 2.11 Increased Costs.
(a)
If any Change in Law shall:
(i)
impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the Adjusted
LIBOR Rate) or the Issuing Bank; or
(ii)
impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Revolving Loans
made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost in any material amount in
excess of those incurred by similarly situated Lenders to such Lender of making or maintaining
any Eurodollar Revolving Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost in any material amount in excess of those incurred by similarly situated Lenders
to such Lender or the Issuing Bank of participating in, issuing or maintaining any Letter of
Credit or to reduce the amount of any sum received or receivable by such Lender or the Issuing
Bank hereunder (whether of principal, interest or otherwise), then the Borrowers will pay to
Administrative Agent for the account of such Lender or the Issuing Bank, as the case may be,
such additional amount or amounts as will compensate such Lender or the Issuing Bank, as the
case may be, for such additional costs incurred or reduction suffered.
(b)
If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate of return on such
Lender’s or the Issuing Bank’s capital or on the capital of such Lender’s or the Issuing Bank’s
holding company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or such Lender’s or
the Issuing Bank’s holding company could have achieved but for such Change in Law (taking
55
into consideration such Lender’s or the Issuing Bank’s policies and the policies of such Lender’s
or the Issuing Bank’s holding company with respect to capital adequacy), then from time to time
the Borrowers will pay to such Lender or the Issuing Bank, as the case may be, such additional
amount or amounts as will compensate such Lender or the Issuing Bank or such Lender’s or the
Issuing Bank’s holding company for any such reduction suffered.
(c)
A certificate of a Lender or the Issuing Bank setting forth the amount or
amounts necessary to compensate such Lender or the Issuing Bank or its holding company, as
the case may be, as specified in paragraph (a) or (b) of this Section 2.11 shall be delivered to the
Lead Borrower and shall be conclusive absent manifest error. The Borrowers shall pay
Administrative Agent for the account of such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 15 Business Days after receipt thereof.
(d)
Failure or delay on the part of any Lender or the Issuing Bank to demand
compensation pursuant to this Section 2.11 shall not constitute a waiver of such Lender’s or the
Issuing Bank’s right to demand such compensation; provided that the Borrowers shall not be
required to compensate a Lender or the Issuing Bank pursuant to this Section 2.11 for any
increased costs or reductions incurred more than 90 days prior to the date that such Lender or the
Issuing Bank, as the case may be, notifies the Lead Borrower of the Change in Law giving rise to
such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim
compensation therefor; provided, further that, if the Change in Law giving rise to such increased
costs or reductions is retroactive, then the 90-day period referred to above shall not begin earlier
than the date of effectiveness of the Change in Law.
Section 2.12 Breakage Payments. In the event of (a) the payment or prepayment,
whether optional or mandatory, of any principal of any Eurodollar Revolving Loan other than on
the last day of an Interest Period applicable thereto (including as a result of the continuance of an
Event of Default), (b) the conversion of any Eurodollar Revolving Loan other than on the last
day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or
prepay any Revolving Loan on the date specified in any notice delivered pursuant hereto or (d)
the assignment of any Eurodollar Revolving Loan other than on the last day of the Interest Period
applicable thereto as a result of a request by the Lead Borrower pursuant to Section 2.15, then, in
any such event, at the request of any such Lender, the Borrowers shall compensate such Lender
for the actual loss, cost and expense (other than loss of anticipated profits, meaning thereby the
spread over LIBOR as set forth in the definition of Applicable Margin)) attributable to such
event. In the case of a Eurodollar Revolving Loan, such loss, cost or expense to any Lender shall
be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBOR Rate that would have been applicable to such Loan,
for the period from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have
been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on
such principal amount for such period at the interest rate which such Lender would bid were it to
bid, at the commencement of such period, for dollar deposits of a comparable amount and period
from other banks in the Eurodollar market. A certificate of any Lender setting forth any amount
or amounts that such Lender is entitled to receive pursuant to this Section 2.12 shall be delivered
to the Lead Borrower and Administrative Agent and shall be conclusive absent manifest error.
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The Borrowers shall pay Administrative Agent for the account of such Lender the amount shown
as due on any such certificate within 10 Business Days after receipt thereof.
Section 2.13 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a)
Each Borrower shall make each payment required to be made by it
hereunder or under any other Loan Document (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 2.11, 2.12 or 2.14, or
otherwise) on or before the time expressly required hereunder or under such other Loan
Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New
York City time), on the date when due, in immediately available funds, without setoff or
counterclaim. Any amounts received after such time on any date may, in the reasonable
discretion of the Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments shall be made to
the Administrative Agent at its offices at 225 Franklin Street, Boston, Massachusetts, except
payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided
herein and except that payments pursuant to Sections 2.11, 2.12, 2.14 and 11.03 shall be made to
the Administrative Agent for the benefit of to the Persons entitled thereto and payments pursuant
to other Loan Documents shall be made to the Administrative Agent for the benefit of the
Persons specified therein. The Administrative Agent shall distribute any such payments received
by it for the account of any other Person to the appropriate recipient promptly following receipt
thereof. If any payment under any Loan Document shall be due on a day that is not a Business
Day, the date for payment shall be extended to the next succeeding Business Day, and, in the
case of any payment accruing interest, interest thereon shall be payable for the period of such
extension. All payments under each Loan Document shall be made in Dollars.
(b)
If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements,
interest and fees then due hereunder, such funds shall be applied in the manner as provided in
Sections 2.09(f) or 9.03 hereof, as applicable, ratably among the parties entitled thereto.
(c)
If any Lender shall, by exercising any right of setoff or counterclaim or
otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans
or participations in LC Disbursements or Swingline Loans resulting in such Lender’s receiving
payment of a greater proportion of the aggregate amount of its Revolving Loans and
participations in LC Disbursements and Swingline Loans and accrued interest thereon than the
proportion received by any other Revolving Lender, then the Lender receiving such greater
proportion shall purchase (for cash at face value) participations in the Revolving Loans, and
participations in LC Disbursements and Swingline Loans of other Revolving Lenders to the
extent necessary so that the benefit of all such payments shall be shared by the Revolving
Lenders, ratably in accordance with the aggregate amount of principal of and accrued interest on
their respective Revolving Loans and participations in LC Disbursements and Swingline Loans;
provided that (i) if any such participations are purchased and all or any portion of the payment
giving rise thereto is recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by a Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by a Lender as
57
consideration for the assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any Eligible Assignee or participant permitted hereunder. The
Borrowers consent to the foregoing and agree, to the extent they may effectively do so under
Applicable Law that any Lender acquiring a participation pursuant to the foregoing arrangements
may exercise against the Loan Parties rights of setoff and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of a Loan Party in the amount of
such participation.
(d)
Unless the Administrative Agent shall have received notice from the Lead
Borrower prior to the date on which any payment is due to the Administrative Agent for the
account of the Lenders or the Issuing Bank hereunder that the Borrowers will not make such
payment, the Administrative Agent may assume that the Borrowers have made such payment on
such date in accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the
Borrowers have not in fact made such payment, then each of the Lenders or the Issuing Bank, as
the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the
amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from
and including the date such amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined
by the Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e)
If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.02(c), 2.02(f), 2.13(d), 2.16(d), 2.17(d) or 11.03(d), then the
Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof),
apply any amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.
Section 2.14 Taxes.
(a)
Payments Free of Taxes; Obligation to Withhold; Payments on Account of
Taxes.
(i)
Any and all payments by or on account of any obligation of any
Loan Party under any Loan Document shall be made without deduction or withholding
for any Taxes, except as required by Applicable Law. If any Applicable Law (as
determined in the good faith discretion of the Administrative Agent) requires the
deduction or withholding of any Tax from any such payment by the Administrative
Agent or a Loan Party, then the Administrative Agent or such Loan Party shall be entitled
to make such deduction or withholding, upon the basis of the information and
documentation to be delivered pursuant to subsection (e) below.
(ii)
If any Loan Party or the Administrative Agent shall be required by
any Applicable Law other than the Code to withhold or deduct any Taxes from any
payment, then (A) such Loan Party or the Administrative Agent, as required by such
Applicable Law, shall withhold or make such deductions as are determined by it to be
58
required based upon the information and documentation it has received pursuant to
subsection (e) below, (B) such Loan Party or the Administrative Agent, to the extent
required by such Applicable Law, shall timely pay the full amount withheld or deducted
to the relevant Governmental Authority in accordance with such Applicable Law, and (C)
to the extent that the withholding or deduction is made on account of Indemnified Taxes,
the sum payable by the applicable Loan Party shall be increased as necessary so that after
any required withholding or the making of all required deductions (including deductions
applicable to additional sums payable under this Section 2.14) the applicable recipient
receives an amount equal to the sum it would have received had no such withholding or
deduction been made.
(b)
Payment of Other Taxes by the Borrowers. Without limiting the
provisions of subsection (a) above, the Borrowers shall timely pay to the relevant Governmental
Authority in accordance with Applicable Law, or at the option of the Administrative Agent
timely reimburse it for the payment of, any Other Taxes required by such Applicable Law to be
paid by the Administrative Agent.
(c)
Tax Indemnifications.
(i)
The Loan Parties shall, and each Loan Party does hereby, jointly
and severally indemnify the Administrative Agent, each Lender and each Issuing Bank
(each, a “Recipient”), and shall make payment in respect thereof within 10 Business Days
after written demand (including reasonable documentation supporting such demand)
therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes
imposed or asserted on or attributable to amounts payable under this Section 2.14)
payable or paid by such Recipient or required to be withheld or deducted from a payment
to such Recipient, and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority; provided that if the
Borrowers reasonably believe that such Taxes were not correctly or legally asserted, the
Administrative Agent or such Lender, as applicable, will use reasonable efforts to
cooperate with the Borrowers to obtain a refund of such Taxes so long as such efforts
would not, in the reasonable determination of such Lender, result in any additional costs,
expenses or risks or be otherwise disadvantageous to it; provided further, that the
Borrowers shall not be required to compensate any Lender pursuant to this Section 2.14
for any amounts incurred in any fiscal year for which such Lender is claiming
compensation if such Lender does not furnish notice of such claim within six (6) months
from the end of such fiscal year; provided further, that if the circumstances giving rise to
such claim have a retroactive effect, then the beginning of such six (6) month period shall
be extended to include such period of retroactive effect. A certificate as to the amount of
such payment or liability delivered to the Lead Borrower by a Lender or the Issuing Bank
(with a copy to the Administrative Agent), or by the Administrative Agent on its own
behalf or on behalf of a Lender or the Issuing Bank, setting forth in reasonable detail the
manner in which such amount was determined, shall be conclusive absent manifest error.
(ii)
Each Lender and the Issuing Bank shall, and does hereby, severally
indemnify, and shall make payment in respect thereof within 10 days after demand
59
therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such
Lender or the Issuing Bank (but only to the extent that any Loan Party has not already
indemnified the Administrative Agent for such Indemnified Taxes and without limiting
the obligation of the Loan Parties to do so), (y) the Administrative Agent and the Loan
Parties, as applicable, against any Taxes attributable to such Lender’s failure to comply
with the provisions of Section 11.04 relating to the maintenance of a Participant Register
and (z) the Administrative Agent and the Loan Parties, as applicable, against any
Excluded Taxes attributable to such Lender or the Issuing Bank, in each case, that are
payable or paid by the Administrative Agent or a Loan Party in connection with any Loan
Document, and any reasonable expenses arising therefrom or with respect thereto,
whether or not such Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate as to the amount of such payment or liability
delivered to any Lender by the Administrative Agent shall be conclusive absent manifest
error. Each Lender and the Issuing Bank hereby authorizes the Administrative Agent to
set off and apply any and all amounts at any time owing to such Lender or the Issuing
Bank, as the case may be, under this Agreement or any other Loan Document against any
amount due to the Administrative Agent under this clause (ii).
(d)
Evidence of Payments. Upon request by the Lead Borrower or the
Administrative Agent, as the case may be, after any payment of Taxes by the Lead Borrower or
by the Administrative Agent to a Governmental Authority as provided in this Section 2.14, the
Lead Borrower shall deliver to the Administrative Agent or the Administrative Agent shall
deliver to the Lead Borrower, as the case may be, the original or a certified copy of a receipt
issued by such Governmental Authority evidencing such payment, a copy of any return required
by Applicable Law to report such payment or other evidence of such payment reasonably
satisfactory to the Lead Borrower or the Administrative Agent, as the case may be.
(e)
Status of Lenders; Tax Documentation.
(i)
Any Lender that is entitled to an exemption from or reduction of
withholding Tax with respect to payments made under any Loan Document shall deliver
to the Lead Borrower and the Administrative Agent, at the time or times reasonably
requested by the Lead Borrower or the Administrative Agent, such properly completed
and executed documentation reasonably requested by the Lead Borrower or the
Administrative Agent as will permit such payments to be made without withholding or at
a reduced rate of withholding. In addition, any Lender, if reasonably requested by the
Lead Borrower or the Administrative Agent, shall deliver such other documentation
prescribed by Applicable Law or reasonably requested by the Lead Borrower or the
Administrative Agent as will enable the Lead Borrower or the Administrative Agent to
determine whether or not such Lender is subject to backup or other withholding or
information reporting requirements.
(ii)
Without limiting the generality of the foregoing, in the event that
any Borrower is resident for tax purposes in the United States,
(A)
any Lender that is resident for tax purposes in the United
States shall deliver to the Lead Borrower and the Administrative
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Agent on or prior to the date on which such Lender becomes a
Lender under this Agreement (and from time to time thereafter
upon the reasonable request of the Lead Borrower or the
Administrative Agent), executed originals of IRS Form W-9
certifying that such Lender is exempt from U.S. federal backup
withholding tax;
(B)
any Foreign Lender shall deliver to the Lead Borrower and
the Administrative Agent (in such number of copies as shall be
requested by the recipient) (x) on or prior to the date on which
such Foreign Lender becomes a Lender under this Agreement, and
(y) to the extent it is legally entitled to do so, from time to time
thereafter upon the reasonable request of the Lead Borrower or the
Administrative Agent), whichever of the following is applicable:
(I)
in the case of a Foreign Lender claiming the
benefits of an income tax treaty to which the United States is a
party (x) with respect to payments of interest under any Loan
Document, executed originals of IRS Form W-8BEN establishing
an exemption from, or reduction of, U.S. federal withholding Tax
pursuant to the “interest” article of such tax treaty and (y) with
respect to any other applicable payments under any Loan
Document, IRS Form W-8BEN establishing an exemption from, or
reduction of, U.S. federal withholding Tax pursuant to the
“business profits” or “other income” article of such tax treaty;
(II)
executed originals of IRS Form W-8ECI;
(III) in the case of a Foreign Lender claiming the
benefits of the exemption for portfolio interest under Section
881(c) of the Code, (x) a certificate substantially in the form of
Exhibit L-1 to the effect that such Foreign Lender is not a “bank”
within the meaning of Section 881(c)(3)(A) of the Code, a “10
percent shareholder” of the Lead Borrower within the meaning of
Section 871(h)(3)(B) of the Code, or a “controlled foreign
corporation” described in Section 881(c)(3)(C) of the Code (a
“U.S. Tax Compliance Certificate”) and (y) executed originals of
IRS Form W-8BEN; or
(IV) to the extent a Foreign Lender is not the beneficial
owner, executed originals of IRS Form W-8IMY, accompanied by
IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance
Certificate substantially in the form of Exhibit L-2 or Exhibit L-3,
IRS Form W-9, and/or other certification documents from each
beneficial owner, as applicable; provided that if the Foreign Lender
is a partnership and one or more direct or indirect partners of such
Foreign Lender are claiming the portfolio interest exemption, such
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Foreign Lender may provide a U.S. Tax Compliance Certificate
substantially in the form of Exhibit L-4 on behalf of each such
direct and indirect partner;
(C)
any Foreign Lender shall, to the extent it is legally entitled
to do so, deliver to the Lead Borrower and the Administrative
Agent (in such number of copies as shall be requested by the
recipient) on or prior to the date on which such Foreign Lender
becomes a Lender under this Agreement (and from time to time
thereafter upon the reasonable request of the Lead Borrower or the
Administrative Agent), executed originals of any other form
prescribed by Applicable Law as a basis for claiming exemption
from or a reduction in U.S. federal withholding Tax, duly
completed, together with such supplementary documentation as
may be prescribed by Applicable Law to permit the Lead Borrower
or the Administrative Agent to determine the withholding or
deduction required to be made; and
(D)
if a payment made to a Lender under any Loan Document
would be subject to U.S. federal withholding Tax imposed by
FATCA if such Lender were to fail to comply with the applicable
reporting requirements of FATCA (including those contained in
Section 1471(b) or 1472(b) of the Code, as applicable), such
Lender shall deliver to the Lead Borrower and the Administrative
Agent at the time or times prescribed by Applicable Law and at
such time or times reasonably requested by the Lead Borrower or
the Administrative Agent such documentation prescribed by
Applicable Law (including as prescribed by Section
1471(b)(3)(C)(i) of the Code) and such additional documentation
reasonably requested by the Lead Borrower or the Administrative
Agent as may be necessary for the Lead Borrower and the
Administrative Agent to comply with their obligations under
FATCA and to determine that such Lender has complied with such
Lender’s obligations under FATCA or to determine the amount to
deduct and withhold from such payment. Solely for purposes of
this clause (D), “FATCA” shall include any amendments made to
FATCA after the date of this Agreement.
(iii) Each Lender agrees that if any form or certification it previously
delivered pursuant to this Section 2.14 expires or becomes obsolete or inaccurate in any
respect, it shall update such form or certification or promptly notify the Lead Borrower
and the Administrative Agent in writing of its legal inability to do so.
(f)
Treatment of Certain Refunds. Unless required by Applicable Law, at no
time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf
of a Lender or the Issuing Bank, or have any obligation to pay to any Lender or the Issuing Bank,
any refund of Taxes withheld or deducted from funds paid for the account of such Lender or the
62
Issuing Bank, as the case may be. If any Recipient determines, in its sole discretion exercised in
good faith, that it has received a refund of any Taxes as to which it has been indemnified by any
Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this
Section 2.14, it shall pay to the Loan Party an amount equal to such refund (but only to the extent
of indemnity payments made, or additional amounts paid, by a Loan Party under this Section
2.14 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses
(including Taxes) incurred by such Recipient, and without interest (other than any interest paid
by the relevant Governmental Authority with respect to such refund), provided that the Loan
Party, upon the request of the Recipient, agrees to repay the amount paid over to the Loan Party
(plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to
the Recipient in the event the Recipient is required to repay such refund to such Governmental
Authority. Notwithstanding anything to the contrary in this subsection, in no event will the
applicable Recipient be required to pay any amount to the Loan Party pursuant to this subsection
the payment of which would place the Recipient in a less favorable net after-Tax position than
such Recipient would have been in if the indemnification payments or additional amounts giving
rise to such refund had never been paid. This subsection shall not be construed to require any
Recipient to make available its tax returns (or any other information relating to its taxes that it
deems confidential) to any Loan Party or any other Person.
(g)
Limitation. The Borrowers shall not be required to indemnify any Lender
or to pay any additional amounts to any Lender in respect of U.S. Federal withholding tax
pursuant to paragraph (a), (c) or (e) above to the extent that the obligation to pay such additional
amounts would not have arisen but for a failure by such Lender to comply with the provisions of
paragraph (e) above. Should a Lender become subject to Taxes because of its failure to deliver a
form required hereunder, the Loan Parties shall, at such Lender’s expense, take such steps as
such Lender shall reasonably request to assist such Lender to recover such Taxes.
(h)
Survival. Each party’s obligations under this Section 2.14 shall survive
the resignation or replacement of the Agent or any assignment of rights by, or the replacement
of, a Lender or the L/C Issuer, the termination of the Commitments and the repayment,
satisfaction or discharge of all other Obligations.
Section 2.15 Mitigation Obligations; Defaulting Lenders; Replacement of Lenders.
(a)
Mitigation Obligations. If any Lender is excused from making Eurodollar
Revolver Borrowings (where other Lenders generally are not) under Section 2.10, requests
compensation under Section 2.11, or if a Loan Party is required to pay any additional amount to
any Lender or any Governmental Authority for the account of any Lender pursuant to Section
2.14, then such Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates or use other reasonable efforts to be permitted to
make Eurodollar Revolver Borrowings under Section 2.10, or to avoid or minimize any amounts
which might otherwise be payable pursuant to Section 2.11 or 2.14, if, in the reasonable
judgment of such Lender, such designation or assignment (i) would enable such Lender to make
Eurodollar Revolver Borrowings, or to eliminate or reduce amounts payable pursuant to Section
2.11 or 2.14, as the case may be, in the future and (ii) would not subject such Lender to any
unreimbursed cost or expense and would not otherwise be materially disadvantageous to such
63
Lender; provided, however, that the Borrowers shall not be liable for such costs and expenses of
a Lender requesting compensation if (i) such Lender becomes a party to this Agreement on a date
after the Effective Date and (ii) the relevant Change in Law occurs on a date prior to the date
such Lender becomes a party hereto. The Borrowers hereby agree to pay all reasonable costs
and expenses incurred by any Lender in connection with any such designation or assignment. A
certificate setting forth such costs and expenses shall be submitted by such Lender to the Lead
Borrower.
(b)
Defaulting Lenders.
(i)
Adjustments. Notwithstanding anything to the contrary contained
in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as
that Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:
(A) Such Defaulting Lender’s right to approve or disapprove any
amendment, waiver or consent with respect to this Agreement shall be
restricted as set forth in the definition of “Required Lenders” and Section
11.02.
(B) Any payment of principal, interest, fees or other amounts received by
the Administrative Agent for the account of such Defaulting Lender
(whether voluntary or mandatory, at maturity, pursuant to Article VIII or
otherwise) or received by the Administrative Agent from a Defaulting
Lender pursuant to Section 11.08 shall be applied at such time or times as
may be determined by the Administrative Agent as follows: first, to the
payment of any amounts owing by such Defaulting Lender to the
Administrative Agent hereunder; second, to the payment on a pro rata
basis of any amounts owing by such Defaulting Lender to the Issuing
Bank or Swingline Lender hereunder; third, to the LC Collateral Account
to cash collateralize the Issuing Bank’s Fronting Exposure with respect to
such Defaulting Lender; fourth, as the Lead Borrower may request (so
long as no Default or Event of Default exists), to the funding of any Loan
in respect of which such Defaulting Lender has failed to fund its portion
thereof as required by this Agreement, as determined by the
Administrative Agent; fifth, if so determined by the Administrative Agent
and the Lead Borrower, to be held in a deposit account and released pro
rata in order to (x) satisfy such Defaulting Lender’s potential future
funding obligations with respect to Loans under this Agreement and (y)
cash collateralize the Issuing Bank’s future Fronting Exposure with
respect to such Defaulting Lender with respect to future Letters of Credit
issued under this Agreement; sixth, to the payment of any amounts owing
to the Lenders, the Issuing Bank or Swingline Lender as a result of any
judgment of a court of competent jurisdiction obtained by any Lender, the
Issuing Bank or the Swingline Lender against such Defaulting Lender as a
result of such Defaulting Lender’s breach of its obligations under this
Agreement; seventh, so long as no Default or Event of Default exists, to
the payment of any amounts owing to the Borrowers as a result of any
64
judgment of a court of competent jurisdiction obtained by the Borrowers
against such Defaulting Lender as a result of such Defaulting Lender’s
breach of its obligations under this Agreement; and eighth, to such
Defaulting Lender or as otherwise directed by a court of competent
jurisdiction; provided that if (x) such payment is a payment of the
principal amount of any Loans in respect of which such Defaulting Lender
has not fully funded its appropriate share, and (y) such Loans were made
at a time when the conditions set forth in Section 4.02 were satisfied or
waived, such payment shall be applied solely to pay the Loans of all NonDefaulting Lenders on a pro rata basis prior to being applied to the
payment of any Loans of such Defaulting Lender until such time as all
Loans and funded and unfunded participations in LC Exposure and
Swingline Loans are held by the Lenders pro rata in accordance with the
Commitments hereunder without giving effect to Section 2.15(b)(i)(D)
below. Any payments, prepayments or other amounts paid or payable to a
Defaulting Lender that are applied (or held) to pay amounts owed by a
Defaulting Lender or to post cash collateral pursuant to this Section
2.15(b)(i)(B) shall be deemed paid to and redirected by such Defaulting
Lender, and each Lender irrevocably consents hereto.
