UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 29, 2012
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 333-124878
American Tire Distributors Holdings, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 59-3796143 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
12200 Herbert Wayne Court, Suite 150
Huntersville, North Carolina 28078
(Address, including zip code, of principal executive offices)
(704) 992-2000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes x No ¨
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x *
* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities and Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting stock held by non-affiliates of the registrant: None
Number of common shares outstanding at March 4, 2013: 1,000
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| ITEM 6. |
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| ITEM 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| ITEM 8. |
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| ITEM 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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| ITEM 10. |
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| ITEM 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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| ITEM 13. |
Certain Relationships and Related Transactions and Director Independence |
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| PART IV | ||||||
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Cautionary Statements on Forward-Looking Information
This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements relating to our business and financial outlook, that are based on our current expectations, estimates, forecasts and projections. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or other comparable terminology.
These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates and assumptions. Actual outcomes and results may differ materially from those expressed in these forward-looking statements. You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any such statement to reflect new information, or the occurrence of future events or changes in circumstances, after we distribute this Annual Report on Form 10-K, except as required by the federal securities laws. Many factors could cause actual results to differ materially from those indicated by the forward-looking statements or could contribute to such differences including:
| • | general business and economic conditions in the United States, Canada and other countries, including uncertainty as to changes and trends; |
| • | our ability to execute key strategies, including pursuing acquisitions and successfully integrating and operating acquired companies; |
| • | our ability to develop and implement the operational and financial systems needed to manage our operations; |
| • | the ability of our customers and suppliers to obtain financing related to funding their operations in the current economic market; |
| • | the financial condition of our customers, many of which are small businesses with limited financial resources; |
| • | changing relationships with customers, suppliers and strategic partners; |
| • | changes in laws or regulations affecting the tire industry; |
| • | changes in capital market conditions, including availability of funding sources and fluctuations in currency exchange rates; |
| • | impacts of competitive products and changes to the competitive environment; |
| • | acceptance of new products in the market; and |
| • | unanticipated expenditures. |
See Item 1A—“Risk Factors” for further discussion.
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The terms “American Tire Distributors,” “ATD,” “the Company,” “we,” “us,” “our,” and similar terms in this report refer to American Tire Distributors Holdings, Inc. and its consolidated subsidiaries. The term “Holdings” refers only to American Tire Distributors Holdings, Inc., a Delaware corporation organized in 2005 that owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. (“ATDI”), a Delaware corporation. Holdings has no significant assets or operations other than its ownership of ATDI. The operations of ATDI and its consolidated subsidiaries constitute the operations of Holdings presented under accounting principles generally accepted in the United States. The terms “TPG” and “Sponsor” relate to TPG Capital, L.P. and/or certain funds affiliated with TPG Capital, L.P.
| Item 1. | Business. |
Our Company
We are the leading replacement tire distributor in the United States, providing a critical range of services to enable tire retailers to effectively service and grow sales to consumers. Through our network of 121 distribution centers, including 15 distribution centers in Canada, we offer access to an extensive breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs) to approximately 70,000 customers (approximately 62,000 in the U.S. and 8,000 in Canada). The critical range of services we provide includes frequent and timely delivery of inventory as well as business support services such as credit, training, access to consumer market data and the administration of tire manufacturer affiliate programs. In addition, our U.S. customers have access to a leading online ordering and reporting system as well as a website that enables our tire retailer customers to participate in the Internet marketing of tires to consumers. We estimate that our share of the replacement passenger and light truck tire market in the United States is approximately 10%, up from approximately 1% in 1996, with our largest customer and top ten customers accounting for less than 3.0% and 11.3%, respectively, of our net sales. Our estimated share of the replacement passenger and light truck tire market in Canada is approximately 6%.
We believe we distribute the broadest product offering in our industry, supplying our customers with the top ten leading passenger and light truck tire brands. We carry the flag brands from each of the four largest tire manufacturers—Bridgestone, Continental, Goodyear and Michelin—as well as the Hankook, Kumho, Nexen, Nitto and Pirelli brands. We also sell lower price point associate and proprietary brands of these and many other tire manufacturers. In addition, we sell custom wheels and accessories and related tire supplies and tools. We believe our large, diverse product offering allows us to better penetrate the replacement tire market across a broad range of price points.
On November 30, 2012, we completed the purchase of all of the issued and outstanding common shares of Triwest Trading (Canada) Ltd. d/b/a TriCan Tire Distributors (“TriCan”). TriCan is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada with 15 distribution centers stretching across the country. The purchase of TriCan expanded our distribution services beyond the borders of the United States for the first time.
On May 24, 2012, we completed the purchase of 100% of the capital stock of Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil (“CTO”). CTO owned and operated three distribution centers in Baton Rouge, Slidell and Lafayette, Louisiana serving over 500 customers. The purchase of CTO expanded our market position in Louisiana.
On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, we were acquired by TPG and certain co-investors for an aggregate purchase price valued at $1,287.5 million (the “Merger”). The Merger was financed by $635 million in aggregate principal amount of debt financing as well as common equity capital. In connection with the Merger, we conducted cash tender offers for our existing outstanding debt securities, all of which were subsequently purchased and retired.
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Our Industry
According to Modern Tire Dealer, the U.S. replacement tire market generated annual retail sales of approximately $37.8 billion in 2012. Passenger tires, medium truck tires and light truck tires accounted for 65.3%, 18.0% and 13.5%, respectively, of the total market. Farm, specialty and other types of tires accounted for the remaining 3.2%. In 2012, according to Tire Review, tire retailers obtained 62% of their tire volume from wholesale tire distributors, like us, which was up from 60% in 2011, and 19% of their tire volume from tire manufacturers, which was down from 26% in 2011.
In the U.S., replacement tires are sold to consumers through several different channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. Between 1990 and 2012, independent tire retailers and automotive dealerships have enjoyed the largest increase in market share, according to Modern Tire Dealer, moving from 54.0% to 60.5% and 1.0% to 7.0% of the market, respectively.
The U.S. replacement tire market, which is our primary market, has historically experienced stable growth and favorable pricing dynamics. From 1955 through 2012, U.S. replacement tire unit shipments increased by an average of approximately 2.6% per year. However, during challenging economic periods, consumers may opt to defer replacement tire purchases or purchase less costly brand tires. Beginning with the onset of the economic downturn in 2008, increased economic uncertainty, high unemployment and rising fuel prices led to negative growth during 2008 and 2009 in the U.S. replacement tire market. The economic environment showed signs of stabilization during 2010, ending the negative growth trend with U.S. replacement tire unit shipments increasing 7.8% over 2009. However, during 2011, U.S. replacement tire unit shipments were down slightly compared to 2010 as slow economic growth, persistently high fuel cost and a decrease in miles driven impacted the U.S. tire replacement market. Despite an increase in miles driven during 2012, the U.S. replacement tire market continued the negative growth trend as U.S. replacement tire unit shipments were down 1.8% as compared to 2011 as the economy continued to recover at a slow pace.
Despite these recent declines, we believe going forward growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:
| • | increases in the number and average age of passenger cars and light trucks; |
| • | increases in the number of miles driven; |
| • | increases in the number of licensed drivers as the U.S. population continues to grow; |
| • | increases in the number of replacement tire SKUs; |
| • | growth of the high performance tire segment; and |
| • | shortening tire replacement cycles due to changes in product mix that increasingly favor high performance tires, which have shorter average lives. |
Our Business Strategy
Our objective is to be the largest distributor of replacement tires to local, regional and national independent U.S. and Canadian tire retailers, as well as the various national and corporate accounts while providing our customers a critical range of services such as frequent and timely delivery of inventory as well as business support services. We intend to accomplish this objective, drive above-market growth and further enhance profitability and cash flow by executing the following key operating strategies:
Leverage Our Infrastructure in Existing Markets. Through infrastructure expansions over the past several years, we have developed a scalable platform with available incremental distribution capacity. Our distribution infrastructure enables us to efficiently add new customers and service growing channels, such as automotive
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dealerships, thereby increasing profitability by leveraging the utilization of our existing assets. We believe our relative penetration in existing markets is largely a function of the services we offer and the length of time we have operated locally. Specifically, in new markets, we have experienced growth in market share over time, and in markets that we have served the longest, we generally have market share well in excess of our national average.
Maintain a Comprehensive and Deep Tire Portfolio to Meet Our Customers’ Needs. We provide a broad range of products covering all price points from entry-level to faster growing high and ultra-high performance tires, through a full suite of flag, associate and proprietary brand tires. We will continue to focus on high and ultra-high performance tires, given the growth in demand for such tires, while maintaining our emphasis on providing broad market and entry level tire offerings. Our comprehensive tire portfolio is designed to satisfy all of our customers’ needs and allow us to become the supplier of choice, thereby increasing customer penetration and retention.
Utilize Technology Platform to Continue to Increase Distribution Efficiency. We intend to continue to invest in our inventory and warehouse management systems and logistics technology in order to further increase our efficiency and profit margins and improve customer service. We continue to evaluate and incorporate technical solutions including our current roll out of handheld scanning for receiving, picking and delivery of products to our customers. We believe these increased efficiencies will continue to enhance our reputation with our customers for providing a high level of prompt customer service, while also reducing costs.
Continue to Expand in Existing and New Geographic Markets. While we have the largest distribution footprint in the U.S. replacement tire market, we have limited or no market presence in certain geographic areas in the contiguous United States. We intend to enter into previously underserved geographic markets as well as expand in our existing markets in the United States and Canada by opening new distribution centers and/or through opportunistic acquisitions. Our acquisition strategy allows us to increase our share in existing markets and add distribution in new markets, utilizing our scale to realize cost savings. We believe our position as the leading replacement tire distributor in the United States, our national presence in Canada as a result of the TriCan acquisition, combined with our access to capital and our scalable platform, allows us to make acquisitions at attractive post-synergy valuations.
Expand Penetration of the Emerging Automotive Dealership Channel. Automotive dealerships are focused on growing their service business in an effort to expand profitability, and we believe they view having replacement tire capabilities as an important service element. Over the past few years we have steadily trained and deployed sales personnel to help build our sales at these accounts. We continue to invest and focus resources in this channel to strengthen and expand our relationships with the automobile manufacturers and further grow our share of tire sales to their dealerships.
Grow TireBuyer.com® into a Premier Internet Tire Provider. TireBuyer.com® is an Internet site that enables our U.S. independent tire retailer customers to connect with consumers and sell to them over the Internet. TireBuyer.com® allows our broad base of independent tire retailer customers to participate in a greater share of the growing Internet tire market. We believe that TireBuyer.com® complements and services our participating U.S. independent tire retailers by providing them access to a sales and marketing channel previously unavailable to them. The site was re-launched in 2012 on a new faster and more flexible platform to better respond to the needs of our customers and improve the overall consumer experience on the site.
Our Competitive Strengths
We believe the following key strengths position us well to maintain our ability to achieve revenue growth in excess of the U.S. and Canadian replacement tire industry:
Leading Position in a Highly-Fragmented Marketplace. We are the leading replacement tire distributor in the United States with an estimated market share of approximately 10%. Our estimated share of the replacement
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passenger and light truck tire market in Canada is approximately 6%. We believe our scale provides us key competitive advantages relative to our smaller, and generally regionally-focused, competitors. These include the ability to: efficiently stock and deliver a wide variety of tires, custom wheels, tire supplies, tools and accessories; invest in services, including sales tools and technologies, to support our customers; and realize operating efficiencies from our scalable infrastructure. We believe our leading market position, combined with our commitment to distribution, as opposed to the retail operations engaged in by our customers, enhances our ability to expand our sales footprint cost effectively both in our existing markets and in new domestic geographic markets.
Extensive and Efficient Distribution Network. We believe we have the largest independent replacement tire distribution network in the United States and Canada with 121 distribution centers and approximately 1,000 delivery vehicles serving a majority of the contiguous United States and Canada. Our extensive distribution footprint, combined with our sophisticated inventory management and logistics technologies, enables us to deliver the vast majority of orders on a same or next day basis, which is critical for tire retailers who are typically limited by physical inventory capacity and working capital constraints. Our delivery technologies allow us to more effectively and efficiently organize and optimize our route systems to provide timely product delivery. Our Oracle ERP system provides a scalable platform that can support future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit.
Broad Product Offering from Diverse Supplier Base. We believe we offer the most comprehensive selection of tires in the industry through a diverse group of suppliers. We supply the top ten leading passenger tire brands, and we carry the flag brands from each of the four largest tire manufacturers—Bridgestone, Continental, Goodyear and Michelin—as well as the Hankook, Kumho, Nexen, Nitto and Pirelli brands. Our tire product line includes a full suite of flag, associate and proprietary brand tires, allowing us to service a broad range of price points from entry level to the faster growing ultra-high performance category. In addition to tires, we also offer custom wheels and accessories and related tire supplies and tools. We believe that our broad product offering drives penetration among existing customers, attracts new customers and maximizes customer retention.
Broad Range of Critical Services. We provide a critical range of services which enable our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest product offerings available in the industry, as well as fundamental business support services, such as credit, training and access to consumer market data, that enable our tire retailer customers to better service their individual markets, and administration of tire manufacturer affiliate programs. We provide our U.S. customers with convenient 24/7 access to our extensive product offerings through our innovative and proprietary business-to-business web portal, ATDOnline®. Our online services also include TireBuyer.com® to allow our U.S. independent tire retailer customers to participate in the Internet marketing of tires to consumers. The site was re-launched in 2012 on a new faster and more flexible platform to better respond to the needs of our customers and improve the overall consumer experience on the site. We also provide select, qualified U.S. independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity.
Diversified Customer Base and Longstanding Customer Relationships. We serve a highly diversified customer base comprised of local, regional and national independent tire retailers, automotive dealerships, tire manufacturer-owned stores and mass merchandisers. We believe we are a top supplier to many of our customers and maintain customer relationships that exceed a decade on average for our top 20 customers. We believe the diversity of our customer base and the strength of our customer relationships present an opportunity to grow market share regardless of macroeconomic and replacement tire market conditions.
Consistent Financial Performance and Strong Cash Flow Generation. Our financial performance has benefited from substantial growth that has been achieved based on a combination of organic initiatives and acquisitions. In addition, the low capital intensity of our business combined with the efficient management of our
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working capital, due to our advanced inventory management systems and close vendor relationships, has historically enabled us to generate strong cash flow from operations.
Experienced Management Team Supported by Strong Equity Sponsorship. Our senior management team, led by our President and CEO William E. Berry, has an average of over 23 years of experience in the replacement tire distribution industry. Management has a proven track record of implementing successful initiatives in a leverage environment, including the execution of a disciplined acquisition strategy, which has contributed to our gross profit expansion and above-market net sales growth. In addition, we have reduced costs through the integration of operating systems and introduction of standard operating practices across all locations, resulting in improved operating efficiencies, reduced headcount and improved operating profit at existing and acquired locations. We also benefit from the extensive management and business experience provided by our Sponsor, TPG.
Products
We provide our customers with a complete package of tires, tire supplies and tools as well as custom wheels and accessories. During 2012, tire sales accounted for 96.9% of our net sales. Tire supplies, tools and custom wheels and accessories represented approximately 3.1% of our net sales.
Tires
We sell a broad selection of well-known flag brands as well as lower price point associate and proprietary brand tires. We believe our large, diverse product offering allows us to service the broad range of price points in the replacement tire market. Sales of passenger and light truck tires accounted for 82.2% of our net sales in fiscal 2012. The remainder of our tire sales was for medium trucks, farm vehicles and other specialty tires.
Flag brands. Flag brands, which have the greatest brand recognition as a result of both strong sales and strong marketing support from tire manufacturers, are generally premium-quality and premium-priced offerings. The flag brands that we sell have high consumer recognition and generate higher per-tire profit than associate or proprietary brands. We carry the flag brands from each of the four largest tire manufacturers—Bridgestone, Continental, Goodyear and Michelin—as well as the Hankook, Kumho, Nexen, Nitto and Pirelli brands. Within our flag brand product portfolio, we also carry high and ultra-high performance tires.
Associate brands. Associate brands are primarily lower-priced tires manufactured by well-known manufacturers. Our associate brands, such as Fuzion®, allow us to offer tires in a wider price range. In addition, associate brands are attractive to our tire retailer customers because they may count towards various incentive programs offered by manufacturers.
Proprietary and exclusive brands. Our Capitol® brand is a lower-priced tire made by tire manufacturers exclusively for, and marketed by, us for which we hold the trademark. This brand, in which we hold or control the trademark, strengthens our entry-level priced product offering and allows us to sell value-oriented tires to tire retailers, increasing our overall market penetration.
Custom Wheels and Accessories
Custom wheels directly complement our tire products as many custom wheel consumers purchase tires when purchasing wheels. Customers can order custom wheels from us separately or in addition to their regular tire orders without the added complexity of being serviced by an additional vendor. We offer over 30 different wheel brands, along with installation and service accessories. Of these brands, five are proprietary: ICW® Racing, Pacer®, Drifz®, Cruiser Alloy® and O.E. Performance®. An additional seven brands are national and exclusive to us: CX, Maas, Zora, Gear, Motiv, TIS (Twenty Inches Strong) and Dropstars which also includes Monster Energy Edition wheel styles. Nationally available flag brands complement our offering with such brands
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as Asanti, Advanti Racing, Black Rock, BMF, Cragar, Dick Cepek, Ultra, Platinum, Lexani, Mickey Thompson, Konig and HRE. Collectively, these brands represent one of the most comprehensive wheel offerings in the industry. Sourcing of product is worldwide through a number of manufacturers.
Tire Supplies and Tools
We supply our customers with a wide array of tire supplies and tools which enable them to better service their customers as well as help them become a more profitable business. Our tire supplies and tools are the most popular brand names from leading manufacturers. These products broaden our portfolio and leverage our customer relationships.
Competition
The U.S. and Canadian tire distribution industry is highly competitive and fragmented. In these markets, replacement tires are sold to consumers through several different outlets, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We compete with a number of tire distributors on a regional basis.
Our main competitors include TBC/Treadways Wholesale (owned by Sumitomo), which has retail operations that compete with its distribution customers, and TCI Tire Centers. In the automotive dealership channel, our principal competitor is Dealer Tire, which is focused principally on administering replacement tire programs for selected automobile manufacturers’ dealerships. In the online channel, our principal competitor is Tire Rack, which is principally focused on high and ultra-high performance offerings, acting as both a retailer and a wholesaler. We face competition from smaller regional companies and would be adversely affected if mass merchandisers and warehouse clubs gained market share from local independent tire retailers, as our market share in those channels is lower.
Customers
We serve a highly diversified customer base comprised of local, regional and national independent tire retailers, as well as various national and corporate accounts. During fiscal 2012, we sold to approximately 62,000 customers in a majority of the contiguous United States. Also, as a result of our acquisition of TriCan in November 2012, we are able to service approximately 8,000 customers in most major markets within Canada. In fiscal 2012, our largest customer and our top ten customers accounted for less than 3.0% and 11.3%, respectively, of our net sales. We believe we are a top supplier to many of our customers and maintain customer relationships that exceed a decade on average for our top 20 customers.
Suppliers
We purchase our tires from several sources, including the four largest tire manufacturers, Bridgestone, Continental, Goodyear and Michelin, from whom we bought 58.8% of our tire products in fiscal 2012. In general, we do not have long-term supply agreements with tire manufacturers, instead relying on oral arrangements or written agreements that are renegotiated annually and can be terminated on short notice. However, we have conducted business with many of our major tire suppliers for over 20 years, and we believe that we have good relationships with all of our major suppliers. In recent years, tire manufacturers have reduced the number of tire retailers they service directly. As a result of this change, tire retailers have increasingly relied on us, and we have become a more critical link between manufacturers and tire retailers.
There are a number of worldwide manufacturers of wheels and other automotive products. Most of the wheels we purchase are proprietary brands, namely, Pacer®, Cruiser Alloy®, Drifz®, O.E. Performance® and ICW® Racing, and are produced by a variety of manufacturers.
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Distribution System
We have designed our distribution system to deliver products from a wide variety of tire manufacturers to our tire retailer customers. In recent years, tire manufacturers have reduced the number of tire retailers they service directly and tire retailers have reduced the inventory they hold. At the same time, the depth and breadth of replacement SKUs has continued to expand. As a result of these changes, tire retailers have increasingly relied on us and we have become a more critical link in enabling tire retailers to more efficiently manage their business.
We utilize a sophisticated inventory and delivery system to distribute our products to most customers on a same or next day basis. In our U.S. distribution centers, we use sophisticated bin locator systems, material handling equipment and routing software that link customer orders to our inventory and delivery routes. We believe this distribution system, which is integrated with our innovative and proprietary business-to-business ATDOnline® ordering and reporting system, provides us a competitive advantage by allowing us to ship customer orders quickly and efficiently while also reducing labor costs. Our logistics and routing technology uses third-party software packages and GPS systems, including dynamic routing and Roadnet 5000, to optimize route design and delivery capacity. Coupled with our fleet of approximately 1,000 delivery vehicles, this technology enables us to cost effectively make multiple daily or weekly shipments to customers as necessary.
Approximately 80% of our U.S. tire purchases are shipped directly by tire manufacturers to our U.S. distribution centers. The remainder are shipped by manufacturers to our redistribution centers located in Maiden, North Carolina, Bakersfield, California and Chicago, Illinois. These redistribution centers warehouse slower-moving and foreign-manufactured products, which are forwarded to our U.S. distribution centers as needed.
Information Systems
Through infrastructure expansions over the past several years, we have developed a scalable platform with incremental capacity available. We are currently finishing the U.S. implementation of an Oracle ERP system that supports future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit. The ERP implementation, which is nearing completion, has basically replaced our legacy computer system. We continue to evaluate and incorporate technical solutions such as handheld scanning for receiving, picking and delivery of product to our customers.
Inventory Control
We believe that we maintain levels of inventory that are adequate to meet our customers’ needs on a same day or next day basis. Since customers look to us to fulfill their needs on short notice, inventory levels are a primary focus of our business model. As a result, backlog of orders is not considered material to, or a significant factor in, evaluating and understanding our business. Our inventory levels are determined using sales data derived from distribution centers (on a combined basis, an individual basis or by geographic region) as well as from vendors who supply the distribution centers and retail customer stores that are served by the distribution center. All distribution centers stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by their general managers. Computer systems monitor inventory levels for all stock items and quantities are periodically re-balanced from center-to-center.
Marketing and Customer Service
Our marketing efforts are focused on driving growth through customer service, additional product placement and market expansion. We provide a critical range of services which enable our tire retailer customers to operate their businesses more profitably. These services include frequent and timely delivery of inventory, as well as fundamental business support services such as credit, training and access to customer market data which enable our tire retailer customers to better service their individual markets. In addition, we provide our U.S.
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customers with an online web portal with convenient 24/7 access to our inventory, an internet site that allows our U.S. tire retailer customers to participate in the internet marketing of tires to customers as well as a franchise program in the U.S. where we deliver advertising and marketing support to our tire retailer customers.
Sales Force
We have structured our sales organization to best serve our existing customers and develop new prospective customers such as automotive dealerships. As the manufacturers have reduced their own sales staffs, our sales force has assumed the consultative role manufacturers previously provided to tire retailers. Our tire sales force consists of sales personnel at each distribution center plus a sales administrative team located at our field support center in Huntersville, North Carolina.