(C)
No Defaulting Lender shall be entitled to receive any fee payable
under Section 2.05(a) for any period during which that Lender is a
Defaulting Lender (and the Borrowers shall not be required to pay any
such fee that otherwise would have been required to have been paid to that
Defaulting Lender). Each Defaulting Lender shall be entitled to receive
LC Participation Fees for any period during which that Lender is a
Defaulting Lender only to the extent allocable to its Pro Rata Percentage
of the stated amount of Letters of Credit for which it has provided cash
collateral pursuant to Section 9.01. With respect to any fee payable under
Section 2.05(a) or any LC Participation Fee not required to be paid to any
Defaulting Lender pursuant to clause (C), the Borrowers shall (x) pay to
each Non-Defaulting Lender that portion of any such fee otherwise
payable to such Defaulting Lender with respect to such Defaulting
Lender’s participation in LC Exposure or Swingline Loans that has been
reallocated to such Non-Defaulting Lender pursuant to clause (D) below,
(y) pay to the Issuing Bank and Swingline Lender, as applicable, the
amount of any such fee otherwise payable to such Defaulting Lender to
the extent allocable to such Issuing Bank’s or Swingline Lender’s Fronting
Exposure to such Defaulting Lender, and (z) not be required to pay the
remaining amount of any such fee.
(D)
All or any part of such Defaulting Lender’s participation in Letters
of Credit and Swingline Loans shall be reallocated among the NonDefaulting Lenders in accordance with their respective Pro Rata
Percentages (calculated without regard to such Defaulting Lender’s
Commitment) but only to the extent that (x) the conditions set forth in
Section 4.02 are satisfied at the time of such reallocation (and, unless the
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Borrowers shall have otherwise notified the Administrative Agent at such
time, the Borrowers shall be deemed to have represented and warranted
that such conditions are satisfied at such time), and (y) such reallocation
does not cause the aggregate outstanding amount of Obligations of any
Non-Defaulting Lender to exceed such Non-Defaulting Lender’s
Commitment. No reallocation hereunder shall constitute a waiver or
release of any claim of any party hereunder against a Defaulting Lender
arising from that Lender having become a Defaulting Lender, including
any claim of a Non-Defaulting Lender as a result of such Non-Defaulting
Lender’s increased exposure following such reallocation.
(E)
If the reallocation described in clause (b)(ii) above cannot, or can
only partially, be effected, the Borrowers shall, without prejudice to any
right or remedy available to them hereunder or under Applicable Law, (x)
first, prepay Swingline Loans in an amount equal to the Swingline
Lenders’ Fronting Exposure and (y) second, cash collateralize the Issuing
Bank’s Fronting Exposure in accordance with the procedures set forth in
Section 9.01.
(ii)
Defaulting Lender Cure. If the Lead Borrower, the Administrative
Agent, the Swingline Lender and the Issuing Bank agree in writing that a Lender is no
longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto,
whereupon as of the effective date specified in such notice and subject to any conditions
set forth therein (which may include arrangements with respect to any cash collateral),
that Lender will, to the extent applicable, purchase at par that portion of outstanding
Loans of the other Lenders or take such other actions as the Administrative Agent may
determine to be necessary to cause the Loans and funded and unfunded participations in
Letters of Credit and Swingline Loans to be held on a pro rata basis by the Lenders in
accordance with their Pro Rata Percentages (without giving effect to Section
2.15(b)(i)(D), whereupon such Lender will cease to be a Defaulting Lender; provided that
no adjustments will be made retroactively with respect to fees accrued or payments made
by or on behalf of the Borrowers while that Lender was a Defaulting Lender; and
provided, further, that except to the extent otherwise expressly agreed by the affected
parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver
or release of any claim of any party hereunder arising from that Lender’s having been a
Defaulting Lender.
(c)
Replacement of Lenders. If any Lender requests compensation under
Section 2.11, or if a Loan Party is required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.14, or if any Lender
is excused from making Eurodollar Revolver Borrowings pursuant to Section 2.10 (while other
Lenders generally are able to make Eurodollar Revolver Borrowings), or if any Lender is a
Defaulting Lender, then the Lead Borrower may, at its sole expense and effort, upon notice to
such Lender or Defaulting Lender and the Administrative Agent, require such Lender to assign
and delegate, without recourse (in accordance with and subject to the restrictions contained in
Section 11.04), all of its interests, rights and obligations under this Agreement to an assignee
selected by the Lead Borrower that shall assume such obligations (which assignee may be
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another Lender, if a Lender accepts such assignment); provided that (i) the Lead Borrower shall
have received the prior written consent of the Administrative Agent (and, if a Commitment is
being assigned, the Issuing Bank and Swingline Lender), which consent shall not be
unreasonably withheld, delayed or conditioned, (ii) such Lender shall have received payment of
an amount equal to the outstanding principal of its Loans and participations in LC Disbursements
and Swingline Loans, accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrowers (in the case of all other amounts) and (iii) in the case of any such
assignment resulting from a claim for compensation under Section 2.11 or payments required to
be made pursuant to Section 2.14, such assignment will result in a reduction in such
compensation or payments. A Lender shall not be required to make any such assignment and
delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Lead Borrower to require such assignment and delegation cease to
apply.
Section 2.16 Swingline Loans.
(a)
Swingline Commitment. Subject to the terms and conditions set forth
herein, the Swingline Lender agrees to make Swingline Loans to the Borrowers from time to
time during the Revolving Availability Period, in an aggregate principal amount at any time
outstanding that will not result in (i) the aggregate principal amount of outstanding Swingline
Loans exceeding $25,000,000 or (ii) the sum of the total Revolving Exposures exceeding the
Loan Cap; provided that the Swingline Lender shall not be required to make a Swingline Loan to
refinance an outstanding Swingline Loan and provided further that the Swingline Lender shall
not be obligated to make any Swingline Loan if it shall reasonably determine (which
determination shall be conclusive and binding absent manifest error) that it has, or by such credit
extension may have, Fronting Exposure. Within the foregoing limits and subject to the terms
and conditions set forth herein, the Borrowers may borrow, repay and reborrow Swingline
Loans.
(b)
Swingline Loans. To request a Swingline Loan, the Lead Borrower, on
behalf of the Borrowers, shall notify the Administrative Agent of such request by telephone
(confirmed by telecopy), not later than 4:00 p.m., New York City time, on the day of a proposed
Swingline Loan. Each such notice shall be irrevocable and specify the requested date (which
shall be a Business Day) and amount of the requested Swingline Loan. The Administrative
Agent will promptly advise the Swingline Lender of any such notice received from Lead
Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrowers by
means of a credit to the general deposit account of Lead Borrower with the Swingline Lender
(or, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement
as provided in Section 2.17(e), by remittance to the Issuing Bank) by 5:00 p.m., New York City
time, on the requested date of such Swingline Loan. Lead Borrower, on behalf of the Borrowers,
shall not request a Swingline Loan if at the time of and immediately after giving effect to such
request a Default has occurred and is continuing. Swingline Loans shall be made in minimum
amounts of $100,000.
(c)
Prepayment. The Borrowers shall have the right at any time and from
time to time to repay, without premium or penalty, any Swingline Loan, in whole or in part, upon
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giving written or telecopy notice (or telephone notice promptly confirmed by written, or telecopy
notice) to the Swingline Lender and to the Administrative Agent before 4:00 p.m., New York
City time on the date of repayment at the Swingline Lender’s address for notices specified in the
Swingline Lender’s Administrative Questionnaire. All principal payments of Swingline Loans
shall be accompanied by accrued interest on the principal amount being repaid to the date of
payment.
(d)
Participations. The Swingline Lender may by written notice given to the
Administrative Agent not later than 4:00 p.m., New York City time, on any Business Day require
the Revolving Lenders to acquire participations on such Business Day in all or a portion of the
Swingline Loans outstanding. Such notice shall specify the aggregate amount of Swingline
Loans in which Revolving Lenders will participate. Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Revolving Lender, specifying in such
notice such Lender’s Pro Rata Percentage of such Swingline Loan or Loans. Each Revolving
Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above,
to pay to the Administrative Agent, for the account of the Swingline Lender, such Lender’s Pro
Rata Percentage of such Swingline Loan or Loans. Each Revolving Lender acknowledges and
agrees that its obligation to acquire participations in Swingline Loans pursuant to this paragraph
is absolute and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or termination of the
Commitments, and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever (provided that such payment shall not cause such Lender’s
Revolving Exposure to exceed such Lender’s Commitment). Each Revolving Lender shall
comply with its obligation under this paragraph by wire transfer of immediately available funds,
in the same manner as provided in Section 2.02(f) with respect to Loans made by such Lender
(and Section 2.02 shall apply, mutatis mutandis, to the payment obligations of the Revolving
Lenders), and the Administrative Agent shall promptly pay to the Swingline Lender the amounts
so received by it from the Revolving Lenders. The Administrative Agent shall notify the Lead
Borrower of any participations in any Swingline Loan acquired pursuant to this paragraph, and
thereafter payments in respect of such Swingline Loan shall be made to the Administrative Agent
and not to the Swingline Lender. Any amounts received by the Swingline Lender from a
Borrower (or other party on behalf of a Borrower) in respect of a Swingline Loan after receipt by
the Swingline Lender of the proceeds of a sale of participations therein shall be promptly
remitted to the Administrative Agent; any such amounts received by the Administrative Agent
shall be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have
made their payments pursuant to this paragraph and to the Swingline Lender, as their interests
may appear. The purchase of participations in a Swingline Loan pursuant to this paragraph shall
not relieve the Borrowers of any default in the payment thereof.
Section 2.17 Letters of Credit.
(a)
General. Subject to the terms and conditions set forth herein, the Lead
Borrower may request the issuance of Letters of Credit for any Borrower’s account or the
account of a Subsidiary of a Borrower (and if the conditions precedent herein are met or waived
in accordance with Section 11.02(b), the Issuing Bank shall issue) in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time
during the Revolving Availability Period (provided that the Borrowers shall be co-applicants
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with respect to each Letter of Credit issued for the account of or in favor of a Subsidiary). In the
event of any inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement submitted by the
Borrowers to, or entered into by the Borrowers with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control. Notwithstanding the foregoing,
the Issuing Bank shall not be obligated to issue any Letter of Credit if any Lender is at that time a
Defaulting Lender, unless the Issuing Bank has entered into arrangements as it may elect in its
reasonable discretion, including the delivery of cash collateral, satisfactory to the Issuing Bank
(in its reasonable discretion) with the Borrowers or such Lender to eliminate the Issuing Bank’s
actual or potential Fronting Exposure (after giving effect to Section 2.15(b)(i)(D)) with respect to
the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that
Letter of Credit and all other LC Exposure as to which the Issuing Bank has actual or potential
Fronting Exposure.
(b)
Request for Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit or the amendment, renewal or
extension of an outstanding Letter of Credit, the Lead Borrower shall hand deliver or telecopy
(or transmit by electronic communication, if arrangements for doing so have been approved by
the Issuing Bank) an LC Request to the Issuing Bank and the Administrative Agent not later than
1:00 p.m. on the second Business Day preceding the requested date of issuance, amendment,
renewal or extension (or such later date and time as is reasonably acceptable to the Issuing
Bank). A request for an initial issuance of a Letter of Credit shall specify in form and detail
reasonably satisfactory to the Issuing Bank: (i) the proposed issuance date of the requested
Letter of Credit (which shall be a Business Day); (ii) the amount thereof; (iii) the expiry date
thereof; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented
by such beneficiary in case of any drawing thereunder; (vi) the full text of any certificate to be
presented by such beneficiary in case of any drawing thereunder; and (vii) such other matters as
the Issuing Bank may reasonably require. A request for an amendment, renewal or extension of
any outstanding Letter of Credit shall specify in form and detail reasonably satisfactory to the
Issuing Bank (i) the Letter of Credit to be amended, renewed or extended, (ii) the proposed date
of amendment, renewal or extension thereof (which shall be a Business Day), (iii) the nature of
the proposed amendment, renewal or extension, and (iv) such other matters as the Issuing Bank
may reasonably require. If requested by the Issuing Bank, the Borrowers also shall submit a
letter of credit application substantially on the Issuing Bank’s standard form in connection with
any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit
the Borrowers shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $50,000,000
and (ii) the total Revolving Exposures shall not exceed the Loan Cap. Unless the Issuing Bank
shall otherwise agree, no Letter of Credit shall be denominated in a currency other than Dollars.
(c)
Expiration Date. Each Letter of Credit shall expire at or prior to the close
of business on the earlier of the date which is one year after the date of the issuance of such
Letter of Credit (or such other longer period of time as the Administrative Agent and the
applicable Issuing Bank may agree and, in the case of any renewal or extension thereof, one (1)
year after such renewal or extension) and, unless cash collateralized or otherwise credit
supported to the reasonable satisfaction of the Administrative Agent and the applicable Issuing
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Bank (in which case, the expiry may extend no longer than twelve months after the Letter of
Credit Expiration Date), the Letter of Credit Expiration Date. Each Standby Letter of Credit may,
upon the request of the Lead Borrower, include a provision whereby such Letter of Credit shall
be renewed automatically for additional consecutive periods of twelve (12) months or less (but,
subject to the foregoing, not beyond the date that is after the Letter of Credit Expiration Date)
unless the applicable Issuing Bank notifies the beneficiary thereof at least thirty (30) days prior
to the then-applicable expiration date that such Letter of Credit will not be renewed.
(d)
Participations. By the issuance of a Letter of Credit (or an amendment to
a Letter of Credit increasing the amount thereof) and without any further action on the part of the
Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each
Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit
equal to such Lender’s Pro Rata Percentage of the aggregate amount available to be drawn under
such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving
Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the
account of the Issuing Bank, such Lender’s Pro Rata Percentage of each LC Disbursement made
by the Issuing Bank and not reimbursed by the Borrowers on the date due as provided in
paragraph (e) of this Section 2.17, or of any reimbursement payment required to be refunded to
the Borrowers for any reason. Each Revolving Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance whatsoever, including
any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance
of a Default or reduction or termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e)
Reimbursement. If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Borrowers shall reimburse such LC Disbursement by paying to
the Issuing Bank an amount equal to such LC Disbursement not later than 2:00 p.m., New York
City time, on the Business Day after receiving notice from the Issuing Bank of such LC
Disbursement; provided that Lead Borrower may, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 or 2.16 that such payment be financed with an
ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so
financed, the Borrowers’ obligation to make such payment shall be discharged and replaced by
the resulting ABR Revolving Borrowing or Swingline Loan. If the Borrowers fail to make such
payment when due (including through an ABR Revolving Borrowing or Swingline Loan), the
Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall notify
each Revolving Lender of the applicable LC Disbursement, the payment then due from the
Borrowers in respect thereof and such Lender’s Pro Rata Percentage thereof. Promptly
following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent
its Pro Rata Percentage of the unreimbursed LC Disbursement in the same manner as provided in
Section 2.02(f) with respect to Loans made by such Lender, and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders.
Promptly following receipt by the Administrative Agent of any payment from the Borrowers
pursuant to this paragraph, the Administrative Agent shall, to the extent that Revolving Lenders
have made payments pursuant to this paragraph to reimburse the Issuing Bank, distribute such
payment to such Lenders and the Issuing Bank as their interests may appear. Any payment made
by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
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Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as
contemplated above) shall not constitute a Loan and shall not relieve the Borrowers of their
obligation to reimburse such LC Disbursement.
(f)
Obligations Absolute. Subject to the limitations set forth below, the
obligation of the Borrowers to reimburse LC Disbursements as provided in paragraph (e) of this
Section 2.17 shall be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement,
or any term or provision therein, (ii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or other document that does not strictly comply with the terms of
such Letter of Credit, or (iv) the existence of any claim, setoff, defense or other right which a
Borrower may have at any time against a beneficiary of any Letter of Credit, or (v) any other
event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but
for the provisions of this Section 2.17, constitute a legal or equitable discharge of, or provide a
right of setoff against, the obligations of the Borrowers hereunder; provided that the Borrowers
shall have no obligation to reimburse the Issuing Bank to the extent that such payment was made
in error due to the gross negligence, bad faith, or willful misconduct of the Issuing Bank (as
determined by a court of competent jurisdiction or another independent tribunal having
jurisdiction). Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor any of
their Affiliates, shall have any liability or responsibility by reason of or in connection with the
issuance or transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any document required
to make a drawing thereunder), any error in interpretation of technical terms or any consequence
arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not
be construed to excuse the Issuing Bank from liability to the Borrowers to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which are hereby
waived by the Borrowers to the extent permitted by Applicable Law) suffered by the Borrowers
that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts
and other documents presented under a Letter of Credit comply with the terms thereof. The
parties hereto expressly agree that, in the absence of gross negligence, willful misconduct, or bad
faith on the part of the Issuing Bank (as determined by a court of competent jurisdiction or
another independent tribunal having jurisdiction), the Issuing Bank shall be deemed to have
exercised care in each such determination. In furtherance of the foregoing and without limiting
the generality thereof, the parties agree that, with respect to documents presented which appear
on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing
Bank may, in its sole discretion, either accept and make payment upon such documents without
responsibility for further investigation, regardless of any notice or information to the contrary, or
refuse to accept and make payment upon such documents if such documents are not in strict
compliance with the terms of such Letter of Credit.
(g)
Disbursement Procedures. The Issuing Bank shall, promptly following its
receipt thereof, examine all documents purporting to represent a demand for payment under a
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Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Lead
Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the
Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure
to give or delay in giving such notice shall not relieve the Borrowers of their obligation to
reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC
Disbursement (other than with respect to the timing of such reimbursement obligation set forth in
Section 2.17(e)).
(h)
Interim Interest. If the Issuing Bank shall make any LC Disbursement,
then, unless the Borrowers shall reimburse such LC Disbursement in full on the date such LC
Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that the Borrowers
reimburse such LC Disbursement, at the rate per annum then applicable to ABR Revolving
Loans; provided that, if the Borrowers fail to reimburse such LC Disbursement when due
pursuant to paragraph (e) of this Section 2.17, then Section 2.06(c) shall apply. Interest accrued
pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest
accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of
this Section 2.17 to reimburse the Issuing Bank shall be for the account of such Lender to the
extent of such payment.
(i)
Resignation or Removal of the Issuing Bank. The Issuing Bank may
resign as Issuing Bank hereunder at any time upon at least 30 days’ prior written notice to the
Lenders, the Administrative Agent and the Lead Borrower. The Issuing Bank may be replaced at
any time by written agreement among the Lead Borrower, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. One or more Revolving Lenders may be
appointed as additional Issuing Banks in accordance with subsection (k) below. The
Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing
Bank or any such additional Issuing Bank. At the time any such resignation or replacement shall
become effective, the Borrowers shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 2.05(c). From and after the effective date of any such
resignation or replacement or addition, as applicable, (i) the successor or additional Issuing Bank
shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank”
shall be deemed to refer to such successor or such addition or to any previous Issuing Bank, or to
such successor or such additional Issuing Bank and all previous Issuing Banks, as the context
shall require. After the resignation or replacement of an Issuing Bank hereunder, the replaced
Issuing Bank shall remain a party hereto until no more Letters of Credit issued by it are
outstanding and shall continue to have all the rights and obligations of an Issuing Bank under this
Agreement with respect to outstanding Letters of Credit issued by it prior to such resignation or
replacement, but shall not be required to issue additional Letters of Credit. If at any time there is
more than one Issuing Bank hereunder, the Lead Borrower may, in its discretion, select which
Issuing Bank is to issue any particular Letter of Credit.
(j)
Cash Collateralization. If any Specified Default shall occur and be
continuing, on the Business Day that the Lead Borrower receives notice from the Administrative
Agent (acting at the request of the Required Lenders) demanding the deposit of cash collateral
pursuant to this paragraph, the Borrowers shall deposit in the LC Collateral Account, in the name
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of the Administrative Agent and for the benefit of the Secured Parties, an amount in cash equal
to 103% of the LC Exposure as of such date. Each such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the obligations of the
Borrowers under this Agreement, but shall be immediately released and returned to the
Borrowers (in no event later than two (2) Business Days) once all Specified Defaults are cured or
waived. The Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account. Other than any interest earned on the
investment of such deposits, which investments shall be made only in Cash Equivalents and at
the direction of the Lead Borrower and at the Borrowers’ risk and expense, such deposits shall
not bear interest. Interest or profits, if any, on such investments shall accumulate in such
account. Moneys in such account shall be applied by the Administrative Agent to reimburse the
Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not
so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers
for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but
subject to the consent of Revolving Lenders with LC Exposure representing greater than 50% of
the total LC Exposure), be applied to satisfy other Obligations of the Borrowers.
(k)
Additional Issuing Banks. The Lead Borrower may, at any time and from
time to time with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld, delayed or conditioned) and such Lender, designate one or more
additional Lenders to act as an issuing bank under the terms of this Agreement. Any Lender
designated as an issuing bank pursuant to this paragraph (k) shall be deemed (in addition to being
a Lender) to be the Issuing Bank with respect to Letters of Credit issued or to be issued by such
Lender, and all references herein and in the other Loan Documents to the term “Issuing Bank”
shall, with respect to such Letters of Credit, be deemed to refer to such Lender in its capacity as
Issuing Bank, as the context shall require. Any Issuing Bank (other than Bank of America or any
of its Affiliates) shall notify the Administrative Agent in writing on each Business Day of all
Letters of Credit issued on the prior Business Day by such Issuing Bank, provided that (A) until
the Administrative Agent advises any such Issuing Bank that the provisions of Section 4.02 are
not satisfied, or (B) the aggregate amount of the Letters of Credit issued in any such week
exceeds such amount as shall be agreed by the Administrative Agent and the Issuing Bank, such
Issuing Bank shall be required to so notify the Administrative Agent in writing only once each
week of the Letters of Credit issued by such Issuing Bank during the immediately preceding
week as well as the daily amounts outstanding for the prior week, such notice to be furnished on
such day of the week as the Administrative Agent and such Issuing Bank may agree. The
Issuing Bank will also deliver (contemporaneously with the notification set forth in this clause
(k)) to the Lead Borrower and the Administrative Agent a true and complete copy of such Letter
of Credit or amendment.
(l)
The Issuing Bank shall be under no obligation to issue any Letter of Credit
if:
(i)
any order, judgment or decree of any Governmental Authority or
arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing
such Letter of Credit, or any law applicable to the Issuing Bank or any request or
directive (whether or not having the force of law) from any Governmental Authority with
jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain
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from, the issuance of letters of credit generally or such Letter of Credit in particular or
shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Issuing Bank is not otherwise compensated
hereunder) not in effect on the Effective Date, or shall impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the Effective Date and
which the Issuing Bank in good faith deems material to it; or
(ii)
the issuance of such Letter of Credit would violate one or more
policies of the Issuing Bank.
(m)
The Issuing Bank shall be under no obligation to amend any Letter of
Credit if (i) the Issuing Bank would have no obligation at such time to issue such Letter of Credit
in its amended form under the terms hereof, or (ii) the beneficiary of such Letter of Credit does
not accept the proposed amendment to such Letter of Credit.
Section 2.18 Determination of Borrowing Base.
(a)
Eligible Accounts. On any date of determination of the Borrowing Base,
all of the Accounts owned by all Loan Parties and reflected in the most recent Borrowing Base
Certificate delivered by the Lead Borrower to the Co-Collateral Agents and the Administrative
Agent shall be “Eligible Accounts” for the purposes of this Agreement, except any Account to
which any of the exclusionary criteria set forth below applies. In addition, the Co-Collateral
Agents reserve the right, at any time and from time to time after the Effective Date, to adjust any
of the criteria set forth below, to establish new criteria with respect to Eligible Accounts and to
adjust the advance rates in its Permitted Discretion, subject to the approval of the Required
Lenders in the case of adjustments, new criteria or increases in advance rates which have the
effect of making more credit available than would have been available if the standards in effect
on the Effective Date had continued to be in effect:
Eligible Accounts shall not include any of the following Accounts:
(i)
any Account in which the Administrative Agent, on behalf of the
Secured Parties, does not have a first priority (except, to the extent of Liens permitted
under Section 6.02(a) hereof) perfected Lien;
(ii)
any Account that is not owned by a Loan Party;
(iii) any Account due from an Account Debtor that is not domiciled in
the United States or Canada and (if not a natural person) organized under the laws of the
United States or Canada or any political subdivision thereof to the extent such Accounts
(to the extent all such foreign Accounts exceed $2,000,000 in the aggregate) are not
backed by a letter of credit or credit insurance to the extent such insurance has been
assigned to the Administrative Agent;
(iv)
any Account that is payable in any currency other than Dollars or,
with the establishment of appropriate foreign currency reserves established by the CoCollateral Agents, Canadian Dollars;
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(v)
any Account that does not arise from the sale of goods or the
performance of services by such Loan Party in the ordinary course of its business;
(vi)
any Account that does not comply in all material respects with all
applicable legal requirements, including, without limitation, all laws, rules, regulations
and orders of any Governmental Authority;
(vii) any Account (A) upon which a Loan Party’s right to receive
payment is contingent upon the fulfillment of any condition whatsoever unless such
condition is satisfied or (B) as to which a Loan Party is not able to bring suit or otherwise
enforce its remedies against the Account Debtor through judicial or administrative
process, (C) that represents a progress billing consisting of an invoice for goods sold or
used or services rendered pursuant to a contract under which the Account Debtor’s
obligation to pay that invoice is subject to a Loan Party’s completion of further
performance under such contract or is subject to the equitable lien of a surety bond issuer,
or (D) any Account that arises with respect to goods that are delivered on a bill-and-hold,
cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by
reason of which the payment by the Account Debtor is or may be conditional except that
Accounts arising from sales which are on a cash-on-delivery basis (to the extent such
cash-on-delivery is in the ordinary course of business) shall not be deemed ineligible
pursuant to this Section 2.18(a)(vii) until 14 days after the shipment of the goods relating
thereto;
(viii) to the extent that any defense, counterclaim, setoff or dispute is
asserted as to such Account, it being understood that the remaining balance of the
Account shall be eligible;
(ix)
any Account that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Account for merchandise sold to or services
rendered and accepted by the applicable Account Debtor;
(x)
any Account with respect to which an invoice or other electronic
transmission constituting a request for payment, reasonably acceptable to the
Administrative Agent in form and substance, has not been sent on a timely basis to the
applicable Account Debtor according to the normal invoicing and timing procedures of
the Loan Parties;
(xi)
any Account that arises from a sale to any director, officer, other
employee or Affiliate of a Loan Party, or to any entity that has any common officer or
director with a Loan Party;
(xii) any Account that is in default; provided that, without limiting the
generality of the foregoing, an Account shall be deemed in default upon the occurrence of
any of the following:
1)
any Account not paid within the date that is more than 60
days past due according to its original terms of sale; or
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2)
the Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors or fails to pay its
debts generally as they come due; or
3)
a petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other federal, state
or foreign (including any provincial) receivership, insolvency relief or other law
or laws for the relief of debtors; provided that so long as an order exists
permitting payment of trade creditors specifically with respect to such Account
Debtor and such Account Debtor has obtained adequate post-petition financing to
pay such Accounts, the Accounts of such Account Debtor shall not be deemed
ineligible under the provisions of this clause (3) to the extent the order permitting
such financing allows the payment of the applicable Account;
(xiii) any Account that is the obligation of an Account Debtor (other
than an individual) if 50% or more of the dollar amount of all Accounts owing by such
Account Debtor are ineligible under the criteria set forth in Section 2.18(a)(xii);
(xiv) any Account as to which any of the representations or warranties in
the Loan Documents are untrue in any material respect (to the extent such materiality
relates to the amount owing on such Account);
(xv) to the extent such Account is evidenced by a judgment, Instrument
or Chattel Paper and such Instrument or Chattel Papers is not pledged and delivered to
the Administrative Agent under the Security Documents;
(xvi) any Account on which the Account Debtor is a Governmental
Authority, unless the applicable Loan Party has assigned its rights to payment of such
Account to the Administrative Agent pursuant to the Assignment of Claims Act of 1940,
as amended, in the case of a federal Governmental Authority, and pursuant to Applicable
Law, if any, in the case of any other Governmental Authority, and such assignment has
been accepted and acknowledged by the appropriate government officers; and
(xvii) any Account arising on account of a supplier rebate or a customer
rebate.
(b)
Eligible Inventory. For purposes of this Agreement, Eligible Inventory
shall exclude any Inventory to which any of the exclusionary criteria set forth below applies.
The Co-Collateral Agents shall have the right to establish, modify or eliminate Reserves against
Eligible Inventory from time to time in its Permitted Discretion. In addition, the Co-Collateral
Agents reserve the right, at any time and from time to time after the Effective Date, to adjust any
of the criteria set forth below, to establish new criteria with respect to Eligible Inventory and to
adjust advance rates, in its Permitted Discretion, subject to the approval of the Required Lenders
in the case of adjustments, new criteria or increases in the advance rates which have the effect of
making more credit available then would have been available if the standards in effect on the
Effective Date had continued to be in effect. Eligible Inventory shall not include any Inventory
of the Loan Parties that:
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(i)
is not solely owned by a Loan Party, or is leased by or is on
consignment to a Loan Party, or the Loan Parties do not have title thereto;
(ii)
the Administrative Agent, on behalf of the Secured Parties, does
not have a first priority (except, such Liens as permitted by Section 6.02(a) or (g) hereof)
perfected Lien upon;
(iii) (A)
is stored at a location where the aggregate value of
Inventory exceeds $1,000,000 unless the Co-Collateral Agents have given their prior
consent thereto or unless either (x) a reasonably satisfactory Landlord Lien Waiver and
Access Agreement has been delivered to the Administrative Agent, or (y) Landlord Lien
Reserves reasonably satisfactory to the Co-Collateral Agents have been established with
respect thereto, or (B) is stored with a bailee or warehouseman where the aggregate value
of the Inventory exceeds $1,000,000 unless either (x) a reasonably satisfactory
acknowledged bailee waiver letter has been received by the Administrative Agent (it
being acknowledged and agreed that all bailee waivers received on or prior to the
Effective Date are reasonably satisfactory to the Co-Collateral Agents), or (y) Landlord
Lien Reserves reasonably satisfactory to the Co-Collateral Agents have been established
with respect thereto;
(iv)
(A)
is placed on consignment, unless a valid consignment
agreement which is reasonably satisfactory to the Co-Collateral Agents is in place with
respect to such Inventory, and for which the Loan Parties have taken such actions as are
required by the UCC or other Applicable Law to perfect their consignment liens on such
Inventory and which liens and security interests have been assigned to the Administrative
Agent pursuant to Applicable Law, or (B) is in transit (except to the extent (x) purchased
under documentary Letters of Credit, is in transit (1) from any location in the United
States for receipt by a Loan Party within fifteen (15) days of the date of determination or
(2) any location outside of the United States for receipt by a Loan Party within 60 days of
the date of determination), for which the document of title, to the extent applicable,
reflects a Loan Party as consignee (along with delivery to a Loan Party of the documents
of title, to the extent applicable, with respect thereto), and as to which the Administrative
Agent has control over the documents of title, to the extent applicable, which evidence
ownership of the subject Inventory, or (y) in transit between locations leased, owned or
occupied by a Loan Party;
(v)
is covered by a negotiable document of title, unless such document
has been delivered to the Administrative Agent with all necessary endorsements, free and
clear of all Liens except Liens in favor of landlords, carriers, bailees and warehousemen
if clause (ii) has been complied with;
(vi)
is to be returned to suppliers;
(vii) is obsolete, unsalable, shopworn, seconds, damaged or unfit for
sale as determined in the ordinary course of business by the Loan Parties;
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(viii) consists of display items or packing or shipping materials,
manufacturing supplies, work-in-process Inventory or replacement parts;
(ix)
is not of a type held for sale in the ordinary course of the Loan
Parties’, as applicable, business;
(x)
except as otherwise agreed by the Co-Collateral Agents, does not
conform in all material respects to the representations or warranties pertaining to
Inventory set forth in the Loan Documents;
(xi)
is subject to any licensing arrangement the effect of which would
be to limit the ability of the Administrative Agent, or any Person selling the Inventory on
behalf of the Administrative Agent, to sell such Inventory in enforcement of the
Administrative Agent’s Liens, without further consent or payment to the licensor or such
other Person (unless such consent has then been obtained);
(xii)
Section 5.04; or
is not covered by casualty insurance maintained as required by
(xiii) is acquired in a Permitted Acquisition, unless (A) such Inventory is
of a similar type as other than Eligible Inventory, and (B) the Administrative Agent shall
have received or conducted (1) within 45 days after the consummation of the Permitted
Acquisition, appraisals, from appraisers reasonably satisfactory to the Administrative
Agent, of such Inventory to be acquired in such Acquisition and (2) prior to the
consummation of such Permitted Acquisition, a commercial finance examination and
such other due diligence as the Administrative Agent may reasonably require in order to
determine the appropriate advance rate against such Inventory, all of the results of the
foregoing to be reasonably satisfactory to the Co-Collateral Agents. As long as the
Administrative Agent has received reasonable prior notice of such Permitted Acquisition
and the Loan Parties reasonably cooperate (and cause the Person being acquired to
reasonably cooperate) with the Administrative Agent, the Administrative Agent shall use
reasonable best efforts to complete such due diligence and commercial finance
examination on or prior to the closing date of such Permitted Acquisition.
Section 2.19 Increase in Commitments.
(a)
Provided that no Default or Event of Default then exists or would arise
therefrom, upon notice to the Administrative Agent, the Lead Borrower, on behalf of the
Borrowers, may from time to time, request an increase in the Commitments of all Revolving
Lenders in a minimum amount of no less than $10,000,000 or $1,000,000 multiples in excess
thereof; provided, however, that the aggregate increases of the Commitments requested by the
Lead Borrower shall not exceed $75,000,000. At the time of sending notice of such request to
the Revolving Lenders, the Lead Borrower (in consultation with the Administrative Agent) shall
specify the time period within which each Revolving Lender is requested to respond (which shall
in no event be less than ten Business Days from the date of delivery of such notice to the
Revolving Lenders). If requested to respond, each Revolving Lender in its sole and absolute
discretion shall notify the Administrative Agent within such time period whether or not it agrees
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to increase its Commitment and, if so, whether by an amount equal to, greater than, or less than
its Pro Rata Percentage of such requested increase. Any Revolving Lender not responding
within such time period shall be deemed to have declined to increase its Commitment. The
Administrative Agent shall notify the Lead Borrower and each Revolving Lender of the
Revolving Lenders’ responses to each request made hereunder. If the Revolving Lenders do not
agree to the full amount of a requested increase, the Lead Borrower may then invite additional
financial institutions (solely to the extent otherwise permitted by Section 11.04) to become
Revolving Lenders pursuant to a Joinder Agreement.
(b)
If the aggregate Commitments are increased in accordance with this
Section 2.19, the Administrative Agent and the Lead Borrower shall determine the effective date
(the “Increase Effective Date”) and the final allocation of such increase. The Administrative
Agent shall promptly notify the Lead Borrower and the Revolving Lenders of the final allocation
of such increase and the Increase Effective Date. As a condition precedent to such increase, the
Borrowers shall deliver to the Administrative Agent (i) an Officers’ Certificate of the Borrowers
dated as of the Increase Effective Date certifying and attaching the resolutions adopted
approving or consenting to such increase and certifying that, before and after giving effect to
such increase, the representations and warranties contained in Article III are true and correct in
all material respects (without duplication of any materiality standard set forth in any such
representation or warranty) on and as of the Increase Effective Date (except to the extent that
such representation or warranty relates to an earlier date, in which case such representation and
warranty shall be true in all material respects (without duplication of any materiality standard set
forth in any such representation or warranty) on and as of such date) and no Default or Event of
Default exists, and (ii) a Certificate of a Financial Officer demonstrating pro forma compliance
with Section 6.08 (if applicable) immediately after giving effect to such increase. The Borrowers
shall deliver new or amended Notes reflecting the increased Commitment of any Revolving
Lender requesting a Note. The Administrative Agent shall distribute an amended Annex I
(which shall be deemed incorporated into this Agreement) to reflect any changes therein
resulting from such increase. The Borrowers shall prepay any Revolving Loans outstanding on
the Increase Effective Date (and pay any additional amounts required pursuant to Section 2.12)
to the extent necessary to keep the outstanding Revolving Loans ratable with any revised Pro
Rata Percentages arising from any nonratable increase in the Commitments under this Section
2.19, provided, that with the consent of each directly affected Revolving Lender (which consent
may be verbal or electronic transmission) such amount or any portion thereof may be settled on a
net basis with each Revolving Lender having a new or nonratable increase in its Commitment
funding its Pro Rata Percentages of the principal amount of the Revolving Loans outstanding on
the Increase Effective Date with such amounts applied on behalf of the Borrowers to reduce the
outstanding Revolving Loans of Revolving Lenders whose Revolving Loans outstanding exceed
their revised Pro Rata Percentages of the aggregate Revolving Loans outstanding as a result of
such increased aggregate Commitments. The Borrowers shall pay to each such Revolving
Lender any amounts required pursuant to Section 2.12 together with interest on such amounts
paid as if such Revolving Lender received such prepayment directly from the Borrowers. Any
such increase made pursuant to this Section 2.19 shall be on the same terms and conditions as
apply to the Revolving Lenders with respect to all other Revolving Loans, except that the
Borrowers will pay such fees to MLPFS and the Revolving Lenders furnishing such increase as
the Lead Borrower, MLPFS and such Revolving Lenders may then agree.
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(c)
This Section 2.19 shall supersede any provisions in Section 11.02 to the
contrary.
Section 2.20 Reserves; Changes to Reserves.
(a)
The Availability Reserves as of the Effective Date are the following:
(i)
Landlord Lien Reserve: An amount equal to two (2) months’ rent
for all of the Borrowers’ leased locations in each Landlord Lien State, other than leased
locations with respect to which the Administrative Agent has received a landlord’s
waiver or subordination of lien in form reasonably satisfactory to the Co-Collateral
Agents (it being acknowledged and agreed that all landlord’s waivers or subordination of
lien received on or prior to the Effective Date are reasonably satisfactory to the CoCollateral Agents).
(ii)
Devaluation Reserve: An amount equal to one percent (1%) of the
Cost of Eligible Inventory.
(b)
Either Co-Collateral Agent may hereafter establish additional Reserves or
change any of the foregoing Reserves, in its Permitted Discretion, provided that, such Reserves
shall not be established or changed except upon not less than six (6) Business Days notice to the
Borrowers (during which period such Co-Collateral Agent shall be available to discuss any such
proposed Reserve with the Lead Borrower).
Section 2.21 Designation of the Lead Borrower as the Borrowers’ Agent.
(a)
Each Borrower hereby irrevocably designates and appoints the Lead
Borrower as such Borrower’s agent to obtain Revolving Loans, Swingline Loans and Letters of
Credit, the proceeds of which shall be available to each Borrower for such uses as are permitted
under this Agreement. As the disclosed principal for its agent, each Borrower shall be obligated
to the Administrative Agent and each Lender on account of Revolving Loans or Swingline Loans
so made and Letters of Credit so issued as if made directly by the Lenders to such Borrower,
notwithstanding the manner by which such Revolving Loans, Swingline Loans and Letters of
Credit are recorded on the books and records of the Lead Borrower and of any other Borrower.
(b)
Each Borrower represents to the Lenders that it is an integral part of a
consolidated enterprise, and that each Loan Party will receive direct and indirect benefits from
the availability of the joint credit facility provided for herein, and from the ability to access the
collective credit resources of the consolidated enterprise which the Loan Parties comprise. Each
Borrower recognizes that credit available to it hereunder is in excess of and on better terms than
it otherwise could obtain on and for its own account and that one of the reasons therefor is its
joining in the credit facility contemplated herein with all other Borrowers. Consequently, each
Borrower hereby assumes and agrees to discharge all Obligations of each of the other Borrowers
as if the Borrower which is so assuming and agreeing were each of the other Borrowers.
(c)
The Lead Borrower shall act as a conduit for each Borrower (including
itself, as a Borrower) on whose behalf the Lead Borrower has requested a Revolving Loan or
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Swingline Loan. None of the Agents nor any other Lender shall have any obligation to see to the
application of such proceeds.
(d)
The authority of the Lead Borrower to request Revolving Loans,
Swingline Loans and Letters of Credit on behalf of, and to bind, the Borrowers, shall continue
unless and until the Administrative Agent actually receives written notice of: (i) the termination
of such authority, and (ii) the subsequent appointment of a successor the Lead Borrower, which
notice is signed by the respective Financial Officers of each Borrower; and (iii) written notice
from such successive Lead Borrower accepting such appointment and acknowledging that from
and after the date of such appointment, the newly appointed Lead Borrower shall be bound by
the terms hereof, and that as used herein, the term “Lead Borrower” shall mean and include the
newly appointed Lead Borrower.
Section 2.22 Settlement Amongst Lenders
(a)
The Swingline Lender may, at any time (but, in any event shall weekly),
on behalf of the Borrowers (which hereby authorize the Swingline Lender to act on their behalf
in that regard) request the Administrative Agent to cause the Revolving Lenders to make a
Revolving Loan (which shall be a Prime Rate Loan) in an amount equal to such Lender’s Pro
Rata Percentage of the outstanding amount of Swingline Loans, which request may be made
regardless of whether the conditions set forth in Article IV have been satisfied. Upon such
request, each Revolving Lender shall make available to the Administrative Agent the proceeds of
such Revolving Loan for the account of the Swingline Lender. If the Swingline Lender requires
a Revolving Loan to be made by the Revolving Lenders and the request therefor is received prior
to 12:00 Noon on a Business Day, such transfers shall be made in immediately available funds
no later than 3:00 p.m. that day; and, if the request therefor is received after 12:00 Noon, then no
later than 3:00 p.m. on the next Business Day. The obligation of each such Revolving Lender to
transfer such funds is irrevocable, unconditional and without recourse to or warranty by the
Administrative Agent or the Swingline Lender. If and to the extent any Revolving Lender shall
not have so made its transfer to the Administrative Agent, such Revolving Lender agrees to pay
to the Administrative Agent, forthwith on demand, such amount, together with interest thereon,
for each day from such date until the date such amount is paid to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in
accordance with banking industry rules on interbank compensation.
(b) The amount of each Lender’s Pro Rata Percentage of outstanding Revolving
Loans (including outstanding Swingline Loans) shall be computed weekly (or more frequently in the
Administrative Agent’s discretion) and shall be adjusted upward or downward based on all Revolving
Loans (including Swingline Loans), as applicable, and repayments of Revolving Loans (including
Swingline Loans), as applicable, received by the Administrative Agent as of 3:00 p.m. on the first
Business Day (such date, the “Settlement Date”) following the end of the period specified by the
Administrative Agent.
(c) The Administrative Agent shall deliver to each of the Lenders promptly after a
Settlement Date a summary statement of the amount of outstanding Revolving Loans (including
Swingline Loans) for the period and the amount of repayments received for the period. As reflected
on the summary statement, (i) the Administrative Agent shall transfer to each Lender its applicable Pro
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Rata Percentage of repayments, and (ii) each Lender shall transfer to the Administrative Agent (as
provided below) or the Administrative Agent shall transfer to each Lender, such amounts as are
necessary to insure that, after giving effect to all such transfers, the amount of Revolving Loans, as
applicable, made by each Lender with respect to Revolving Loans (including Swingline Loans) to the
Borrowers shall be equal to such Lender’s applicable Pro Rata Percentage of Revolving Loans
(including Swingline Loans), as applicable, outstanding as of such Settlement Date. If the summary
statement requires transfers to be made to the Administrative Agent by the Lenders and is received
prior to 12:00 Noon on a Business Day, such transfers shall be made in immediately available funds
no later than 3:00 p.m. that day; and, if received after 12:00 Noon, then no later than 3:00 p.m. on the
next Business Day. The obligation of each Lender to transfer such funds is irrevocable, unconditional
and without recourse to or warranty by the Administrative Agent. If and to the extent any Lender shall
not have so made its transfer to the Administrative Agent, such Lender agrees to pay to the
Administrative Agent, forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Administrative Agent, at the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with
banking industry rules on interbank compensation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Administrative Agent, the Co-Collateral
Agents, the Issuing Bank and each of the Lenders that:
Section 3.01 Organization; Powers. Each Loan Party (a) is duly organized and validly
existing under the laws of the jurisdiction of its organization, (b) has all requisite power and
authority to carry on its business as now conducted and to own and lease its Property and (c) is
qualified and in good standing (to the extent such concept is applicable in the applicable
jurisdiction) to do business in every jurisdiction where such qualification is required, except in
each case where the failure to have such power and authority, to so qualify or be in good
standing, individually or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect.
Section 3.02 Authorization; Enforceability. The Transactions to be entered into by
each Loan Party are within such Loan Party’s corporate powers and have been duly authorized
by all necessary corporate action. This Agreement has been duly executed and delivered by each
Loan Party and constitutes, and each other Loan Document to which any Loan Party is to be a
party, when executed and delivered by such Loan Party, will constitute, a legal, valid and
binding obligation of such Loan Party, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’
rights generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
Section 3.03 Governmental Approvals; No Conflicts. Except as set forth on Schedule
3.03, the Transactions (a) do not require any consent or approval of, registration or filing with, or
any other action by, any Governmental Authority, except (i) such as have been obtained or made
and are in full force and effect, (ii) filings necessary to perfect Liens created under the Loan
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Documents and enforce the rights of the Lenders and Secured Parties under the Loan
Documents, and (iii) consents, approvals, registrations, filings or actions the failure of which to
obtain or perform would not reasonably be expected to result in a Material Adverse Effect, (b)
will not violate (i) any order of any Governmental Authority, except to the extent such violation
would not reasonably be expected to result in a Material Adverse Effect, or (ii) the charter, bylaws or other organizational documents of any Loan Party, (c) will not violate, result in a default
(with due notice, lapse of grace period or both) or require any consent or approval under any
Applicable Law or other instrument with respect to Material Indebtedness and binding upon any
Loan Party or its assets, or give rise to a right thereunder to require any payment to be made by
any Loan Party, except for violations, defaults or the creation of such rights that would not
reasonably be expected to result in a Material Adverse Effect, and (d) will not result in the
creation or imposition of any Lien on any Property of any Loan Party, except Liens created
under the Loan Documents and the Term Loan Documents.
Section 3.04 Financial Statements.
(a)
The Lead Borrower has heretofore furnished to the Lenders the unaudited
consolidated balance sheets and related statements of income, stockholders’ equity and cash
flows of the Borrowers (i) as of and for the fiscal year ended December 29, 2012, and (ii) as of
and for the fiscal month ended February 2, 2013 and for the comparable period of the preceding
fiscal year, in each case, certified by the chief financial officer of the Lead Borrower. Such
financial statements have been prepared in accordance with GAAP consistently applied and
present fairly and accurately in all material respects the financial condition and results of
operations and cash flows of Consolidated Companies, as of such dates and for such periods
subject, in the case of the quarterly financial statements, to year-end audit adjustment and the
absence of footnotes.
(b)
Since the date of the audited financial statements last delivered pursuant
Section 5.01(a), there has been no event, change or occurrence that, individually or in the
aggregate, has had or would reasonably be expected to result in a Material Adverse Effect.
Section 3.05 Properties.
(a)
Each Loan Party has good title to, or valid leasehold interests in or the
right to use, all its Property material to its business, except for defects that individually or in the
aggregate would not be reasonably expected to result in a Material Adverse Effect. Title to all
such Property held by such Loan Party is free and clear of all Liens except for Permitted Liens.
The Property of the Loan Party, taken as a whole, is in normal operating order, condition and
repair (ordinary wear and tear and damages by casualty or condemnation excepted) (except to the
extent that the failure to be in such condition would not reasonably be expected to result in a
Material Adverse Effect).