Sales teams, consisting of salespeople and customer service representatives, focus on tire retailers located within the service area of the distribution center and include a combination of tire-, wheel- and supplies-focused sales personnel. Some sales personnel visit targeted customers to advance our business opportunities and those of our customers, while other sales personnel remain at our facility, making client contact by telephone to advance specific products or programs. Customer service representatives manage incoming calls from customers and provide assistance with order placement, inventory inquiries and general customer support.
The Huntersville-based sales administrative team directs sales personnel at the distribution centers and manages our corporate account customers, including large national and regional retail tire and service companies. This team also manages our Huntersville-based call center, which provides call management assistance to the U.S. distribution centers during peak times of the day, thereby minimizing customer wait time, and also provides support upon any disruption in a distribution center’s local telephone service. They also serve as the primary point of contact for product and technical inquiries from TireBuyer.com® shoppers.
Our aftermarket wheel sales group employs sales and technical support personnel in the field and performance specialists in each region. The responsibilities of this sales group include cultivating new prospective wheel and supplies customers as well as coordinating with tire sales professionals to cover existing accounts. The technical support professionals provide answers to customer questions regarding wheel style and fitment and supplies.
Automotive dealerships are focused on growing their service business in an effort to expand profitability, and we believe they view having replacement tire capabilities as an important service element. Between 1990 and 2012, automotive dealerships have enjoyed a large increase in market share according to Modern Tire Dealer, moving from 1.0% of the U.S. replacement tire market to 7.0% of the market. Over the past few years we have steadily trained and deployed sales personnel to help build our sales at these accounts. We continue to invest and focus resources in this channel to strengthen and expand our relationships with the automobile manufacturers and further grow our share of tire sales to their dealerships.
Tire Retailer Programs
Through our Tire Pros® franchise program we deliver advertising and marketing support to U.S. tire retailer customers operating as Tire Pros® franchisees. U.S. independent tire retailers participating in this franchise program enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identity. We anticipate increasing volume penetration among, and further aligning ourselves with, franchisees.
Individual manufacturers offer a variety of programs for tire retailers that sell their products, such as Bridgestone’s TireStarz, Continental’s Gold, Goodyear’s G3X, Kumho’s Fuel and Michelin’s Alliance. These programs, which are relatively complex, provide cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we assist in the administration of managing these programs
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for the manufacturers and enhance these programs through dedicated staff to assist tire retailers in managing their participation. We believe these enhancements, combined with other aspects of our customer service, provide significant value to our customers.
We also offer our U.S. tire retailer customers ATDServiceBAY®, which makes available a comprehensive suite of benefits including nationwide tire and service warranties (through third-party warranty providers), a nationally accepted, private-label credit card (through GE Capital), access to consumer market data and training and marketing programs to provide our tire retailer customers with the support and service that are critical to succeed in today’s increasingly competitive marketplace.
ATDOnline® and TireBuyer.com®
ATDOnline® provides our U.S. customers with web-based online ordering and 24/7 access to our inventory availability and pricing. Orders are processed automatically and printed in the appropriate distribution center within minutes of entry through ATDOnline®. Our customers are able to track expected deliveries and retrieve copies of their signed delivery receipts. ATDOnline® also allows customers to track account balances and participation in tire manufacturer incentive programs. We encourage our customers to use this system because it represents a more efficient method of order entry and information access than traditional order systems. In fiscal 2012, approximately 68% of our total order volume was ordered through ATDOnline®, up from 56% in fiscal 2007.
TireBuyer.com® is an Internet site that enables our U.S. independent tire retailer customers to connect with consumers and sell to them over the Internet. Consumers using TireBuyer.com® choose to buy from a select, qualified independent tire retailer participating in our TireBuyer.com® program. We then distribute the purchased products to the selected tire retailer for local installation. The tire retailer receives the full revenue of the transaction, less any applicable processing fees, upon product installation. We employ a third-party provider to handle the online billing and payment process. We do not handle customers’ credit card or other sensitive information.
We account for revenues from TireBuyer.com® in the same manner as other orders received from tire retailer customers. The TireBuyer.com® transaction structure allows us to retain our distribution focus, while strengthening our relationship with our tire retailer customers by providing them access to a sales and marketing channel previously unavailable to them. In 2012, the TireBuyer.com® site was re-launched on a new platform that is faster and more flexible in allowing us to respond to the needs of our customers and enhancing the overall consumer experience. Consumer traffic on the site continues to increase.
Trademarks
The proprietary brand names under which we market our products are trademarks of our company. We value our brand names because they help develop brand identification. All of our trademarks are of perpetual duration as long as they are periodically renewed. We currently intend to maintain all of them in force. The principal proprietary brand names under which we market our products are: CAPITOL® tires, NEGOTIATOR® tires, DYNATRAC® tires, CRUISERALLOY® custom wheels, DRIFZ® custom wheels, ICW® custom wheels, PACER® custom wheels and O.E. PERFORMANCE® custom wheels. Our other trademarks include: AMERICAN TIRE DISTRIBUTORS®, ATD®, ATDONLINE®, ATDSERVICEBAY®, WHEEL WIZARD®, ENVIZIO®, WHEEL WIZARD ENVIZIO®, WHEELENVIZIO.COM®, XPRESSPERFORMANCE®, TIREBUYER.COM® and TIRE PROS®.
Seasonality
Although the effects of seasonality are not significant to our business, we have historically experienced an increase in net sales in the second and third fiscal quarters and an increase in working capital in the first fiscal quarter.
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Environmental Matters
Our operations and properties are subject to federal, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and waste as well as relating to the investigation and clean-up of contaminated properties, including off-site disposal locations. We do not incur significant costs complying with environmental laws and regulations. However, we could be subject to material environmental costs, liabilities or claims in the future, especially in the event of the adoption of new environmental laws or changes in existing laws and regulations or in their interpretation.
Employees
As of December 29, 2012, our operations employed approximately 3,500 people, approximately 3,300 of which are located in the U.S. and the balance located within our Canadian distribution centers. None of our employees are represented by a union. We believe our employee relations are satisfactory.
Available Information
We file reports and other information with the Securities and Exchange Commission (“SEC”). You may read and, for a fee, copy any document that we file with the SEC at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at www.sec.gov.
You may also request a copy of these filings at no cost, by writing or telephoning us at the following address:
American Tire Distributors Holdings, Inc.
Attention: Corporate Secretary
12200 Herbert Wayne Court
Suite 150
Huntersville, NC 28078
(704) 992-2000
| Item 1A. | Risk Factors. |
You should carefully consider the risks described below when evaluating our business and operations. The risks described below could materially adversely affect our business, financial condition or results of operations.
Demand for tire products is lower when general economic conditions are weak. Decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows.
The popularity, supply and demand for tire products changes from year to year based on consumer confidence, the volume of tires reaching the replacement tire market and the level of personal discretionary income, among other factors. Decreases in the availability of consumer credit or decreases in consumer spending as a result of recent economic conditions, including increased unemployment and rising fuel prices, may cause consumers to delay tire purchases, reduce spending on tires or purchase less expensive tires. These changes in consumer behavior could reduce the number of tires we sell, reduce our net sales or cause a change in our product mix toward products with lower per-tire margins, any of which could adversely affect our business, results of operations or cash flows.
Local economic, employment, weather, transportation and other conditions also affect tire sales, on both a wholesale and retail basis. We cannot, as a result of these factors and others, assure you that our business will
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continue to generate sufficient cash flows to finance or grow our business or that our cash needs will not increase. Historically, we have experienced that rising fuel costs, higher unemployment and credit tightening cause a decrease in miles driven and consumer spending, both of which we believe cause a decrease in unit sales in the U.S. replacement tire industry. Our business is adversely affected as a result of such industry-wide events and we may be adversely affected by similar events in the future.
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our notes and our other indebtedness.
We have a substantial amount of debt, which requires significant interest and principal payments. As of December 29, 2012, we had approximately $951.2 million of total indebtedness outstanding. Subject to the limits contained in our ABL Facility, the indenture governing our Senior Secured Notes, the indenture governing our Senior Subordinated Notes and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt will increase.
Specifically, our high level of debt could have important consequences to the holders of our notes, including the following:
| • | making it more difficult to satisfy our obligations with respect to our notes and our other debt. Any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in a default under the indenture governing our notes and the agreements governing our other debt; |
| • | limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and other general corporate requirements; |
| • | requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and general corporate requirements; |
| • | increasing our vulnerability to general adverse economic and industry conditions; |
| • | exposing us to the risk of increased interest rates as a significant amount of our borrowings are at variable rates of interest, including borrowings under our ABL Facility; |
| • | limiting our flexibility in planning for and reacting to changes in the industry in which we compete; |
| • | placing us at a disadvantage compared to other, less leveraged competitors; |
| • | increasing our cost of borrowing; and |
| • | preventing us from raising the funds necessary to repurchase all notes tendered to us upon the occurrence of certain changes of control, which would constitute an event of default under the indenture governing our notes. |
In addition, the indentures that govern our notes and our ABL Facility contain restrictive covenants that limit our ability to engage in activities that may be in our long term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all our debt.
Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations.
Our ability to fund working capital needs and planned capital expenditures and acquisitions and our ability to satisfy our debt obligations depend on our ability to generate cash flows. If we are unable to generate sufficient
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cash flows from operations to meet these needs, we may need to refinance all or a portion of our existing debt, obtain additional financing or reduce expenditures that we deem necessary to our business. Further, our ability to grow our business and market share through acquisitions may be impaired. We cannot assure you that we would be able to obtain refinancing of this kind on favorable terms or at all or that any additional financing could be obtained. The inability to obtain additional financing could materially and adversely affect our business, financial condition and cash flows.
The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows.
The industry in which we operate is highly competitive. In the United States and Canada, replacement tires are sold to consumers through several different outlets, including local independent tire retailers and mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. A number of independent wholesale tire distributors compete with us in the regions in which we do business. Most of our tire retailer customers buy products from both us and our competitors. We cannot assure you that we will be able to compete successfully in our markets in the future. Furthermore, some of our competitors, including mass merchandisers, warehouse clubs and tire manufacturers, are significantly better leveraged than us and have greater resources. See Item 1 “Business—Competition.”
We would also be adversely affected if certain channels in the replacement tire market, including mass merchandisers and warehouse clubs, gain market share at the expense of the local independent tire retailers; as our market share in those channels is lower.
We depend on manufacturers to provide us with the products we sell and disruptions in these relationships or manufacturers’ operations could adversely affect our results of operations, financial condition or cash flows.
There are a limited number of tire manufacturers worldwide. Accordingly, we rely on a limited number of tire manufacturers to supply us with the products we sell, including flag and associate brands and our proprietary brands. Our business depends on developing and maintaining productive relationships with these manufacturers. Outside of our proprietary brands, we do not have long-term contracts with these manufacturers, and we cannot assure you that these manufacturers will continue to supply products to us on favorable terms or at all. Many of our supplier manufacturers are free to terminate their business relationship with us with little or no notice and may elect to do so for any reason or no reason. Further, certain of our key suppliers also compete with us as they distribute and sell tires to certain of our tire retailer customers. A move towards this business model among our supplier manufacturers could adversely affect our results of operations, financial condition or cash flows.
In addition, our growth strategy depends in part on our ability to make selective acquisitions, but manufacturers may not be willing to supply the companies we acquire, which could adversely affect our business and results of operations. Furthermore, we could be adversely affected if any significant manufacturer experiences financial, operational, production, supply, labor or quality assurance difficulties that result in a reduction or interruption in our supply, or if they otherwise fail to meet our needs. These risks have been more pronounced recently in light of the economic downturn, commodity price volatility and governmental actions. In addition, our failure to order or promptly pay for sufficient quantities of our products may result in an increase in the unit cost of the products we purchase, a reduction in cooperative advertising and marketing funds, or a manufacturer’s unwillingness or refusal to sell products to us. If we are required to replace our manufacturers, we could experience cost increases, time delays in deliveries and a loss of customers, any of which would adversely affect us. Finally, although most newly manufactured tires are sold in the replacement tire market, manufacturers pay disproportionate attention to automobile manufacturers that purchase tires for new cars. Increased demand from automobile manufacturers could result in cost increases and time delays in deliveries to us, any of which could adversely affect us.
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Pricing volatility for raw materials could result in increased costs and may affect our profitability.
Costs for certain raw materials used in manufacturing the products we sell, including natural rubber, chemicals, steel reinforcements, carbon black, synthetic rubber and other petroleum-based products are volatile. Increasing costs for raw materials supplies would result in increased production costs for tire manufacturers. Tire manufacturers typically pass along a portion of their increased costs to us through price increases. While we typically try to pass increased prices and fuel costs through to tire retailers or to modify our activities to mitigate the impact of higher prices, we may not be successful. Failure to fully pass these increased prices and costs through to tire retailers or to modify our activities to mitigate the impact would adversely affect our operating margins and results of operations. Further, even if we do successfully pass along these costs, demand for tires may decline as a result of the increased costs, which would adversely affect us.
Attempts to expand our distribution services into new geographic markets may adversely affect our business, results of operations, financial condition or cash flows.
We plan to expand our distribution services into new geographic markets in the U.S. and Canada, which will require us to make capital investments to extend and develop our distribution infrastructure. We may not achieve profitability in new regions for a period of time. If we do not successfully add new distribution centers and routes, we experience unanticipated costs or delays or we experience competition in such markets that is greater than we expect, our business, results of operations, financial condition or cash flows may be adversely affected.
We may be unable to identify desirable acquisition targets or future acquisitions may not be successful.
We plan to investigate and acquire strategic businesses or product lines with the potential to be accretive to earnings, increase our market penetration, strengthen our market position or enhance our existing product offering. We cannot assure you, however, that we will identify or successfully complete transactions with suitable acquisition candidates in the future. A failure to identify and acquire desirable acquisition targets may slow growth in our annual unit volume, which could adversely affect our existing business, financial condition, results of operations or cash flows.
We also cannot assure you that completed acquisitions will be successful. If a business we acquire, such as TriCan or CTO, each of which we acquired in 2012, fails to operate as anticipated or cannot be successfully integrated with our existing business, our financial condition, results of operations or cash flows could be adversely affected.
Future acquisitions could require us to issue additional debt or equity.
Our recent acquisition of TriCan was financed primarily through our ABL Facility, which was amended and restated in connection with the acquisition to provide for, among other things, additional Canadian revolving credit commitments of $60.0 million. If we were to undertake another substantial acquisition, the acquisition would likely need to be financed in part through further amendments to our ABL Facility, additional financing from banks, public offerings or private placements of debt or equity securities or other arrangements. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required, particularly because we are currently highly leveraged, which may make it difficult or impossible for us to secure financing for acquisitions. If we were to undertake an acquisition by issuing equity securities or equity-linked securities, the acquisition may have a dilutive effect on the interests of the holders of our common shares. If we were to undertake an acquisition by incurring additional debt, the risks associated with our already substantial level of indebtedness could intensify.
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The failure of the Company’s information technology systems could disrupt the Company’s business operations which could have a material adverse effect on the Company’s business, financial condition and/or results of operations.
The operation of our business depends on our information technology systems. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in, among other things, transaction errors, processing inefficiencies, loss of data and the loss of sales and customers, which could cause our business and results of operations to suffer. While we have made significant investments in our disaster recovery strategies and infrastructure, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems failure, system conversions, security breaches, cyber-attacks, viruses and/or human error. In any such event, we could be required to make a significant investment to fix or replace information technology systems, and we could experience interruptions in our ability to service our customers. Additionally, we and our customers could suffer financial and reputational harm if customer or Company proprietary information was compromised by a security breach or cyber-attack. Any such damage or interruption could have a material adverse effect on our business, financial condition and/or results of operations.
Our business strategy relies increasingly upon online commerce. If our customers were unable to access any of our websites, such as ATDOnline®, our business and operations could be disrupted and our operating results would be adversely affected.
Customers’ access to our websites directly affects the volume of orders we fulfill and our revenues in the U.S. Approximately 68% of our total order volume in fiscal 2012 was placed online using ATDOnline®, up from approximately 56% in fiscal 2007. We expect our Internet-generated business in the U.S. to continue to grow as a percentage of overall sales. To be successful, we must ensure that ATDOnline® is well supported and functional on a 24/7 basis. If we are not able to continuously make these ordering tools available to our customers, there could be a decline in online orders and a decrease in our net sales.
We may not successfully execute our plan to grow our TireBuyer.com® service or we may not attain the growth we expect from our TireBuyer.com® service.
We continue to invest in TireBuyer.com®, an Internet site which enables our independent tire retailer customers to access the online tire consumer market and sell to consumers over the Internet. In 2012, the TireBuyer.com® site was re-launched on a new platform that is faster and more flexible in allowing us to respond to the needs of our customers and enhancing the overall consumer experience. Since its initial launch in 2009, we have seen a consistent increase in consumer traffic on the site. We expect that by growing and developing our TireBuyer.com® service, we can leverage our tire retailer customer footprint to capture a greater share of the Internet tire market. For TireBuyer.com® to be successful, however, we must ensure that it is well supported and functional on a 24/7 basis. In addition, TireBuyer.com® faces significant competition from other online participants, some of which have significantly larger Internet market share, longer Internet market presence, greater Internet marketing experience and better name recognition than we enjoy. We may fail to successfully grow, develop or support the TireBuyer.com® service or we may not attain the growth or benefits we expect TireBuyer.com® to provide us due to strong competition or other factors, which may adversely affect our business, financial condition or results of operations.
Because the majority of our inventory is stored in our warehouse distribution centers, a disruption in our warehouse distribution centers could adversely affect our results of operations by increasing our cost and distribution lead times.
We maintain the majority of our inventory in 121 distribution centers in the United States and Canada. Serious disruptions affecting these distribution centers or the flow of products in or out of these centers, including disruptions from inclement weather, fire, earthquakes or other causes, could damage a significant
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portion of our inventory and could adversely affect our ability to distribute our products to tire retailers in a timely manner or at a reasonable cost. During the time that it may take us to reopen or replace a distribution center, we could incur significantly higher costs and longer lead times associated with distributing our products to tire retailers, which could adversely affect our reputation, as well as our results of operations and our customer relationships.
If we experience problems with our fleet of trucks or are otherwise unable to make timely deliveries of our products to our customers, our business and reputation could be adversely affected.
We use a fleet of trucks to deliver our products to our customers, most of which are leased from third parties. We are subject to the risks associated with product delivery, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements, availability and price of fuel, and liabilities arising from accidents to the extent we are not covered by insurance. Our failure to deliver tires and other products in a timely and accurate manner could harm our reputation and brand, which could adversely affect our business and reputation.
Participants in our Tire Pros® franchise program are independent operators and we have limited influence over their operations. Our Tire Pros® franchisees could take actions that could harm the value of the Tire Pros® franchise, or could be unwilling or unable to continue to participate in the program, which could materially and adversely affect our business, results of operations, financial condition and cash flows.
Participants in our Tire Pros® franchise program are independent operators and have significant discretion in running their operations. Their employees are not our employees. Franchisees could take actions that subject them to legal and financial liabilities, and we may, regardless of the actual validity of such a claim, be named as a party in an action relating to, or be held liable for, the conduct of our franchisees if it is shown that we exercise a sufficient level of control over a particular franchisee’s operation. In addition, the quality of franchise operations may be diminished by any number of factors beyond our control. We do not offer financial or management services to our franchisees, which may not have sufficient resources or expertise to operate their businesses at the level we would expect. While we ultimately can take action to terminate franchisees that do not comply with the standards contained in our franchise agreements, we may not be able to identify problems and take action quickly enough and, as a result, the image and reputation of Tire Pros® may suffer, fewer tire retailers may become Tire Pros® franchisees and existing participants may leave the Tire Pros® program.
In addition, our franchise agreements have limited durations and our franchisees may not be willing or able to renew their franchise agreements with us. For example, a franchisee may decide not to renew due to a lawsuit or disagreement with us, dissatisfaction with the Tire Pros® program or a perception that the Tire Pros® program conflicts with other business interests. Similarly, a franchisee may be unable to renew its franchise agreement with us due to a bankruptcy or restructuring event or the failure to secure a real estate lease renewal, among other factors.
Our business, business prospects, results of operations, financial condition and cash flows could be adversely affected if we are forced to defend claims made against our franchisees, if others seek to hold us accountable for our franchisees’ actions, if the Tire Pros® program does not grow as we expect or if the Tire Pros® franchise program is not otherwise successful.
We could become subject to additional government regulation which could cause us to incur significant liabilities.
We are currently subject to federal, state and foreign laws and regulations that apply to our business, including laws and regulations that affect tire distribution and sale, safety matters and tire specifications. Our costs of complying with these laws and regulations, including our operating expenses and liabilities arising under governmental regulations, may be increased in the future and additional fees and taxes may be imposed by
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governmental authorities. Future regulatory requirements, such as required disclosure of made-on dates for tires or an expansion of the Transportation Recall Enhancement Accountability and Documentation (TREAD) Act to cover tire distributors, could cause a material increase in our liabilities or operating expenses, which would materially and adversely affect our business, results of operations, financial condition and cash flows.
Loss of key personnel or failure to attract and retain highly qualified personnel could adversely affect our results of operations, financial condition and cash flows.
We are dependent on the continued services of our senior management team. We may not be able to retain our existing senior management, fill new positions or vacancies created by expansion or turnover, or attract additional senior management personnel. We believe the loss of such key personnel could adversely affect our financial performance. In addition, our ability to manage our anticipated growth will depend on our ability to identify, hire and retain qualified management personnel. We cannot assure you that we will attract and retain sufficient qualified personnel to meet our business needs.
Consolidation among customers may reduce our importance as a holder of sizable inventory, which could adversely affect our business and results of operations.
Our success has been dependent, in part, on the fragmented customer base in our industry. Due to the small size of most tire retailers, they cannot support substantial inventory positions and thus, as our size permits us to maintain a sizable inventory, we fill an important role. We do not generally have long-term arrangements with our tire retailer customers and they can cease doing business with us at any time. If a trend towards consolidation among tire retailers develops in the future, it could reduce our importance and reduce our revenues, margins and earnings. While the local independent tire retailer share of the replacement tire market has been relatively stable in the recent past, the share of larger tire retailers has grown at the expense of smaller tire retailers. If that trend continues, the number of tire retailers able to handle sizable inventory could increase, reducing the importance of distributors like us to the local independent tire retailer market.
We could be subject to product liability, personal injury or other litigation claims that could adversely affect our business, results of operations and financial condition.
Purchasers of our products, or their employees or customers, could be injured or suffer property damage from exposure to, or defects in, products we sell or distribute, or have sold or distributed in the past. We could be subject to claims, including personal injury claims. These claims may not be covered by insurance or tire manufacturers may be unwilling or unable to assume the defense of these claims, as they have in the past. In addition, if any tire manufacturer encounters financial difficulty or ceases to operate, it may not be able to assume the defense of such claims. We also may be subject to claims due to injuries caused by our truck drivers which may not be covered by insurance. As a result, the defense, settlement or successful assertion of any future product liability, personal injury or other litigation claims could cause us to incur significant costs and could have an adverse effect on our business, financial condition, results of operations or cash flows.
We could be adversely affected by compliance with environmental regulations and could incur costs relating to environmental matters, particularly those relating to our distribution centers.