(b)
Schedule 3.05 contains a true and complete list of each interest in Real
Property owned by any Loan Party as of the date hereof and describes the type of interest therein
held by such Loan Party. Schedule 3.05 contains a true and complete list of each parcel of Real
Property leased, or subleased by any Loan Party, as lessee, sublessee, franchisee or licensee, as
of the date hereof and describes the type of interest therein held by such Loan Party.
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(c)
Each Loan Party owns, or is licensed to use, all Intellectual Property of
such Loan Party, except for those the failure to own or have a license to use which, individually
or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. To
the knowledge of the Loan Parties, no claim has been asserted and is pending by any Person
challenging the use of any such Intellectual Property or the validity or enforceability of any such
Intellectual Property, (except for such claims and infringements that would not reasonably be
expected to result in a Material Adverse Effect). The use of such Intellectual Property by each
Loan Party does not infringe the rights of any Person, except for such claims of infringement
that, would not reasonably be expected to result in a Material Adverse Effect.
Section 3.06 Equity Interests and Subsidiaries. Schedule 3.06 sets forth a list of (i) all
the Loan Parties and their jurisdiction of organization as of the Effective Date and (ii) the
number of shares of each class of its Equity Interests authorized, and the number outstanding
(and the record holder of such Equity Interests) of such Loan Party and its Subsidiaries, on the
Effective Date and the number of shares covered by all outstanding options, warrants, rights of
conversion or purchase and similar rights at the Effective Date. To the knowledge of the Loan
Parties, all Equity Interests of each Subsidiary are duly and validly issued and are fully paid and
non-assessable (to the extent applicable) and, except with respect to the Lead Borrower, or as
otherwise permitted hereby, are owned by the Lead Borrower, directly or indirectly through
Wholly Owned Subsidiaries. Except as set forth on Schedule 3.06, each Loan Party is the record
and beneficial owner of, and has good and legal title to, the Equity Interests pledged by it under
the Security Agreement, free of any and all Liens, except the security interest created by the
Security Agreement and Permitted Liens, and there are no outstanding warrants, options or other
rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to,
or Property that is convertible into, or that requires the issuance or sale of, any such Equity
Interests.
Section 3.07 Litigation; Compliance with Laws.
(a)
Except as set forth on Schedule 3.07(a), there are no actions, suits or
proceedings at law or in equity by or before any Governmental Authority now pending or, to the
knowledge of any Loan Party, threatened in writing against any Loan Party or any business,
Property or rights of any such Person (i) that involve any Loan Document or the Transactions or
(ii) as to which there is a reasonable likelihood of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to result in a Material
Adverse Effect.
(b)
Except as set forth on Schedule 3.07(b) and except for matters covered by
Section 3.17, no Loan Party or any of its Property is in violation of, nor will the continued
operation of their Property as currently conducted violate, any Requirements of Law (including
any zoning or building ordinance, code or approval or any building permits) or any restrictions of
record with respect to the Real Property or is in default with respect to any judgment, writ,
injunction, decree or order of any Governmental Authority, where such violation or default
would reasonably be expected to result in a Material Adverse Effect.
Section 3.08 Material Indebtedness. Each Loan Party is in compliance with all Material
Indebtedness, and no event of default has occurred and is continuing thereunder, except where
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the failure to comply or the existence of a default, individually or in the aggregate, would not
reasonably be expected to result in a Material Adverse Effect.
Section 3.09 Federal Reserve Regulations.
(a)
No Loan Party is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of buying or carrying Margin Stock.
(b)
No part of the proceeds of any Loan or any Letter of Credit will be used,
whether directly or indirectly, and whether immediately, incidentally or ultimately, for any
purpose that entails a violation of, the provisions of the regulations of the Board, including
Regulation T, U or X. The pledge of the Securities Collateral pursuant to the Security
Agreement does not violate such regulations.
Section 3.10 Investment Company Act.
No Loan Party is required to be registered as an “investment company” or a company
“controlled” by an “investment company” as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended.
Section 3.11 Taxes.
Each Loan Party has (a) timely filed (including any grace period) or caused to be timely
filed all federal Tax Returns and all other material Tax Returns and all such Tax Returns are true
and correct in all material respects and has (b) duly and timely paid (including all grace periods
or caused to be duly and timely paid including all grace periods), all Taxes (whether or not
shown on any Tax Return) due and payable by it and all assessments received by it, except Taxes
(i) that are being contested in good faith by appropriate proceedings and for which such Loan
Party shall have set aside on its books adequate reserves in accordance with GAAP and as to
which no Lien has arisen, or (ii) which would not, individually or in the aggregate, have a
Material Adverse Effect; provided that any such contest of Taxes with respect to Collateral shall
also satisfy the Contested Collateral Lien Conditions.
Section 3.12 No Material Misstatements. None of any written information, report,
financial statement, exhibit or schedule (other than forecasts, projections, budgets or forward
looking statements) furnished by or on behalf of any Loan Party to the Administrative Agent or
any Lender in connection with the negotiation of any Loan Document or included therein or
delivered pursuant thereto, concerning the Consolidated Companies, when taken as a whole,
contained, contains or will contain any material misstatement of fact or omission, omits or will
omit to state any material fact necessary to make the statements therein, in the light of the
circumstances under which they were, are or will be made, not materially misleading as of the
date such information is dated or certified (as modified or supplemented by other information so
furnished). With respect to any forecasts, projections, budgets or forward looking statements
concerning the Loan Parties, the Loan Parties represent that they acted in good faith and utilized
assumptions believed by the Loan Parties to be reasonable at the time of the preparation thereof.
It is acknowledged and agreed by the Agents and each Lender that the projections, budgets, or
forward looking statements are subject to uncertainties and contingencies beyond the Loan
Parties’ (or their Affiliates’ control), and no assurances are given that the results forecast in the
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projections, budgets, or forward looking statements will be realized and actual results may differ
from the forecast results set forth in the projections, budgets, or forward looking statements and
such differences may be material.
Section 3.13 Labor Matters. As of the date hereof and the Effective Date, there are no
strikes, lockouts or slowdowns against any Loan Party pending or, to the knowledge of any Loan
Party, threatened except to the extent such strikes, lockouts or slowdowns would not reasonably
be expected to result in a Material Adverse Effect. The hours worked by and payments made to
employees of any Loan Party have not been in violation of the Fair Labor Standards Act or any
other applicable federal, state, local or foreign law dealing with such matters in any manner
which could reasonably be expected to result in a Material Adverse Effect. All payments due
from any Loan Party, or for which any claim may be made against any Loan Party, on account of
wages and employee health and welfare insurance and other benefits, have been paid or accrued
as a liability on the books of such Loan Party except where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect. The consummation of the
Transactions will not give rise to any right of termination or right of renegotiation on the part of
any union under any collective bargaining agreement to which any Loan Party is bound except to
the extent such right of termination or renegotiation would not reasonably be expected to result
in a Material Adverse Effect.
Section 3.14 Solvency. Immediately after the consummation of the Transactions to
occur on the Effective Date and immediately following the making of each Loan and after giving
effect to the application of the proceeds of each Loan, taking into account rights of contribution
against or reimbursement from other Loan Parties, (a) the fair value of the assets (on a going
concern basis) of the Loan Parties on a consolidated basis with their Subsidiaries will exceed
their debts and liabilities, subordinated, contingent or otherwise; (b) the present fair saleable
value (on a going concern basis) of the Property of the Loan Parties on a consolidated basis with
their Subsidiaries will be greater than the amount that will be required to pay the probable
liability of its debts and other liabilities, subordinated, contingent or otherwise, as such debts and
other liabilities become absolute and matured; (c) the Loan Parties on a consolidated basis with
their Subsidiaries will be generally able to pay their debts and liabilities, subordinated,
contingent or otherwise, as such debts and liabilities become absolute and matured; and (d) the
Loan Parties on a consolidated basis with their Subsidiaries will not have unreasonably small
capital with which to conduct its business in which it is engaged as such business is now
conducted and is proposed to be conducted following the Effective Date.
Section 3.15 Employee Benefit Plans. Except to the extent it would not reasonably be
expected to result in a Material Adverse Effect, each Loan Party is in compliance in all material
respects with the applicable provisions of ERISA and the Code and the regulations and published
interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur
that, when taken together with all other such ERISA Events, would reasonably be expected to
result in a Material Adverse Effect. The present value of all accumulated benefit obligations of
all underfunded Plans (based on the assumptions used for purposes of the most recent actuarial
report prepared by such Plan’s actuaries) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed the fair market value of the assets of all such
underfunded Plans by an amount that would reasonably be expected to result in a Material
Adverse Effect.
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Section 3.16 Environmental Matters.
(a)
Except as set forth in Schedule 3.16 or except as, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse Effect:
(i)
The Loan Parties and their businesses, operations and Real
Property are in compliance with Environmental Law;
(ii)
The Loan Parties have obtained all Environmental Permits required
for the conduct of their businesses and operations, and the ownership, operation and use
of their assets, under Environmental Law, all such Environmental Permits are valid and
in good standing and, under the currently effective business plan of the Loan Parties;
(iii) There has been no Release or threatened Release of Hazardous
Material on, at, under or from any real property or facility presently or formerly owned,
leased or operated by the Loan Parties or their predecessors in interest that could result in
liability of the Loan Parties under Environmental Law; and
(iv)
There is no Environmental Claim pending or, to the knowledge of
the Loan Parties, threatened against the Loan Parties, or relating to the real property
currently or, to the actual knowledge of the Loan Parties, formerly owned, leased or
operated by the Loan Parties or relating to the operations of the Loan Parties, and to the
actual knowledge of the Loan Parties there are no actions, activities, circumstances,
conditions, events or incidents that could form the basis of such an Environmental Claim.
(b)
Except as set forth in Schedule 3.16 or as would not reasonably be
expected to result in a Material Adverse Effect:
(i)
No Loan Party is obligated to perform any action or otherwise
incur any expense under Environmental Law pursuant to any order, decree, judgment or
agreement by which it is bound or has assumed by contract or agreement, and no Loan
Party is conducting or financing any Response pursuant to any Environmental Law with
respect to any Real Property or any other location;
(ii)
To each Loan Party’s knowledge, no Real Property or facility
owned, operated or leased by the Loan Parties and, to the knowledge of the Loan Parties,
no real property or facility formerly owned, operated or leased by the Loan Parties or any
of their predecessors in interest is (i) listed or proposed for listing on the National
Priorities List promulgated pursuant to CERCLA or (ii) listed on the Comprehensive
Environmental Response, Compensation and Liability Information System promulgated
pursuant to CERCLA or (iii) included on any similar list maintained by any
Governmental Authority including, without limitation, any such list relating to petroleum;
(iii) No Lien has been recorded or, to the knowledge of any Loan Party,
threatened under any Environmental Law with respect to any Real Property or assets of
the Loan Parties;
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(iv)
The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby will not require any
notification, registration, filing, reporting, disclosure, investigation, remediation or
cleanup pursuant to any Environmental Law; and
(v)
The Loan Parties have made available to Lenders all material
reports and assessments in the possession, custody or control of, or otherwise reasonably
available to, the Loan Parties concerning compliance with or liability under
Environmental Law including, without limitation, those concerning the existence of
Hazardous Material at real property or facilities currently or formerly owned, operated,
leased or used by the Loan Parties.
Section 3.17 Insurance. Schedule 3.17 sets forth a true, complete and correct
description of all insurance maintained by each Loan Party as of the Effective Date. As of each
such date, each insurance policy listed on Schedule 3.17 is in full force and effect and all
premiums have been duly paid to the extent then due. Each Loan Party has insurance in such
amounts and covering such risks and liabilities as are customary for companies of similar size
engaged in similar businesses with similar risk factors.
Section 3.18 Security Documents.
(a)
The Security Agreement is effective to create in favor of the
Administrative Agent for the benefit of the Secured Parties, a legal, valid and enforceable
(except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights
and except to the extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding therefor may be
brought) security interest in and Lien on the Security Agreement Collateral (to the extent such
perfection may be obtained under the New York law) and, when (i) financing statements and
other filings in appropriate form are filed in the offices specified on Schedule 7 to the Perfection
Certificate and (ii) upon the taking of possession or control by the Administrative Agent of the
Security Agreement Collateral with respect to which a security interest may be perfected only by
possession or control (which possession or control shall be given to the Administrative Agent to
the extent possession or control by the Administrative Agent is required by each Security
Agreement), the Lien created by the Security Agreement shall constitute a fully perfected Lien
on, and security interest in, all right, title and interest of the grantors thereunder in the Security
Agreement Collateral (other than the Intellectual Property and motor vehicles to the extent the
UCC is not applicable to perfection and priority of such Intellectual Property and motor
vehicles), in each case subject to no Liens other than Permitted Liens.
(b)
When the Security Agreement or a short form thereof is filed (including
the payment of the appropriate fees) in the United States Patent and Trademark Office and the
United States Copyright Office, the Lien created by such Security Agreement shall constitute a
fully perfected Lien on, and security interest in, all right, title and interest of the grantors
thereunder in the Intellectual Property, in each case subject to no Liens other than Permitted
Liens.
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(c)
To the extent any Mortgage is duly executed and delivered after the
Effective Date by the relevant Loan Party, such Mortgage will be effective to create, in favor of
the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable
(except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights
and except to the extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding therefor may be
brought) Lien on and security interest in all of the Loan Parties’ right, title and interest in and to
the Mortgaged Real Properties thereunder and the proceeds thereof, and when the Mortgages are
filed in the offices specified in the local counsel opinion delivered with respect thereto in
accordance with the provisions of Sections 5.11 and 5.12, the Mortgages shall constitute fully
perfected Liens on, and security interests in, all right, title and interest of the Loan Parties in the
Mortgaged Real Properties and the proceeds thereof, in each case prior and superior in right to
any other Person, other than Permitted Liens under Section 6.02(aa) hereof and Permitted Liens
having priority by operation of Applicable Law.
(d)
Each Security Document delivered pursuant to Sections 5.11 and 5.12
will, upon execution and delivery thereof, be effective to create in favor of the Administrative
Agent, for the benefit of the Secured Parties, a legal, valid and enforceable (except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting generally the enforcement of creditors’ rights and except to
the extent that availability of the remedy of specific performance or injunctive relief is subject to
the discretion of the court before which any proceeding therefor may be brought) security
interest in and Lien on all of the Loan Parties’ right, title and interest in and to the Collateral
thereunder (to the extent such perfection may be obtained under the New York law), and when
all (i) appropriate filings or recordings are made in the appropriate offices as may be required
under Applicable Law, and (ii) possession or control (which possession or control shall be given
to the Administrative Agent to the extent possession or control by the Administrative Agent is
required by each Security Agreement) of the Collateral thereunder is obtained by the
Administrative Agent to the extent required by Applicable Law, such Security Document will
constitute a fully perfected Lien on, and security interest in, all right, title and interest of the
Loan Parties in such Collateral, in each case subject to no Liens other than Permitted Liens.
Section 3.19 Supply Agreements. As of the Effective Date, except as set forth on
Schedule 3.19 hereof, the Loan Parties and their Subsidiaries have no written licensing or supply
contracts with their Inventory and raw materials suppliers.
ARTICLE IV
CONDITIONS TO CREDIT EXTENSIONS
Section 4.01 Conditions to Initial Credit Extension. The obligation of each Lender and,
if applicable, each Issuing Bank to fund the initial Credit Extension requested to be made by it
shall be subject to the prior or concurrent satisfaction (or waiver) of each of the conditions
precedent set forth in this Section 4.01.
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(a)
Loan Documents. All legal matters incident to this Agreement, the
Borrowings and extensions of credit hereunder and the other Loan Documents shall be
reasonably satisfactory to the Lenders, to the Issuing Bank and to the Administrative Agent and
there shall have been delivered to the Administrative Agent an executed counterpart (including
by telecopy or electronic pdf) of each of the Loan Documents, including this Agreement, the
Security Documents and each other applicable Loan Document.
(b)
Corporate Documents. The Administrative Agent shall have received:
(i)
a certificate of an officer of each Loan Party dated the Effective
Date and certifying (A) that attached thereto is a true and complete copy of the certificate
or articles of incorporation or other constitutive documents, including all amendments
thereto certified as of a recent date by the Secretary of State of the state of its
organization, (B) that attached thereto is a true and complete copy of the by-laws or
limited liability company agreement, as applicable, of such Loan Party as in effect on the
Effective Date and at all times since a date prior to the date of the resolutions described in
clause (C) below, (C) that attached thereto is a true and complete copy of resolutions duly
adopted by the Board of Directors or Board of Managers, as applicable, of such Loan
Party authorizing the execution, delivery and performance of the Loan Documents to
which such Person is a party and, in the case of the Borrowers, the borrowings hereunder,
and that such resolutions have not been modified, rescinded or amended and are in full
force and effect, (D) as to the incumbency and specimen signature of each officer
executing any Loan Document or any other document delivered in connection herewith
on behalf of such Loan Party (together with a certificate of another officer as to the
incumbency and specimen signature of the officer executing the certificate in this clause
(i)); and
(ii)
a long form certificate as to the good standing of each Loan Party
as of a recent date, from such Secretary of State of such Loan Party’s jurisdiction of
organization.
(c)
Officers’ Certificate. The Administrative Agent shall have received a
certificate, dated the Effective Date and signed by the Chief Executive Officer or the Chief
Financial Officer of the Lead Borrower, confirming compliance with the conditions precedent set
forth in Section 4.01 and paragraphs (b) and (c) of Section 4.02 and certifying as to the solvency
of the Borrowers.
(d)
Opinions of Counsel. The Administrative Agent shall have received, on
behalf of itself, the other Agents, the Arranger, the Lenders and the Issuing Bank, a written
opinion of Sheppard Mullin Richter & Hampton LLP, special counsel for the Loan Parties,
substantially to the effect set forth in Exhibit J (A) dated the Effective Date, (B) addressed to the
Agents, the Issuing Bank and the Lenders and (C) covering such other matters relating to the
Loan Documents as the Administrative Agent shall reasonably request.
(e)
Term Facility. The Loan Parties shall have entered into the Term Facility
on terms reasonably satisfactory to the Administrative Agent (including that the stated maturity
date of the Term Facility shall be not less than ninety (90) days following the Maturity Date), and
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received the gross proceeds of the Term Loans in an amount not less than $100,000,000, and the
Administrative Agent shall have received a counterpart of the Intercreditor Agreement, signed by
the agent or lenders under the Term Facility and acknowledged by the Loan Parties party thereto.
(f)
Redemption of Senior Notes. The Senior Notes (as defined in the Existing
Credit Agreement) shall have been tendered and repaid or defeased in full or arrangements
satisfactory to the Administrative Agent therefor shall have been made.
(g)
Requirements of Law. The Lenders shall be satisfied that the Transactions
shall be in full compliance with all material Requirements of Law, including without limitation
Regulations T, U and X of the Board.
(h)
Consents. The Lenders shall be satisfied that all requisite Governmental
Authorities and third parties consents have been obtained except for those that, individually or in
the aggregate, would not be reasonably expected to have a Material Adverse Effect, and there
shall be no governmental or judicial action, actual or threatened, that has or would have, singly
or in the aggregate, a reasonable likelihood of restraining, preventing or imposing burdensome
conditions on the Transactions or the other transactions contemplated hereby.
(i)
Litigation. There shall be no litigation, public or private, or administrative
proceedings, governmental investigation or other legal or regulatory developments, actual or
threatened, that, singly or in the aggregate, could reasonably be expected to result in a Material
Adverse Effect, or could materially and adversely affect the ability of the Loan Parties to fully
and timely perform their respective obligations under the Loan Documents, or the ability of the
parties to consummate the financings contemplated hereby or the other Transactions.
(j)
Fees. MLPFS and the Administrative Agent shall have received all Fees
and other invoiced amounts due and payable on or prior to the Effective Date, including, to the
extent invoiced, reimbursement or payment of all reasonable out-of-pocket expenses (including
the reasonable legal fees and out-of-pocket expenses of commercial finance examiners and
appraisers, of Riemer & Braunstein, LLP, special counsel to the Administrative Agent, and the
reasonable fees and out-of-pocket expenses of any necessary local counsel) required to be
reimbursed or paid by the Borrowers hereunder or under any other Loan Document. All
Commitment Fees accrued prior to the Effective Date under the Existing Credit Agreement shall
have been paid.
(k)
Personal Property Requirements. To the extent not previously delivered,
the Administrative Agent shall have received (or the Term Agent, as agent for the Administrative
Agent under the Intercreditor Agreement shall have received):
(i)
all certificates, agreements or instruments representing or
evidencing the Pledged Equity Interests and the Pledged Notes (each as defined in the
Security Agreement) accompanied by instruments of transfer and stock powers endorsed
in blank shall have been delivered to the Administrative Agent (or the Term Agent, as
agent for the Administrative Agent under the Intercreditor Agreement);
(ii)
all other certificates, agreements, including control agreements, or
instruments necessary to perfect the Administrative Agent’s security interest in all
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Chattel Paper, all Instruments, all Deposit Accounts and all Investment Property of each
Loan Party (as each such term is defined in the Security Agreement and to the extent
required by Section 3.3 of the Security Agreement);
(iii) UCC Financing Statements in appropriate form for filing under the
UCC, filings with the United States Patent, Trademark and Copyright offices and such
other documents under applicable Requirements of Law in each jurisdiction as may be
reasonably necessary to perfect the Liens created, or purported to be created, by the
Security Documents; and
(iv)
certified copies of UCC, tax and judgment lien searches,
bankruptcy and pending lawsuit searches or equivalent reports or searches, each of a
recent date listing all effective financing statements, lien notices or comparable
documents that name any Loan Party as debtor and that are filed in those state and county
jurisdictions in which any Loan Party is organized or maintains its principal place of
business and such other searches that the Administrative Agent deems necessary, none of
which encumber the Collateral covered or intended to be covered by the Security
Documents (other than those relating to Liens under the Existing Credit Agreement or
Permitted Liens).
(l)
Financial Statements. The Administrative Agent shall have received and
shall be reasonably satisfied with unaudited drafts of the Borrower’s financial statements for the
fiscal year ending December 29, 2012 and interim financial statements for the month ended
February 2, 2013.
(m)
Insurance. The Administrative Agent shall have received a certificate as
to coverage under, the insurance policies required by Section 5.04 and the applicable provisions
of the Security Documents, each of which shall be endorsed or otherwise amended to include a
“standard” or “New York” lender’s loss payable endorsement, to the extent available, and to
name the Administrative Agent as additional insured, in form and substance reasonably
satisfactory to the Administrative Agent.
(n)
Borrowing Base Certificate. The Administrative Agent and the CoCollateral Agents shall have received a Borrowing Base Certificate, dated as of March 27, 2013,
2013.
(o)
Cash Management. To the extent not previously delivered, the
Administrative Agent shall have received executed blocked account agreements (from all of the
financial institutions where the Loan Parties maintain bank accounts other than petty cash
accounts funded in the ordinary course of business, the deposits in which shall not aggregate
more than $3,000,000 or exceed $75,000 with respect to any one account (or in each case, such
greater amounts to which the Administrative Agent may agree), and payroll, trust and tax
withholding accounts funded in the ordinary course of business and required by Applicable
Law).
(p)
Excess Availability. On the Effective Date, following the initial Credit
Extensions, Excess Availability shall not be less than $30,000,000.
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(q)
No Material Adverse Effect. No event shall have occurred after December
31, 2011 that could reasonably be expected to have a material adverse effect on the condition
(financial or otherwise), operations, assets, or income of the Loan Parties.
(r)
Patriot Act Compliance. There shall have been delivered to the Agents
and the Arrangers all documentation and other information reasonably requested by them that is
required by regulatory authorities under applicable “know your customer” and anti-money
laundering rules and regulations, including the Act (as defined in Section 11.15 below).
Section 4.02 Conditions to All Credit Extensions. The obligation of each Lender and
each Issuing Bank to make any Credit Extension (including the initial Credit Extension) shall be
subject to, and to the satisfaction (or waiver) of, each of the conditions precedent set forth below.