We are subject to various federal, state, local and foreign environmental laws and regulations, as well as health and safety laws and regulations. Environmental laws are complex, change frequently and have tended to become more stringent over time. Compliance costs associated with current and future environmental and health and safety laws, particularly as they relate to our distribution centers, as well as liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, financial condition or cash flows.
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Failure to maintain effective internal control over financial reporting could materially adversely affect our business, results of operations and financial condition.
Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control over financial reporting, including management’s assessment of the effectiveness of such control. Changes to our business will necessitate ongoing changes to our internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls, including any required new or improved controls, we may be unable to provide financial information in a timely and reliable manner and might be subject to sanctions or investigation by regulatory authorities such as the SEC or the Public Company Accounting Oversight Board. Any such action could adversely affect our financial results or investors’ confidence in us and could cause the price of our securities to fall.
If we determine that our goodwill and other intangible assets have become impaired, we may record significant impairment charges, which would adversely affect our results of operations.
Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. We review our goodwill and indefinite lived intangible assets at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, adverse market conditions and adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations.
Affiliates of the Sponsor indirectly own substantially all our equity interests and may have conflicts of interest with us or the holders of our notes.
As a result of the Merger, investment funds affiliated with the Sponsor indirectly own substantially all of our capital stock, and the Sponsor’s designees hold a majority of the seats on the board of directors of our indirect parent company. As a result, affiliates of the Sponsor have control over our decisions to enter into any corporate transaction and have the ability to prevent any transaction that requires the approval of stockholders regardless of whether holders of the notes believe that any such transactions are in their own best interests. For example, affiliates of the Sponsor could collectively cause us to make acquisitions that increase the amount of our indebtedness or to sell assets, or could cause us to issue additional capital stock or declare dividends. So long as investment funds affiliated with the Sponsor continue to indirectly own a significant amount of the outstanding shares of our capital stock, affiliates of the Sponsor will continue to be able to strongly influence or effectively control our decisions. The indenture governing our notes and our ABL Facility permit us to pay advisory and other fees, dividends and make other restricted payments to the Sponsor under certain circumstances and our arrangements with the Sponsor and its affiliates require us to pay certain fees on quarterly basis. See Item 13 “Certain Relationships and Related Party Transactions and Director Independence.” In addition, the Sponsor has no obligation to provide us with any additional debt or equity financing.
Additionally, the Sponsor is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or that supply us with goods and services. The Sponsor may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. The interests of the Sponsor may differ from the interests of the holders of our notes in material respects.
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Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Borrowings under our ABL Facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
Currency exchange rate fluctuations may adversely affect our financial results.
The financial position and results of operations for TriCan, our wholly-owned subsidiary acquired during 2012, are initially recorded in their functional currency which is the Canadian dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the weighted average exchange rate prevailing during the year and assets and liabilities into U.S. dollars at the year end exchange rate. Therefore, fluctuations in the value of the U.S. dollar versus the Canadian dollar will have an impact on the value of these items in our consolidated financial statements, even if their value has not changed in their original currency.
| Item 1B. | Unresolved Staff Comments. |
None.
| Item 2. | Properties. |
Our principal properties are geographically situated to meet sales and operating requirements. We believe that our properties have been well maintained, are generally in good condition and are suitable for the conduct of our business. As of December 29, 2012, we operate 106 distribution centers located in 40 states in the United States and 15 distribution centers in Canada, aggregating approximately 11.8 million square feet. Of these centers, one is owned by us and the remaining properties are leased. We also lease our principal executive office, located in Huntersville, North Carolina. This lease is scheduled to expire in 2022. In addition, we have some non-essential properties, principally acquired in the Am-Pac Tire Dist., Inc. acquisition, which we are attempting to sell or sublease.
Several of our property leases contain provisions prohibiting a change of control of the lessee or permitting the landlord to terminate the lease or increase rent upon a change of control of the lessee. Based primarily upon our belief that (i) we maintain good relations with the substantial majority of our landlords, (ii) most of our leases are at market rates and (iii) we have historically been able to secure suitable leased property at market rates when needed, we believe that these provisions will not have a material adverse effect on our business or financial position.
| Item 3. | Legal Proceedings. |
We are involved from time to time in various lawsuits, including class action lawsuits arising out of the ordinary conduct of our business. Although no assurances can be given, we do not expect that any of these matters will have a material adverse effect on our business or financial condition. We are also involved in various litigation proceedings incidental to the ordinary course of our business. We believe, based on consultation with legal counsel, that none of these will have a material adverse effect on our financial condition or results of operations.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
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| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
As of March 4, 2013, there was one holder of record of our common stock. There is no public trading market for our common stock.
As of December 29, 2012, we have not declared or paid dividends on our common stock since our incorporation in 2005. Our ability to pay dividends is restricted by certain covenants contained in our ABL Facility and in the indentures that govern our Senior Subordinated Notes and Senior Secured Notes and may be further restricted by any future indebtedness that we incur. Our business is conducted through our subsidiaries. Dividends from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion.
Information regarding securities authorized for issuance under equity compensation plans is set forth in Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10-K.
| Item 6. | Selected Financial Data. |
On May 28, 2010, as a result of the Merger, Holdings was acquired by affiliates of TPG and certain co-investors. In the following table, periods prior to May 28, 2010 reflect the financial position, results of operations and changes in financial position of Holdings and its consolidated subsidiaries prior to the Merger (the “Predecessor”). Periods after May 28, 2010 reflect the financial position, results of operations, and changes in financial position of Holdings and its consolidated subsidiaries after the Merger (the “Successor”).
The following table sets forth both the Predecessor and Successor selected historical consolidated financial data for the periods indicated. Selected historical financial data for fiscal years 2008 and 2009 and the five months ended May 28, 2010 is derived from the Predecessor’s consolidated financial statements as of and for those periods. Selected historical financial data for the seven months ended January 1, 2011 and fiscal years 2011 and 2012 is derived from the Successor’s consolidated financial statements as of and for those periods.
Both the Predecessor’s and the Successor’s fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to the prior or subsequent fiscal years. The 2008 fiscal year, which ended January 3, 2009, contains operating results for 53 weeks. The 2009 fiscal year, which ended January 2, 2010, contains operating results for 52 weeks. The five months ended May 28, 2010 contains operating results for 21 weeks. The seven months ended January 1, 2011 contains operating results for 31 weeks. The 2011 fiscal year, which ended December 31, 2011, and the 2012 fiscal year, which ended December 29, 2012, each contain operating results for 52 weeks. The following selected historical consolidated financial information 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 the related notes included under Item 8 of this report.
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| Successor | Predecessor | |||||||||||||||||||||||||
| Fiscal Year 2012 (1) |
Fiscal Year 2011 (2) |
Seven Months Ended January 1, 2011 (3) |
Five Months Ended May 28, 2010 |
Fiscal Year 2009 |
Fiscal Year 2008 (4) |
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| Dollars in thousands | ||||||||||||||||||||||||||
| Statement of Operations Data: |
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| Net sales |
$ | 3,455,864 | $ | 3,050,240 | $ | 1,525,249 | $ | 934,925 | $ | 2,171,787 | $ | 1,960,844 | ||||||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
2,887,421 | 2,535,020 | 1,316,679 | 775,678 | 1,797,905 | 1,605,064 | ||||||||||||||||||||
| Selling, general and administrative expenses |
506,408 | 437,110 | 228,513 | 135,146 | 306,189 | 274,412 | ||||||||||||||||||||
| Transaction expenses |
5,246 | 3,946 | 1,315 | 42,608 | — | — | ||||||||||||||||||||
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| Operating income (loss) |
56,789 | 74,164 | (21,258 | ) | (18,507 | ) | 67,693 | 81,368 | ||||||||||||||||||
| Other income (expense): |
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| Interest expense |
(72,918 | ) | (67,580 | ) | (37,391 | ) | (32,669 | ) | (54,415 | ) | (59,169 | ) | ||||||||||||||
| Other, net |
(3,895 | ) | (2,110 | ) | (958 | ) | (127 | ) | (1,020 | ) | (1,155 | ) | ||||||||||||||
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| Income (loss) from operations before income taxes |
(20,024 | ) | 4,474 | (59,607 | ) | (51,303 | ) | 12,258 | 21,044 | |||||||||||||||||
| Income tax provision (benefit) |
(5,678 | ) | 4,357 | (23,295 | ) | (15,227 | ) | 7,326 | 11,373 | |||||||||||||||||
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| Net income (loss) |
$ | (14,346 | ) | $ | 117 | $ | (36,312 | ) | $ | (36,076 | ) | $ | 4,932 | $ | 9,671 | |||||||||||
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| Successor | Predecessor | |||||||||||||||||||||||||
| Fiscal Year 2012 (1) |
Fiscal Year 2011 (2) |
Seven Months Ended January 1, 2011 (3) |
Five Months Ended May 28, 2010 |
Fiscal Year 2009 |
Fiscal Year 2008 (4) |
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| Dollars in thousands | ||||||||||||||||||||||||||
| Other Financial Data: |
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| Cash flows provided by (used in): |
||||||||||||||||||||||||||
| Operating activities |
$ | 10,026 | $ | (91,006 | ) | $ | (23,439 | ) | $ | 28,106 | $ | 131,105 | $ | (54,086 | ) | |||||||||||
| Investing activities |
(167,821 | ) | (92,249 | ) | (17,237 | ) | (7,523 | ) | (4,620 | ) | (81,671 | ) | ||||||||||||||
| Financing activities |
168,824 | 186,263 | 40,405 | (15,631 | ) | (127,690 | ) | 139,503 | ||||||||||||||||||
| Depreciation and amortization |
89,167 | 78,071 | 40,905 | 14,707 | 32,078 | 25,530 | ||||||||||||||||||||
| Capital expenditures |
52,388 | 31,044 | 12,381 | 6,424 | 12,757 | 13,424 | ||||||||||||||||||||
| EBITDA (5) |
142,061 | 150,125 | 18,689 | (3,927 | ) | 98,751 | 105,743 | |||||||||||||||||||
| Adjusted EBITDA (5) |
165,416 | 164,255 | 87,974 | 45,696 | 101,035 | 106,994 | ||||||||||||||||||||
| Ratio of earnings to fixed charges (6) |
— | 1.1x | — | — | 1.2x | 1.3x | ||||||||||||||||||||
| Balance Sheet Data: |
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| Cash and cash equivalents |
$ | 25,951 | $ | 14,979 | $ | 11,971 | $ | 7,290 | $ | 8,495 | ||||||||||||||||
| Working capital (7) |
545,969 | 446,061 | 270,332 | 197,317 | 288,313 | |||||||||||||||||||||
| Total assets |
2,504,002 | 2,302,563 | 2,057,348 | 1,300,624 | 1,390,860 | |||||||||||||||||||||
| Total debt (8) |
951,204 | 835,808 | 652,544 | 549,576 | 642,434 | |||||||||||||||||||||
| Total redeemable preferred stock |
— | — | — | 26,600 | 23,941 | |||||||||||||||||||||
| Total stockholders’ equity |
705,654 | 655,819 | 651,446 | 230,647 | 224,486 | |||||||||||||||||||||
| (1) | Reflects the acquisition of Triwest Trading (Canada) Ltd. d/b/a TriCan Tire Distributors in November 2012 and the acquisition of Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil in May 2012 |
| (2) | Reflects the acquisition of Bowlus Service Company d/b/a North Central Tire in April 2011 |
| (3) | Reflects the acquisition of Lisac’s of Washington, Inc. and Tire Wholesalers, Inc. in December 2010 |
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| (4) | Reflects the acquisition of Remington Tire Distributors, Inc., d/b/a Gray’s Wholesale Tire Distributors in October 2008 and the acquisition of Am-Pac Tire Dist., Inc. in December 2008 |
| (5) | EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted to reflect the items set forth in the table below. The presentation of EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP. We present EBITDA and Adjusted EBITDA because we believe they provide a more complete understanding of the factors and trends affecting our business than GAAP measures alone. We also believe that such measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Our board of directors, management and investors use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing items that we do not believe are indicative of our core operating performance. In addition, the indentures governing our senior notes use a measure similar to Adjusted EBITDA to measure our compliance with certain covenants. Our board of directors also uses Adjusted EBITDA in determining compensation for our management. We caution investors that amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers because not all issuers calculate Adjusted EBITDA in the same manner. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same or similar to some of the adjustments set forth below. Neither EBITDA nor Adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. |
The following tables show the calculation of EBITDA and Adjusted EBITDA from the most directly comparable GAAP measure, net income (loss):
| Successor | Predecessor | |||||||||||||||||||||||||
| Fiscal Year 2012 (1) |
Fiscal Year 2011 (2) |
Seven Months Ended January 1, 2011 (3) |
Five Months Ended May 28, 2010 |
Fiscal Year 2009 |
Fiscal Year 2008 (4) |
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| In thousands | ||||||||||||||||||||||||||
| Net income (loss) |
$ | (14,346 | ) | $ | 117 | $ | (36,312 | ) | $ | (36,076 | ) | $ | 4,932 | $ | 9,671 | |||||||||||
| Depreciation and amortization |
89,167 | 78,071 | 40,905 | 14,707 | 32,078 | 25,530 | ||||||||||||||||||||
| Interest expense |
72,918 | 67,580 | 37,391 | 32,669 | 54,415 | 59,169 | ||||||||||||||||||||
| Income tax provision (benefit) |
(5,678 | ) | 4,357 | (23,295 | ) | (15,227 | ) | 7,326 | 11,373 | |||||||||||||||||
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| EBITDA |
$ | 142,061 | $ | 150,125 | $ | 18,689 | $ | (3,927 | ) | $ | 98,751 | $ | 105,743 | |||||||||||||
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| Successor | Predecessor | |||||||||||||||||||||||||
| Fiscal Year 2012 (1) |
Fiscal Year 2011 (2) |
Seven Months Ended January 1, 2011 (3) |
Five Months Ended May 28, 2010 |
Fiscal Year 2009 |
Fiscal Year 2008 (4) |
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| In thousands | ||||||||||||||||||||||||||
| EBITDA |
$ | 142,061 | $ | 150,125 | $ | 18,689 | $ | (3,927 | ) | $ | 98,751 | $ | 105,743 | |||||||||||||
| Management fee |
7,446 | 4,624 | 2,352 | 125 | 500 | 500 | ||||||||||||||||||||
| Incentive compensation |
4,349 | 4,115 | 3,706 | 5,892 | 326 | — | ||||||||||||||||||||
| Transaction fees |
5,246 | 3,946 | 1,315 | 42,608 | — | — | ||||||||||||||||||||
| Inventory step-up |
4,074 | — | 58,797 | — | — | — | ||||||||||||||||||||
| Other |
2,240 | 1,445 | 3,115 | 998 | 1,458 | 751 | ||||||||||||||||||||
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| Adjusted EBITDA |
$ | 165,416 | $ | 164,255 | $ | 87,974 | $ | 45,696 | $ | 101,035 | $ | 106,994 | ||||||||||||||
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| (6) | For purposes of these ratios, (i) earnings have been calculated by adding interest expense and the estimated interest portion of rental expense to earnings before income taxes and (ii) fixed charges are comprised of |
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| interest expense and capitalized interest, if any. In the five months ended May 28, 2010, the seven months ended January 1, 2011 and fiscal year 2012, earnings were insufficient to cover fixed charges by approximately $51.3 million, $59.6 million and $20.0 million, respectively. |
| (7) | Working capital is defined as current assets less current liabilities |
| (8) | Total debt is the sum of current maturities of long-term debt, non-current portion of long-term debt and capital lease obligations |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Unless the context otherwise requires, the terms “American Tire Distributors,” “ATD,” “the Company,” “we,” “us,” “our” and similar terms in this report refer to American Tire Distributors Holdings, Inc. and its consolidated subsidiaries, the term “Holdings” refers only to American Tire Distributors Holdings, Inc., a Delaware Corporation, and the term “ATDI” refers only to American Tire Distributors, Inc., a Delaware corporation. The terms “TPG” and “Sponsor” relate to TPG Capital, L.P. and/or certain funds affiliated with TPG Capital, L.P.
The following discussion and analysis of our consolidated results of operations, financial condition and liquidity should be read in conjunction with our consolidated financial statements and the related notes included in Item 8 of this report. The following discussion contains forward-looking statements that reflect our current expectations, estimates, forecast and projections. These forward-looking statements are not guarantees of future performance, and actual outcomes and results may differ materially from those expressed in these forward-looking statements. See Item 1A “Risk Factors” and “Cautionary Statements on Forward-Looking Information.”
Company Overview
We are the leading replacement tire distributor in the United States, providing a critical range of services to enable tire retailers to effectively service and grow sales to consumers. Through our network of 121 distribution centers in the United States and Canada, we offer access to an extensive breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs) to approximately 70,000 customers (approximately 62,000 in the U.S. and 8,000 in Canada). The critical range of services we provide includes frequent and timely delivery of inventory as well as business support services such as credit, training, access to consumer market data and the administration of tire manufacturer affiliate programs. In addition, our U.S. customers have access to a leading online ordering and reporting system as well as a website that enables our tire retailer customers to participate in the Internet marketing of tires to consumers. We estimate that our share of the replacement passenger and light truck tire market in the United States (U.S.) is approximately 10%, up from approximately 1% in 1996, with our largest customer and top ten customers accounting for less than 3.0% and 11.3%, respectively, of our net sales. Our estimated share of the replacement passenger and light truck tire market in Canada is approximately 6.0%.
We believe we distribute the broadest product offering in our industry, supplying our customers with the top ten leading passenger and light truck tire brands. We carry the flag brands from each of the four largest tire manufacturers—Bridgestone, Continental, Goodyear and Michelin—as well as the Hankook, Kumho, Nexen, Nitto and Pirelli brands. We also sell lower price point associate and proprietary brands of these and many other tire manufacturers. In addition, we sell custom wheels and accessories and related tire supplies and tools. We believe our large, diverse product offering allows us to better penetrate the replacement tire market across a broad range of price points.
Industry Overview
The U.S. and Canadian replacement tire market has historically experienced stable growth and favorable pricing dynamics. From 1955 through 2012, U.S. replacement tire unit shipments increased by an average of approximately 2.6% per year. However, during challenging economic periods, consumers may opt to defer replacement tire purchases or purchase less costly brand tires. Beginning with the onset of the economic downturn in 2008, increased economic uncertainty, unemployment and rising fuel prices led to negative growth during 2008 and 2009 in the U.S. replacement tire market. The economic environment showed signs of stabilization during 2010, ending the negative growth trend with U.S. replacement tire unit shipments increasing 7.8% over 2009. However, during 2011, U.S. replacement tire unit shipments were down slightly compared to 2010 as slow economic growth, persistently high fuel cost and a decrease in miles driven impacted the U.S. tire replacement market. Despite an increase in miles driven during 2012, the U.S. replacement tire market continued
24
the negative growth trend as U.S. replacement tire unit shipments were down 1.8% as compared to 2011 as the economy continued to recover at a slow pace.
Despite these recent declines, we believe going forward growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:
| • | increases in the number and average age of passenger cars and light trucks; |
| • | increases in the number of miles driven; |
| • | increases in the number of licensed drivers as the U.S. population continues to grow; |
| • | increases in the number of replacement tire SKUs; |
| • | growth of the high performance tire segment; and |
| • | shortening tire replacement cycles due to changes in product mix that increasingly favor high performance tires, which have shorter average lives. |
Despite the current market environment, we have a solid infrastructure, an extensive and efficient distribution network and a broad product offering. Our growth strategy, coupled with our access to capital and our scalable platform, enables us to continue to expand in existing markets as well as in new geographic areas. In addition, we are investing in technology and new sales channels which will help fuel our future growth. As a result, we believe that we are well positioned to continue to achieve above market results in both contracting and expanding market demand cycles.
Recent Developments
As part of our ongoing business strategy, we intend to expand in existing markets as well as enter into previously underserved markets and new geographic areas. Since the second half of 2010 through December 2011, we opened new distribution centers in 10 locations throughout the contiguous United States increasing the size of our distribution network to 98 distribution centers as of December 31, 2011. During 2012, we continued to execute our plans to expand by opening new distribution centers in Long Island, NY, Milwaukee, WI, Colorado Springs, CO, Austin, TX, Peoria, IL, Tulsa, OK and Tucson, AZ. We will continue to evaluate additional geographic markets during 2013 and beyond.
On November 30, 2012, we completed the purchase of all of the issued and outstanding common shares of Triwest Trading (Canada) Ltd. d/b/a TriCan Tire Distributors (“TriCan”). TriCan is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada with 15 distribution centers stretching across the country. The acquisition was funded through our ABL Facility, which was amended and restated in connection with the acquisition. Prior to the closing of the acquisition, we received a cash contribution of $60.0 million from our parent, which was used to reduce amounts then outstanding under the ABL Facility. The cash contribution was funded from the proceeds of the sale by Accelerate Parent, Holdings’ indirect parent, of common stock to affiliates of TPG Capital L.P. and certain co-investors. See “—Liquidity and Capital Resources—ABL Facility.” The purchase of TriCan expanded our distribution services beyond the borders of the United States for the first time.
On May 24, 2012, we completed the purchase of 100% of the capital stock of Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil (“CTO”). CTO owned and operated three distribution centers in Baton Rouge, Slidell and Lafayette, Louisiana serving over 500 customers. The acquisition was funded through our ABL Facility. The purchase of CTO expanded our market position in Louisiana.
On February 1, 2012, we reacquired one of three facilities that were included in a 2002 sale-leaseback transaction. The purchase price of the facility was $1.5 million. Accordingly, the original lease was amended to extend the lease term on the two remaining facilities by 5 years as well as to adjust the future lease payments
25
over the remaining 15 years. Under current accounting guidance, the change in the debt terms was not considered substantial. As a result, the amendment was treated as a debt modification for accounting purposed and therefore, we reduced the original financing obligation of $14.1 million by the purchase price. No gain or loss was recognized as a result of the initial sales transaction or the 2012 amendment.
Acquisition of Holdings by our Sponsor
On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, we were acquired by TPG and certain co-investors for an aggregate purchase price valued at $1,287.5 million (the “Merger”). The Merger was financed by $635 million in aggregate principal amount of debt financing as well as common equity capital. In connection with the Merger, we conducted cash tender offers for our existing outstanding debt securities, all of which were subsequently purchased and retired. Although we continue to operate as the same legal entity subsequent to the acquisition, periods prior to May 28, 2010 reflect our financial position, results of operations, and changes in financial position prior to the Merger (the “Predecessor”) and periods after May 28, 2010 reflect our financial position, results of operations, and changes in financial position after the Merger (the “Successor”). See Note 3 in Notes to Consolidated Financial Statements for additional information.
Under the guidance provided by the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 5J, “New Basis of Accounting Required in Certain Circumstances,” push-down accounting is required when such transactions result in an entity becoming substantially wholly-owned. Under push-down accounting, certain transactions incurred by the acquirer, which would otherwise be accounted for in the accounts of the parent, are “pushed down” and recorded on the financial statements of the subsidiary. Therefore, the basis in shares of our common stock has been pushed down from TPG to us. In addition, the Merger was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations. The guidance prescribes that the purchase price be allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, periods prior to the Merger are not comparable to subsequent periods due to the difference in the basis of presentation of purchase accounting as compared to historical cost.