(a)
Notice. The Administrative Agent shall have received a Borrowing
Request as required by Section 2.03 (or such notice shall have been deemed given in accordance
with Section 2.03) if Loans are being requested or, in the case of the issuance, amendment,
extension or renewal of a Letter of Credit, the Issuing Bank and the Administrative Agent shall
have received a notice requesting the issuance, amendment, extension or renewal of such Letter
of Credit as required by Section 2.17(b) or, in the case of the Borrowing of a Swingline Loan, the
Swingline Lender and the Administrative Agent shall have received a notice requesting such
Swingline Loan as required by Section 2.16(b).
(b)
No Default. No Default shall have occurred and be continuing on such
date or after giving effect to the Credit Extension requested to be made on such date.
(c)
Representations and Warranties. Each of the representations and
warranties made by any Loan Party set forth in Article III hereof or in any other Loan Document
shall be true and correct in all material respects (without duplication of any materiality standard
set forth in any such representation or warranty) on and as of the date of such Credit Extension
with the same effect as though made on and as of such date, except to the extent such
representations and warranties expressly relate to an earlier date, in which case such
representations and warranties shall be true and correct in all material respects as of such date
(without duplication of any materiality standard set forth in any such representation or warranty).
(d)
No Legal Bar. No order, judgment or decree of any Governmental
Authority shall purport to restrain any Lender from making any Loans to be made by it. No
injunction or other restraining order shall have been issued or shall be pending with respect to
any action, suit or proceeding seeking to enjoin or otherwise prevent the making of Loans
hereunder.
ARTICLE V
AFFIRMATIVE COVENANTS
Each Loan Party covenants and agrees with each Lender that so long as this Agreement
shall remain in effect and until the Commitments have been terminated and the principal of and
interest on each Loan, all Fees and all other expenses or amounts payable under any Loan
Document shall have been paid in full (other than contingent indemnity obligations to the extent
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no claim giving rise thereto has been asserted) and all Letters of Credit have been canceled,
expired, been fully cash collateralized or backstopped and all amounts drawn thereunder have
been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each
Loan Party will and will cause each of its Subsidiaries to:
Section 5.01 Financial Statements and Non-Collateral Reports, etc. In the case of the
Lead Borrower, furnish to the Administrative Agent (for further delivery to each Lender):
(a)
Annual Reports. Within 100 days after the end of each fiscal year, the
consolidated balance sheet of the Lead Borrower (or, in the case of a Future Holding
Company, the Future Holding Company) as of the end of such fiscal year and related
consolidated statements of income, cash flows and stockholders’ equity for such fiscal
year, and notes thereto and accompanied by an opinion of PricewaterhouseCoopers LLP
or other public accounting firm of recognized national standing (which opinion shall not
be qualified as to (A) scope or going concern, or (B) any other qualification unless such
qualification is reasonably acceptable to the Administrative Agent), stating that such
financial statements fairly present, in all material respects, the consolidated financial
condition, results of operations, cash flows (on a consolidated basis) and changes in
stockholders’ equity of the Consolidated Companies as of the end of and for such fiscal
year in accordance with GAAP;
(b)
Quarterly Reports. Within 50 days after the end of each of the first three
fiscal quarters of each fiscal year the consolidated balance sheet of the Lead Borrower
(or, in the case of a Future Holding Company, the Future Holding Company) as of the
end of such fiscal quarter and related consolidated statements of income and cash flows
for such fiscal quarter and for the then elapsed portion of the fiscal year, in comparative
form with the consolidated statements of income and cash flows for the comparable
periods in the previous fiscal year, and notes thereto and accompanied by a certificate of
a Financial Officer stating that such financial statements fairly present, in all material
respects, the consolidated financial condition, results of operations and cash flows (on a
consolidated basis) of the Consolidated Companies as of the date and for the periods
specified in accordance with GAAP consistently applied, and on a basis consistent with
audited financial statements referred to in clause (a) of this Section 5.01, subject to
normal year-end audit adjustments and the absence of footnotes;
(c)
Monthly Reports. Within 30 days (but with respect to the month ending
March 2, 2013, within 50 days) after the end of the first two months of each fiscal
quarter, (i) the consolidated statements of income and cash flows of the Lead Borrower
(or, in the case of a Future Holding Company, the Future Holding Company) for such
month and for the then elapsed portion of the fiscal year, in comparative form with the
consolidated statements of income and cash flows for the comparable periods in the
previous fiscal year, accompanied by a certificate of a Financial Officer stating that such
financial statements fairly present, in all material respects, the consolidated results of
operations and cash flows of the Consolidated Companies as of the date and for the
periods specified in accordance with GAAP consistently applied, subject to normal yearend audit adjustments and the absence of footnotes, and (ii) such reports as are prepared
by the Loan Parties’ management for their own use, including the Consolidated balance
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sheet and related statements of operations, and Consolidated statements of cash flows for
the Borrowers and their Subsidiaries, as of the end of and for such fiscal month and the
elapsed portion of the fiscal year, setting forth in each case, in comparative form the
Consolidated figures for the previous fiscal year and its budgeted results of operations
and cash flows;
(d)
Financial Officer’s Certificate. (i) Concurrently with any delivery of
financial statements under (A) paragraphs (a), (b) or (c) above, a certificate of a Financial
Officer of the Lead Borrower certifying that no Default has occurred or, if such a Default
has occurred, specifying the nature and extent thereof and any corrective action taken or
proposed to be taken with respect thereto and (B) paragraphs (a) and (b) above, (1) a
certificate of a Financial Officer of the Lead Borrower certifying that the financial
statements delivered in clauses (a) or (b) above have been prepared in accordance with
GAAP consistently applied; and (2) a Compliance Certificate;
(e)
Management Letters. Promptly after the receipt thereof by any Loan
Party, a copy of any final “management letter” received by any such Person from its
certified public accountants and the management’s responses thereto;
(f)
Budgets. No later than 60 days after the first day of each fiscal year of the
Loan Parties, a budget in form reasonably satisfactory to the Administrative Agent
prepared by the Lead Borrower for each fiscal month of such fiscal year for the Lead
Borrower and its Subsidiaries prepared in reasonable detail, of any Future Holding
Company, if applicable, the Borrowers and their Subsidiaries, with appropriate
presentation and discussion of the principal assumptions upon which such budgets are
based;
(g)
Other Information. Promptly, from time to time, such other information
regarding the operations, business affairs and financial condition of any Loan Party, or
compliance with the terms of any Loan Document, as the Administrative Agent may
reasonably request (other than information which is subject to an attorney-client privilege
or would result in a breach of a confidentiality obligation of the Loan Parties to any other
Person).
Section 5.02 Litigation and Other Notices. In the case of the Lead Borrower, furnish to
the Administrative Agent prompt written notice of the following upon a Responsible Officer
obtaining knowledge thereof:
(a)
any Default, specifying the nature and extent thereof and the corrective
action (if any) taken or proposed to be taken with respect thereto;
(b)
the filing or commencement of, or any notice of intention of any Person to
file or commence, any action, suit or proceeding, whether at law or in equity by or before
any Governmental Authority, (i) against any Loan Party that, if adversely determined,
would reasonably be expected to result in a Material Adverse Effect or (ii) with respect to
any Loan Document;
(c)
any development that has resulted in a Material Adverse Effect;
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(d)
the occurrence of a Casualty Event involving any portion of Collateral
having a value in excess of $1,000,000 in the aggregate;
(e)
any threatened indictment by any Governmental Authority or any Loan
Party as to which such Loan Party receives knowledge or written notice, under any
applicable criminal law; and
(f)
the occurrence of any other event which would materially decrease the
value of the Collateral.
Section 5.03 Existence; Businesses and Properties.
(a)
Do or cause to be done all things necessary to preserve, renew and keep in
full force and effect its legal existence, except as otherwise expressly permitted under Section
6.05 or, in the case of any Subsidiary, where the failure to perform such obligations, individually
or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
(b)
(i)
Do or cause to be done all things reasonably necessary to obtain,
preserve, renew, extend and keep in full force and effect the Intellectual Property material to the
conduct of its business except to the extent to do or cause such things would not reasonably be
expected to result in a Material Adverse Effect; (ii) maintain and operate its business in
substantially the manner in which it is presently conducted and operated (or which are
substantially related thereto, a reasonable extension thereof or ancillary or complementary
businesses); (iii) comply with all applicable Requirements of Law (including any and all zoning,
building, Environmental Law, ordinance, code or approval or any building permits or any
restrictions of record or agreements affecting the Real Property) and decrees and orders of any
Governmental Authority, whether now in effect or hereafter enacted, except where the failure to
comply, individually or in the aggregate, would not reasonably be expected to result in a
Material Adverse Effect; and at all times maintain and preserve all tangible Property material to
the conduct of such business and keep such Property in substantially the same condition as of the
date hereof and from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times, except to the extent
failure to so maintain such Property would not reasonably be expected to result in a Material
Adverse Effect; provided that nothing in this Section 5.03(b) shall prevent (i) sales of assets,
consolidations, mergers, liquidations or dissolutions by or involving any Company in accordance
with Section 6.05; (ii) the withdrawal by any Company of its qualification as a foreign
corporation in any jurisdiction where such withdrawal, individually or in the aggregate, would
not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by
any Company of any Intellectual Property that such Person reasonably determines are not
necessary to the conduct of the Consolidated Companies’ businesses taken as a whole.
Section 5.04 Insurance.
(a)
Keep its insurable Property adequately insured at all times by financially
sound and reputable insurers (provided that the Loan Parties shall not be deemed to breach this
provision if, after their insurer becomes unsound or irreputable, the Lead Borrower promptly and
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diligently obtains adequate insurance from an alternative carrier) (or, to the extent consistent
with prudent business practice, a program of self-insurance); maintain such other insurance, to
such extent and against such risks, including fire and other risks insured against by extended
coverage, as is customary with companies in the same or similar businesses operating in the
same or similar locations and with similar insurable risk factors, or as determined by the
Responsible Officer of the Loan Parties, including public liability insurance against claims for
personal injury or death or Property damage occurring upon, in, about or in connection with the
use of any Property owned, occupied or controlled by it; and maintain such other insurance as
may be required by law; and, with respect to the Collateral, otherwise maintain all insurance
coverage required under each applicable Security Document. The Administrative Agent
acknowledges that the insurance policies described on Schedule 3.18 are satisfactory to it as of
the Effective Date and are in compliance with the provisions of this Section 5.04.
(b)
All such insurance shall, to the extent available, (i) provide that no
cancellation, material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Administrative Agent of written notice thereof,
(ii) name the Administrative Agent as mortgagee (in the case of property insurance) or additional
insured (in the case of liability insurance) or loss payee (in the case of casualty insurance), as
applicable and (iii) if reasonably requested by the Administrative Agent, include a breach of
warranty clause.
(c)
Notify the Administrative Agent promptly whenever any separate
insurance concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 5.04 is taken out by any Loan Party; and promptly deliver to the
Administrative Agent duplicate original copies of such policy or policies.
(d)
Obtain flood insurance in such total amount as the Administrative Agent
or the Required Lenders may from time to time reasonably require, if at any time the area in
which any improvements located on any real property covered by a Mortgage is designated a
“flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency
Management Agency (or any successor agency), and otherwise comply with the National Flood
Insurance Program as set forth in the Flood Disaster Protection Act of 1975, as amended from
time to time.
(e)
Deliver to the Administrative Agent a report of a reputable insurance
broker with respect to such insurance and such supplemental reports with respect thereto as the
Administrative Agent may from time to time reasonably request (absent the occurrence and
continuation of an Event of Default, no more than one time in any fiscal year).
Section 5.05 Obligations and Taxes.
Discharge promptly when due all Taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or in respect of its Property, before the same shall
become delinquent or in default; provided that such payment and discharge shall not be required
with respect to any such Tax, assessment, charge, levy or claim so long as (i)(A) the validity or
amount thereof shall be contested in good faith by appropriate proceedings, (B) the applicable
Loan Party shall have set aside on its books adequate reserves with respect thereto in accordance
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with GAAP and (C) such contest operates to suspend collection of the contested obligation, Tax,
assessment or charge and enforcement of a Lien and, in the case of Collateral, the applicable
Loan Party shall have otherwise complied with the Contested Collateral Lien Conditions or (ii)
the failure to make payment, individually or in the aggregate, would not reasonably be expected
to result in a Material Adverse Effect.
Section 5.06 Physical Inventories. At their own expense, shall cause cycle counts of its
Inventory to be conducted at such times and following such methodology as is consistent with
past practices. Following the completion of such cycle counts, the Borrowers shall promptly
adjust their perpetual inventory reporting system and general ledgers, if and to the extent
necessary to reflect the results of such cycle counts.
Section 5.07 Maintaining Records; Access to Properties and Inspections. Keep proper
books and records and accounts in which full, true and correct entries in conformity in all
material respects with GAAP and all Requirements of Law are made of all material dealings and
transactions in relation to its business and activities. Each Loan Party will permit any
representatives designated by the Administrative Agent (including, without limitation, any
Lender desiring to accompany representatives of the Administrative Agent) to visit and inspect
the financial records and the Property of such Loan Party at reasonable times during normal
business hours with reasonable prior notice and to make extracts from and copies of such
financial records, and permit any representatives designated by the Administrative Agent to
discuss the affairs, finances and condition of any Loan Party with the officers thereof and
independent accountants therefor (other than information which is subject to an attorney-client
privilege or would result in a breach of a confidentiality obligation of the Loan Parties to any
other Person); provided, however, that (x) the Borrowers shall only be required to pay the
reasonable fees and out-of-pocket expenses for one examination and one inventory appraisal per
calendar year unless average daily Excess Availability is less than thirty-five percent (35%) of
the Loan Cap for any consecutive thirty (30) day period, in which event the Borrowers shall be
required to pay the reasonable fees and out-of-pocket expenses for two examinations and two
inventory appraisals in any twelve month period, and (y) a representative of the Lead Borrower
shall be given the opportunity to be present for any communication with the independent
accountants. In addition, the Administrative Agent may undertake (a) additional field
examinations and inventory appraisals at the Loan Parties’ expense if a Specified Default exists,
and (b) one field examination and one inventory appraisal in any twelve month period, at the
Administrative Agent’s expense at such times as the Administrative Agent may request. Without
limiting the foregoing provisions of this Section 5.07, if and when requested by the Lead
Borrower (which request may not be made more than one occasion during any twelve month
period), and without limiting the Administrative Agent’s rights set forth herein, the
Administrative Agent shall undertake a field examination and/or an inventory appraisal, at the
Loan Parties’ expense.
Section 5.08 Use of Proceeds. Use the proceeds of the Loans and request the issuance
of Letters of Credit only for the following purposes: payment of a portion of the amount
necessary to redeem the Senior Notes (as defined in the Existing Credit Agreement), working
capital; payment of Indebtedness, and general corporate purposes (including Permitted
Acquisitions and other purposes), in each case not prohibited by this Agreement or by
Applicable Law.
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Section 5.09 Compliance with Environmental Laws; Environmental Reports.
(a)
(i)
Comply in all material respects with all Environmental Laws and
Environmental Permits applicable to its operations and Real Property; (ii) obtain and renew all
material Environmental Permits applicable to its operations and Real Property; and (iii) conduct
any Response required pursuant to Environmental Laws, except in each case with respect to
clauses (i), (ii) and (iii) where failure to do so would reasonably be expected to result in a
Material Adverse Effect; provided that no Loan Party shall be required to undertake any
Response to the extent that its obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect to such circumstances in
accordance with GAAP.
(b)
If an Event of Default caused by reason of a breach of Section 3.16 or
Section 5.09(a) shall have occurred and be continuing for more than 30 days without the Loan
Parties commencing activities reasonably likely to cure such Event of Default, at the written
request of the Required Lenders through the Administrative Agent, provide to the Lenders within
45 days after such written request, at the expense of the Borrowers, an environmental assessment
report regarding the matters which are the subject of such default, including where appropriate,
any soil and/or groundwater sampling, prepared by an environmental consulting firm and in the
form and substance reasonably acceptable to the Administrative Agent and indicating, where
appropriate in light of the subject matter of the request, the presence or absence of Hazardous
Materials and the estimated cost of any compliance or Response to address them.
Section 5.10 Future Holding Company. In the event that the stockholders of the Lead
Borrower desire to create a Future Holding Company to own directly 100% of the Equity
Interests of the Lead Borrower, such stockholders shall cause the Future Holding Company to,
simultaneously with the transfer of the Equity Interests of the Lead Borrower to the Future
Holding Company, (a) execute a Joinder Agreement or such comparable documentation and a
joinder agreement to the Security Agreement in the form annexed thereto which is in form and
substance reasonably satisfactory to the Administrative Agent, (b) take all actions necessary in
the reasonable opinion of the Administrative Agent to cause the Lien created by the Security
Agreement to be duly perfected to the extent required by such agreement in accordance with all
applicable Requirements of Law, including, without limitation, the filing of financing statements
under the UCC in such jurisdictions as may be reasonably requested by the Administrative
Agent, (c) deliver to the Administrative Agent the certificates representing 100% of the Equity
Interests of the Lead Borrower, together with undated stock powers or other appropriate
instruments of transfer executed and delivered in blank by a duly authorized officer of the Future
Holding Company, and (iv) deliver to the Administrative Agent such legal opinions, certificates
and other documents as are reasonably requested by the Administrative Agent.
Section 5.11 Additional Collateral; Additional Guarantors.
(a)
Subject to this Section 5.11, with respect to any Property (other than
leasehold interests), acquired after the Effective Date by a Borrower or any other Loan Party that
is intended to be subject to the Lien created by any of the Security Documents but is not so
subject (but, in any event, excluding any Property described in paragraph (b) of this subsection)
promptly (and in any event within 30 days after the acquisition thereof provided Administrative
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Agent has provided all joinder agreements to the applicable Security Documents necessary for
the Loan Parties to comply herewith): (i) execute and deliver to the Administrative Agent such
amendments or supplements to the relevant Security Documents or such other documents as the
Administrative Agent shall deem necessary to grant to the Administrative Agent, for the benefit
of the Secured Parties, a Lien on such Property subject to no Liens other than Permitted Liens,
and (ii) take all actions necessary to cause such Lien to be duly perfected to the extent required
by such Security Document in accordance with all applicable Requirements of Law, including,
without limitation, the filing of financing statements in such jurisdictions as may be reasonably
requested by the Administrative Agent. The Loan Parties shall otherwise take such actions and
execute and/or deliver to the Administrative Agent such documents as the Administrative Agent
shall reasonably require to confirm the validity, perfection and priority (subject to Permitted
Liens having priority over the Lien of the Administrative Agent under Applicable Law) of the
Lien of the Security Documents against such after-acquired properties or assets.
(b)
With respect to any Person that is or becomes a Wholly Owned Subsidiary
(other than any Immaterial Subsidiary or Foreign Subsidiary that is not a direct Subsidiary of a
Loan Party) promptly (and in any event within 30 days after such Person becomes a Subsidiary
provided the Administrative Agent has provided all joinder agreements to the applicable Security
Documents necessary for the Loan Parties to comply herewith) (i) deliver to the Administrative
Agent (or to the Term Agent, as agent for the Administrative Agent under the Intercreditor
Agreement) the certificates, if any, representing the Equity Interests of such Subsidiary (provided
that with respect to any first-tier Foreign Subsidiary of a Borrower or a Subsidiary organized in a
State of the United States, in no event shall more than 65% of the Equity Interests of any Foreign
Subsidiary be subject to any Lien or pledged under any Security Document), together with
undated stock powers or other appropriate instruments of transfer executed and delivered in
blank by a duly authorized officer of such Subsidiary’s parent, as the case may be, and all
intercompany notes owing from such Subsidiary to any Loan Party together with instruments of
transfer executed and delivered in blank by a duly authorized officer of such Subsidiary to the
extent required to be delivered pursuant to the Security Documents, and (ii) cause such new
Subsidiary (other than any Foreign Subsidiary) (A) to execute a Joinder Agreement or such
comparable documentation to become a Loan Party (except that no Foreign Subsidiary shall
become a Borrower hereunder) and a joinder agreement to the Security Agreement in the form
annexed thereto which is in form and substance reasonably satisfactory to the Administrative
Agent, and (B) to take all actions necessary or advisable in the reasonable opinion of the
Administrative Agent to cause the Lien created by the Security Agreement to be duly perfected
to the extent required by such agreement in accordance with all applicable Requirements of Law,
including, without limitation, the filing of financing statements in such jurisdictions as may be
reasonably requested by the Administrative Agent.
(c)
Each Loan Party will promptly grant to the Administrative Agent, within
60 days of the acquisition thereof, a security interest in and Mortgage Lien on each owned parcel
of such Loan Party as is acquired by such Loan Party after the Effective Date that, together with
any improvements thereon, individually has a fair market value of at least $1,000,000, as
additional security for the Obligations (unless the subject Property is already mortgaged to a
third party (other than to the Term Loan Agent) to the extent permitted by Section 6.02). Such
Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and
substance to the Administrative Agent and shall constitute valid and enforceable (subject to
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applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’
rights generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law) perfected Liens subject only to Permitted Liens or other Liens
reasonably acceptable to the Administrative Agent. The Mortgages or instruments related
thereto shall be duly recorded or filed in such manner and in such places as are required by law
to establish, perfect, preserve and protect the Liens in favor of the Administrative Agent required
to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in
connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions as
the Administrative Agent shall reasonably require, including, without limitation, delivering a
Title Policy, a survey and local counsel opinion (in form and substance reasonably satisfactory to
the Administrative Agent) in respect of such Mortgage) and, if obtained by the Loan Parties with
respect to any property subject to a Mortgage, deliver to the Administrative Agent an
environmental site assessment prepared by a qualified firm with respect to such property.
Section 5.12 Security Interests; Further Assurances. Each Loan Party shall, promptly
upon the reasonable request of the Administrative Agent, at the Borrowers’ expense, execute,
acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and
thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate
governmental office, any document or instrument supplemental to or confirmatory of the
Security Documents or otherwise deemed by the Administrative Agent reasonably necessary or
desirable for the continued validity, perfection and priority of the Liens on the Collateral covered
thereby superior to and prior to the rights of all third Persons other than the holders of Prior
Liens and subject to no other Liens except Permitted Liens (to the extent permitted by the
Security Documents), or use commercially reasonable efforts to obtain any consents, including,
without limitation, landlord or similar lien waivers and consents, as may be necessary or
appropriate in connection therewith to the extent Collateral located at such location is valued in
excess of $1,000,000. Each Loan Party shall deliver or cause to be delivered to the
Administrative Agent from time to time such other documentation, consents, authorizations,
approvals and orders in form and substance reasonably satisfactory to the Administrative Agent
as the Administrative Agent shall reasonably deem necessary to perfect or maintain the Liens on
the Collateral pursuant to the Security Documents. Notwithstanding, for purposes of Intellectual
Property, the Loan Parties shall not have any obligation to perfect the Administrative Agent’s
interest in Intellectual Property outside the United States under any Security Document. Upon
the exercise by the Administrative Agent, the Co-Collateral Agents or the Lenders of any power,
right, privilege or remedy pursuant to any Loan Document which requires any consent, approval,
registration, qualification or authorization of any Governmental Authority execute and deliver all
applications, certifications, instruments and other documents and papers that the Administrative
Agent, the Co-Collateral Agents or the Lenders may be so required to obtain. If the
Administrative Agent, the Co-Collateral Agents or the Required Lenders determine that they are
required by law or regulation to have appraisals prepared in respect of the Real Property of any
Loan Party constituting Collateral, the Lead Borrower shall provide to the Administrative Agent
appraisals that satisfy the applicable requirements of the Real Estate Appraisal Reform
Amendments of FIRREA and are otherwise in form and substance reasonably satisfactory to the
Administrative Agent.
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Section 5.13 Information Regarding Collateral.
The Loan Parties shall furnish to the Administrative Agent prompt written notice of any
change (i) in any Loan Party’s corporate name, (ii) in the location of any Loan Party’s chief
executive office, its principal place of business, any office in which it maintains books or records
relating to Collateral owned by it or any office or facility at which Collateral owned by it is
located (including the establishment of any such new office or facility), (iii) in any Loan Party’s
identity or corporate structure, (iv) in any Loan Party’s Federal Taxpayer Identification Number
or (v) in any Loan Party’s jurisdiction of organization. The Borrowers agree not to effect or
permit any change referred to in the preceding sentence unless all filings have been made under
the UCC or otherwise that are required in order for the Administrative Agent to continue at all
times following such change to have a valid, legal and perfected security interest in all the
Collateral.