Results of Operations
Our fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of certain fiscal years will not be exactly comparable to other fiscal years. The 2012 fiscal year for the Successor which ended December 29, 2012 and the 2011 fiscal year for the Successor, which ended December 31, 2011 each contain operating results for 52 weeks. The seven months ended January 1, 2011 for the Successor contains operating results for 31 weeks while the five months ended May 28, 2010 for the Predecessor contains operating results for 21 weeks.
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Fiscal 2012 for the Successor Compared to Fiscal 2011 for the Successor
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
| Successor | Successor | |||||||||||||||||||||||
| Fiscal Year Ended |
Fiscal Year Ended |
Period Over Period Change |
Period Over Period % Change |
Percentage of Net Sales For the Respective Period Ended |
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| December 29, | December 31, | Favorable | Favorable | December 29, | December 31, | |||||||||||||||||||
| In thousands |
2012 | 2011 | (unfavorable) | (unfavorable) | 2012 | 2011 | ||||||||||||||||||
| Net sales |
$ | 3,455,864 | $ | 3,050,240 | $ | 405,624 | 13.3 | % | 100.0 | % | 100.0 | % | ||||||||||||
| Cost of goods sold |
2,887,421 | 2,535,020 | (352,401 | ) | -13.9 | % | 83.6 | % | 83.1 | % | ||||||||||||||
| Selling, general and administrative expenses |
506,408 | 437,110 | (69,298 | ) | -15.9 | % | 14.7 | % | 14.3 | % | ||||||||||||||
| Transaction expenses |
5,246 | 3,946 | (1,300 | ) | -32.9 | % | 0.2 | % | 0.1 | % | ||||||||||||||
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| Operating income (loss) |
56,789 | 74,164 | (17,375 | ) | -23.4 | % | 1.6 | % | 2.4 | % | ||||||||||||||
| Other income (expense): |
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| Interest expense |
(72,918 | ) | (67,580 | ) | (5,338 | ) | -7.9 | % | -2.1 | % | -2.2 | % | ||||||||||||
| Other, net |
(3,895 | ) | (2,110 | ) | (1,785 | ) | -84.6 | % | -0.1 | % | -0.1 | % | ||||||||||||
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| Income (loss) from operations before income taxes |
(20,024 | ) | 4,474 | (24,498 | ) | -547.6 | % | -0.6 | % | 0.1 | % | |||||||||||||
| Income tax provision (benefit) |
(5,678 | ) | 4,357 | 10,035 | 230.3 | % | -0.2 | % | 0.1 | % | ||||||||||||||
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| Net income (loss) |
$ | (14,346 | ) | $ | 117 | $ | (14,463 | ) | -12361.5 | % | -0.4 | % | 0.0 | % | ||||||||||
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Net Sales
Net sales for fiscal 2012 were 3,455.9 million, a $405.6 million or 13.3% increase compared with fiscal 2011. The increase in net sales was partially driven by higher net tire pricing of $167.1 million. The pricing increase, which included $127.0 million related to passenger and light truck tires and $28.1 million related to medium truck tires, resulted from our passing through tire manufacturer price increases predominately established during 2011, as well as selling a higher mix of flag brand product and a lower mix of Chinese manufactured product. The combined results of new distribution centers opened since the beginning of 2011 as well as the acquisitions of TriCan, CTO and NCT added $181.5 million of incremental sales during fiscal 2012. In addition, an increase in comparable tire unit sales across all tire categories contributed $40.4 million, primarily driven by passenger and light truck tires. However, the increase in comparable tire sales was slightly impacted by destocking of lower price point inventories throughout the marketplace in anticipation of the expiration of tariffs imposed on Chinese tire imports that ceased at the end of September 2012. As a result, comparable net sales of the Chinese tire imports decreased by $34.1 million.
Cost of Goods Sold
Cost of goods sold for fiscal 2012 were $2,887.4 million, a $352.4 million or a 13.9% increase compared with fiscal 2011. The increase in cost of goods sold was primarily driven by the combined results of new distribution centers opening since the beginning of 2011, as well as the acquisitions of TriCan, CTO, and NCT. These growth initiatives added $159.2 million of incremental costs during fiscal 2012. In addition, higher net tire pricing of $126.3 million contributed to the increase. The pricing increase, which included $103.6 million related to passenger and light truck tires and $23.6 million related to medium truck tires, resulted from tire manufacturer price increases predominately established during 2011, as well as, selling a higher mix of flag brand product and a lower mix of Chinese manufactured product. In addition, an increase in comparable tire unit sales contributed $22.8 million, primarily driven by passenger and light truck tires. Fiscal 2012 also includes $4.1 million related to the non-cash amortization of the inventory step-up recorded in connection with the acquisition of TriCan.
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Cost of goods sold as a percentage of net sales was 83.6% for fiscal 2012, an increase compared with 83.1% from fiscal 2011. The increase in the cost of goods sold as a percentage of net sales was primarily driven by a lower level of manufacturer price increases implemented during 2012 as compared to 2011, coupled with selective discounting by certain tire manufacturers during 2012 for the intention of spurring unit sales. These price increases generate favorable inventory cost layers that are passed through to our customers in the period instituted. In addition, competitive pricing pressures have increased as distributors vie for customers in a sluggish market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2012 were $506.4 million, a $69.3 million or 15.9% increase compared with fiscal 2011. The increase in selling, general and administrative expenses was primarily related to incremental costs associated with our new distribution centers opened since the beginning of 2011 as well as the acquisition of TriCan, CTO and NCT. Combined, these factors added $28.0 million of incremental costs to fiscal 2012, including increased amortization expense of $5.0 million from newly established intangible assets. In addition, we experienced an increase to salaries and wage expense of $14.1 million, primarily due to higher sales volume and related headcount; a $9.8 million increase to vehicle expense due to a higher price per gallon of fuel, higher overall consumption of fuel and other vehicle related expenses; as well as a $6.0 million increase in occupancy costs as we expanded several of our distribution centers to better service our existing customers. Depreciation expense added an additional $5.7 million of costs to fiscal 2012 as we increased our capital expenditure costs primarily for information system technologies.
Selling, general and administrative expenses as a percentage of net sales was 14.7% for fiscal 2012; an increase compared with 14.3% during fiscal 2011. The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by an increase in costs associated with our growth expansion of recently opened distribution centers as well as an increase in non-cash depreciation and amortization expense.
Transaction Expenses
Transaction expenses for fiscal 2012 were $5.2 million, which primarily related to acquisition costs associated with our acquisition of TriCan in November 2012 and CTO in May 2012 as well as with expenses related to potential future acquisitions and corporate initiatives. In addition, we incurred $1.3 million for exit costs associated with our decision to relocate an existing distribution center into an expanded distribution center during fiscal 2012. Transaction expenses for fiscal 2011 were $3.9 million, which primarily related to acquisition fees as well as costs incurred in connection with both the amendment of our ABL Facility and the registration of our Senior Secured Notes with the SEC. Additionally, we incurred $1.1 million for exit costs associated with our decision to relocate two existing distribution centers into two expanded distribution centers during fiscal 2011.
Interest Expense
Interest expense for fiscal 2012 was $72.9 million, a $5.3 million or 7.9% increase compared with fiscal 2011. The increase is primarily due to higher average debt levels on our ABL Facility partially offset by lower average interest rates on the outstanding debt. In addition, $2.8 million of the year-over-year increase relates to the write-off of deferred financing costs associated with the amendment of our ABL Facility in November 2012 due to a change in lenders in the syndication group for the amended ABL Facility. During fiscal 2012, we also recorded $1.3 million associated with the fair value changes of our interest rate swaps. The comparable amount recorded associated with these swaps during fiscal 2011 was $0.9 million.
Provision (Benefit) for Income Taxes
Our income tax benefit for fiscal 2012 was $5.7 million. The benefit, which was based on a pre-tax loss of $20.0 million, includes $59.1 million of amortization expense that is not deductible for income tax purposes. Our
28
income tax provision for 2011 was $4.4 million, which was based on pre-tax income of $4.5 million, primarily resulting from a higher state effective tax rate as well as additional amortization expense related to the valuation of intangible assets acquired, which were recorded in connection with the Merger. Our effective tax rate for fiscal years 2012 and 2011 was 28.3% and 97.4%, respectively. The effective tax rate for fiscal 2012 was lower than the statutory tax rate primarily due to the unfavorable adjustment to the transaction costs related to the acquisition of TriCan, the impact from certain amortization expense that is non-deductible for tax purposes, and the rate differences between U.S. and Canada. The effective tax rate for fiscal 2011 was higher than the statutory tax rate primarily due to a 0.5% increase in our state effective tax rate, a result based on our growing presence in jurisdictions with higher than average tax rates, and the impact from certain amortization expense that is non-deductible for tax purposes.
Fiscal 2011 for the Successor Compared to Seven Months Ended January 1, 2011 for the Successor
Due to the Merger and related change in control, a new entity was created for accounting purposes as of May 28, 2010. As a result, generally accepted accounting principles require us to present separately our operating results for the Predecessor and Successor periods. In the following discussion, results for the fiscal year ended December 31, 2011 for the Successor are compared and discussed in relation to the seven months ended January 1, 2011 for the Successor.
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
| Successor | Successor | |||||||||||||||||||||||
| Fiscal Year Ended |
Seven Months Ended |
Period Over Period Change |
Period Over Period % Change |
Percentage of Net Sales For the Respective Period Ended |
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| December 31, | January 1, | Favorable | Favorable | December 31, | January 1, | |||||||||||||||||||
| In thousands |
2011 | 2011 | (unfavorable) | (unfavorable) | 2011 | 2011 | ||||||||||||||||||
| Net sales |
$ | 3,050,240 | $ | 1,525,249 | $ | 1,524,991 | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
| Cost of goods sold |
2,535,020 | 1,316,679 | (1,218,341 | ) | -92.5 | % | 83.1 | % | 86.3 | % | ||||||||||||||
| Selling, general and administrative expenses |
437,110 | 228,513 | (208,597 | ) | -91.3 | % | 14.3 | % | 15.0 | % | ||||||||||||||
| Transaction expenses |
3,946 | 1,315 | (2,631 | ) | -200.1 | % | 0.1 | % | 0.1 | % | ||||||||||||||
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| Operating income (loss) |
74,164 | (21,258 | ) | 95,422 | 448.9 | % | 2.4 | % | -1.4 | % | ||||||||||||||
| Other income (expense): |
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| Interest expense |
(67,580 | ) | (37,391 | ) | (30,189 | ) | -80.7 | % | -2.2 | % | -2.5 | % | ||||||||||||
| Other, net |
(2,110 | ) | (958 | ) | (1,152 | ) | -120.3 | % | -0.1 | % | -0.1 | % | ||||||||||||
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| Income (loss) from operations before income taxes |
4,474 | (59,607 | ) | 64,081 | 107.5 | % | 0.1 | % | -3.9 | % | ||||||||||||||
| Income tax provision (benefit) |
4,357 | (23,295 | ) | (27,652 | ) | -118.7 | % | 0.1 | % | -1.5 | % | |||||||||||||
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| Net income (loss) |
$ | 117 | $ | (36,312 | ) | $ | 36,429 | 100.3 | % | 0.0 | % | -2.4 | % | |||||||||||
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Net Sales
Net sales for fiscal 2011 were $3,050.2 million, a $1,525.0 million or 100.0% increase compared with the seven months ended January 1, 2011. The increase was directly attributable to the comparison of operating results of a twelve month period with a seven month period. In addition to the increase in tire unit sales attributable to the difference in the number of months in the comparable period, passenger and light truck tire pricing increased by 8.7%. The increase was driven primarily by tire manufacturer price increases. As well, the combined results of opening new distribution centers and the integration of our recent acquisitions contributed
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$218.8 million during fiscal 2011. However, these increases were partially offset by lower equipment sales of $26.8 million during fiscal 2011 as a result of our 2010 decision to discontinue selling certain products within our equipment product offering.
Cost of Goods Sold
Cost of goods sold for fiscal 2011 were $2,535.0 million, a $1,218.3 million or a 92.5% increase compared with the seven months ended January 1, 2011. The increase was directly attributable to the comparison of operating results of a twelve month period with a seven month period. Cost of goods sold as a percentage of net sales was 83.1% and 86.3% for fiscal 2011 and the seven months ended January 1, 2011, respectively. However, the seven months ended January 1, 2011 includes $58.8 million related to the non-recurring amortization of the inventory step-up recorded in connection with the Merger. The charge had a 3.9 point impact on cost of goods sold as a percentage of net sales. Other factors that contributed to the increase in cost of goods sold included higher net tire pricing resulting from tire manufacturer price increases, higher tire unit sales coupled with the incremental tire units sold through new distribution centers as well as the integration of our recent acquisitions. However, these increases were partially offset by the reduction in net sales within our equipment product offering during fiscal 2011 as a result of our 2010 decision to discontinue selling certain products within our equipment product offering.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2011 were $437.1 million, a $208.6 million or a 91.3% increase compared with the seven months ended January 1, 2011. The increase in selling, general and administrative expenses was primarily attributable to the comparison of operating results for a twelve month period with a seven month period. In addition to the increase in costs attributable to the difference in the number of months in the comparable period, incremental costs associated with our new distribution centers opened during the last twelve months were $21.8 million. Also, the expansion of several of our distribution centers in order to better service our existing customers as well as the integration of our fourth quarter 2010 and second quarter 2011 acquisitions contributed to the increase. Other factors included additional amortization of $3.9 million related to intangible assets acquired, a higher price per gallon of fuel and an increase in salaries and wage expense due to higher sales volume and related headcount. Despite the increase in expenses during 2011, operating efficiencies and improved operating leverage positively impacted our percentage of net sales. As a result, selling, general and administrative expenses as a percent of net sales decreased to 14.3% from 15.0% for fiscal 2011 and the seven months ended January 1, 2011, respectively.
Transaction Expenses
Transaction expenses for fiscal 2011 were $3.9 million, which primarily related to acquisition fees as well as costs incurred in connection with both the amendment of our ABL Facility and the registration of our Senior Secured Notes with the SEC. In addition, we incurred $1.1 million for exit costs associated with our decision to relocate two existing distribution centers into two expanded distribution centers. During the seven months ended January 1, 2011, transaction expenses of $1.1 million were incurred relating to the Merger.
Interest Expense
Interest expense for fiscal 2011 was $67.6 million, a $30.2 million or 80.7% increase compared with the seven months ended January 1, 2011. The increase was primarily attributable to the comparison of operating results of a twelve month period with a seven month period. During fiscal 2011, higher average debt levels on our ABL Facility were partially offset by lower associated interest rates. In addition, fiscal 2011 included $0.9 million associated with the fair value changes of the 2011 Swaps.
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Provision (Benefit) for Income Taxes
Our income tax provision for fiscal 2011 was $4.4 million. The provision, which was based on pre-tax income of $4.5 million, includes $54.6 million of amortization expense that is not deductible for income tax purposes. Our income tax benefit for the seven months ended January 1, 2011 was $23.3 million, which was based on a pre-tax loss of $59.6 million, primarily resulting from the non-recurring amortization of the inventory step-up adjustment as well as the additional amortization expense related to the valuation of intangible assets acquired, both recorded in connection with the Merger. Our effective tax rate for fiscal 2011 and the seven months ended January 1, 2011 was 97.4% and 39.1%, respectively. The effective tax rate for fiscal 2011 is higher than the statutory tax rate primarily due to an increase in our state effective tax rate, a result based on our growing presence in jurisdictions with higher than average tax rates, and the related impact on our net deferred tax liabilities. During the seven months ended January 1, 2011, we decreased the valuation allowance related to state net operating losses as well as benefited from certain permanent differences relating to the Merger which were deductible for income tax purposes.
Fiscal 2011 for the Successor Compared to Five Months Ended May 28, 2010 for the Predecessor
Due to the Merger and related change in control, a new entity was created for accounting purposes as of May 28, 2010. As a result, generally accepted accounting principles require us to present separately our operating results for the Predecessor and Successor periods. In the following discussion, results for the fiscal year ended December 31, 2011 for the Successor are compared and discussed in relation to the five months ended May 28, 2010 for the Predecessor.
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
| Successor | Predecessor | |||||||||||||||||||||||||
| Fiscal Year Ended December 31, 2011 |
Five Months Ended May 28, 2010 |
Period
Over Period Change Favorable (unfavorable) |
Period Over Period % Change Favorable (unfavorable) |
Percentage of Net Sales For the Respective Period Ended |
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| December 31, | May 28, | |||||||||||||||||||||||||
| In thousands |
2011 | 2010 | ||||||||||||||||||||||||
| Net sales |
$ | 3,050,240 | $ | 934,925 | $ | 2,115,315 | 226.3 | % | 100.0 | % | 100.0 | % | ||||||||||||||
| Cost of goods sold |
2,535,020 | 775,678 | (1,759,342 | ) | -226.8 | % | 83.1 | % | 83.0 | % | ||||||||||||||||
| Selling, general and administrative expenses |
437,110 | 135,146 | (301,964 | ) | -223.4 | % | 14.3 | % | 14.5 | % | ||||||||||||||||
| Transaction expenses |
3,946 | 42,608 | 38,662 | 90.7 | % | 0.1 | % | 4.6 | % | |||||||||||||||||
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| Operating income (loss) |
74,164 | (18,507 | ) | 92,671 | 500.7 | % | 2.4 | % | -2.0 | % | ||||||||||||||||
| Other income (expense): |
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| Interest expense |
(67,580 | ) | (32,669 | ) | (34,911 | ) | -106.9 | % | -2.2 | % | -3.5 | % | ||||||||||||||
| Other, net |
(2,110 | ) | (127 | ) | (1,983 | ) | -1561.4 | % | -0.1 | % | 0.0 | % | ||||||||||||||
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| Income (loss) from operations before income taxes |
4,474 | (51,303 | ) | 55,777 | 108.7 | % | 0.1 | % | -5.5 | % | ||||||||||||||||
| Income tax provision (benefit) |
4,357 | (15,227 | ) | (19,584 | ) | -128.6 | % | 0.1 | % | -1.6 | % | |||||||||||||||
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| Net income (loss) |
$ | 117 | $ | (36,076 | ) | $ | 36,193 | 100.3 | % | 0.0 | % | -3.9 | % | |||||||||||||
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Net Sales
Net sales for fiscal 2011 were $3,050.2 million, a $2,115.3 or 226.3% increase compared with the five months ended May 28, 2010. The increase was directly attributable to the comparison of operating results of a twelve month period with a five month period. In addition to the increase in tire unit sales attributable to the difference in the number of months in the comparable period, passenger and light truck tire pricing increased by
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15.3%. The increase was driven primarily by tire manufacturer price increases. As well, the combined results of opening new distribution centers and the integration of our recent acquisitions contributed $218.8 million during fiscal 2011. However, these increases were partially offset by lower equipment sales of $16.4 million during fiscal 2011 as a result of our 2010 decision to discontinue selling certain products within our equipment product offering.
Cost of Goods Sold
Cost of goods sold for fiscal 2011 were $2,535.0 million, a $1,759.3 million or 226.8% increase compared with the five months ended May 28, 2010. The increase was directly attributable to the comparison of operating results of a twelve month period with a five month period. Higher tire unit sales attributable to the difference in the number of months in the comparable period coupled with the incremental tire units sold through our new distribution centers and the integration of our recent acquisitions contributed to the increase. In addition, we experienced higher net tire pricing as a result of tire manufacturer price increases. However, these increases were partially offset by a reduction in equipment sales during fiscal 2011 as a result of our 2010 decision to discontinue selling certain products within our equipment product offering. As a result, cost of goods sold as a percentage of net sales increased to 83.1% from 83.0% for fiscal 2011 and the five months ended May 28, 2010, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2011 were $437.1 million, a $302.0 million or a 223.4% increase compared with the five months ended May 28, 2010. The increase in selling, general and administrative expenses was primarily attributable to the comparison of operating results for a twelve month period with a five month period. In addition to the increase in costs attributable to the difference in the number of months in the comparable period, incremental costs associated with our new distribution centers opened during the last twelve months were $24.6 million. Also, the expansion of several of our distribution centers in order to better service our existing customers as well as the integration of our fourth quarter 2010 and second quarter 2011 acquisitions contributed to the increase. Other factors included additional amortization due to both the revaluation of the customer list intangible asset established as part of the Merger and other intangible assets acquired, a higher price per gallon of fuel and an increase in salaries and wage expense due to higher sales volume and related headcount. These cost more than offset the $5.9 million of stock based compensation expense related to the discretionary vesting of certain previously unvested stock options during the five months ended May 28, 2010. Despite the increase in expenses during 2011, operating efficiencies and improved operating leverage positively impacted our percentage of net sales. As a result, selling, general and administrative expenses as a percentage of net sales decreased to 14.3% from 14.5% for fiscal 2011 and the five months ended May 28, 2010, respectively.
Transaction Expenses
Transaction expenses for fiscal 2011 were $3.9 million, which primarily related to acquisition fees as well as costs incurred in connection with both the amendment of our ABL Facility and the registration of our Senior Secured Notes with the SEC. In addition, we incurred $1.1 million for exit costs associated with our decision to relocate two existing distribution centers into two expanded distribution centers. During the five months ended May 28, 2010, we incurred transaction costs of $42.6 million. These direct acquisition costs included investment banking, legal, accounting and other fees for professional services in connection with the Merger as well as certain financing fees that did not qualify for capitalization. In addition, $2.4 million related to our now suspended public offering of our common stock.
Interest Expense
Interest expense for fiscal 2011 was $67.6 million, a $34.9 million or 106.9% increase compared with the five months ended May 28, 2010. The increase was primarily attributable to the comparison of operating results
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of a twelve month period with a five month period. Fiscal 2011 was impacted by higher debt levels as well as slightly higher interest rates associated with the Successor’s senior debt obligations as compared with the Predecessor’s senior debt obligations. However, during the five months ended May 28, 2010, we wrote off $8.0 million of deferred financing fees related to the Predecessor’s existing debt and accreted the carrying amount of the Predecessor’s redeemable preferred stock to the redemption amount at the date of the Merger, which impacted interest expense by $2.3 million.
Provision (Benefit) for Income Taxes
Our income tax provision for fiscal 2011 was $4.4 million. The provision, which was based on pre-tax income of $4.5 million, includes $54.6 million of amortization expense that is not deductible for income tax purposes. Our income tax benefit for the five months ended May 28, 2010 was $15.2 million, which was based on a pre-tax loss of $51.3 million, primarily resulting from the $42.6 million of transaction expenses recorded during this time period. Our effective tax rate for fiscal 2011 and the five months ended May 28, 2010 were 97.4% and 29.7%, respectively. The effective tax rate for fiscal 2011 is higher than our statutory tax rate primarily due to an increase our state effective tax rate, a result based our growing presence in jurisdictions with higher than average tax rates, and the related impact on our net deferred tax liabilities. During the five months ended May 28, 2010, the income tax benefit was impacted by certain permanent differences relating to the Merger, which were not deductable for income tax purposes.
Liquidity and Capital Resources
Overview
The following table contains several key measures to gauge our financial condition and liquidity:
| Successor | ||||||||||||
| In thousands |
December 29, 2012 |
December 31, 2011 |
January 1, 2011 |
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| Cash and cash equivalents |
$ | 25,951 | $ | 14,979 | $ | 11,971 | ||||||
| Working capital |
545,969 | 446,061 | 270,332 | |||||||||
| Total debt |
951,204 | 835,808 | 652,544 | |||||||||
| Total stockholders’ equity |
705,654 | 655,819 | 651,446 | |||||||||
| Debt-to-capital ratio |
57.4 | % | 56.0 | % | 50.0 | % | ||||||
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Debt-to-capital ratio = total debt / (total debt plus total stockholders’ equity)
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and income tax rates. Our cash requirements consist primarily of the following:
| • | Debt service requirements |
| • | Funding of working capital |
| • | Funding of capital expenditures |
Our primary sources of liquidity include cash flows from operations and our availability under our ABL Facility. We expect our cash flow from operations, combined with availability under our ABL Facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending during the next twelve month period. In addition, we expect our cash flow from operations and our availability under our newly amended ABL Facility to continue to provide sufficient liquidity to fund our ongoing obligations, projected working capital requirements, restructuring obligations and capital spending during the foreseeable future.
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We are significantly leveraged. Accordingly, our liquidity requirements are significant, primarily due to our debt service requirements. As of December 29, 2012, our total indebtedness was $951.2 million with a debt-to-capital ratio of 57.4%. Our cash interest payments for fiscal 2012, fiscal 2011 and the seven months ended January 1, 2011 for the Successor and the five months ended May 28, 2010 for the Predecessor were $64.3 million, $61.7 million, $30.2 million, and $26.2 million, respectively. As of December 29, 2012, we have an additional $161.8 million of availability under our U.S. ABL Facility and an additional $25.9 million of availability under our Canadian ABL Facility. The availability under our U.S. and Canadian ABL Facilities is determined in accordance with a borrowing base which can decline due to various factors. Therefore, amounts under our U.S. and Canadian ABL Facilities may not be available when we need them.
Our liquidity and our ability to fund our capital requirements is dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control and many of which are described under “Item 1A—Risk Factors.” If those factors significantly change or other unexpected factors adversely affect us, our business may not generate sufficient cash flow from operations or we may not be able to obtain future financings to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary to fund our operations, it would be funded through borrowings under our U.S. and Canadian ABL Facilities or through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of liquidity. We may not be able to obtain this additional liquidity on terms acceptable to us or at all.
Cash Flows
Due to the Merger and related change in control, a new entity was created for accounting purposes as of May 28, 2010. As a result, generally accepted accounting principles require us to present separately our operating results for the Predecessor and Successor periods. In the following discussion, our cash flow results for the fiscal year ended December 29, 2012 for the Successor are compared and discussed in relation to the fiscal year ended December 31, 2011 and the seven months ended January 1, 2011 for the Successor as well as with the five months ended May 28, 2010 for the Predecessor.
The following table sets forth the major categories of cash flows:
| Successor | Predecessor | |||||||||||||||||
| In thousands |
Fiscal Year 2012 |
Fiscal Year 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
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| Cash provided by (used in) operating activities |
$ | 10,026 | $ | (91,006 | ) | $ | (23,439 | ) | $ | 28,106 | ||||||||
| Cash provided by (used in) investing activities |
(167,821 | ) | (92,249 | ) | (17,237 | ) | (7,523 | ) | ||||||||||
| Cash provided by (used in) financing activities |
168,824 | 186,263 | 40,405 | (15,631 | ) | |||||||||||||
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| Effect of exchange rate changes on cash |
(57 | ) | — | — | — | |||||||||||||
| Net increase (decrease) in cash and cash equivalents |
10,972 | 3,008 | (271 | ) | 4,952 | |||||||||||||
| Cash and cash equivalents—beginning of period |
14,979 | 11,971 | 12,242 | 7,290 | ||||||||||||||
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| Cash and cash equivalents—end of period |
$ | 25,951 | $ | 14,979 | $ | 11,971 | $ | 12,242 | ||||||||||
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| Cash payments for interest |
$ | 64,324 | $ | 61,732 | $ | 30,202 | $ | 26,188 | ||||||||||
| Cash payments (receipts) for taxes, net |
$ | 6,510 | $ | (8,101 | ) | $ | 1,971 | $ | 1,122 | |||||||||
| Capital expenditures financed by debt |
$ | 515 | $ | — | $ | — | $ | — | ||||||||||
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Operating Activities
Net cash provided by operating activities for fiscal 2012 for the Successor was $10.0 million compared with net cash used in operating activities of $91.0 million for fiscal 2011. During the year, working capital requirements resulted in a cash outflow of $73.4 million, primarily driven by the continued expansion of our
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distribution centers into new domestic geographic markets. In addition, inventory resulted in a cash outflow of $32.2 million as a result of stocking seven new distribution centers opened during the year and our recent acquisitions. Accounts payable and accrued expenses changes also resulted in a cash outflow of $38.3 million primarily associated with the earlier timing of vendor payments and changes in accrued incentive compensation.
Net cash used in operating activities for fiscal 2011 for the Successor was $91.0 million. During the year, working capital requirements resulted in a cash outflow of $175.0 million, primarily driven by the continued expansion of our distribution centers into new domestic geographic markets. The cash outflow of $151.9 million related to inventory reflects our decision to increase manufacturer safety stock amounts as a result of tight supply levels with most of our manufacturers, the impact of manufacturer price increases on the replenishment of our inventory as well as the impact of new, acquired or expanded distribution centers. In addition, the combined impact of stocking new distribution centers and our recent acquisitions also contributed to the inventory increase. As well, higher sales volumes led to a $47.4 million increase to accounts receivable. However, these amounts were partially offset by a $19.1 million increase in accounts payable and accrued expenses primarily associated with the timing of vendor payments and accrued interest on our senior notes.
Net cash used in operating activities for the seven months ended January 1, 2011 for the Successor was $23.4 million. During the seven months, working capital requirements resulted in a cash outflow of $69.1 million. Accounts receivable and inventory increased $4.3 million and $36.8 million, respectively, as the increase in sales volume reflected the seasonal nature of our business. The decrease in accounts payable primarily resulted from the timing of vendor payments.
Net cash provided by operating activities for the five months ended May 28, 2010 for the Predecessor was $28.1 million. During the five months, working capital requirements for the Predecessor resulted in a cash inflow of $31.0 million. The increase, primarily driven by an increase in accounts payable and accrued expenses of $96.4 million, reflects the accrual for transaction costs associated with the Merger of $42.6 million as well as timing of vendor payments. These amounts were partially offset by an increase in accounts receivable and inventory as the increase in sales volume reflected the seasonal nature of our business.
Investing Activities
Net cash used in investing activities for fiscal 2012 for the Successor was $167.8 million compared to $92.2 million during fiscal 2011. During fiscal 2012, cash outflows for acquisitions net of cash acquired totaled $115.3 million. In addition, we invested $52.4 million in property and equipment purchases, which included information technology upgrades, IT application development and warehouse racking. During fiscal 2011, cash outflows for acquisitions net of cash acquired totaled $59.7 million. In addition, capital expenditures for property and equipment were $31.0 million which included information technology upgrades, IT application development and warehouse racking.
During the seven months ended January 1, 2011 for the Successor and the five months ended May 28, 2010 for the Predecessor, capital expenditures for property and equipment were $12.4 million and $6.4 million, respectively. The expenditures included information technology upgrades, IT application development and leasehold improvements. In addition, fourth quarter 2010 acquisitions net of cash acquired impacted the Successor’s net cash used in investing activities by $11.0 million.
Financing Activities
Net cash provided by financing activities for fiscal 2012 for the Successor was $168.8 million compared with $186.3 million during fiscal 2011. The decrease was primarily related to lower net borrowings from our ABL Facility due to the reduction in cash outflow for working capital requirements between periods as well as the change in outstanding checks between periods. These decreases were partially offset by a $60.0 million equity contribution received from TPG and certain co-investors during 2012.
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Net cash provided by financing activities for fiscal 2011 for the Successor was $186.3 million. The inflow was primarily related to higher net borrowings from our ABL Facility due to the increase in working capital requirements as well as cash paid for acquisitions. In addition, we paid $5.9 million related to the amendment of our ABL Facility.
Net cash provided by financing activities for the seven months ended January 1, 2011 for the Successor was $40.4 million. The inflow was primarily related to the proceeds from the issuance of our Senior Secured Notes and our Senior Subordinated Notes. The proceeds were partially offset by the repayment of our previously outstanding senior notes and redeemable preferred stock as well as payments for transaction fees and deferred financing costs paid in connection with the Merger.
Net cash used in financing activities for the five months ended May 28, 2010 for the Predecessor were $15.6 million. During the five months ended May 28, 2010, the outflow primarily related to the timing of outstanding checks. In addition, higher borrowings from our ABL Facility were partially offset by a $6.3 million payment related to the Predecessor’s Senior Notes.
Supplemental Disclosures of Cash Flow Information
Cash payments for interest for fiscal 2012 were $64.3 million compared with cash payments for interest for fiscal 2011 of $61.7 million. The increase is primarily due to higher average debt levels during fiscal 2012 partially offset by lower average interest rates on the outstanding debt during the year. As well, we paid an additional $0.7 million during fiscal 2012 related to our interest rate swaps.
Cash payments for interest for fiscal 2011 were $61.7 million compared with cash payments for interest for the seven month period ended January 1, 2011 of $30.2 million. The increase is primarily related to the comparison of a twelve month period to a seven month period. However, as a result of the Merger, the overall debt structure of the Successor increased along with associated higher interest rates as compared with the Predecessor. Cash payments for interest for the five month period ended May 28, 2010 were $26.2 million. The decrease compared with fiscal 2011 is primarily related to the comparison of a five month period to a twelve month period.
Cash payments for taxes during fiscal 2012 were $6.5 million, which was partially offset by a receipt of $1.2 million related to a federal income tax refund. The remaining balance included payments for 2012 estimated tax payments and 2011 tax return payments. Cash receipts for taxes for fiscal 2011 were $8.1 million as a result of utilizing a majority of our available net operating losses.
Cash receipts for taxes for fiscal year 2011 were $8.1 million compared with $2.0 million paid during the seven month period ended January 1, 2011. During 2011, we utilized a federal net operating loss to recover a portion of our prior federal income tax paid. As a result, we received a $9.1 million tax refund in the fourth quarter of 2011 based on the use of this net operating loss carryback. Cash payments for taxes for the five month period ended May 28, 2010 were $1.1 million. The decrease compared with fiscal 2011 is primarily related to the comparison of a five month period to a twelve month period as well as the utilization of the federal net operating loss.
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Indebtedness
The following table summarizes our outstanding debt at December 29, 2012:
| In thousands |
Matures | Interest Rate (1) | Outstanding Balance |
|||||||||
| U.S. ABL Facility |
2017 | 3.2 | % | $ | 478,616 | |||||||
| Canadian ABL Facility |
2017 | 4.2 | $ | 10,976 | ||||||||
| Senior Secured Notes |
2017 | 9.75 | 247,802 | |||||||||
| Senior Subordinated Notes |
2018 | 11.50 | 200,000 | |||||||||
| Capital lease obligations |
2012 - 2027 | 7.1 - 12.3 | 12,469 | |||||||||
| Other |
2014 - 2021 | 8.0 - 10.6 | 1,341 | |||||||||
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|
|
|||||||||||
| Total debt |
951,204 | |||||||||||
| Less—Current maturities |
(493 | ) | ||||||||||
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|
|
|||||||||||
| Long—term debt |
$ | 950,711 | ||||||||||
| (1) | Interest rates for each of the U.S. ABL Facility and the Canadian ABL Facility are the weighted average interest rate at December 29, 2012. |
ABL Facility
In connection with the acquisition of TriCan on November 30, 2012, we amended and restated our Fifth Amended and Restated Credit Agreement in order to provide for borrowings under the agreement by TriCan and make certain other amendments (as so amended and restated, the “Sixth Amended and Restated Credit Agreement”). The Sixth Amended and Restated Credit Agreement provides for senior secured asset-backed revolving credit facilities consisting of (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to U.S. borrowing base availability (the “U.S. ABL Facility”) and (ii) Canadian revolving credit commitments of $60.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to Canadian borrowing base availability (the “Canadian ABL Facility” and, collectively with the U.S. ABL Facility, the “ABL Facility”). The U.S. ABL Facility is available to ATDI, its wholly-owned subsidiary Am-Pac Tire Dist. Inc. and any other U.S. subsidiary that we designate in the future in accordance with the terms of the agreement. The Canadian ABL Facility is available to TriCan and any other Canadian subsidiaries that we designate in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, we have the option to request that the ABL Facility be increased by an amount not to exceed $200.0 million (up to $50.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative agent, swingline lender and issuing banks with respect to the lenders providing commitments for such increase. The maturity date for the Sixth Amended and Restated Credit Agreement is November 16, 2017, provided that if on March 1, 2017, either (i) more than $50.0 million in aggregate principal amount of ATDI’s Senior Secured Notes remains outstanding or (ii) any principal amount of ATDI’s Senior Secured Notes remains outstanding with a scheduled maturity date which is earlier than 91 days after November 16, 2017 and excess availability under the ABL Facility is less than 12.5% of the aggregate revolving commitments, then the maturity date will be March 1, 2017.
At December 29, 2012, we had $478.6 million outstanding under the U.S. ABL Facility. In addition, we had certain letters of credit outstanding in the aggregate amount of $8.3 million, leaving $161.8 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at December 29, 2012 was $11.0 million. In addition, the Company had certain letters of credit outstanding under the Canadian ABL Facility in the amount of $0.1 million, leaving $25.9 million available for additional borrowings.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at our option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus
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an applicable margin of 2.0% as of December 29, 2012 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its “prime rate” for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 29, 2012. The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the aggregate ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its “base rate”, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 29, 2012 or (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its “prime rate”, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers’ acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 1.0% as of December 29, 2012. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the aggregate ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| • | 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| • | The lesser of (a) 70% of the lesser of cost or fair market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
| • | The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, applicable. |
All obligations under the U.S. ABL Facility are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp. The Canadian ABL Facility is unconditionally guaranteed by the U.S. loan parties, TriCan and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility contains customary covenants, including covenants that restrict our ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change our fiscal year. If the amount available for additional borrowings under the combined ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the combined ABL Facility and (y) the borrowing base and (b) $25.0 million, then we would be subject to an additional covenant requiring us to meet a fixed charge coverage ratio of 1.0 to 1.0. As of December 29, 2012, our additional borrowing availability under the combined ABL Facility were above the required amount and we were therefore not subject to the additional covenants.
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Senior Secured Notes
On May 28, 2010, ATDI issued Senior Secured Notes (“Senior Secured Notes”) due June 1, 2017 in an aggregate principal amount at maturity of $250.0 million. The Senior Secured Notes were issued at a discount from their principal amount at maturity and generated net proceeds of approximately $240.7 million after debt issuance costs (which represents a non-cash financing activity of $9.3 million). The Senior Secured Notes will accrete based on an effective interest rate of 10% to an aggregate accreted value of $250.0 million, the full principal amount at maturity. The Senior Secured Notes bear interest at a fixed rate of 9.75%. Interest on the Senior Secured Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Secured Notes are not redeemable, except as described below, at the option of ATDI prior to June 1, 2013. Thereafter, the Senior Secured Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days’ notice at a redemption price of 107.313% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 104.875% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015, 102.438% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016 and 100.0% of the principal amount if the redemption date occurs between June 1, 2016 and May 31, 2017.
Until June 1, 2013, ATDI may, at its option, on one or more occasions, redeem up to 35% of the aggregate principal amount of the Senior Secured Notes issued at a redemption price equal to 109.75% of the aggregate principal amount thereof, plus accrued and unpaid interest, to, but not including, the redemption date, with the net cash proceeds from one or more equity offerings to the extent that such net cash proceeds are received by or contributed to ATDI; provided that:
| (1) | at least 50% of the sum of the aggregate principal amount of the Senior Secured Notes remains outstanding immediately after the occurrence of such redemption; and |
| (2) | each such redemption occurs within 120 days of the date of the closing of the related equity offering. |
In addition, at any time prior to June 1, 2013, ATDI may redeem all or a part of the Senior Secured Notes upon not less than 30 or more than 60 days’ notice at a redemption price equal to 100.0% of the principal amount of notes to be redeemed, plus the applicable premium (an amount intended to approximate a “make-whole” price based on the price of a U.S. treasury security plus 50 basis points) as of, plus accrued and unpaid interest, to, but not including, the redemption date, subject to the rights of holders on the relevant record date to receive interest due on the relevant interest payment date.
The Senior Secured Notes are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions. The Senior Secured Notes are also collateralized by a second-priority lien on accounts receivable and related assets and a first-priority lien on substantially all other assets (other than inventory), in each case of Holdings, ATDI and the guarantor subsidiaries, subject to certain exceptions.
The indenture governing the Senior Secured Notes contains covenants that, among other things, limits ATDI’s ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDI’s or repurchase or redeem ATDI’s capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDI’s subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens; consolidate, merge or sell all or substantially all of ATDI’s assets; enter into certain transactions with ATDI’s affiliates; and designate ATDI’s subsidiaries as unrestricted subsidiaries.
Senior Subordinated Notes
On May 28, 2010, ATDI issued $200.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due June 1, 2018, which we refer to as the Senior Subordinated Notes. Interest on the Senior
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Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Subordinated Notes are not redeemable, except as described below, at the option of ATDI prior to June 1, 2013. Thereafter, the Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days’ notice at a redemption price of 104.0% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016.
Prior to June 1, 2013, ATDI may, at its option, on one or more occasions, redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes issued at a redemption price equal to 111.5% of the aggregate principal amount thereof, plus accrued and unpaid interest, to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that:
| (1) | at least 50% of the aggregate principal amount of the Senior Subordinated Notes remains outstanding immediately after the occurrence of such redemption; and |
| (2) | each such redemption occurs within 120 days of the date of the closing of the related equity offering. |
In addition, at any time prior to June 1, 2013, ATDI may redeem all or a part of the Senior Subordinated Notes upon not less than 30 or more than 60 days’ notice at a redemption price equal to 100.0% of the principal amount of notes to be redeemed, plus the applicable premium (an amount intended to approximate a “make-whole” price based on the price of a U.S. treasury security plus 50 basis points) as of, and accrued and unpaid interest, to, but not including, the redemption date.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions.
The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDI’s ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDI’s or repurchase or redeem ATDI’s capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDI’s subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDI’s assets; enter into certain transactions with ATDI’s affiliates; and designate ATDI’s subsidiaries as unrestricted subsidiaries.
Interest Rate Swaps
On August 1, 2012, ATDI entered into two interest rate swap agreements (“3Q 2012 Swaps”) used to hedge a portion of our exposure to changes in our variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.0 million, with each $50.0 million contract having a fixed rate of 0.655% and expiring in June 2016. The 3Q 2012 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the consolidated statement of comprehensive income (loss).
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Contractual Commitments
As of December 29, 2012, we had certain cash obligations associated with contractual commitments. The amounts due under these commitments are as follows:
| In millions |
Total | Less than 1 year |
1- 3 years |
4 - 5 years |
After
5 years |
|||||||||||||||
| Long-term debt (variable rate) |
$ | 489.6 | $ | — | $ | — | $ | 489.6 | $ | — | ||||||||||
| Long-term debt (fixed rate) |
449.3 | 0.2 | 0.5 | 248.2 | 200.4 | |||||||||||||||
| Estimated interest payments (1) |
325.7 | 64.8 | 129.4 | 112.9 | 18.6 | |||||||||||||||
| Operating leases, net of sublease income |
462.5 | 75.3 | 131.3 | 97.3 | 158.6 | |||||||||||||||
| Capital leases |
12.5 | 0.3 | 0.6 | 0.8 | 10.8 | |||||||||||||||
| Uncertain tax positions |
2.0 | — | 1.6 | 0.1 | 0.3 | |||||||||||||||
| Deferred compensation obligation |
2.7 | — | — | — | 2.7 | |||||||||||||||
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| Total contractual cash obligations |
$ | 1,744.3 | $ | 140.6 | $ | 263.4 | $ | 948.9 | $ | 391.4 | ||||||||||
| (1) | Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense on variable rate debt are based on current interest rates. |
Off-Balance Sheet Arrangements
We have no significant off balance sheet arrangements other than liabilities related to certain leases of the Winston Tire Company (Winston). These leases were guaranteed when we sold Winston in 2001. As of December 29, 2012, our total obligations as guarantor on these leases are approximately $2.8 million extending over six years. However, we have secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rentals of approximately $2.6 million. A provision has been made for the net present value of the estimated shortfall. The accrual for lease liabilities could be materially affected by factors such as the credit worthiness of lessors, assignees and sublessees and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions. While we believe that our current estimates of these liabilities are adequate, it is possible that future events could require significant adjustments to those estimates.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates. The following is a summary of certain accounting estimates and assumptions made by management that we consider critical.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within our accounts receivable balance. Estimates are based upon both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables as well as past collection trends and general economic conditions. Estimating losses from doubtful accounts is inherently uncertain because the amount of such losses depends substantially on the financial condition of our customers. If the financial condition of our customers were to deteriorate beyond estimates, and impair their ability to make payments, we would be required to write off additional accounts receivable balances, which would adversely impact our financial position.
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Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or fair market value and consist primarily of automotive tires, custom wheels, and related tire supplies and tools. We perform periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and record necessary provisions to reduce such inventories to net realizable value. If actual market conditions are less favorable than those projected by management, we could be required to reduce the value of our inventory or record additional reserves, which would adversely impact our financial position.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and intangible assets with indefinite useful lives are no longer amortized, but are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
Recoverability of goodwill is determined using a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.
Recoverability of other intangible assets with indefinite useful lives is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
The determination of estimated fair value requires management to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates, royalty rates and terminal growth rates. Management developed these assumptions based on the best information available as of the date of the assessment. We completed our assessment of goodwill and intangible assets with indefinite useful lives as of November 30, 2012 and determined that no impairment existed at that date. Although no impairment has been recorded to date, there can be no assurances that future impairments will not occur. Future adverse developments in market conditions or our current or projected operating results could cause the fair value of our goodwill and intangible assets with indefinite useful lives to fall below carrying value, which would result in an impairment charge that would adversely affect our financial position.
Long-Lived Assets
Management reviews long-lived assets, which consist of property, leasehold improvements, equipment and definite-lived intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For long-lived assets to be held and used, management evaluates recoverability by comparing the carrying value of the asset to future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. For long-lived assets for which we have committed to a disposal plan, we report such assets at the lower of the carrying value or fair value less the cost to sell.
In determining the fair value of long-lived assets, we make judgments relating to the expected useful lives of long-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets. Factors that impact these judgments include the ongoing maintenance and improvements of the assets, changes in the expected use of the assets, changes in economic conditions, changes in operating performance and anticipated future cash flows. If actual fair value is less than our estimates, long-lived assets may be overstated on the balance sheet, which would adversely impact our financial position.
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Self-Insured Reserves
We are self-insured for automobile liability, workers’ compensation and the health care claims of our team members, although we maintain stop-loss coverage with third-party insurers to limit our total liability exposure. We establish reserves for losses associated with claims filed, as well as claims incurred but not yet reported, using actuarial methods followed in the insurance industry and our historical claims experience. If amounts ultimately paid differ significantly from our estimates, it could adversely impact our financial position.