Section 5.14 Post-Closing Collateral Matters. Notwithstanding anything to the contrary
contained herein or in any other Loan Document, execute and deliver the documents and
complete the tasks set forth on Schedule 5.14, in each case within the time limits specified on
such schedule (or such longer period as the Administrative Agent may agree).
Section 5.15 Borrowing Base-Related Reports. The Lead Borrower shall deliver or
cause to be delivered (at the expense of the Borrowers) to the Administrative Agent (for further
delivery to each Lender) and the Co-Collateral Agents, (a) in no event less frequently than ten
(10) Business Days after the end of each fiscal month for the fiscal month most recently ended,
unless the Lead Borrower elects to so deliver more frequently (provided that the Lead Borrower
has delivered to the Administrative Agent and the Co-Collateral Agents a roll forward
calculation of the Borrowing Base, and Excess Availability from the time period covered by the
delivery of the monthly Borrowing Base Certificate), a Borrowing Base Certificate accompanied
by a calculation of the Borrowers’ and its Subsidiaries’ marked-to-market exposure under each
Hedging Agreement, together with such supporting detail and documentation as shall be
requested by the Administrative Agent or any Co-Collateral Agent in its reasonable credit
judgment; provided that (i) upon the occurrence and during the continuance of a Specified
Default or (ii) at any time that Excess Availability is less than the greater of (x) $25,000,000 and
(y) twelve and one-half percent (12.5%) of the Loan Cap, in each case, such Borrowing Base
Certificate shall be furnished on Wednesday of each week (or, if Wednesday is not a Business
Day, on the next succeeding Business Day), as of the close of business on the immediately
preceding Saturday until such Specified Default is no longer continuing or until Excess
Availability is greater than or equal to the greater of (x) $25,000,000 and (y) twelve and one-half
percent (12.5%) of the Loan Cap for 15 consecutive days, at which time Borrowing Base
Certificates will again be furnished only monthly, and (b) such other information regarding the
Borrowing Base or the Collateral, as the Administrative Agent or any Co-Collateral Agent may
reasonably request.
The delivery of the Borrowing Base Certificate pursuant to this Section 5.15 shall
constitute a representation and warranty by the Lead Borrower that the statements and
information contained therein are true and correct in all material respects on and as of such date.
Upon receipt of the Borrowing Base Certificate, Administrative Agent shall distribute such
Borrowing Base Certificate to the Lenders.
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Section 5.16 Borrowing Base Verification; Inventory Appraisals. After reasonable
prior notice to the Lead Borrower (unless and Event of Default then exists in which case no such
prior notice shall be required), any of the Administrative Agent’s or any Co-Collateral Agents’
officers, employees or agents shall have the right, at any time or times, in the name of the
Administrative Agent or such Co-Collateral Agent, any designee of the Administrative Agent,
such Co-Collateral Agent or the Lead Borrower, to verify the validity, amount or any other
matter relating to Accounts or Inventory by mail, telephone, electronic communication, personal
inspection or otherwise and to conduct field audits of the financial affairs and Collateral of the
Loan Parties. The Borrowers shall cooperate fully with the Administrative Agent and the CoCollateral Agents in an effort to facilitate and promptly conclude any such verification process.
The Loan Parties shall cooperate fully with the Administrative Agent and its agents during all
Collateral field audits and Inventory Appraisals taken in accordance with Section 5.07 hereof.
ARTICLE VI
NEGATIVE COVENANTS
Each Loan Party covenants and agrees with each Lender that, so long as this Agreement
shall remain in effect and until the Commitments have been terminated and the principal of and
interest on each Loan, all Fees and all other expenses or amounts payable under any Loan
Document (other than contingent indemnity obligations to the extent no claim giving rise thereto
has been asserted or is reasonably anticipated by the Administrative Agent) have been paid in
full and all Letters of Credit have been canceled or have expired, been fully cash collateralized or
backstopped and all amounts drawn thereunder have been reimbursed in full, unless the Required
Lenders shall otherwise consent in writing, no Loan Party will, nor will they cause or permit any
Subsidiary to:
Section 6.01 Indebtedness. Incur, create, assume or permit to exist, directly or
indirectly, any Indebtedness, except the following (collectively, “Permitted Indebtedness”):
(a)
Documents;
Indebtedness incurred pursuant to this Agreement and the other Loan
(b)
thereof;
Indebtedness listed on Schedule 6.01(b) and Permitted Refinancings
(c)
Indebtedness of any Company under Interest Rate Protection Agreements
entered into in order to fix the effective rate of interest on the Loans and such other nonspeculative Interest Rate Protection Agreements which may be entered into from time to
time by any Company and which such Company in good faith believes will provide
protection against fluctuations in interest rates with respect to floating rate Indebtedness
then outstanding, and permitted to remain outstanding, pursuant to the other provisions of
this Section 6.01;
(d)
Indebtedness under Hedging Agreements (other than Interest Rate
Protection Agreements) entered into from time to time by any Company in accordance
with Section 6.04(d);
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(e)
Intercompany Indebtedness outstanding to the extent permitted by Section
6.04;
(f)
Indebtedness in respect of Purchase Money Obligations and Capital Lease
Obligations (including therein any Indebtedness incurred in connection with sale
leaseback transactions permitted hereunder, and Permitted Refinancings thereof, in an
aggregate amount not to exceed $15,000,000 at any time outstanding;
(g)
Indebtedness in respect of workers’ compensation claims, self-insurance
obligations, performance bonds, export or import indemnitees or similar instruments,
customs bonds, governmental contracts, leases, surety appeal or similar bonds and
completion guarantees provided in the ordinary course of its business;
(h)
Contingent Obligations in respect of Indebtedness otherwise permitted
under Section 6.01 incurred in the ordinary course of business;
(i)
Indebtedness in respect of taxes, assessments or governmental charges to
the extent that payment thereof shall not at the time be required to be made in accordance
with Section 5.05;
(j)
Indebtedness of the target of a Permitted Acquisition or the purchase of
other property with Indebtedness which was assumed at the time of such purchase and
that was outstanding on the date of such Permitted Acquisition or purchased property (or
Indebtedness assumed at the time of a Permitted Acquisition or purchased property on
any asset securing such Indebtedness (other than assets of a type included in the
Borrowing Base) and Permitted Refinancings of any such Indebtedness) in an amount not
to exceed $40,000,000 in the aggregate outstanding at any time; provided that such
Indebtedness was not incurred in connection with, or in anticipation or contemplation of,
such Permitted Acquisition or purchased property;
(k)
Indebtedness consisting of deferred purchase price or notes issued to
officers, directors and employees to purchase or redeem equity interests (or option or
warrants or similar instruments) of a Loan Party provided such Indebtedness is
subordinated to the Obligations in form and substance reasonably acceptable to
Administrative Agent;
(l)
Indebtedness consisting of incentive, non-compete, consulting, deferred
compensation, or other similar arrangements entered in the ordinary course of business
and not to exceed $10,000,000 in the aggregate at any time;
(m)
Indebtedness in respect of netting services and overdraft protections in
connection with deposit accounts, in each case in the ordinary course of business;
(n)
Unsecured Indebtedness owed to stockholders (including the Sponsor) of
the Lead Borrower and their respective Affiliates (excluding the Borrowers and any of
their Subsidiaries), provided that such Indebtedness does not require the payment in cash
of principal prior to the Maturity Date, or payment in cash of interest at a rate in excess of
10% per annum prior to the Maturity Date, has a maturity which extends beyond the
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Maturity Date, and is subordinated to the Obligations on terms reasonably acceptable to
the Administrative Agent;
(o)
Indebtedness (including the deferred purchase price for such Permitted
Acquisition) incurred at the time of a Permitted Acquisition which meets the following
requirements (“Junior Permitted Acquisition Indebtedness”) (i) the proceeds of such
Indebtedness are used to finance such Permitted Acquisition, (ii) any such Indebtedness
shall contain terms and conditions reasonably acceptable to the Administrative Agent,
(iii) such Indebtedness shall not be issued or guaranteed by any Loan Party except the
Lead Borrower or any Future Holding Company and (iv) the holders of such
Indebtedness shall enter into a subordination agreement with the Administrative Agent
containing terms and conditions (including, without limitation, standstill and blockage
rights) reasonably acceptable to the Administrative Agent;
(p)
6.14 hereof;
Indebtedness of the Future Holding Company permitted under Section
(q)
other Indebtedness, which when aggregated with Indebtedness outstanding
under Section 6.14, does not exceed $60,000,000 in the aggregate principal amount at
any time outstanding;
(r)
Guarantees by any Company of Indebtedness or other obligations arising
in the ordinary course of business of any other Loan Party, and Guarantees by any
Foreign Subsidiary of Indebtedness of another Foreign Subsidiary or Indebtedness of a
Loan Party;
(s)
Indebtedness incurred in the ordinary course of business in connection
with the financing of insurance premiums;
(t)
Indebtedness incurred in connection with sale leaseback transactions
permitted hereunder;
(u)
Indebtedness constituting the obligation to make purchase price
adjustments and indemnities in connection with Permitted Acquisitions;
(v)
Guarantees and letters of credit and surety bonds issued in connection with
Permitted Acquisitions or dispositions permitted under Section 6.05;
(w)
Indebtedness incurred for construction or acquisition or improvement of,
or to finance or refinance, any Real Property (including therein any Indebtedness incurred
in connection with a sale leaseback permitted hereunder);
(x)
without duplication of any other Indebtedness, non-cash accruals of
interest, accretion or amortization of original issue discount and payment-in-kind interest
with respect to Indebtedness permitted hereunder;
(y)
Indebtedness with respect to the deferred purchase price for any Permitted
Acquisition, provided that such Indebtedness does not require the payment in cash of
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principal (other than in respect of working capital adjustments) prior to the Maturity
Date, has a maturity which extends beyond the Maturity Date, and is subordinated to the
Obligations on terms reasonably acceptable to the Administrative Agent;
(z)
Indebtedness due to any landlord in connection with the financing by such
landlord of leasehold improvements;
(aa) Indebtedness incurred by any Foreign Subsidiary of the Loan Parties in an
aggregate amount not to exceed $25,000,000 at any time outstanding;
(bb) Indebtedness of the Loan Parties in respect of the Term Facility; provided
that the principal amount of the Indebtedness outstanding at any time pursuant to this
clause (bb) shall not exceed $100,000,000 and any Permitted Refinancing thereof;
provided that the Term Facility and any Permitted Refinancing thereof shall be subject to
the Intercreditor Agreement; and
(cc) Extensions, renewals and replacements of any such Indebtedness
described above, so long as such Indebtedness constitutes a Permitted Refinancing.
Section 6.02 Liens. Create, incur, assume or permit to exist, directly or indirectly, any
Lien on any Property now owned or hereafter acquired by it or on any income or revenues or
rights in respect of any thereof, except (the “Permitted Liens”):
(a)
Liens for Taxes, assessments or governmental charges or levies, to the
extent such Taxes, assessment, charges or levies are not then required to be paid pursuant
to Section 5.05;
(b)
Liens imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers’,
warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’, repairmen’s and
mechanics’ Liens and other similar Liens arising in the ordinary course of business, (i)
arising in the ordinary course of business and securing obligations that are not overdue by
more than thirty (30) days, (ii) (A) that are being contested in good faith by appropriate
proceedings, (B) the applicable Loan Party or Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (C) such contest
effectively suspends collection of the contested obligation and enforcement of any Lien
securing such obligation, or (iii) the existence of which would not reasonably be expected
to result in a Material Adverse Effect;
(c)
Liens in existence on the Effective Date and set forth on Schedule 6.02(c),
provided that if such Lien secures Indebtedness, such Lien shall secure only the
Indebtedness listed on Schedule 6.01 as of the Effective Date and Permitted Refinancings
thereof;
(d)
easements, rights-of-way, restrictions (including zoning restrictions),
covenants, encroachments, protrusions and other similar charges or encumbrances, and
minor title deficiencies on or with respect to any Real Property, in each case whether now
or hereafter in existence, not (i) securing Indebtedness, (ii) individually or in the
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aggregate materially impairing the value or the marketability of such Real Property, and
(iii) individually or in the aggregate materially interfering with the conduct of the
business of the Companies at such Real Property;
(e)
Default;
Liens arising out of judgments or awards not resulting in an Event of
(f)
Liens (other than any Lien imposed by ERISA) (i) imposed by law or
deposits made in connection therewith in the ordinary course of business in connection
with workers’ compensation, unemployment insurance and other types of social security,
(ii) incurred in the ordinary course of business to secure the performance of tenders,
statutory obligations, surety, stay, customs and appeal bonds, statutory bonds, bids, leases
(other than Capital Lease Obligations), government contracts, trade contracts (other than
for Indebtedness), performance and return of money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money) or (iii) on insurance
proceeds and deposits arising in the ordinary course of business in connection with the
financing of insurance premiums;
(g)
Leases or subleases with respect to the assets or properties of any
Company, in each case entered into in the ordinary course of business of such Company;
(h)
Liens arising out of conditional sale, title retention, consignment or similar
arrangements for the sale of goods entered into by a Company in the ordinary course of
business in accordance with the past practices of such Company;
(i)
Liens arising pursuant to Purchase Money Obligations or Capital Lease
Obligations incurred pursuant to Section 6.01(f); provided that (i) the Indebtedness
secured by any such Lien (including refinancings thereof) does not exceed 100% of the
cost of the Property being acquired or leased at the time of the incurrence of such
Indebtedness and (ii) any such Liens attach only to the Property being financed pursuant
to such Purchase Money Obligations or Capital Lease Obligations (and proceeds and
accession thereto) and do not encumber any other Property of any Company;
(j)
bankers’ Liens, rights of setoff and other similar Liens existing solely with
respect to cash and Cash Equivalents on deposit in one or more accounts maintained by
any Company, in each case granted in the ordinary course of business in favor of the
bank or banks with which such accounts are maintained, securing amounts owing to such
bank with respect to overdrafts, cash management and operating account arrangements,
including those involving pooled accounts and netting arrangements; provided that in no
case shall such Liens secure (either directly or indirectly) the repayment of any
Indebtedness (other than on account of such overdrafts, netting or cash management);
(k)
Liens on (i) Property of a Person existing at the time such Person is
acquired or merged with or into or consolidated with any Company (and not created in
anticipation or contemplation thereof) or (ii) Property existing at the time such Property
is acquired so long as, to the extent applicable, such merger or acquisition is permitted
pursuant to Section 6.05; provided that such Liens do not extend to Property not subject
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to such Liens at the time of acquisition (other than improvements thereon) or to any
assets of the type included in the Borrowing Base and are no more favorable to the
lienholders than the Lien existing at the time of such merger or acquisition (unless
otherwise permitted hereby);
(l)
Liens granted pursuant to the Security Documents;
(m)
licenses or sublicenses of Intellectual Property granted by a Company in
the ordinary course of business;
(n)
Liens attaching solely to cash earnest money deposits in connection with
any letter of intent or purchase agreement in connection with a Permitted Acquisition;
(o)
Liens in favor of customs and revenues authorities imposed by Applicable
Law arising in the ordinary course of business in connection with the importation of
goods and securing obligations (i) that are not overdue by more than thirty (30) days,
(ii)(A) that are being contested in good faith by appropriate proceedings, (B) the
applicable Loan Party or Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (C) such contest effectively suspends
collection of the contested obligation and enforcement of any Lien securing such
obligation, or (iii) the existence of which would not reasonably be expected to result in a
Material Adverse Effect;
(p)
Liens which arise under Article 4 of the UCC on items in collection and
documents and proceeds related thereto;
(q)
other Liens with respect to obligations that do not in the aggregate exceed
$10,000,000 at any time outstanding;
(r)
the filing of financing statements solely as a precautionary measure in
connection with operating leases or consignment of goods;
(s)
Landlords’ and lessors’ liens in respect of rent not in default for more than
sixty (60) days or the existence of which, individual or in the aggregate, would not
reasonably be expect to result in a Material Adverse Effect;
(t)
Possessory liens in favor of brokers and dealers arising in connection with
the acquisition or disposition of Investments owned as of the date hereof and other
permitted Investments, provide that such Liens (a) attach only to such Investment and (b)
secure only obligations incurred in the ordinary course of business and arising in
connection with the acquisition or disposition of such Investments and not in connection
with any margin financing;
(u)
any interest or title of a licensor, sublicensor, lessor or sublessor under any
license or operating or true lease agreement in which a Company is the licensee or lessee;
(v)
Liens arising by operation of law under Article 2 of the UCC in favor of
reclaiming seller of goods or buyer of goods;
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(w)
Liens on securities which are the subject of repurchase agreements
incurred in the ordinary course of business;
(x)
Security given to a public or private utility or any Governmental Authority
as required in the ordinary course of business;
(y)
Liens in the nature of the right of setoff in favor of counterparties to
contractual agreements with the Companies in the ordinary course of business;
(z)
Liens on Property of any Foreign Subsidiary to secure any Permitted
Indebtedness pursuant to clause (z) of the definition thereof;
(aa) so long as the same is subject to the Intercreditor Agreement, Liens on
Collateral securing Indebtedness incurred pursuant to Section 6.01(bb) and any other
“Obligations” as defined in the Term Facility; and
(bb) the replacement, extension or renewal of any Permitted Lien; provided
that such Lien shall at no time be extended to cover any assets or property other than such
assets or property subject thereto on the Effective Date or the date such Lien was incurred
(other than proceeds and accessions), as applicable, unless otherwise permitted hereby.
Section 6.03 Sale and Leaseback Transactions. Enter into any arrangement, directly or
indirectly, with any Person whereby it shall sell or transfer any Property, real or personal, used or
useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such
Property or other Property which it intends to use for substantially the same purpose or purposes
as the Property being sold or transferred unless (a) (i) the sale of such Property is permitted by
Section 6.05 and (ii) any Liens arising in connection with its use of such Property are permitted
by Section 6.02 or (b) to the extent such transaction is not by and among Loan Parties, in an
amount not to exceed $10,000,000 in the aggregate.
Section 6.04 Investment, Loan and Advances. Directly or indirectly, lend money or
credit or make advances to any Person, or purchase or acquire any stock, obligations or securities
of, or any other interest in, or make any capital contribution to, any other Person, or purchase or
own a futures contract or otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract (all of the foregoing, collectively,
“Investments”), except that the following shall be permitted:
(a)
the Loan Parties may consummate the Transactions;
(b)
Investments outstanding on the Effective Date and/or identified on
Schedule 6.04(b);
(c)
the Companies may (i) acquire and hold accounts receivables owing to
any of them if created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary terms, (ii) acquire and hold cash and Cash
Equivalents, (iii) endorse negotiable instruments for collection in the ordinary course of
business, (iv) make lease, utility and other similar deposits or any other deposit permitted
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under Section 6.01 in the ordinary course of business or (v) make prepayments and
deposits to suppliers in the ordinary course of business;
(d)
the Companies may enter into Interest Rate Protection Agreements to the
extent permitted by Section 6.01(c) and may enter into and perform its obligations under
Hedging Agreements entered into in the ordinary course of business and so long as any
such Hedging Agreement is not speculative in nature;
(e)
(i) any Loan Party or any Company may make Investments in any Loan
Party, (ii) any Foreign Subsidiary may make Investments in any Company and (iii) any
Company (other than a Loan Party) may make Investments in another Company which is
not a Loan Party;
(f)
the Companies may make loans and advances (including payroll, travel,
relocation and entertainment related advances) in the ordinary course of business to their
respective employees (other than any loans or advances to any director or officer (or
equivalent thereof) that would be in violation of Section 402 of the Sarbanes Oxley Act);
provided that such advances in the aggregate do not exceed $1,000,000 at any time
outstanding;
(g)
the Companies may sell or transfer amounts and acquire assets to the
extent permitted by Section 6.05;
(h)
the Companies may establish (i) Wholly Owned Subsidiaries to the extent
they comply with Section 5.12 and (ii) non-Wholly Owned Subsidiaries and/or joint
ventures to the extent that Investments in such non-Wholly Owned Subsidiaries and/or
joint ventures, when combined with Investments made pursuant to clause (q) of this
Section, shall not exceed $20,000,000 at any time outstanding (plus the amount of any
Net Cash Proceeds of any Designated Equity Issuance actually used for that purpose),
after taking into account amounts returned in cash (including upon disposition);
(i)
Investments in securities or other assets of trade creditors, customers or
other Persons in the ordinary course of business and consistent with such Company’s past
practices that are received in settlement of bona fide disputes or pursuant to any plan of
reorganization or liquidation or similar arrangement upon the bankruptcy or insolvency
of such trade creditors or customers;
(j)
Investments made by a Company as a result of consideration received in
connection with an Asset Sale made in compliance with Section 6.05;
(k)
to the extent permitted by Applicable Law, a Company may accept notes
from officers and employees in exchange for Equity Interests of a Company purchased by
such officers or employees pursuant to a stock ownership or purchase plan or
compensation plan or in connection with compensation of such Company so long as such
notes are pledged (and delivered) to the Administrative Agent pursuant to the Security
Agreement (to the extent required therein);
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(l)
the Companies may deposit earnest money required in connection with
and to the extent permitted by Permitted Acquisitions;
(m)
the Companies may make guarantees and other Investments permitted
under Section 6.01;
(n)
the Companies may hold Investments to the extent such Investments
reflect an increase in the value of Investments otherwise permitted under this Section
6.04 hereof;
(o)
Investments in deposit accounts or securities accounts opened in the
ordinary course of business provided such deposit accounts or securities accounts are
subject to deposit account control agreements or securities account control agreement if
required hereunder;
(p)
Loan Parties may capitalize or forgive any Indebtedness owed to it by
other Loan Parties;
(q)
Investments in Foreign Subsidiaries or other Subsidiaries, in each case
which are not Loan Parties; provided that such Investments, when combined with
Investments made pursuant to clause (h)(ii) of this Section shall not exceed $20,000,000
outstanding at any time (plus the amount of any Net Cash Proceeds of any Designated
Equity Issuance actually used for such purpose);
(r)
[Reserved];
(s)
Capital Expenditures;
(t)
Without duplication of, or accumulation with, other categories of
Investments permitted under clauses (h)(ii) or (q) hereof, Guarantees of Indebtedness (or
other obligations) of Subsidiaries that are not Loan Parties not in excess of $10,000,000
in the aggregate at any time outstanding;
(u)
any Investments acquired in connection with Permitted Acquisitions;
(v)
Permitted Acquisitions;
(w)
Cancellation, forgiveness, set off or acceptance of prepayments of
Indebtedness, other obligations and/or equity securities to the extent not otherwise
prohibited by the terms of this Agreement; and
(x)
other Investments (other than those set forth in clauses (a) through (w)
above so long as (i) no Specified Default has occurred and is continuing, (ii) the Excess
Availability, calculated on a Pro Forma Basis after giving effect to such Investment, shall
be equal to or greater than twelve and one-half percent (12.5%) of the Loan Cap for the
thirty (30) day period immediately preceding such Investment and immediately after
giving effect to such Investment, and (iii) after giving effect to such Investment, the
Consolidated Fixed Charge Coverage Ratio, as calculated on a Pro Forma Basis for the
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trailing twelve month period, is not less than 1.0 to 1.0, provided that if pro forma Excess
Availability (after giving effect to such Investment) is equal to or greater than 25% of the Loan
Cap for the thirty (30) days prior to such Investment and immediately after giving effect to
such Investment, the Borrower shall not be obligated to satisfy the provisions of clause (iii) in
connection with such Investment, and (iv) the Borrowers’ accounts payable are being paid
in accordance with their terms and with the past practices of the Loan Parties;
provided, however, that for purposes of calculation, the amount of any Investment outstanding at
any time shall be the aggregate cash Investment less all cash returns, cash dividends and cash
distributions (or the fair market value of any non-cash returns, dividends and distributions)
received by such Person and less all liabilities expressly assumed by another Person in
connection with the sale of such Investment.
Section 6.05 Mergers, Consolidations, Sales of Assets and Acquisitions. Wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or enter
into any Asset Sale (in one or a series of related transactions), except that:
(a)
the Companies may make Capital Expenditures;
(b)
(i) purchases or other acquisitions of inventory, materials, equipment and
intangible assets in the ordinary course of business shall be permitted, (ii) as long as no
Event of Default exists or would arise therefrom, the sale, lease or other disposal of any
assets for fair value in an amount in any fiscal year not to exceed $10,000,000 shall be
permitted; provided that, the Net Cash Proceeds for any assets of the type included in the
Borrowing Base shall in no event be lesser than the then effective advance rates against
such types of assets; and further provided that the selling price for any Accounts or
Inventory shall be solely for cash consideration; and provided further that the Net Cash
Proceeds from any such sale shall be applied to the Obligations if and to the extent
required by Section 2.09(c).
(c)
Investments and acquisitions in connection with any such transaction that
may be made to the extent permitted by Section 6.04 (including Permitted Acquisitions);
(d)
As long as no Specified Default then exists or would arise therefrom, the
Companies may sell Cash Equivalents for fair value and use cash for purposes that are
otherwise permitted by the terms of this Agreement in the ordinary course of business;
(e)
the Companies may lease (as lessee or lessor), license (as licensee or
licensor), sublicense, real or personal Property and may guaranty such lease, in each case,
in the ordinary course of business and in accordance with the applicable Security
Documents;
(f)
the Transactions shall be permitted;
(g)
the Companies may consummate Permitted Acquisitions (including the
issuance of stock as part of the Acquisition Consideration to the extent otherwise
permitted hereunder);
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(h)
(i) any Loan Party may transfer Property, or lease to, or acquire or lease
Property from, any Loan Party, (ii) any Company may transfer or lease Property to or
acquire or lease Property from any Loan Party and (iii) any Foreign Subsidiary may
transfer or lease Property to or acquire or lease Property from any other Foreign
Subsidiary and (iv) any Company (other than a Loan Party) may transfer or lease
Property to, or acquire or lease Property from, any other Company (other than a Loan
Party); provided that, in each case, the Lien on and security interest in such Property
granted or to be granted in favor of the Administrative Agent under the Security
Documents shall be maintained or created in accordance with, and to the extent required
by, the provisions of Section 5.11 or Section 5.12, as applicable;
(i)
discounts or forgiveness of account receivables in the ordinary course of
business or in connection with collection or compromise thereof shall be permitted
provided the account debtor is not an Affiliate;
(j)
sales of non-core assets (i) owned by the targets of Permitted Acquisitions
and acquired as a result of such Permitted Acquisitions, or (ii) acquired in connection
with Permitted Investments;
(k)
Permitted Liens (to the extent constituting a conveyance of Property) shall
be permitted;
(l)
issuance of Equity Interests of the Lead Borrower or the Future Holding
Company (including warrants or options or similar interests) to officers and employees
pursuant to a stock ownership or purchase plan or compensation plan of the Lead
Borrower shall be permitted;
(m)
issuance of Equity Interests (including warrants or options or similar
interests) of any Subsidiary of the Lead Borrower to a Company or of the Lead Borrower
to a Future Holding Company shall be permitted provided such Equity Interests are
pledged (and such certificates are delivered) to the Administrative Agent (or to the lender
under the Term Facility as agent for the Administrative Agent under the Intercreditor
Agreement) in accordance with and to the extent required by the Security Agreement;
(n)
permitted;
terminations of Leases in the ordinary course of business shall be
(o)
(i)
Loan Parties may merge with or into any other Loan Party, so long
as a Borrower is the surviving entity in merger involving a Borrower, (ii) any Subsidiary
may liquidate, dissolve, consolidate, or merge into a Loan Party in a transaction in which
a Loan Party is the surviving corporation; provided that any such merger involving a
Person that is not a Wholly Owned Subsidiary immediately prior to such merger shall not
be permitted unless also permitted by Section 6.04 and (iii) any Subsidiary that is not a
Loan Party may liquidate, dissolve, consolidate, or merge into any other Subsidiary that
is not a Loan Party;
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(p)
creation and capitalization of Foreign Subsidiaries and the transfers of
assets to such Foreign Subsidiaries to the extent permitted by and subject to the
restrictions set forth in Section 6.04;
(q)
any disposition of Real Property to a Governmental Authority as a result
of a condemnation of such Real Property; and
(r)
the making of Permitted Investments and payments permitted hereunder.
To the extent the Required Lenders waive the provisions of this Section 6.05 with respect to the
sale of any Collateral, or any Collateral is sold as permitted by this Section 6.05, the
Administrative Agent’s Lien, on behalf of the Lenders shall automatically terminate and such
Collateral (unless sold to a Loan Party) shall be sold free and clear of the Liens created by the
Security Documents, and the Administrative Agent shall take all actions deemed appropriate in
order to evidence the release of such Lien.
Section 6.06 Dividends; Prepayments of Indebtedness.
(a)
Unless either (i) funded solely with the proceeds of a Designated Equity
Issuance or (ii) (x) Excess Availability, calculated on a Pro Forma Basis after giving
effect to such Dividend, for the thirty (30) day period immediately preceding such
Dividend and immediately after giving effect to such Dividend is equal to or greater than
seventeen and one-half (17.5%) percent of the Loan Cap, and (y) after giving effect to
such Dividend, the Consolidated Fixed Charge Coverage Ratio, as calculated on a Pro
Forma Basis for the trailing twelve month period, is not less than 1.1 to 1.0 (provided that
if pro forma Excess Availability (after giving effect to such prepayment) is equal to or greater
than 27.5% of the Loan Cap for the thirty (30) days prior to such Dividend and immediately
after giving effect to such Dividend, the Borrower shall not be obligated to satisfy the
provisions of clause (y) in connection with such Dividend), authorize, declare or pay, directly
or indirectly, any Dividends (other than stock dividends) with respect to any Loan Party,
except that (A) any Subsidiary of a Loan Party or a Loan Party, (i) may pay Dividends or
make other distributions of Property to a Loan Party, (ii) if such Subsidiary is not a
Wholly Owned Subsidiary of a Borrower, may pay Dividends to its shareholders
generally so long as a Borrower or its Subsidiary which owns the equity interest or
interests in the Subsidiary paying such Dividends receives at least its proportionate share
thereof (based upon its relative holdings of equity interests in the Subsidiary paying such
Dividends and taking into account the relative preferences, if any, of the various classes
of equity interests in such Subsidiary); (B) payments in cash or notes may be made by a
Loan Party to former employees, officers or directors of a Loan Party in connection with
the redemption or repurchase of Equity Interests in a Loan Party from such former
employees, officers or directors upon termination of employment with a Loan Party or
their death or disability in an aggregate amount not to exceed $10,000,000 (and
$5,000,000 per year) and provided that any such notes are subordinated to the
Obligations in form and substance reasonably acceptable to the Administrative Agent;
(C) Lead Borrower may make Dividends to Future Holding Company to permit Future
Holding Company to (i) in the event Lead Borrower files a consolidated income Tax
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Return with any Future Holding Company, pay federal and state income taxes then due
and owing, franchise taxes and other similar licensing expenses incurred in the ordinary
course of business; provided that the amount of such distribution shall not be greater, nor
the receipt by Lead Borrower of Tax benefits less, than they would have been had Lead
Borrower not filed a consolidated return with Future Holding Company, (ii) pay annual
state fees and any accountants’ audit fees, legal fees, director’s fees, expenses and
indemnities incurred by Future Holding Company in the ordinary course of business, and
(iii) pay in respect of Guarantees by the Future Holding Company of another Loan Party
that are due and payable by the Future Holding Company; (D) Lead Borrower may
redeem shares from the Brode family to the extent such redemption is funded with the
proceeds of a Designated Equity Issuance; (E) the Companies may make dispositions
permitted hereunder; (F) the Companies may make Dividends constituting repurchases of
equity interests in a Borrower or any Subsidiary in connection with the exercise of stock
options or warrants; provided that such payments shall not exceed $5,000,000 in any
fiscal year or $10,000,000 in the aggregate after the Effective Date; and (G) any
Company that is not a Loan Party may pay Dividends or make other distributions of
Property to any Loan Party or other Company that is not a Loan Party.
(b)
Prepay, redeem, purchase, defease or otherwise satisfy prior to the
scheduled maturity thereof in any manner any Indebtedness, except (i) regularly
scheduled or mandatory repayments, prepayments, repurchases, redemptions or
defeasances of Permitted Indebtedness (including with respect to the Term Facility other
than payments of Excess Cash Flow on account of the Term Facility), provided that if a
Default or Event of Default then exists pursuant to any of clauses (a), (b), (d) (but only
with respect to an Event of Default due to failure to comply with Section 6.08 hereof), (g)
or (h) of Article VIII, such payments may not be made with proceeds of the Loans or the
ABL Priority Collateral, (ii) payments of Excess Cash Flow on account of the Term
Facility as long as average daily Excess Availability, calculated on a Pro Forma Basis
after giving effect to such payment, shall be equal to or greater than $15,000,000 for the
thirty (30) day period immediately preceding such prepayment and immediately after
giving effect to such prepayment, provided that if a Default or Event of Default then
exists, such payments may not be made with proceeds of the Loans or the ABL Priority
Collateral, (iii) voluntary prepayments, repurchases, redemptions or defeasances of
Permitted Indebtedness as long as (A) no Default or Event of Default then exists, (B)
Excess Availability, calculated on a Pro Forma Basis after giving effect to such
prepayment, shall be equal to or greater than fifteen percent (15%) of the Loan Cap for
the thirty (30) day period immediately preceding such prepayment and immediately after
giving effect to such prepayment, (C) after giving effect to such prepayment, the
Consolidated Fixed Charge Coverage Ratio, as calculated on a Pro Forma Basis for the
trailing twelve month period, is not less than 1.0 to 1.0, provided that if pro forma Excess
Availability (after giving effect to such prepayment) is equal to or greater than 25% of
the Loan Cap for the thirty (30) days prior to such prepayment and immediately after
giving effect to such prepayment, the Borrower shall not be obligated to satisfy the
provisions of clause (ii)(C) in connection with such prepayment, and (iv) Permitted
Refinancings of any such Indebtedness.
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Section 6.07 Transactions with Affiliates. Except as set forth on Schedule 6.07, enter
into, directly or indirectly, any transaction or series of related transactions, whether or not in the
ordinary course of business, with any Affiliate of any Loan Party (other than between or among
the Loan Parties), other than in the ordinary course of business and on terms and conditions
substantially as favorable to such Company as would reasonably be obtained by such Company
at that time in a comparable arm’s-length transaction with a Person other than an Affiliate,
except:
(a)
as set forth on Schedule 6.07;
(b)
Dividends may be paid to the extent provided in Section 6.06;
(c)
loans (and interest thereon) may be made and paid and other transactions
may be entered into between and among any Loan Party and its Affiliates to the extent
permitted hereunder;
(d)
payments of fees, indemnities and expenses may be paid to directors;
(e)
payment of reasonable compensation to directors, officers, employees and
advisors for services actually rendered to any such Loan Party or any of its Subsidiaries;
(f)
stock option, stock incentive, equity, bonus and other compensation plans
of the Loan Parties and their Subsidiaries and the issuance of shares thereunder;
(g)
employment contracts with officers and management of the Loan Parties
and their Subsidiaries;
(h)
the repurchase of equity interests from officers, directors and employees to
the extent specifically permitted under this Agreement;
(i)
advances and loans to officers and employees of the Loan Parties and their
Subsidiaries to the extent specifically permitted under this Agreement;
(j)
Investments consisting of notes from officers, directors and employees to
purchase equity interests to the extent specifically permitted under this Agreement;
(k)
other transactions with Affiliates specifically permitted under this
Agreement (including, without limitation, sale/leaseback transactions, permitted
dispositions, Dividends, Permitted Investments and Indebtedness);
(l)
as long as no Default under clauses (a) or (b) of Article VIII hereof or
Event of Default then exists or would arise therefrom, management fees payable to the
Sponsor pursuant to any management agreement, in an aggregate amount not to exceed
$750,000 for the fiscal year ending December 31, 2013 and 500,000 per fiscal year
thereafter, plus reasonable out-of-pocket expenses payable to Sponsor under such
agreement;
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(m)
any Company may make payments pursuant to a Tax Sharing Agreement
either (i) to a Loan Party or (ii) in an amount not in excess of the federal and state (in
such states that permit consolidated or combined Tax Returns) income Tax liability that
such Company would have been liable for if such Company had filed its Tax Returns on
a stand-alone basis; and
(n)
the Transactions may be effected.
Section 6.08 Consolidated Fixed Charge Coverage Ratio.
At any time that Excess Availability is less than the greater of (i) ten percent (10%) of the
Loan Cap and (ii) $20,000,000, permit the Consolidated Fixed Charge Coverage Ratio, as of the
last day of any Test Period, to be less than 1.0:1.0.
Section 6.09 Limitation on Modifications of Indebtedness; Modifications of Certificate
of Incorporation, or Other Constitutive Documents, By-laws and Certain Other Agreements, etc.
(a) Amend or modify, or permit the amendment or modification of, any provision of Material
Indebtedness (other than the Term Facility which is governed by clause (b) below) or of any
agreement (including any purchase agreement, indenture, loan agreement or security agreement)
relating thereto, other than any amendments or modifications to Material Indebtedness which do
not materially adversely affect the interests of the Lenders or would not reasonably be expected
to result in a Material Adverse Effect and are otherwise permitted under Section 6.01; (b) amend
or modify, or permit the amendment or modification of, any provision of the Term Loan
Agreement or any agreement relating thereto other than as permitted by the Intercreditor
Agreement; or (c) amend, modify or change its articles of incorporation or other constitutive
documents (including by the filing or modification of any certificate of designation) or by-laws,
or any agreement entered into by it, with respect to its Equity Interests (including any
shareholders’ agreement), or enter into any new agreement with respect to its Equity Interests,
other than any amendments, modifications, agreements or changes or any such new agreements
that do not materially adversely affect the interests of the Lenders or would not reasonably be
expected to result in a Material Adverse Effect.
Section 6.10 Limitation on Certain Restrictions . Directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or restriction on the
ability of any Loan Party (other than the Lead Borrower or any Future Holding Company) to (a)
pay dividends or make any other distributions on its Equity Interests or any other interest or
participation in its profits owned by a Borrower or any other Loan Party, or pay any
Indebtedness owed to a Borrower or any other Loan Party, (b) make loans or advances to a
Borrower or any other Loan Party or (c) transfer any of its properties to a Borrower or any other
Loan Party, except for such encumbrances or restrictions existing under or by reason of (i)
Applicable Law; (ii) this Agreement and the other Loan Documents; (iii) the Term Loan
Documents; (iv) customary provisions restricting subletting, encumbering or assignment of any
lease governing a leasehold interest of a Company; (v) customary provisions restricting
assignment of any agreement entered into by a Company in the ordinary course of business; (vi)
any holder of a Lien permitted by Section 6.02 may restrict the transfer of the asset or assets
subject thereto; (vii) restrictions which are not more restrictive than those contained in this
Agreement contained in any documents governing any Indebtedness incurred after the Effective
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Date in accordance with the provisions of this Agreement; (viii) customary restrictions and
conditions contained in any agreement relating to the sale of any Property permitted under
Section 6.05 pending the consummation of such sale; (ix) any agreement in effect at the time
such Subsidiary becomes a Subsidiary of a Borrower, so long as such agreement was not entered
into in contemplation of such Person becoming a Subsidiary of such Borrower; (x) in the case of
any joint venture which is not a Loan Party in respect of any matters referred to in clauses (b)
and (c) above, restrictions in such Person’s organizational or governing documents or pursuant to
any joint venture agreement or stockholders agreements solely to the extent of the Equity
Interests of or assets held in the subject joint venture or other entity, or (xi) by the documents
described on Schedule 6.10.
Section 6.11 Business. With respect to the Loan Parties, engage (directly or indirectly)
in any business other than the Business.
Section 6.12 Limitation on Accounting Changes. Make or permit any change in
accounting policies or reporting practices, without the consent of the Administrative Agent,
which consent shall not be unreasonably withheld, except changes that in the aggregate would
not reasonably be expected to result in a Material Adverse Effect or are required by GAAP.
Section 6.13 Fiscal Year. Change its fiscal year-end to a date other than (i) for fiscal
year 2012, December 29, 2012, (ii) for fiscal year 2013, December 28, 2013, (iii) for fiscal year
2014, December 27, 2014, (iv) for fiscal year 2015, December 26, 2015, and (v) for fiscal year
2016, December 31, 2016.
Section 6.14 Future Holding Company. Notwithstanding anything to the contrary set
forth herein, permit the Future Holding Company, if any, to engage in any business or own any
Property except for the direct ownership of 100% of the Equity Interests of the Lead Borrower,
de minimus administrative and corporate governance functions and assets incidental thereto,
incurrence of Indebtedness hereunder, under the Term Loan Documents and other Indebtedness
which, when aggregated with Indebtedness outstanding under Section 6.01(p), does not exceed
$60,000,000 in the aggregate principal amount at any time outstanding, and Indebtedness
permitted by Section 6.01(a), and, with the prior consent of the Administrative Agent, the direct
ownership of the Equity Interests of any other Subsidiary.
ARTICLE VII
GUARANTEE
Section 7.01 The Guarantee. The Guarantors hereby jointly and severally guarantee as
a primary obligor and not as a surety to each Secured Party and their respective successors and
permitted assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest (including any interest, fees, costs or
charges that would accrue but for the provisions of the Bankruptcy Code after any bankruptcy or
insolvency petition under the Bankruptcy Code) on the Loans made by the Lenders to, and the
Notes held by each Lender of, Borrowers, and all other Obligations from time to time owing to
the Secured Parties by any Loan Party under any Loan Document or Interest Rate Protection
Agreement relating to the Loans, in each case strictly in accordance with the terms thereof (such
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obligations being herein collectively called the “Guaranteed Obligations”). The Guarantors
hereby jointly and severally agree that if the Borrowers or other Guarantor(s) shall fail to pay in
full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed
Obligations, the Guarantors will promptly pay the same, without demand or notice (except as
required by Applicable Law), and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether
at extended maturity, by acceleration or otherwise) in accordance with the terms of such
extension or renewal.
Section 7.02 Obligations Unconditional. The obligations of the Guarantors under
Section 7.01 shall constitute a guaranty of payment and are absolute, irrevocable and
unconditional, joint and several, to the extent permitted by Applicable Law irrespective of the
value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of the
Borrowers under this Agreement, the Notes, if any, or any other agreement or instrument
referred to herein or therein, or any substitution, release or exchange of any other guarantee of or
security for any of the Guaranteed Obligations, and, to the fullest extent permitted by Applicable
Law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or
equitable discharge or defense of a surety or Guarantor (except for payment in full). Without
limiting the generality of the foregoing to the extent permitted by Applicable Law, it is agreed
that the occurrence of any one or more of the following shall not alter or impair the liability of
the Guarantors hereunder which shall remain absolute, irrevocable and unconditional under any
and all circumstances as described above:
(a)
the genuineness, validity, regularity, enforceability or any future
amendment of, or change in, this Agreement, any other Loan Document or any other
agreement, document or instrument to which a Borrower is or may become a party;
(b)
the absence of any action to enforce this Agreement or any other Loan
Document or the waiver or consent by Administrative Agent and Lenders with respect to
any of the provisions thereof;
(c)
the existence, value or condition of, or failure to perfect its Lien against,
any security for the Obligations or any action, or the absence of any action, by the
Administrative Agent and Lenders in respect thereof (including the release of any such
security);
(d)
the insolvency of any Borrower or any other Guarantor;
(e)
any of the acts mentioned in any of the provisions of this Agreement or the
Notes, if any, or any other agreement or instrument referred to herein or therein shall be
done or omitted;
(f)
the maturity of any of the Guaranteed Obligations shall be accelerated, or
any of the Guaranteed Obligations shall be amended in any respect, or any right under the
Loan Documents or any other agreement or instrument referred to herein or therein shall
be amended or waived in any respect or any other guarantee of any of the Guaranteed
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Obligations or any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(g)
the release of any Borrower or any other Guarantor; or
(h)
any other action or circumstances that might otherwise constitute a legal
or equitable discharge or defense of a surety or guarantor (other than payment in full in
cash or performance of the Obligations).
To the extent permitted by Applicable Law, the Guarantors hereby expressly waive diligence,
presentment, demand of payment, protest and all notices whatsoever, and any requirement that
any Loan Party thereof exhaust any right, power or remedy or proceed against any Borrower
under this Agreement or the Notes, if any, or any other agreement or instrument referred to
herein or therein, or against any other Person under any other guarantee of, or security for, any of
the Guaranteed Obligations. To the extent permitted by Applicable Law, the Guarantors waive
any and all notice of the creation, renewal, extension, waiver, termination or accrual of any of the
Guaranteed Obligations and notice of or proof of reliance by any Secured Party upon this
Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred in reliance upon this
Guarantee, and all dealings between the Borrowers and the Secured Parties shall likewise be
conclusively presumed to have been had or consummated in reliance upon this Guarantee. This
Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee
of payment without regard to any right of offset with respect to the Guaranteed Obligations at
any time or from time to time held by Secured Parties, and the obligations and liabilities of the
Guarantors hereunder shall not be conditioned or contingent upon the pursuit by the Secured
Parties or any other Person at any time of any right or remedy against any Borrower or against
any other Person which may be or become liable in respect of all or any part of the Guaranteed
Obligations or against any collateral security or guarantee therefor or right of offset with respect
thereto. This Guarantee shall remain in full force and effect and be binding in accordance with
and to the extent of its terms upon the Guarantors and the successors and assigns thereof, and
shall inure to the benefit of the Lenders, and their respective successors and assigns,
notwithstanding that from time to time during the term of this Agreement there may be no
Guaranteed Obligations outstanding, until the obligations are paid in full in cash and all
Commitments hereunder are terminated.
Section 7.03 Reinstatement. The obligations of the Guarantors under this Article VII
shall be automatically reinstated if and to the extent that for any reason any payment by or on
behalf of the Borrowers or other Loan Party in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations,
whether as a result of any proceedings in bankruptcy or reorganization or otherwise. The
Guarantors jointly and severally agree that they will indemnify each Secured Party promptly
upon written demand (together with backup documentation supporting such reimbursement
request) for all reasonable costs and out-of-pocket expenses (including reasonable fees of
counsel) incurred by such Secured Party in connection with such rescission or restoration,
including any such costs and expenses incurred in defending against any claim alleging that such
payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy,
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insolvency or similar law, other than any costs or expenses resulting from the bad faith, willful
misconduct, or gross negligence by such Secured Party.
Section 7.04 Subrogation; Subordination. Each Guarantor hereby agrees that until the
payment and satisfaction in full in cash of all Guaranteed Obligations (other than contingent
indemnity obligations to the extent no claim giving rise thereto has been asserted) and the
expiration and termination of the Commitments of the Lenders under this Agreement it shall not
exercise any right or remedy arising by reason of any performance by it of its guarantee in
Section 7.01, whether by subrogation, for contribution or otherwise, against the Borrowers or
any other Guarantor of any of the Guaranteed Obligations or any security for any of the
Guaranteed Obligations. The payment of any amounts due with respect to any Indebtedness of a
Borrower or any other Guarantor now or hereafter owing to any Guarantor or any Borrower by
reason of any payment by such Guarantor under the Guarantee in this Article VII is hereby
subordinated to the prior payment in full in cash of the Guaranteed Obligations.
Section 7.05 Remedies. The Guarantors jointly and severally agree that, as between the
Guarantors and the Lenders, the obligations of the Borrowers under this Agreement and the
Notes, if any, may be declared to be forthwith due and payable as provided in Article VIII (and
shall be deemed to have become automatically due and payable in the circumstances provided in
said Article VIII) for purposes of Section 7.01, notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming automatically due
and payable) as against the Borrowers and that, in the event of such declaration (or such
obligations being deemed to have become automatically due and payable), such obligations
(whether or not due and payable by the Borrowers) shall forthwith become due and payable by
the Guarantors for purposes of Section 7.01.
Section 7.06 Instrument for the Payment of Money. Each Guarantor hereby
acknowledges that the guarantee in this Article VII constitutes an instrument for the payment of
money, and consents and agrees that any Lender or Agent, at its sole option, in the event of a
dispute by such Guarantor in the payment of any moneys due hereunder, shall have the right to
bring a motion-action under New York CPLR Section 3213.