Exit Cost Reserves
During the normal course of business, we continually assess the location and size our distribution centers in order to determine our optimal geographic footprint and overall structure. As a result, we have certain facilities that we have closed or intend to close and we record reserves for certain exit costs associated with these facilities. These exit cost reserves are recorded in an amount equal to future minimum lease payments and related ancillary costs from the date of closure to the end of the lease term, net of estimated sublease rentals we reasonably expect to obtain for the property. We estimate future cash flows based on contractual lease terms, the geographic market in which the facility is located, inflation, the ability to sublease the property and other economic conditions. We estimate sublease rentals based on the geographic market in which the property is located, our experience subleasing similar properties and other economic conditions. If actual exit costs associated with closing these facilities differ from our estimates, it could adversely impact our financial position.
Income Taxes and Valuation Allowances
We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision is computed using the asset and liability method of accounting, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, we recognize future tax benefits, such as net operating losses and tax credits, to the extent that realizing these benefits is considered in our judgment to be more likely than not. Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those tax items are expected to be realized or settled. We regularly review the recoverability of our deferred tax assets considering historic profitability, projected future taxable income, and timing of the reversals of existing temporary differences as well as the feasibility of our tax planning strategies. Where appropriate, we record a valuation allowance if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes to valuation allowances are recognized in earnings in the period such determination is made.
The application of income tax law is inherently complex and involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdiction in which we operate. In addition, we are required to make certain assumptions regarding our income tax positions and the likelihood that such tax positions will be sustained if challenged. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on amounts we recognize in our consolidated balance sheets and adversely impact our financial position.
Revenue Recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. We recognize revenue when the title and the risk and rewards of ownership have substantially transferred to the customer, which is upon delivery under free-on-board destination terms.
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We permit customers from time to time to return certain products but there is no contractual right of return. We continuously monitor and track such returns and record an estimate of such future returns, based on historical experience and recent trends. While such returns have historically been within management’s expectations and the provisions established have been adequate, we cannot guarantee that we will continue to experience the same return rates that we have in the past. If future returns increase significantly, it could adversely impact our results of operations.
Manufacturer Rebates
We receive rebates from tire manufacturers pursuant to a variety of rebate programs. These rebates are recorded in accordance with accounting standards applicable to cash consideration received from vendors. Many of the tire manufacturer programs provide that we receive rebates when certain measures are achieved, generally related to the volume of our purchases. We account for these rebates as a reduction to the price of the product, which reduces the carrying value of our inventory, and our cost of goods sold when product is sold. During the year, we record amounts earned for annual rebates based on purchases management considers probable for the full year. These estimates are periodically revised to reflect rebates actually earned based on actual purchase levels. Tire manufacturers may change the terms of some or all of these programs, which could increase our cost of goods sold and decrease our net income, particularly if these changes are not passed along to the customer.
Customer Rebates
We offer rebates to our customers under a number of different programs. These rebates are recorded in accordance with authoritative guidance related to accounting for consideration given by a vendor to a customer. These programs typically provide customers with rebates, generally in the form of a reduction to the amount they owe us, when certain measures are achieved, generally related to the volume of product purchased from us. We record these rebates through a reduction in the related price of the product, which decreases our net sales. During the year, we estimate rebate amounts based on the rebate rates we expect customers will achieve for the full year. These estimates are periodically revised to reflect rebates actually earned by customers.
Cooperative Advertising and Marketing Programs
We participate in cooperative advertising and marketing programs, or co-op advertising, with our vendors. Co-op advertising funds are provided to us generally based on the volume of purchases made with vendors that offer such programs. A portion of the funds received must be used for specific advertising and marketing expenditures incurred by us or our customers. The co-op advertising funds received by us from our vendors are accounted for in accordance with authoritative guidance related to accounting for cash consideration received from a vendor, which requires that we record the funds received as a reduction of cost of sales or as an offset to specific costs incurred in selling the vendor’s products. The co-op advertising funds that are provided to our customers are accounted for in accordance with authoritative guidance related to accounting for cash consideration given by a vendor to a customer, which requires that we record the funds paid as a reduction of revenue since no separate identifiable benefit is received by us.
Stock Based Compensation
We account for stock-based compensation awards in accordance with ASC 718—Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. Our stock-based compensation plans include programs for stock options and restricted stock units. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of subjective assumptions, including the expected life of the awards and stock price volatility. The assumptions used in calculating the fair value of stock-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future.
44
Foreign Currency Translation
All foreign currency denominated balance sheet accounts are translated at year end exchange rates and revenue and expense accounts are translated at weighted average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income (loss) component of stockholders’ equity. Transactional foreign currency gains and losses are included in other expense, net in the accompanying consolidated statements of comprehensive income (loss).
Recently Adopted Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Updated (“ASU”) No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” ASU No. 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in a consistent definition of fair value as well as provides common requirements for measuring fair value and disclosing information about fair value measurements. This new guidance is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. We adopted this guidance on January 1, 2012 and its adoption did not significantly impact our consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 requires the Company to present components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The option to report other comprehensive income within the statement of equity has been removed. This new presentation is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The revised presentation requirements are reflected in our consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment” which amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance will be effective for fiscal years beginning after December 15, 2011, with early adoption permitted. We adopted this guidance on January 1, 2012; however, we performed our annual impairment test in the fourth quarter of 2012.
In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU No. 2011-12 revises ASU No. 2011-05 to defer the presentation in the financial statements of reclassifications out of accumulated other comprehensive income for annual and interim financial statements. The deferral is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. We adopted this guidance on January 1, 2012. The revised presentation requirements are reflected in our consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance
45
will be effective for fiscal years beginning after September 15, 2012, with early adoption permitted. We will adopt this guidance on December 30, 2012 (the first day of our 2013 fiscal year); however we perform our annual impairment test in the fourth quarter and do not expect the impact of adopting this standard to have a material effect on the consolidated financial statements.
| Item 7A. | Quantitative and Qualitative Disclosure About Market Risk. |
Interest Rate Risk
Our U.S. and Canadian ABL Facilities are exposed to fluctuations in interest rates which could impact our results of operations and financial condition. Interest on the U.S. ABL Facility is tied to Base Rate, as defined, or LIBOR. Interest on the Canadian ABL Facility is tied to Base Rate, as defined, or Prime Rate, as defined.At December 29, 2012, we had $489.6 million outstanding under our aggregate ABL Facility subject to interest rate changes.
To manage this exposure, we use interest rate swap agreements in order to hedge the changes in our variable interest rate debt. Interest rate swap agreements utilized by us in our hedging programs are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counterparty non-performance, interest rate swap agreements are made only through major financial institutions with significant experience in such instruments.
At December 29, 2012, $239.6 million of the aggregate outstanding balance of our ABL Facility is not hedged by an interest rate swap agreement and thus subject to interest rate changes. Based on this amount, a hypothetical increase of 1% in such interest rate percentages would result in an increase to our annual interest expense by $2.4 million.
Foreign Currency Exchange Rate Risk
The financial position and results of operations for TriCan, our wholly-owned subsidiary acquired during 2012, are impacted by movements in the exchange rates between the Canadian dollar and the U.S. dollar. As of December 29, 2012, we do not have any foreign currency derivatives in place.
46
| Item 8. | Financial Statements and Supplementary Data. |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||||
| American Tire Distributors Holdings, Inc.—Consolidated Financial Statements |
||||
| Management’s Report on Internal Control over Financial Reporting |
48 | |||
| 49 | ||||
| Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011 for the Successor |
51 | |||
| 52 | ||||
| 53 | ||||
| 54 | ||||
| 55 | ||||
47
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of American Tire Distributors Holdings, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| • | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| • | Provide reasonable assurance that transactions are recorded and necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; |
| • | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Company’s internal control over financial reporting as of December 29, 2012. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management has concluded that the Company’s internal control over financial reporting was effective at a reasonable assurance level as of December 29, 2012.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of American Tire Distributors Holdings, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of American Tire Distributors Holdings, Inc. and its subsidiaries (the “Company” and “Successor”) at December 29, 2012 and December 31, 2011, and the results of their operations and their cash flows for the fiscal years ended December 29, 2012, December 31, 2011 and the Seven Months ended January 1, 2011 for the Successor in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements for the fiscal years ended December 29, 2012, December 31, 2011 and the Seven Months Ended January 1, 2011 for the Successor. 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 and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 11, 2013
49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of American Tire Distributors Holdings, Inc. and Subsidiaries:
In our opinion, the accompanying consolidated statements of comprehensive income, of stockholders’ equity and of cash flows present fairly, in all material respects, the financial position of American Tire Distributors Holdings, Inc. and its subsidiaries (Predecessor Company) the results of their operations and their cash flows for the five months ended May 28, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated 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 and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 15, 2011
50
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
| Successor | ||||||||
| In thousands, except share amounts |
December 29, 2012 |
December 31, 2011 |
||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 25,951 | $ | 14,979 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $950 and $696 in fiscal 2012 and 2011, respectively |
301,303 | 268,943 | ||||||
| Inventories |
721,672 | 641,710 | ||||||
| Deferred income taxes |
16,458 | 15,042 | ||||||
| Income tax receivable |
369 | 1,601 | ||||||
| Assets held for sale |
7,151 | 6,301 | ||||||
| Other current assets |
20,695 | 13,203 | ||||||
|
|
|
|
|
|||||
| Total current assets |
1,093,599 | 961,779 | ||||||
|
|
|
|
|
|||||
| Property and equipment, net |
129,882 | 99,930 | ||||||
| Goodwill |
483,143 | 446,787 | ||||||
| Other intangible assets, net |
738,698 | 737,684 | ||||||
| Other assets |
58,680 | 56,383 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 2,504,002 | $ | 2,302,563 | ||||
|
|
|
|
|
|||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 502,221 | $ | 469,867 | ||||
| Accrued expenses |
44,916 | 45,693 | ||||||
| Current maturities of long-term debt |
493 | 158 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
547,630 | 515,718 | ||||||
|
|
|
|
|
|||||
| Long-term debt |
950,711 | 835,650 | ||||||
| Deferred income taxes |
285,345 | 282,756 | ||||||
| Other liabilities |
14,662 | 12,620 | ||||||
| Commitments and contingencies (See Note 13) |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, par value $.01 per share; 1,000 shares authorized, issued and outstanding |
— | — | ||||||
| Additional paid-in capital |
756,338 | 691,951 | ||||||
| Accumulated earnings (deficit) |
(50,541 | ) | (36,195 | ) | ||||
| Accumulated other comprehensive income (loss) |
(143 | ) | 63 | |||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
705,654 | 655,819 | ||||||
|
|
|
|
|
|||||
| Total liabilities and stockholders’ equity |
$ | 2,504,002 | $ | 2,302,563 | ||||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements.
51
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Successor | Predecessor | |||||||||||||||||
| In thousands |
Fiscal Year Ended December 29, 2012 |
Fiscal Year Ended December 31, 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
||||||||||||||
| Net sales |
$ | 3,455,864 | $ | 3,050,240 | $ | 1,525,249 | $ | 934,925 | ||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
2,887,421 | 2,535,020 | 1,316,679 | 775,678 | ||||||||||||||
| Selling, general and administrative expenses |
506,408 | 437,110 | 228,513 | 135,146 | ||||||||||||||
| Transaction expenses |
5,246 | 3,946 | 1,315 | 42,608 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Operating income (loss) |
56,789 | 74,164 | (21,258 | ) | (18,507 | ) | ||||||||||||
| Other income (expense): |
||||||||||||||||||
| Interest expense |
(72,918 | ) | (67,580 | ) | (37,391 | ) | (32,669 | ) | ||||||||||
| Other, net |
(3,895 | ) | (2,110 | ) | (958 | ) | (127 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Income (loss) from operations before income taxes |
(20,024 | ) | 4,474 | (59,607 | ) | (51,303 | ) | |||||||||||
| Income tax provision (benefit) |
(5,678 | ) | 4,357 | (23,295 | ) | (15,227 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Net income (loss) |
$ | (14,346 | ) | $ | 117 | $ | (36,312 | ) | $ | (36,076 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Other comprehensive income (loss): |
||||||||||||||||||
| Change in value of derivative instrument, net of tax |
$ | — | $ | — | $ | — | $ | 2,168 | ||||||||||
| Foreign currency translation, net of tax |
(344 | ) | — | — | — | |||||||||||||
| Unrealized gain (loss) on rabbi trust assets, net of tax |
138 | (158 | ) | 221 | (182 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Other comprehensive income (loss) |
(206 | ) | (158 | ) | 221 | 1,986 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Comprehensive income (loss) |
$ | (14,552 | ) | $ | (41 | ) | $ | (36,091 | ) | $ | (34,090 | ) | ||||||
|
|
|
|
|
|
|
|
|
|||||||||||
See accompanying notes to consolidated financial statements.
52
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| In thousands, except share amounts |
Total Stockholders’ Equity |
Common Stock | Additional Paid-In Capital |
Warrants | Accumulated Earnings (Deficit) |
Accumulated Other Comprehensive (Loss) Income |
Treasury Stock at Cost |
|||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| Predecessor balance, January 2, 2010 |
$ | 230,647 | 999,528 | $ | 10 | $ | 218,348 | $ | 4,631 | $ | 9,922 | $ | (2,164 | ) | $ | (100 | ) | |||||||||||||||
| Net income (loss) |
(36,076 | ) | — | — | — | — | (36,076 | ) | — | — | ||||||||||||||||||||||
| Change in value of derivative instrument, net of tax of $1.4 million |
2,168 | — | — | — | — | — | 2,168 | — | ||||||||||||||||||||||||
| Unrealized gain (loss) on rabbi trust assets, net of tax of $0.0 million |
(182 | ) | — | — | — | — | — | (182 | ) | — | ||||||||||||||||||||||
| Stock-based compensation |
5,892 | — | — | 5,892 | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Predecessor balance, May 28, 2010 |
202,449 | 999,528 | 10 | 224,240 | 4,631 | (26,154 | ) | (178 | ) | (100 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Purchase accounting adjustments |
(202,449 | ) | (999,528 | ) | (10 | ) | (224,240 | ) | (4,631 | ) | 26,154 | 178 | 100 | |||||||||||||||||||
| Net income (loss) |
(36,312 | ) | — | — | — | — | (36,312 | ) | — | — | ||||||||||||||||||||||
| Unrealized gain (loss) on rabbi trust assets, net of tax of $0.0 million |
221 | — | — | — | — | — | 221 | — | ||||||||||||||||||||||||
| Equity contributions |
683,831 | 1,000 | — | 683,831 | — | — | — | — | ||||||||||||||||||||||||
| Stock-based compensation |
3,706 | — | — | 3,706 | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Successor balance, January 1, 2011 |
651,446 | 1,000 | — | 687,537 | — | (36,312 | ) | 221 | — | |||||||||||||||||||||||
| Net income (loss) |
117 | — | — | — | — | 117 | — | — | ||||||||||||||||||||||||
| Unrealized gain (loss) on rabbi trust assets, net of tax of $0.0 million |
(158 | ) | — | — | — | — | — | (158 | ) | — | ||||||||||||||||||||||
| Equity contributions |
500 | — | — | 500 | — | — | — | — | ||||||||||||||||||||||||
| Repurchase of common stock |
(200 | ) | — | — | (200 | ) | — | — | — | — | ||||||||||||||||||||||
| Stock-based compensation |
4,114 | — | — | 4,114 | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Successor balance, December 31, 2011 |
655,819 | 1,000 | — | 691,951 | — | (36,195 | ) | 63 | — | |||||||||||||||||||||||
| Net income (loss) |
(14,346 | ) | — | — | — | — | (14,346 | ) | — | — | ||||||||||||||||||||||
| Unrealized gain (loss) on rabbi trust assets, net of tax of $0.1 million |
138 | — | — | — | — | — | 138 | — | ||||||||||||||||||||||||
| Foreign currency translation, net of tax of $0.0 million |
(344 | ) | (344 | ) | ||||||||||||||||||||||||||||
| Equity contributions |
60,038 | — | — | 60,038 | — | — | — | — | ||||||||||||||||||||||||
| Stock-based compensation |
4,349 | — | — | 4,349 | — | — | — | — | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Successor balance, December 29, 2012 |
$ | 705,654 | 1,000 | $ | 0 | $ | 756,338 | $ | 0 | $ | (50,541 | ) | $ | (143 | ) | $ | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
See accompanying notes to consolidated financial statements.
53
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Successor | Predecessor |
|||||||||||||||||||
| In thousands |
Fiscal Year Ended December 29, 2012 |
Fiscal Year Ended December 31, 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||
| Net income (loss) |
$ | (14,346 | ) | $ | 117 | $ | (36,312 | ) | $ | (36,076 | ) | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||||||
| Depreciation and amortization of intangibles |
89,167 | 78,071 | 40,905 | 14,707 | ||||||||||||||||
| Amortization of other assets |
7,487 | 4,758 | 2,692 | 9,983 | ||||||||||||||||
| Provision (benefit) for deferred income taxes |
(11,879 | ) | (6,280 | ) | (27,518 | ) | (3,846 | ) | ||||||||||||
| Accretion of 8% cumulative preferred stock |
— | — | — | 2,537 | ||||||||||||||||
| Accrued dividends on 8% cumulative preferred stock |
— | — | — | 966 | ||||||||||||||||
| Provision for doubtful accounts |
1,996 | 1,911 | 1,762 | 608 | ||||||||||||||||
| Inventory step-up amortization |
4,074 | — | 58,797 | — | ||||||||||||||||
| Stock-based compensation |
4,349 | 4,114 | 3,706 | 5,892 | ||||||||||||||||
| Other, net |
2,601 | 1,286 | 1,596 | 2,357 | ||||||||||||||||
| Change in operating assets and liabilities: |
||||||||||||||||||||
| Accounts receivable |
5,134 | (47,363 | ) | (4,298 | ) | (19,280 | ) | |||||||||||||
| Inventories |
(32,170 | ) | (151,945 | ) | (36,832 | ) | (37,751 | ) | ||||||||||||
| Income tax receivable |
1,232 | 8,045 | (1,383 | ) | (8,263 | ) | ||||||||||||||
| Other current assets |
(5,971 | ) | (1,729 | ) | (738 | ) | 972 | |||||||||||||
| Accounts payable and accrued expenses |
(38,257 | ) | 19,082 | (7,942 | ) | 96,375 | ||||||||||||||
| Other, net |
(3,391 | ) | (1,073 | ) | (17,874 | ) | (1,075 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) operating activities |
10,026 | (91,006 | ) | (23,439 | ) | 28,106 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||
| Acquisitions, net of cash acquired |
(115,334 | ) | (59,694 | ) | (11,018 | ) | — | |||||||||||||
| Purchase of property and equipment |
(52,388 | ) | (31,044 | ) | (12,381 | ) | (6,424 | ) | ||||||||||||
| Purchase of assets held for sale |
(3,939 | ) | (2,993 | ) | (718 | ) | (1,498 | ) | ||||||||||||
| Proceeds from sale of assets held for sale |
3,738 | 1,403 | 6,806 | 185 | ||||||||||||||||
| Proceeds from sale of property and equipment |
102 | 79 | 74 | 214 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) investing activities |
(167,821 | ) | (92,249 | ) | (17,237 | ) | (7,523 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||
| Borrowings from revolving credit facility |
3,333,642 | 2,760,364 | 1,995,596 | 828,727 | ||||||||||||||||
| Repayments of revolving credit facility |
(3,217,298 | ) | (2,577,380 | ) | (1,997,413 | ) | (822,005 | ) | ||||||||||||
| Outstanding checks |
(1,754 | ) | 9,981 | 5,328 | (15,369 | ) | ||||||||||||||
| Payments of other long-term debt |
(1,987 | ) | (822 | ) | (7,016 | ) | (721 | ) | ||||||||||||
| Payments of deferred financing costs |
(3,779 | ) | (5,880 | ) | (24,958 | ) | — | |||||||||||||
| Payment for termination of interest rate swap agreements |
— | — | (2,804 | ) | — | |||||||||||||||
| Payment of seller fees on behalf of Buyer |
— | — | (16,792 | ) | — | |||||||||||||||
| 8% cumulative preferred stock redemption |
— | — | (30,102 | ) | — | |||||||||||||||
| Proceeds from issuance of long-term debt |
— | — | 446,900 | — | ||||||||||||||||
| Payments of Predecessor senior notes |
— | — | (340,131 | ) | (6,263 | ) | ||||||||||||||
| Equity contribution |
60,000 | — | 11,797 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) financing activities |
168,824 | 186,263 | 40,405 | (15,631 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Effect of exchange rate changes on cash |
(57 | ) | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in cash and cash equivalents |
10,972 | 3,008 | (271 | ) | 4,952 | |||||||||||||||
| Cash and cash equivalents—beginning of period |
14,979 | 11,971 | 12,242 | 7,290 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents—end of period |
$ | 25,951 | $ | 14,979 | $ | 11,971 | $ | 12,242 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
| Supplemental disclosures of cash flow information: |
||||||||||||||||||||
| Cash payments for interest |
$ | 64,324 | $ | 61,732 | $ | 30,202 | $ | 26,188 | ||||||||||||
| Cash (receipts) payments for taxes, net |
$ | 6,510 | $ | (8,101 | ) | $ | 1,971 | $ | 1,122 | |||||||||||
| Supplemental disclosures of noncash activities: |
||||||||||||||||||||
| Capital expenditures financed by debt |
$ | 515 | $ | — | $ | — | $ | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||
See accompanying notes to consolidated financial statements.
54
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Company:
American Tire Distributors Holdings, Inc. (also referred to herein as “Holdings”) is a Delaware corporation that owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. (“ATDI”), a Delaware corporation. Holdings has no significant assets or operations other than its ownership of ATDI. The operations of ATDI and its subsidiaries constitute the operations of Holdings presented under accounting principles generally accepted in the United States. Unless the context otherwise requires, “Company” herein refers to Holdings and its consolidated subsidiaries.
The Company is primarily engaged in the wholesale distribution of tires, custom wheels and accessories, and related tire supplies and tools, representing 96.9%, 2.0% and 1.1%, respectively, of our net sales. Operating as one operating and reportable segment through a network of 121 distribution centers, including three redistribution centers in the United States, the Company offers access to an extensive breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs) to approximately 70,000 customers (approximately 62,000 in the U.S. and 8,000 in Canada). The Company’s customer base is comprised primarily of independent tire dealers with the remainder of other customers representing various national and corporate accounts. The Company serves a majority of the contiguous United States as well as Canada.
The Company’s fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years will not be exactly comparable to the prior and subsequent 52-week fiscal years. The fiscal years ended December 29, 2012 and December 31, 2011 for the Successor each contain operating results for 52 weeks. The seven months ended January 1, 2011 for the Successor contains operating results for 31 weeks while the five months ended May 28, 2010 for the Predecessor contains operating results for 21 weeks. It should be noted that the Company and its recently acquired TriCan Tire Distributors (“TriCan”) subsidiary have different year-end reporting dates. TriCan has a calendar year-end reporting date of December 31. The impact from this difference on the consolidated financial statements is not material.
2. Summary of Significant Accounting Policies:
A summary of significant accounting policies used in the preparation of the accompanying financial statements follows:
Basis of Preparation
The accompanying consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (FASB ASC). In the opinion of management, the accompanying consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated results for the periods presented. Certain changes in classification of amounts reported in prior years have been made to conform to the 2012 classification.