Section 7.07 Continuing Guarantee. The guarantee in this Article VII is a continuing
guarantee of payment, and shall apply to all Guaranteed Obligations whenever arising.
Section 7.08 General Limitation on Guarantee Obligations. In any action or proceeding
involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the obligations of any
Guarantor under Section 7.01 would otherwise be held or determined to be void, voidable,
invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the
amount of its liability under Section 7.01, then, notwithstanding any other provision to the
contrary, the amount of such liability shall, without any further action by such Guarantor, any
Loan Party or any other Person, be automatically limited and reduced to the highest amount that
is valid and enforceable and not subordinated to the claims of other creditors as determined in
such action or proceeding.
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Section 7.09 Release of Subsidiary Guarantors. If, in compliance with the terms and
provisions of the Loan Documents, all or substantially all of the Equity Interests or property of
any Subsidiary Guarantor are sold or otherwise transferred in a transaction permitted by this
Agreement (a “Transferred Guarantor”) to a Person or Persons, none of which is a Borrower
or a Loan Party, such Transferred Guarantor shall, upon the consummation of such sale or
transfer, be automatically released from its obligations under this Agreement and its obligations
to pledge and grant any Collateral owned by it pursuant to any Security Document and, in the
case of a sale of all or substantially all of the Equity Interests of the Transferred Guarantor, the
pledge of such Equity Interests to the Administrative Agent pursuant to the Security Agreements
shall be automatically released, and the Administrative Agent shall take such actions as are
necessary or reasonably requested by the Lead Borrower to effect each release described in this
Section 7.09 in accordance with the relevant provisions of the Security Documents.
ARTICLE VIII
EVENTS OF DEFAULT
In case of the happening of any of the following events (“Events of Default”):
(a)
Any Loan Party shall default in the payment of any principal of any Loan
or the reimbursement with respect to any LC Disbursement when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for
prepayment thereof or by acceleration thereof or otherwise;
(b)
Any Loan Party shall default in the payment of any interest on any Loan
or any Fee or any other amount (other than an amount referred to in (a) above) due under
any Loan Document, when and as the same shall become due and payable, and such
default shall continue unremedied for a period of five Business Days;
(c)
any representation or warranty made or deemed made by or on behalf of
any Loan Party in or in connection with any Loan Document or the borrowings or
issuances of Letters of Credit hereunder or any representation, warranty, statement or
information contained in any material report, certificate, financial statement or other
instrument furnished in connection with or pursuant to any Loan Document, shall prove
to have been false or misleading in any material respect when so made, deemed made or
furnished; it being recognized by Lenders, however, that projections as to future events
are not to be viewed as facts and that the actual results during the period or periods
covered by said projections probably will differ from the projected results and that the
differences may be material;
(d)
Any Loan Party shall default in the due observance or performance by any
Company of any covenant, condition or agreement contained in Section 5.02(a), 5.03(a),
5.04, 5.07 (solely with respect to the Administrative Agent’s or Lenders’ right to inspect
and to conduct appraisals and commercial finance examinations), 5.08, 5.15 (after a two
(2) Business Day grace period), or 5.16 or in Article VI (provided that, if (A) such default
is of a type that can be cured within five Business Days and (B) the default would not
adversely impact the Lenders’ Lien on the Collateral, and (C) the default occurred as a
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result of a breach of Sections 6.01, 6.02, 6.04, 6.06, 6.09, or 6.10, such default shall not
constitute an Event of Default for five Business Days after the occurrence of such default
so long as the Loan Parties are diligently pursuing the cure of such default);
(e)
Any Loan Party shall default in the due observance or performance by any
Company of any covenant, condition or agreement contained in any Loan Document
(other than those specified in (a), (b), (c) or (d) above) and such default shall continue
unremedied for (or shall not have been waived within) a period of 30 days after written
notice thereof from the Administrative Agent to the Lead Borrower;
(f)
Any Loan Party shall (i) fail to pay any principal or interest, regardless of
amount, due in respect of any Material Indebtedness (other than the Obligations), when
and as the same shall become due and payable (after giving effect to the expiration of any
grace period or cure period set forth therein), or (ii) fail to observe or perform any other
term, covenant, condition or agreement contained in the Term Loan Agreement or any
other agreement or instrument evidencing or governing any such Material Indebtedness if
the effect of any failure referred to in clauses (i) and (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their behalf (with or without
the giving of notice, the lapse of time or both) to cause, such Material Indebtedness to
become due prior to its stated maturity (after giving effect to any grace period or cure
period set forth therein) which default event or condition is not being contested in good
faith;
(g)
an involuntary proceeding shall be commenced or an involuntary petition
shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Loan
Party, or of a substantial part of the Property or assets of any Loan Party, under the
Bankruptcy Code, as now constituted or hereafter amended, or any other federal, state or
foreign bankruptcy, insolvency, receivership or similar law; (ii) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan
Party or for a substantial part of the Property or assets of any Loan Party; or (iii) the
winding-up or liquidation of any Loan Party; and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(h)
any Loan Party shall (i) voluntarily commence any proceeding or file any
petition seeking relief under the Bankruptcy Code, as now constituted or hereafter
amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or
similar law; (ii) consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or the filing of any petition described in (g) above; (iii) apply for
or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for any Loan Party or for a substantial part of the Property or assets of
any Loan Party; (iv) file an answer admitting the material allegations of a petition filed
against it in any such proceeding; (v) make a general assignment for the benefit of
creditors; (vi) become unable (after taking into account all rights of contribution), admit
in writing its inability or fail generally to pay its debts as they become due; or (vii) take
any corporate action for the purpose of authorizing any of the foregoing; or (viii) except
as permitted by Section 6.05, wind up or liquidate;
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(i)
one or more final judgments shall be rendered against any Loan Party or
any combination thereof for the payment of money in an aggregate amount in excess of
$25,000,000, in each case, either (i) in excess of insurance coverage to the extent the
applicable insurance carrier has not denied (or reserved rights with respect to its)
responsibility to cover such liability, or (ii) the Lead Borrower has provided evidence of
indemnities reasonably satisfactory to the Administrative Agent), and the same shall
remain undischarged for a period of 45 consecutive days during which execution shall
not be effectively stayed, or any action shall be legally taken by a judgment creditor to
levy upon assets or properties of any Loan Party to enforce any such judgment;
(j)
an ERISA Event shall have occurred that, when taken together with all
other such ERISA Events, could reasonably be expected to result in liability of any Loan
Party in an amount in excess of $10,000,000 or such other amount that would reasonably
be expected to result in a Material Adverse Effect and the same shall remain
undischarged for 30 consecutive days;
(k)
any security interest and Lien purported to be created by any Security
Document shall cease to be in full force and effect, or shall cease to give the
Administrative Agent, for the benefit of the Secured Parties, the Liens, rights, powers and
privileges purported to be created and granted under such Security Documents (including
a perfected security interest in and Lien on, all of the Collateral (which shall be a first
priority security interest and Lien on the ABL Priority Collateral except as otherwise
expressly provided in the Intercreditor Agreement or any Loan Document) thereunder in
favor of the Administrative Agent, or shall be asserted by a Borrower or any other Loan
Party not to be, a valid, perfected security interest in or Lien on the Collateral (which
shall be a first priority security interest and Lien on the ABL Priority Collateral except as
otherwise expressly provided in this Agreement or such Security Document) covered
thereby, except to the extent of the failure to obtain such a security interest and Lien (i) in
immaterial Collateral which, in the aggregate with all other such immaterial Collateral,
has a fair market value not to exceed $1,500,000 or (ii) is as a result of the failure of the
Administrative Agent, through its acts or omissions and through no fault of the Loan
Parties, to maintain the perfection of its Liens in accordance with Applicable Law;
(l)
the Guarantees shall cease to be in full force and effect, unless in
connection with the sale, merger, liquidation or dissolution of a Guarantor to the extent
permitted under Section 6.05 hereof;
(m)
any Loan Document or any material provisions thereof shall at any time
and for any reason be declared by a court of competent jurisdiction to be null and void, or
a proceeding shall be commenced by any Loan Party or any other Person, on behalf of a
Loan Party, seeking to establish the invalidity or unenforceability thereof (exclusive of
questions of interpretation of any provision thereof), or any Loan Party shall repudiate or
deny that it has any liability or obligation for the payment of principal or interest or other
obligations purported to be created under any Loan Document;
(n)
there shall have occurred a Change in Control;
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(o)
the imposition of any stay or other order, the effect of which restrains the
conduct by the Loan Parties, taken as a whole, of their business in the ordinary course in
a manner that has resulted in, or could reasonably be expected to result in, a Material
Adverse Effect; or
(p)
the indictment by any Governmental Authority of any Loan Party as to
which any Loan Party or Administrative Agent receives notice as to which there is a
reasonable possibility of an adverse determination, in the good faith determination of
Administrative Agent, under any criminal statute, or commencement of criminal or civil
proceedings against any Loan Party pursuant to which statute or proceedings the penalties
or remedies sought or available include forfeiture of (i) any of the Collateral having a
value in excess of $10,000,000 or (ii) any other Property of any Loan Party which is
necessary or material to the conduct of its business and such indictment remains
unquashed for ninety (90) days or more unless the Administrative Agent determines in its
reasonable discretion that the indictment is immaterial;
then, and in every such event (other than an event with respect to any Loan Party described in
paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Required Lenders shall, by written notice to
the Lead Borrower, take either or both of the following actions, at the same or different times:
(i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be
forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared
to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and
all other Obligations accrued hereunder and under any other Loan Document, shall become
forthwith due and payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers and the Guarantors to the extent
permitted by Applicable Law, anything contained herein or in any other Loan Document to the
contrary notwithstanding; and in any event with respect to a Loan Party described in paragraph
(g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans
then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all
other Obligations accrued hereunder and under any other Loan Document, shall automatically
become due and payable, without presentment, demand, protest or any other notice of any kind,
all of which are hereby expressly waived by the Borrowers and the Guarantors, anything
contained herein or in any other Loan Document to the contrary notwithstanding.
ARTICLE IX
LC COLLATERAL ACCOUNT; APPLICATION OF COLLATERAL PROCEEDS
Section 9.01 LC Collateral Account.
(a)
The Administrative Agent is hereby authorized to establish and maintain
at its office at 225 Franklin St. – MAI 225-02-05, Boston, Massachusetts, in the name of the
Administrative Agent and pursuant to a dominion and control Agreement, a restricted deposit
account designated “The Borrower LC Collateral Account”. Each Loan Party shall deposit into
the LC Collateral Account from time to time the cash collateral required to be deposited under
Section 2.17(j) hereof.
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(b)
The balance from time to time in such LC Collateral Account shall
constitute part of the Collateral and shall not constitute payment of the Obligations until applied
as hereinafter provided. Notwithstanding any other provision hereof to the contrary, all amounts
held in the LC Collateral Account shall constitute collateral security first for the liabilities in
respect of Letters of Credit outstanding from time to time and second for the other Secured
Obligations (as defined in the Security Agreement) hereunder until such time as all Letters of
Credit shall have been terminated and all of the Obligations have been paid in full. All funds in
“The Borrower LC Collateral Account” may be invested in accordance with the provisions of
Section 2.17(j).
Section 9.02 Application of Proceeds. After the occurrence and during the continuance
of an Event of Default, the proceeds received by the Administrative Agent in respect of any sale
of, collection from, or other realization upon, all or any part of the Collateral (including, without
limitation, pursuant to the exercise by the any Agent of its remedies during the continuance of an
Event of Default) securing the Secured Obligations (as defined in the Security Agreement) or
otherwise received on account of the Obligations, shall be applied (subject to the terms of the
Intercreditor Agreement), together with any other sums then held by the Administrative Agent
pursuant to this Agreement, promptly by the Administrative Agent as follows:
(a)
First, to the payment of all reasonable costs and out-of-pocket expenses,
fees, commissions and Taxes of such sale, collection or other realization including,
without limitation, compensation to the Administrative Agent and its agents and counsel,
and all expenses, liabilities and advances made or incurred by the Administrative Agent
in connection therewith;
(b)
Second, to the payment of all other reasonable costs and out-of-pocket
expenses of such sale, collection or other realization including, without limitation, costs
and expenses and all costs, liabilities and advances made or incurred by the other Secured
Parties in connection therewith;
(c)
Third, to interest then due and payable on the Borrowers’ Swingline Loan;
(d)
Fourth, to the principal balance of the Swingline Loan outstanding until
the same has been prepaid in full;
(e)
Fifth, to interest then due and payable on the Borrowers’ Revolving Loans
and other amounts due pursuant to Sections 2.11, 2.12 and 2.14;
(f)
Sixth, to the principal balance of Revolving Loans and to the extent an
Availability Reserve had been established therefor, to all Obligations on account of
Hedging Agreements, pro rata;
(g)
Seventh, to cash collateralize all LC Exposures plus any accrued and
unpaid interest thereon;
(h)
Eighth, to all other Obligations (other than on account of Bank Products
Agreements and Cash Management Agreements), pro rata;
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(i)
Ninth, to all Obligations on account of Bank Products Agreements (other
than Hedging Agreements described in clause (vi) above) and Cash Management
Agreements, pro rata;
(j)
Tenth, the balance, if any, to the Person lawfully entitled thereto
(including the applicable Loan Party or its successors or assigns).
amounts used to cash collateralize the aggregate undrawn amount of Letters of Credit pursuant to
clause Seventh above shall be applied to satisfy drawings under such Letters of Credit as they
occur. If any amount remains on deposit as cash collateral after all Letters of Credit have either
been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if
any, in the order set forth above. In the event that any such proceeds are insufficient to pay in
full the items described in clauses (a) through (k) of this Section 9.02, the Loan Parties shall
remain liable for any deficiency.
ARTICLE X
THE ADMINISTRATIVE AGENT AND THE CO-COLLATERAL AGENTS
Section 10.01 Appointment.
(a)
Each Lender hereby irrevocably designates and appoints the
Administrative Agent and each Co-Collateral Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each Lender irrevocably authorizes the
Administrative Agent, in such capacity, and each Co-Collateral Agent, in such capacity, to take
such actions on its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers as are expressly delegated to the Administrative Agent or the CoCollateral Agents, as the case may be, by the terms of this Agreement and the other Loan
Documents, together with such actions and powers as are reasonably incidental thereto.
(b)
Effective as of the Effective Date, General Electric Capital Corporation
hereby resigns as a Co-Collateral Agent under the Existing Credit Agreement (and the Lenders,
the Issuing Bank and the Lead Borrower hereby waive the requirement under the Existing Credit
Agreement that the Co-Collateral Agent provide 30 days’ prior written notice of such
resignation), and each Lender hereby irrevocably designates and appoints the Co-Collateral
Agents hereunder as the agent of such Lender under this Agreement and the other Loan
Documents, and each Lender irrevocably authorizes each Co-Collateral Agent, in such capacity,
to take such actions on its behalf under the provisions of this Agreement and the other Loan
Documents and to exercise such powers as are expressly delegated to the Co-Collateral Agents
by the terms of this Agreement and the other Loan Documents, together with such actions and
powers as are reasonably incidental thereto.
Section 10.02 Administrative Agent and Co-Collateral Agents in their Individual
Capacity. The Persons serving as the Administrative Agent and the Co-Collateral Agents
hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not the Administrative Agent or a Co-Collateral
Agent, as applicable, and such Person and its Affiliates may accept deposits from, lend money to
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and generally engage in any kind of business with the Borrowers or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder or a Co-Collateral Agent,
as applicable.
Section 10.03 Exculpatory Provisions. Neither the Administrative Agent nor the CoCollateral Agents shall have any duties or obligations except those expressly set forth in the
Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent
and the Co-Collateral Agents shall not be subject to any fiduciary or other implied duties,
regardless of whether a Default has occurred and is continuing, (b) the Administrative Agent and
the Co-Collateral Agents shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly contemplated by the Loan
Documents that the Administrative Agent or the Co-Collateral Agents, as applicable, is required
to exercise in writing by the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section 11.02), and (c)
except as expressly set forth in the Loan Documents, the Administrative Agent and the CoCollateral Agents shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to any Future Holding Company, the Lead Borrower or any of
its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent
or Co-Collateral Agent, as applicable, or any of its respective Affiliates in any capacity. The
Administrative Agent and the Co-Collateral Agents shall not be liable for any action taken or not
taken by them with the consent or at the request of the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as provided in
Section 11.02) or in the absence of its own gross negligence or willful misconduct. The
Administrative Agent and the Co-Collateral Agents shall not be deemed to have knowledge of
any Default unless and until written notice thereof is given to the Administrative Agent and the
Co-Collateral Agents by the Lead Borrower or a Lender, and the Administrative Agent and the
Co-Collateral Agents shall not be responsible for or have any duty to ascertain or inquire into (i)
any statement, warranty or representation made in or in connection with any Loan Document, (ii)
the contents of any certificate, report or other document delivered thereunder or in connection
therewith, (iii) the performance or observance of any of the covenants, agreements or other terms
or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or
genuineness of any Loan Document or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other
than to confirm receipt of items expressly required to be delivered to the Administrative Agent or
the Co-Collateral Agents, as applicable.
Section 10.04 Reliance by Agents. The Agents shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate, consent, statement,
instrument, document or other writing believed by it in good faith to be genuine and to have been
signed or sent by the proper Person. The Agents also may rely upon any statement made to them
orally or by telephone and believed by them to be made by the proper Person, and shall not incur
any liability for relying thereon. The Agents may consult with legal counsel (who may be
counsel for Lead Borrower), independent accountants and other experts selected by them, and
shall not be liable for any action taken or not taken by it in accordance with the advice of any
such counsel, accountants or experts.
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Section 10.05 Delegation of Duties. The Administrative Agent and the Co-Collateral
Agents may perform any and all of their duties and exercise any rights and powers by or through
any one or more sub-agents appointed by the Administrative Agent or the Co-Collateral Agents,
as applicable. The Administrative Agent and the Co-Collateral Agents and any such respective
sub-agent may perform any and all its duties and exercise its rights and powers through their
respective Affiliates. The exculpatory provisions of the preceding paragraphs shall apply to any
such sub-agent and to the Affiliates of the Administrative Agent and the Co-Collateral Agents
and any such sub-agent, and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities of the Administrative
Agent and the Co-Collateral Agents.
Section 10.06 Successor Agents. Either of the Administrative Agent and each CoCollateral Agent may resign as such at any time upon at least 30 days’ prior written notice to the
Lenders, the Issuing Bank and the Lead Borrower. Upon any resignation of a Co-Collateral
Agent, the other Co-Collateral Agent shall thereafter be the sole Collateral Agent hereunder.
Upon any such resignation of the Administrative Agent, the Required Lenders shall have the
right with the consent of the Lead Borrower (such consent shall not be unreasonably withheld or
delayed) as long as no Specified Default has occurred and is continuing, to appoint a successor
from among the Lenders. If no successor shall have been so appointed by the Required Lenders
and shall have accepted such appointment within 30 days after the retiring Administrative Agent
gives written notice of its resignation, then the retiring Administrative Agent may, on behalf of
the Lenders and the Issuing Bank, with the consent of the Lead Borrower, so long as no
Specified Default has occurred and is continuing, appoint a successor Administrative Agent,
which successor shall be a commercial banking institution organized under the laws of the
United States (or any state thereof) or a United States branch or agency of a commercial banking
institution, and having combined capital and surplus of at least $500,000,000; provided,
however, that if such retiring Administrative Agent is unable to find a commercial banking
institution which is willing to accept such appointment and which meets the qualifications set
forth above, the retiring Administrative Agent’s resignation shall nevertheless thereupon become
effective, and the Lenders shall assume and perform all of the duties of such Administrative
Agent hereunder until such time, if any, as the Required Lenders, with the consent of the Lead
Borrower, so long as no Specified Default has occurred and is continuing, appoint a successor
Administrative Agent
Upon the acceptance of its appointment as Administrative Agent hereunder by a
successor, such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations hereunder. The fees payable by the
Borrowers to a successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Lead Borrower and such successor. After the
Administrative Agent’s resignation hereunder, the provisions of this Article X and Section 11.03
shall continue in effect for the benefit of such retiring Administrative Agent, its respective subagents and their respective Affiliates in respect of any actions taken or omitted to be taken by
any of them while it was acting as Administrative Agent.
X
Section 10.07 Non-Reliance on Agents and Other Lenders. Each Lender acknowledges
that it has, independently and without reliance upon the Agents or any other Lender and based on
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such documents and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Agents or any other Lender and based on such documents and
information as it shall from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan Document or
related agreement or any document furnished hereunder or thereunder.
Section 10.08 No Other Agent. The Lenders identified in this Agreement and the
Syndication Agent and the Documentation Agent shall not have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those applicable to all Lenders.
Without limiting the foregoing, the Syndication Agent and the Documentation Agent shall not
have or be deemed to have a fiduciary relationship with any Lender. Each Lender hereby makes
the same acknowledgments with respect to the Syndication Agent and the Documentation Agent
as it makes with respect to the Administrative Agent or the Co-Collateral Agents or any other
Lender in this Article X. Notwithstanding the foregoing, the parties hereto acknowledge that the
Syndication Agent and the Documentation Agent hold such titles in name only, and that such
title confers no additional rights or obligations relative to those conferred on any Lender
hereunder.
X
Section 10.09 Indemnification. The Lenders severally agree to indemnify each Agent in
its capacity as such (to the extent not reimbursed by the Borrowers or the Guarantors and without
limiting the obligation of the Borrowers or the Guarantors to do so), ratably according to their
respective outstanding Loans and Commitments in effect on the date on which indemnification is
sought under this Section 10.09 (or, if indemnification is sought after the date upon which all
Commitments shall have terminated and the Loans shall have been paid in full, ratably in
accordance with such outstanding Loans and Commitments as in effect immediately prior to
such date), from and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at
any time (whether before or after the payment of the Loans) be imposed on, incurred by or
asserted against such Agent in any way relating to or arising out of, the Commitments, this
Agreement, any of the other Loan Documents or any documents contemplated by or referred to
herein or therein or the transactions contemplated hereby or thereby or any action taken or
omitted by such Agent under or in connection with any of the foregoing; provided that no Lender
shall be liable for the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final
and nonappealable decision of a court of competent jurisdiction to have resulted from such
Agent’s gross negligence or willful misconduct. The agreements in this Section 10.09 shall
survive the payment of the Loans and all other amounts payable hereunder.
Section 10.10 Additional Loans. Administrative Agent shall not make (and shall
prohibit the Issuing Bank and Swingline Lender, as applicable, from making) any Revolving
Loans or provide any Letters of Credit to the Borrowers on behalf of Lenders intentionally and
with actual knowledge that such Revolving Loans, Swingline Loans, or Letters of Credit would
cause the aggregate amount of the Revolving Exposure to exceed the Borrowing Base, without
the prior consent of all Lenders, except, that, Administrative Agent may make (or cause to be
made) such additional Revolving Loans or Swingline Loans or provide such additional Letters of
Credit on behalf of Lenders, intentionally and with actual knowledge that such Loans or Letters
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of Credit will cause the total outstanding Revolving Exposure to exceed the Borrowing Base, as
Administrative Agent may deem necessary or advisable in its discretion without the consent of
the Lenders, provided, that: (a) the total principal amount of the additional Revolving Loans,
Swingline Loans, or additional Letters of Credit to the Borrowers which Administrative Agent
may make or provide (or cause to be made or provided) after obtaining such actual knowledge
that the Revolving Exposure equals or exceeds the Borrowing Base shall not exceed the amount
equal to $25,500,000 outstanding at any time less the then outstanding amount of any Special
Agent Advances and shall not cause the Revolving Exposure to exceed the Commitments of all
of the Lenders or the Revolving Exposure of a Lender to exceed such Lender’s Commitment,
and (b) without the consent of all Lenders, Administrative Agent shall not permit any such
additional Revolving Loans, Swingline Loans or Letters of Credit to remain outstanding for more
than sixty (60) days from the date of such additional Revolving Loans, Swingline Loans or
Letters of Credit. Each Lender shall be obligated to pay Administrat