On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010 (as amended and supplemented, the “Merger Agreement”), among Holdings, Accelerate Holdings Corp., a Delaware corporation (the “Buyer”), Accelerate Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the Buyer (“Merger Sub”), and Investcorp International, Inc., solely in its capacity as a representative of the stockholders, optionholders and warrantholders of Holdings, Merger Sub merged with and into Holdings with Holdings being the surviving corporation (the “Merger” or the “Acquisition”). As a result of the Merger, Holdings became a wholly-owned subsidiary of the Buyer and an indirect wholly-owned subsidiary of Accelerate Parent Corp. (“Accelerate Parent”), substantially all of whose outstanding capital stock is owned by investment entities affiliated with TPG Capital, L.P. (“TPG” or the “Sponsor”). Under the guidance provided by the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 5J, “New Basis of Accounting Required in Certain Circumstances,” push-down accounting is required when such transactions result in an entity
55
becoming substantially wholly-owned. Under push-down accounting, certain transactions incurred by the Buyer, which would otherwise be accounted for in the accounts of the parent, are “pushed down” and recorded on the financial statements of the subsidiary. Therefore, the basis in shares of common stock of Holdings have been pushed down from the Buyer to Holdings.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Holdings and its wholly-owned subsidiaries. Partially-owned investments are accounted for under the equity method. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are based on several factors including the facts and circumstances available at the time of the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probably future outcome. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of comprehensive income (loss) in the period that they are determined.
Foreign currency translation
All foreign currency denominated balance sheet accounts are translated at year end exchange rates and revenue and expense accounts are translated at weighted average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income (loss) component of stockholders’ equity. Transactional foreign currency gains and losses are included in other expense, net in the accompanying consolidated statements of comprehensive income (loss).
Cash and Cash Equivalents
The Company considers all deposits with an original maturity of three months or less to be cash equivalents in its consolidated financial statements. Outstanding checks are presented as a financing activity in the statement of cash flows because they are funded by drawing on the revolving credit facility as they are presented for payment.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within the Company’s accounts receivable balance. Estimates are based upon both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables as well as past collection trends and general economic conditions.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or fair market value and consist primarily of automotive tires, custom wheels, and related tire supply and tool products. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. A majority of the Company’s tire vendors allow for the return of tire products, subject to certain limitations, specified in supply arrangements with the vendors.
56
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, assets placed in service are recorded at cost and depreciated using the straight-line method at annual rates sufficient to amortize the cost of the assets less estimated salvage values over the assets’ estimated useful lives. Leasehold improvements are amortized over the shorter of their economic useful life or the related lease term. The range of useful lives used to depreciate property and equipment is as follows:
| Buildings |
25 to 31 years | |
| Leasehold improvements |
9 years | |
| Machinery and equipment |
2 to 7 years | |
| Furniture and fixtures |
8 years | |
| Internal use software |
3 to 5 years | |
| Vehicles and other |
4 to 6 years |
Major expenditures for replacements and significant improvements that increase asset values and extend useful lives are capitalized. Repairs and maintenance expenditures that do not extend the useful life of the asset are charged to expense as incurred. The carrying amounts of assets that are sold or retired and the related accumulated depreciation are removed from the accounts in the year of disposal, and any resulting gain or loss is reflected in the statement of comprehensive income (loss).
The Company capitalizes costs, including interest, incurred to develop or acquire internal-use software. These costs are capitalized subsequent to the preliminary project stage once specific criteria are met. Costs incurred in the preliminary project planning stage are expensed. Other costs, such as maintenance and training, are also expensed as incurred. Capitalized costs are amortized over their estimated useful lives using the straight-line method.
The Company assesses the recoverability of the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite useful lives are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
Recoverability of goodwill is measured at the reporting unit level and determined using a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.
Recoverability of other indefinite-lived intangible assets is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
57
Intangible assets such as customer-related intangible assets and noncompete agreements with finite useful lives are amortized on a straight-line or accelerated basis over their estimated economic lives. The weighted-average useful lives approximate the following:
| Customer list |
16 to 19 years | |
| Tradenames |
1 to 7 years | |
| Noncompete agreements |
1 to 5 years | |
| Favorable leases |
6 years |
The Company assesses the recoverability of the carrying value of its intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Deferred Financing Costs
Deferred financing costs are expenditures associated with obtaining financings that are capitalized in the consolidated balance sheets and amortized over the term of the loans to which such costs relate. Amounts capitalized are recorded within other assets in the consolidated balance sheets and amortized to interest expense in the consolidated statements of comprehensive income (loss). At December 29, 2012, the unamortized balance of deferred financing costs was $19.7 million, which includes $3.8 million incurred to increase the borrowing capacity and extend the maturity date of the Company’s revolving credit facility during fiscal 2012. At December 31, 2011, the unamortized balance of deferred financing costs was $23.4 million. Amortization for the Successor was $7.5 million for fiscal 2012, of which $2.8 million related to the write-off of deferred financing costs associated with a lender that is not participating in the new syndication group. Amortization for the Successor for fiscal 2011 and the seven months ended January 1, 2011 was $4.8 million and $2.7 million, respectively. Amortization for the Predecessor five months ended May 28, 2010 was $10.0 million, of which $8.0 million related to the write-off of deferred financing costs associated with the old debt structure eliminated as a result of the Merger.
Equity Method Investment
The Company has a 52% equity investment in American Car Care Centers (“ACCC”), an association of independent tire and automotive service dealers with over 1,100 locations nationwide. ACCC engages in a program to assist its stockholders and their customers in the promotion, marketing, distribution and sale of tires, tire supplies, accessories and equipment. Although we hold a majority ownership interest, our interest does not provide us with the ability to exercise significant influence. Accordingly, the investment is accounted for under the equity method and is included in other assets in the accompanying consolidated balance sheet at December 29, 2012.
Derivative Instruments and Hedging Activities
For derivative instruments, the Company applies FASB authoritative guidance which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.
58
Self Insurance
The Company is self-insured with respect to employee health liability claims and maintains a large deductible program on both workers’ compensation and auto insurance. The Company has stop-loss insurance coverage for individual claims in excess of $0.3 million for employee health insurance and deductibles of $0.3 million on the workers’ compensation and auto on a per claim basis. Aggregate stop-loss limits for workers’ compensation and auto are $7.8 million. There is no aggregate stop-loss limit on employee health insurance. A reserve for liabilities associated with losses is established for claims filed and claims incurred but not yet reported using actuarial methods followed in the insurance industry as well as the Company’s historical claims experience.
Revenue Recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. The Company recognizes revenue when the title and the risks and rewards of ownership have substantially transferred to the customer, which is upon delivery under free on board (“FOB”) destination terms. The Company permits customers from time to time to return certain products, but there is no contractual right of return. The Company continuously monitors and tracks such returns and records an estimate of such future returns, which is based on historical experience and recent trends.
In the normal course of business, the Company extends credit, on open accounts, to its customers after performing a credit analysis based on a number of financial and other criteria. The Company performs ongoing credit evaluations of its customers’ financial condition and does not normally require collateral; however, letters of credit and other security are occasionally required for certain new and existing customers.
Customer Rebates
The Company offers rebates to its customers under a number of different programs. These rebates are recorded in accordance with the accounting standards for consideration given by a vendor to a customer. The majority of these programs provide for the customer to receive rebates, generally in the form of a reduction in the related accounts receivable balance, when certain measures are achieved, generally related to the volume of product purchased from the Company. These rebates are recorded as a reduction of the related price of the product, which reduces the amount of revenue recorded. Throughout the year, the amount of rebates is estimated based on the expected level of purchases to be made by customers that participate in the rebate programs. These estimates are periodically revised to reflect rebates earned by customers based on actual purchases made.
Manufacturer Rebates
The Company receives rebates from its vendors under a number of different programs. These rebates are recorded in accordance with the accounting standards for cash consideration received from a vendor. Many of the vendor programs provide for the Company to receive rebates when any of a number of measures are achieved, generally related to the volume of purchases. These rebates are accounted for as a reduction to the price of the product, which reduces the carrying value of our inventory, and our cost of goods sold when product is sold. Throughout the year, the amount recognized for annual rebates is based on purchases management considers probable for the full year. These estimates are continually revised to reflect rebates earned based on actual purchase levels.
Cooperative Advertising and Marketing Programs
The Company participates in cooperative advertising and marketing programs (“co-op”) with its vendors. Co-op funds are provided to the Company generally based on the volume of purchases made with vendors that offer such programs. A portion of the funds received must be used for specific advertising and marketing
59
expenditures incurred by the Company or its customers. The co-op funds received by the Company from its vendors are accounted for in accordance with the accounting standards related to accounting for cash consideration received from a vendor, which requires that the Company record the funds received as a reduction of cost of sales or as an offset to specific costs incurred in selling the vendor’s products. The co-op funds that are provided to the Company’s customers are accounted for in accordance with authoritative guidance related to accounting for cash consideration given by a vendor to a customer, which requires that the Company record the funds paid as a reduction of revenue since no separate identifiable benefit is received by the Company.
Shipping and Handling Fees and Costs
In accordance with current accounting standards, the Company determined that shipping fees shall be reported on a gross basis. As a result, all amounts billed to a customer in a sale transaction related to shipping fees represent revenues earned for the goods provided and therefore recorded within net sales in the consolidated statement of comprehensive income (loss). Handling costs include expenses incurred to store, move, and prepare products for shipment. The Company classifies these costs as selling, general and administrative expenses within the consolidated statement of comprehensive income (loss), and includes a portion of internal costs such as salaries and overhead related to these activities. For fiscal 2012 and 2011 and the seven months ended January 1, 2011, the Successor incurred $171.1 million, $140.8 million and $64.5 million, respectively, related to these expenses. For the Predecessor, such expenses totaled $43.1 million for the five months ended May 28, 2010.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision is computed using the asset and liability method of accounting, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, the Company recognizes future tax benefits, such as net operating losses and tax credits, to the extent that realizing these benefits is considered in its judgment to be more likely than not. Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those tax items are expected to be realized or settled. The Company regularly reviews the recoverability of its deferred tax assets considering historic profitability, projected future taxable income, and timing of the reversals of existing temporary differences as well as the feasibility of our tax planning strategies. Where appropriate, a valuation allowance is recorded if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes to valuation allowances are recognized in earnings in the period such determination is made.
The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. The tax impacts recognized in the financial statements from such positions are then measured based on the largest impact that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions as a component of the provision for income taxes.
Recently Adopted Accounting Pronouncements
In May 2011, the FASB issued Accounting Standards Updated (“ASU”) No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”).” ASU No. 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in a consistent definition of fair value as well as provides common requirements for measuring fair value and disclosing information about fair value measurements. This new guidance is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company adopted this guidance on January 1, 2012 and its adoption did not significantly impact the Company’s consolidated financial statements.
60
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 requires the Company to present components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The option to report other comprehensive income within the statement of equity has been removed. This new presentation is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The revised presentation requirements are reflected in the Company’s consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment” which amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance will be effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance on January 1, 2012; however, the Company performed its annual impairment test in the fourth quarter of 2012.
In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU No. 2011-12 revises ASU No. 2011-05 to defer the presentation in the financial statements of reclassifications out of accumulated other comprehensive income for annual and interim financial statements. The deferral is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company adopted this guidance on January 1, 2012. The revised presentation requirements are reflected in the Company’s consolidated financial statements.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance will be effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company will adopt this guidance on December 30, 2012 (the first day of the Company’s 2013 fiscal year); however, the Company performs its annual impairment test in the fourth quarter and does not expect the impact of adopting this standard to have a material effect on the consolidated financial statements.
3. Acquisitions:
Acquisition of Holdings
On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, the Company was acquired by affiliates of TPG for an aggregate purchase price of $1,287.5 million in cash, less the amount of the Company’s funded indebtedness, transaction expenses, aggregate redemption payments with respect to the Company’s outstanding preferred stock, certain holdback amounts plus the amount of estimated cash, plus or minus certain working capital adjustments. The Merger was financed by $635.0 million in aggregate principle of debt financing as well as common equity capital. In addition, the Company tendered its existing outstanding debt which was subsequently purchased and retired.
The Merger was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date
61
of Merger and resulted in goodwill of $430.3 million and intangible assets of $781.3 million, of which $527.9 million related to a customer list and $249.9 million related to an indefinite-lived tradename. Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventories were recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
The following unaudited pro forma supplementary data for the five months ended May 28, 2010 give effect to the Merger as if it had occurred on January 3, 2010 (the first day of the Company’s 2010 fiscal year).
| Pro Forma | ||||
| Five Months Ended |
||||
| In thousands |
May 28, 2010 |
|||
| Net sales |
$ | 934,925 | ||
| Net (loss) income |
(17,835 | ) | ||
|
|
|
|||
The pro forma supplementary data for the five months ended May 28, 2010 includes $16.4 million as an adjustment to historical amortization expense as a result of the valuation of $531.4 million allocated to amortizable intangible assets acquired in the Merger, primarily associated with a customer relationship intangible asset. In addition, the Company has included a reduction in non-recurring transaction expenses related to the Merger of $40.2 million for the five months ended May 28, 2010.
The pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Company’s results of operations had the Merger been consummated on the date assumed and does not project the Company’s results of operations for any future date.
2012 Acquisitions
On November 30, 2012, ATDI and ATD Acquisition Co. V Inc. (“Canada Acquisition”), a newly-formed direct wholly-owned Canadian subsidiary of ATDI, entered into a Share Purchase Agreement (the “Purchase Agreement”) with 1278104 Alberta Inc. (“Seller”), Triwest Trading (Canada) Ltd., a wholly-owned subsidiary of Seller (“Triwest”) and certain shareholders of Seller pursuant to which Canada Acquisition agreed to acquire from Seller all of the issued and outstanding common shares of Triwest along with an outstanding loan owed to Seller by Triwest for approximately $97.5 million, subject to certain post-closing adjustments, including, but not limited to, working capital adjustments. Of the $97.5 million purchase price, $15.0 million is held in escrow pending the resolution of the post-closing adjustments in accordance with the terms of the Purchase Agreement and Escrow Agreement. As a result of the acquisition, Triwest became a direct wholly-owned subsidiary of Canada Acquisition. Triwest (dba: TriCan Tire Distributors, or “TriCan”) is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada with 15 distribution centers stretching across the country.
The acquisition of TriCan was completed on November 30, 2012 and funded through the Company’s ABL Facility. The acquisition was recorded using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the total purchase price has
62
been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. The preliminary allocation of the purchase price is as follows:
| In thousands |
|
|||
| Cash |
$ | 1,344 | ||
| Accounts receivable |
36,461 | |||
| Inventory |
45,445 | |||
| Other current assets |
495 | |||
| Property and equipment |
1,191 | |||
| Intangible assets |
49,940 | |||
| Other assets |
755 | |||
|
|
|
|||
| Total assets acquired |
135,631 | |||
| Debt |
— | |||
| Accounts payable |
37,102 | |||
| Accrued and other liabilities |
14,609 | |||
| Deferred income taxes |
13,003 | |||
| Other liabilities |
475 | |||
|
|
|
|||
| Total liabilities assumed |
65,189 | |||
| Net assets acquired |
70,442 | |||
| Goodwill |
27,012 | |||
|
|
|
|||
| Purchase price |
$ | 97,454 | ||
|
|
|
|||
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $27.0 million.
Cash, and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
The Company recorded intangible assets based on their estimated fair value and consisted of the followings:
| In thousands |
Estimated Useful Life |
Estimated Fair Value |
||||
| Customer list |
17 years | $ | 44,621 | |||
| Tradenames |
7 years | 4,958 | ||||
| Favorable leases |
6 years | 361 | ||||
|
|
|
|||||
| Total |
$ | 49,940 | ||||
|
|
|
|||||
TriCan contributed net sales of approximately $12.1 million to the Company for the period from December 1, 2012 to December 29, 2012. Net loss contributed by TriCan since the acquisition date was approximately $3.3 million which included non-cash amortization of the inventory step-up of $4.1 million and non-cash amortization expense on acquired intangible assets of $0.5 million.
The following unaudited pro forma supplementary data for the fiscal years ended December 29, 2012 and December 31, 2011 give effect to the TriCan acquisition as if it had occurred on January 2, 2011 (the first day of the Company’s 2011 fiscal year). The pro forma supplementary data is provided for informational purposes only and
63
should not be construed to be indicative of the Company’s results of operations had the TriCan acquisition been consummated on the date assumed and does not project the Company’s results of operations for any future date.
| Pro Forma | ||||||||
| Fiscal Year Ended |
Fiscal Year Ended |
|||||||
| In thousands |
December 29, 2012 |
December 31, 2011 |
||||||
| Net sales |
$ | 3,642,043 | $ | 3,234,331 | ||||
| Net income (loss) |
(7,751 | ) | 5,596 | |||||
|
|
|
|
|
|||||
On May 24, 2012, the Company entered into a Stock Purchase Agreement with Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil (“CTO”) to acquire 100% of the outstanding capital stock of CTO. CTO owned and operated three distribution centers in Baton Rouge, Slidell and Lafayette, Louisiana serving over 500 customers. The acquisition was completed on May 24, 2012 and was funded through the Company’s ABL Facility. The Company does not believe the acquisition of CTO is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805—Business Combinations. As a result, the information is not presented.
The acquisition of CTO was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $15.9 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $9.4 million. The premium in the purchase price paid for the acquisition of CTO reflects the anticipated realization of operational and cost synergies. As of the balance sheet date, the purchase price allocation is final except for the resolution of the post-closing purchase price adjustment and tax matters, both of which the Company anticipates finalizing in early 2013. It is impracticable to calculate the net sales and net income (loss) contributed by CTO for the period May 25, 2012 to December 29, 2012 due to the fact that CTO’s operations were consolidated and integrated into the Company’s existing operations and facilities and thus their operations and results are no longer separately distinguishable.
2011 Acquisition
On April 15, 2011, the Company entered into a Stock Purchase Agreement with the Bowlus Service Company d/b/a North Central Tire (“NCT”) to acquire 100% of the outstanding capital stock of NCT. NCT owned and operated three distribution centers in Canton, Ohio, Cincinnati, Ohio and Rochester, New York, serving over 2, 700 customers. The acquisition was completed on April 29, 2011 and was funded through the Company’s ABL Facility. The Company does not believe the acquisition of NCT is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805—Business Combinations. As a result, the information is not presented.
The acquisition of NCT was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relates to a customer list intangible asset, which had an acquisition date fair value of $38.2 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $27.0 million. The premium in the purchase price paid for the acquisition of NCT reflects the anticipated realization of significant operational and cost synergies. The purchase of NCT expanded the Company’s market position in Ohio and Western New York.
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2010 Acquisitions
On December 10, 2010, the Company completed the purchase of substantially all the assets of Lisac’s of Washington, Inc. (“Lisac’s”) pursuant to an Asset Purchase Agreement dated as of December 10, 2010. Lisac’s operated tire distribution centers in Portland, Oregon and Spokane, Washington, serving over 1,400 customers in the area. The acquisition was funded through the Company’s ABL Facility. The Company does not believe the acquisition of Lisac’s is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805—Business Combinations. As a result, the information is not presented.
The acquisition of Lisac’s was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relates to a customer list intangible asset, which had an acquisition date fair value of $4.4 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $0.5 million. The purchase of Lisac’s expanded the Company’s market position in the Northwestern United States.
On December 10, 2010, the Company completed the purchase of 100% of the capital stock of Tire Wholesalers, Inc. (“Tire Wholesalers”) pursuant to a Stock Purchase Agreement dated as of December 10, 2010. Tire Wholesalers operated one distribution center in Kent, Washington, which serviced over 750 customers in the area. The acquisition was funded through the Company’s ABL Facility. The Company does not believe the acquisition of Tire Wholesalers is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805—Business Combinations. As a result, the information is not presented.
The acquisition of Tire Wholesalers was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relates to a customer list intangible asset, which had an acquisition date fair value of $1.7 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $0.4 million. The purchase of Tire Wholesalers expanded the Company’s market position in the Northwestern United States.
4. Inventories:
Inventories consist primarily of automotive tires, custom wheels, tire supplies and tools and are valued at the lower of cost, determined on the first-in, first-out (FIFO) method, or fair market value. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. A majority of the Company’s tire vendors allow for the return of tire products, subject to certain limitations, specified in supply arrangements with the vendors. In addition, the Company’s inventory is collateral under the ABL Facility. See Note 9 for further information.
As a result of the TriCan acquisition, the carrying value of the acquired inventory was increased by $6.3 million to adjust to estimated fair value in accordance with the accounting guidance for business combinations. The step-up in inventory value will be amortized into cost of goods sold over the period of the Company’s normal inventory turns, which approximates two months. Amortization of the inventory step-up included in cost of goods sold in the accompanying consolidated statement of comprehensive income (loss) for the fiscal year ended December 29, 2012 was $4.1 million.
During the quarter ended October 2, 2010, the Company made the decision to discontinue selling certain products within its equipment product offering. As a result of the decision, the Company recognized a $1.0 million impairment charge, which is included in cost of goods sold in the accompanying consolidated statement
65
of comprehensive income (loss), related to the estimated write-down of related inventory to their fair market values as the Company moved to dispose of the residual equipment in these product offerings. Sales related to these products accounted for 1.7% of the Company’s combined net sales during fiscal 2010.
As a result of the Merger, the carrying value of inventory was increased by $58.8 million to adjust to estimated fair value in accordance with the accounting guidance for business combinations. The step-up in inventory value was amortized into cost of goods sold in the accompanying consolidated statement of comprehensive income (loss) over the period of the Company’s normal inventory turns, which approximated two months.
5. Assets Held for Sale:
In accordance with current accounting standards, the Company classifies assets as held for sale in the period in which all held for sale criteria is met. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell and are no longer depreciated. At December 29, 2012, assets held for sale totaled $7.2 million, of which $1.0 million were residential properties that were acquired as part of employee relocation packages. The Company is actively marketing these properties and anticipates that they will be sold within a twelve-month period from the date in which they are classified as held for sale.
As part of the Am-Pac Tire Dist., Inc. (“Am-Pac”) acquisition in 2008, the Company acquired a distribution center in California which contained office space that served as Am-Pac’s headquarters. The facility was used as a warehouse within the Company’s distribution operations until its activities were absorbed into nearby existing locations during 2011. As a result, the facility was classified as held for sale when the building had a carrying value of $5.1 million. During the second quarter of 2012, the Company determined that the carrying value of the facility exceeded its fair value due to current market conditions. As a result, the Company recorded a $0.6 million adjustment related to the fair value of this facility. The Company continues to actively market the property for immediate sale at a reasonable price in relation to its fair value.
On February 1, 2012, the Company reacquired one of three facilities originally included in a sale-leaseback transaction completed in 2002 that had an initial lease term of 20 years, followed by two 10 year renewal options. The facility was used as a distribution center within the Company’s operations until its activities were relocated to an expanded location during the second quarter of 2012. As a result, the Company classified the facility as held for sale during the third quarter of 2012 when the appropriate criteria was met. At December 29, 2012, the carrying value of the facility was $1.7 million.
6. Property and Equipment:
The following table represents the major classes of property and equipment at December 29, 2012 and December 31, 2011:
| Successor | ||||||||
| In thousands |
December 29, 2012 |
December 31, 2011 |
||||||
| Land |
$ | 2,108 | $ | 3,578 | ||||
| Buildings and leasehold improvements |
21,554 | 20,361 | ||||||
| Machinery and equipment |
21,745 | 11,191 | ||||||
| Furniture and fixtures |
39,863 | 31,692 | ||||||
| Software |
88,021 | 54,576 | ||||||
| Vehicles and other |
3,649 | 2,698 | ||||||
|
|
|
|
|
|||||
| Total property and equipment |
176,940 | 124,096 | ||||||
| Less—Accumulated depreciation |
(47,058 | ) | (24,166 | ) | ||||
|
|
|
|
|
|||||
| Property and equipment, net |
$ | 129,882 | $ | 99,930 | ||||
|
|
|
|
|
|||||
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Depreciation expense for the Successor was $23.1 million for the fiscal year ended December 29, 2012, $16.5 million for the fiscal year ended December 31, 2011 and $8.0 million for the seven months ended January 1, 2011. The Predecessor recorded depreciation expense of $7.0 million for the five months ended May 28, 2010. Depreciation expense is classified in selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss).
Included in the above table within Land and Buildings and leasehold improvements are assets under capital leases related to the sale and leaseback of two of the Company’s owned facilities (see Note 9). The net book value of these assets at December 29, 2012 and December 31, 2011 was $7.2 million and $9.9 million, respectively. Accumulated depreciation was $0.8 million and $0.5 million for the respective periods. Depreciation expense was $0.2 million, $0.3 million and $0.2 million for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and $0.3 million for the five months ended May 28, 2010 for the Predecessor.
7. Goodwill:
The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired. Once the final valuation has been performed for each acquisition, adjustments may be recorded. Goodwill is tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
The changes in the carrying amount of goodwill are as follows:
| Successor | ||||||||
| In thousands |
December 29, 2012 |
December 31, 2011 |
||||||
| Beginning balance |
$ | 446,787 | $ | 431,065 | ||||
| Purchase accounting adjustments |
— | (11,312 | ) | |||||
| Acquisitions |
36,457 | 27,034 | ||||||
| Currency translation |
(101 | ) | — | |||||
|
|
|
|
|
|||||
| Ending balance |
$ | 483,143 | $ | 446,787 | ||||
|
|
|
|
|
|||||
As of December 29, 2012, the Company has recorded goodwill of $483.1 million, of which approximately $28 million of net goodwill is deductible for income tax purposes in future periods. The balance primarily relates to the Merger on May 28, 2010, in which $430.3 million was recorded as goodwill. The Company does not have any accumulated goodwill impairment losses.
On November 30, 2012, ATDI and Canada Acquisition entered into a Share Purchase Agreement to acquire all of the issued and outstanding common shares of TriCan. The acquisition was completed on November 30, 2012 and was funded through the Company’s ABL Facility. The preliminary purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $27.0 million as goodwill. See Note 3 for additional information.
On May 24, 2012, the Company entered into a Stock Purchase Agreement to acquire 100% of the outstanding capital stock of CTO. The acquisition was completed on May 24, 2012 and was funded through the Company’s ABL Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $9.4 million as goodwill. See Note 3 for additional information.
On April 15, 2011, the Company entered into a Stock Purchase Agreement to acquire 100% of the outstanding capital stock of NCT. The acquisition was completed on April 29, 2011 and was funded through the
67
Company’s ABL Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $27.0 million as goodwill. See Note 3 for additional information.
8. Intangible Assets:
Indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite lives are being amortized on a straight-line basis or accelerated basis over periods ranging from one to nineteen years.
The following table sets forth the gross amount and accumulated amortization of the Company’s intangible assets at December 29, 2012 and December 31, 2011 for the Successor:
| Successor | ||||||||||||||||
| December 29, 2012 | December 31, 2011 | |||||||||||||||
| In thousands | Gross Amount |
Accumulated Amortization |
Gross Amount |
Accumulated Amortization |
||||||||||||
| Customer list |
$ | 632,589 | $ | 156,249 | $ | 572,209 | $ | 92,635 | ||||||||
| Noncompete agreement |
7,898 | 2,841 | 6,320 | 1,143 | ||||||||||||
| Favorable leases |
360 | 5 | — | — | ||||||||||||
| Tradenames |
9,043 | 1,990 | 4,104 | 1,064 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total finite-lived intangible assets |
649,890 | 161,085 | 582,633 | 94,842 | ||||||||||||
| Tradenames (indefinite-lived) |
249,893 | — | 249,893 | — | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total intangible assets |
$ | 899,783 | $ | 161,085 | $ | 832,526 | $ | 94,842 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
At December 29, 2012, the Company had $738.7 million of intangible assets. The balance primarily relates to the Merger on May 28, 2010, in which $781.3 million was recorded as intangible assets. As part of the preliminary purchase price allocation of TriCan, the Company allocated $44.6 million to a finite-lived customer list intangible asset with a useful life of seventeen years, $4.9 million to a finite-lived tradename with a useful life of seven years and $0.4 million to a finite-lived favorable leases intangible asset with a useful life of six years. In connection with the acquisition of CTO on May 24, 2012, the Company allocated $15.9 million to a finite-lived customer list intangible asset with a useful life of sixteen years. During 2011, the Company allocated $43.4 million to finite-lived intangible assets, including $38.2 million associated with a customer list as well as $5.2 million associated with a noncompete agreement, in connection with the acquisition of NCT. These intangible assets had a useful life of nineteen years and five years, respectively. See Note 3 for additional information.
Amortization of intangible assets for the Successor was $66.2 million in fiscal 2012, $61.8 million in fiscal 2011 and $33.0 million in the seven months ended January 1, 2011. The Predecessor recorded amortization of intangible assets of $7.7 million in the five months ended May 28, 2010. Estimated amortization expense on existing intangible assets is expected to approximate $69.7 million in 2013, $64.3 million in 2014, $55.2 million in 2015, $47.2 million in 2016 and $41.7 million in 2017.
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9. Long-term Debt:
The following table presents the Successor’s long-term debt at December 29, 2012 and at December 31, 2011:
| Successor | ||||||||
| In thousands |
December 29, 2012 |
December 31, 2011 |
||||||
| U.S. ABL Facility |
$ | 478,616 | $ | 373,255 | ||||
| Canadian ABL Facility |
10,976 | — | ||||||
| Senior Subordinated Notes |
200,000 | 200,000 | ||||||
| Senior Secured Notes |
247,802 | 247,425 | ||||||
| Capital lease obligations |
12,469 | 14,118 | ||||||
| Other |
1,341 | 1,010 | ||||||
|
|
|
|
|
|||||
| Total debt |
951,204 | 835,808 | ||||||
| Less—Current maturities |
(493 | ) | (158 | ) | ||||
|
|
|
|
|
|||||
| Long-term debt |
$ | 950,711 | $ | 835,650 | ||||
|
|
|
|
|
|||||
The fair value of the Company’s long-term senior notes was $477.0 million at December 29, 2012 and $463.5 million at December 31, 2011. The fair value of the Senior Secured Notes is based upon quoted market values (Level 1). However, the Company uses quoted prices for similar liabilities (Level 2) in order to fair value the Senior Subordinated Notes.
Aggregate maturities of long-term debt at December 29, 2012, are as follows:
| In thousands |
||||
| 2013 |
$ | 493 | ||
| 2014 |
543 | |||
| 2015 |
482 | |||
| 2016 |
528 | |||
| 2017 |
737,977 | |||
| Thereafter |
211,181 | |||
|
|
|
|||
| Total |
$ | 951,204 | ||
|
|
|
|||
ABL Facility
In connection with the acquisition of TriCan on November 30, 2012, the Company amended and restated its Fifth Amended and Restated Credit Agreement in order to provide for borrowings under the agreement by Canada Acquisition and make certain other amendments (as so amended and restated, the “Sixth Amended and Restated Credit Agreement”). The Sixth Amended and Restated Credit Agreement provides for (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to U.S. borrowing base availability (the “U.S. ABL Facility”) and (ii) Canadian revolving credit commitments of $60.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to Canadian borrowing base availability (the “Canadian ABL Facility” and, collectively with the U.S. ABL Facility, the “ABL Facility”). The U.S. ABL Facility provides for revolving loans available to ATDI, its wholly-owned subsidiary Am-Pac Tire Dist. Inc. and any other U.S. subsidiary that the Company designates in the future in accordance with the terms of the agreement. The Canadian ABL Facility provides for revolving loans available to Canada Acquisition and any other Canadian subsidiaries that the Company designates in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, the Company has the option to request that the ABL Facility be increased by an amount not to exceed $200.0 million (up to $50.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative
69
agent, swingline lender and issuing banks with respect to the lenders providing commitments for such increase. The maturity date for the Sixth Amended and Restated Credit Agreement is November 16, 2017, provided that if on March 1, 2017, either (i) more than $50.0 million in aggregate principal amount of ATDI’s Senior Secured Notes remains outstanding or (ii) any principal amount of ATDI’s Senior Secured Notes remains outstanding with a scheduled maturity date which is earlier than 91 days after November 16, 2017 and excess availability under the ABL Facility is less than 12.5% of the aggregate revolving commitments, then the maturity date will be March 1, 2017.
At December 29, 2012, the Company had $478.6 million outstanding under the U.S. ABL Facility. In addition, the Company had certain letters of credit outstanding in the aggregate amount of $8.3 million, leaving $161.8 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at December 29, 2012 was $11.0 million. In addition, the Company had certain letters of credit outstanding under the Canadian ABL Facility in the amount of $0.1 million, leaving $25.9 million available for additional borrowings.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at the Company’s option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 2.0% as of December 29, 2012 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its “prime rate” for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 29, 2012. The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the aggregate ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its “base rate”, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 29, 2012 or (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its “prime rate”, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers’ acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 1.0% as of December 29, 2012. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the aggregate ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| • | 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| • | The lesser of (a) 70% of the lesser of cost or fair market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
| • | The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable. |
All obligations under the U.S. ABL Facility are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp. The Canadian ABL Facility is unconditionally guaranteed by the U.S. loan parties, TriCan and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility are secured by a first-priority lien on inventory, accounts receivable and related
70
assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility contains customary covenants, including covenants that restricts the Company’s ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change the Company’s fiscal year. If the amount available for additional borrowings under the combined ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the combined ABL Facility and (y) the borrowing base and (b) $25.0 million, then the Company would be subject to an additional covenant requiring them to meet a fixed charge coverage ratio of 1.0 to 1.0. As of December 29, 2012, the Company’s additional borrowing availability under the combined ABL Facility was above the required amount and the Company was therefore not subject to the additional covenants.
Senior Secured Notes
On May 28, 2010, ATDI issued Senior Secured Notes (“Senior Secured Notes”) due June 1, 2017 in an aggregate principal amount at maturity of $250.0 million. The Senior Secured Notes were issued at a discount from their principal amount at maturity and generated net proceeds of approximately $240.7 million after debt issuance costs (which represents a non-cash financing activity of $9.3 million). The Senior Secured Notes will accrete based on an effective interest rate of 10% to an aggregate accreted value of $250.0 million, the full principal amount at maturity. The Senior Secured Notes bear interest at a fixed rate of 9.75% per annum. Interest on the Senior Secured Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Secured Notes are not be redeemable, except as described below, at the option of ATDI prior to June 1, 2013. Thereafter, the Senior Secured Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days’ notice at a redemption price of 107.313% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 104.875% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015, 102.438% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016 and 100.0% of the principal amount if the redemption date occurs between June 1, 2016 and May 31, 2017.
Until June 1, 2013, ATDI may, at its option, on one or more occasions, redeem up to 35% of the aggregate principal amount of the Senior Secured Notes issued at a redemption price equal to 109.75% of the aggregate principal amount thereof, plus accrued and unpaid interest, to, but not including, the redemption date, with the net cash proceeds from one or more equity offerings to the extent that such net cash proceeds are received by or contributed to ATDI; provided that:
| (1) | at least 50% of the sum of the aggregate principal amount of the Senior Secured Notes remains outstanding immediately after the occurrence of such redemption; and |
| (2) | each such redemption occurs within 120 days of the date of the closing of the related equity offering. |
In addition, at any time prior to June 1, 2013, ATDI may redeem all or a part of the Senior Secured Notes upon not less than 30 or more than 60 days’ notice at a redemption price equal to 100.0% of the principal amount of notes to be redeemed, plus the applicable premium (an amount intended to approximate a “make-whole” price based on the price of a U.S. treasury security plus 50 basis points) as of, plus accrued and unpaid interest, to, but not including, the redemption date, subject to the rights of holders on the relevant record date to receive interest due on the relevant interest payment date.
The Senior Secured Notes are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions. The Senior Secured Notes are also collateralized by a second-
71
priority lien on accounts receivable and related assets and a first-priority lien on substantially all other assets (other than inventory), in each case of Holdings, ATDI and the guarantor subsidiaries, subject to certain exceptions.
The indenture governing the Senior Secured Notes contains covenants that, among other things, limits ATDI’s ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDI’s or repurchase or redeem ATDI’s capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDI’s subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens; consolidate, merge or sell all or substantially all of ATDI’s assets; enter into certain transactions with ATDI’s affiliates; and designate ATDI’s subsidiaries as unrestricted subsidiaries.
Senior Subordinated Notes
On May 28, 2010, ATDI issued Senior Subordinated Notes due June 1, 2018 (“Senior Subordinated Notes”) in an aggregate principal amount of $200.0 million. The Senior Subordinated Notes bear interest at a fixed rate of 11.50% per annum. Interest on the Senior Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Subordinated Notes are not be redeemable, except as described below, at the option of ATDI prior to June 1, 2013. Thereafter, the Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days’ notice at a redemption price of 104.0% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016.
Prior to June 1, 2013, ATDI may, at its option, on one or more occasions, redeem up to 35% of the aggregate principal amount of the Senior Subordinated Notes issued at a redemption price equal to 111.5% of the aggregate principal amount thereof, plus accrued and unpaid interest, to, but not including, the redemption date, with the net cash proceeds of one or more equity offerings; provided that:
| (1) | at least 50% of the aggregate principal amount of the Senior Subordinated Notes remains outstanding immediately after the occurrence of such redemption; and |
| (2) | each such redemption occurs within 120 days of the date of the closing of the related equity offering. |
In addition, at any time prior to June 1, 2013, ATDI may redeem all or a part of the Senior Subordinated Notes upon not less than 30 or more than 60 days’ notice at a redemption price equal to 100.0% of the principal amount of notes to be redeemed, plus the applicable premium (an amount intended to approximate a “make-whole” price based on the price of a U.S. treasury security plus 50 basis points) as of, and accrued and unpaid interest, to, but not including, the redemption date, subject to the rights of holders on the relevant record date to receive interest due on the relevant interest payment date.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDI’s existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions.
The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDI’s ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDI’s or repurchase or redeem ATDI’s capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDI’s subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or
72
affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDI’s assets; enter into certain transactions with ATDI’s affiliates; and designate ATDI’s subsidiaries as unrestricted subsidiaries.
Capital Lease Obligations
At December 31, 2011, the Company had a capital lease obligation of $14.1 million, which related to the 2002 sale and subsequent leaseback of three of its owned facilities. Due to continuing involvement with the properties, the Company accounted for the transaction as a direct financing lease and recorded the cash received as a financing obligation.The transaction had an initial lease term of 20 years, followed by two 10 year renewal options. No gain or loss was recognized as a result of the initial sales transaction.
On February 1, 2012, the Company reacquired one of the three facilities included in the 2002 sale-leaseback transaction for $1.5 million. Accordingly, the original lease was amended to extend the lease term on the two remaining facilities by 5 years as well as to adjust the future lease payments over the remaining 15 years. Per current accounting guidance, the change in the debt terms was not considered substantial. As a result, the Company treated the amendment as a debt modification for accounting purposes and therefore, reduced the financing obligation by the purchase price. Cash payments to the lessor are allocated between interest expense and amortization of the financing obligation. At the end of the lease term, the Company will recognize the sale of the remaining facilities; however, no gain or loss will be recognized as the financing obligation will equal the expected carrying value of the facilities. At December 29, 2012, the outstanding balance of the financing obligation was $12.5 million.
10. Derivative Instruments:
In the normal course of business, the Company is exposed to the risk associated with exposure to fluctuations in interest rates on its variable rate debt. These fluctuations can increase the cost of financing, investing and operating the business. The Company has used derivative financial instruments to help manage this risk and reduce the impacts of these exposures and not for trading or other speculative purposes. All derivatives are recognized on the consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of contracts that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income (loss), net of taxes, and are recognized in the statement of comprehensive income (loss) at the time earnings are affected by the hedged transaction. For other derivatives, changes in the fair value of the contract are recognized immediately in the statement of comprehensive income (loss).
On August 1, 2012, the Company entered into two interest rate swap agreements (“3Q 2012 Swaps”) used to hedge a portion of the Company’s exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.00 million, with each $50.0 million contract having a fixed rate of 0.655% and expiring in June 2016. The counterparty to each swap is a major financial institution. The 3Q 2012 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in the consolidated statement of comprehensive income (loss).
On September 23, 2011, the Company entered into two interest rate swap agreements (“3Q 2011 Swaps”) used to hedge a portion of the Company’s exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.0 million, of which $50.0 million is at a fixed rate of 0.74% and will expire in September 2014 and $50.0 million is at a fixed rate of 1.0% and will expire in September 2015. The counterpart to each swap is a major financial institution. The 3Q 2011 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in the consolidated statement of comprehensive income (loss).
On February 24, 2011, the Company entered into two interest rate swap agreements (“1Q 2011 Swaps”) used to hedge a portion of the Company’s exposure to changes in its variable interest rate debt. The swaps in
73
place covered an aggregate notional amount of $75.0 million, of which $25.0 million was at a fixed interest rate of 0.585% and expired in February. The remaining swap covers an aggregate notional amount of $50.0 million at a fixed interest rate of 1.105% and will expire in February 2013. The counterparty to each swap is a major financial institution. Neither swap met the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract are recognized in the consolidated statement of comprehensive income (loss).
The following table presents the fair values of the Company’s derivative instruments included within the consolidated balance sheets as of December 29, 2012 and December 31, 2011 for the Successor:
| Liability Derivatives | ||||||||||||
| Balance Sheet | December 29, | December 31, | ||||||||||
| In thousands |
Location | 2012 | 2011 | |||||||||
| Derivatives not designated as hedges: |
||||||||||||
| 1Q 2011 swap—$50 million notional |
Accrued expenses | $ | 149 | $ | 303 | |||||||
| 1Q 2011 swap—$25 million notional |
Accrued expenses | — | 12 | |||||||||
| 3Q 2011 swaps—$100 million notional |
Accrued expenses | 1,314 | 551 | |||||||||
| 3Q 2012 swaps—$100 million notional |
Accrued expenses | 750 | — | |||||||||
|
|
|
|
|
|||||||||
| Total |
$ | 2,213 | $ | 866 | ||||||||
|
|
|
|
|
|||||||||
On June 4, 2009, the Predecessor entered into an interest rate swap agreement (the “2Q 2009 Swap”) used to hedge a portion of the Company’s exposure to changes in its variable interest rate debt. The swap in place covered a notional amount of $100.0 million at a fixed interest rate of 1.45% and was set to expire on June 8, 2011. The counterparty to the swap was a major financial institution. The 2Q 2009 Swap did not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value were recognized in the consolidated statement of comprehensive income (loss).
On October 11, 2005, the Predecessor entered into an interest rate swap agreement (the “4Q 2005 Swap”) used to hedge a portion of the Company’s exposure to changes in its variable interest rate debt. The swap in place covered a notional amount of $85.0 million at a fixed interest rate of 4.79% and was set to expire on September 30, 2010. The counterparty to the swap was a major financial institution. The 4Q 2005 Swap met the criteria to qualify for hedge accounting treatment and was designated as a cash flow hedge, resulting in no ineffectiveness in the hedging relationship. Accordingly, changes in fair value of the 4Q 2005 Swap were deferred in accumulated other comprehensive income (loss).
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The pre-tax effect of the Company’s derivative instruments on the consolidated statement of comprehensive income (loss) was as follows:
| (Gain) Loss Recognized | ||||||||||||||||||||||
| Successor | Predecessor | |||||||||||||||||||||
| Fiscal Year | Fiscal Year | Seven Months | Five Months | |||||||||||||||||||
| Location of (Gain) Loss |
Ended December 29, |
Ended December 31, |
Ended January 1, |
Ended May 28, |
||||||||||||||||||
| In thousands |
Recognized | 2012 | 2011 | 2011 | 2010 | |||||||||||||||||
| Derivatives not designated as hedges: |
||||||||||||||||||||||
| 1Q 2011 swap—$50 million notional |
Interest Expense | $ | (154 | ) | $ | 303 | $ | — | $ | — | ||||||||||||
| 1Q 2011 swap—$25 million notional |
Interest Expense | (12 | ) | 12 | — | — | ||||||||||||||||
| 3Q 2011 swaps—$100 million notional |
Interest Expense | 764 | 551 | — | — | |||||||||||||||||
| 3Q 2012 swaps—$100 million notional |
Interest Expense | 750 | — | — | — | |||||||||||||||||
| 2Q 2009 swap—$100 million notional |
Interest Expense | — | — | — | 68 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total |
$ | 1,348 | $ | 866 | $ | — | $ | 68 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
The pre-tax effect of the Company’s derivative instruments designated as hedges on the consolidated statement of comprehensive income (loss) for the Predecessor periods was as follows:
| Predecessor | ||||||||||||
| Location of Gain | Amount of Gain | |||||||||||
| Amount of Gain | (Loss) Reclassified | (Loss) Reclassified | ||||||||||
| (Loss) Deferred | from AOCI into | from AOCI into | ||||||||||
| In thousands |
in AOCI | Income | Income | |||||||||
| Derivatives designated as hedges: |
||||||||||||
| 4Q 2005 Swap—Five months ended May 28, 2010 |
$ | (1,140 | ) | Interest Expense | $ | 4,710 | ||||||
|
|
|
|
|
|
|
|||||||
On May 28, 2010, in connection with the Merger, the Company terminated the 4Q 2005 Swap agreement and the 2Q 2009 Swap agreement for $1.9 million $0.9 million, respectively.
11. Fair Value of Financial Instruments:
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
| • | Level 1—Inputs based on quoted prices in active markets for identical assets or liabilities. |
| • | Level 2—Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| • | Level 3—Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions. |
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The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table presents the fair value and hierarchy levels for the Successor’s assets and liabilities, which are measured at fair value on a recurring basis as of December 29, 2012:
| Fair Value Measurements | ||||||||||||||||
| In thousands |
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Assets: |
||||||||||||||||
| Benefit trust assets |
$ | 2,670 | $ | 2,670 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,670 | $ | 2,670 | $ | — | $ | — | ||||||||
| Liabilities: |
||||||||||||||||
| Derivative instruments |
$ | 2,213 | $ | — | $ | 2,213 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | 2,213 | $ | — | $ | 2,213 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
ASC 820—Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines fair value of its financial assets and liabilities using the following methodologies:
| • | Benefit trust assets—These assets include money market and mutual funds that are the underlying for deferred compensation plan assets, held in a rabbi trust. The fair value of the assets is based on observable market prices quoted in readily accessible and observable markets. |
| • | Derivative instruments—These instruments consist of interest rate swaps. The fair value is based upon quoted prices for similar instruments from a financial institution that is counterparty to the transaction. |
The fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these instruments. The methodologies used by the Company to determine the fair value of its financial assets and liabilities on a recurring basis at December 29, 2012 are the same as those used at December 31, 2011. As a result, there have been no transfers between Level 1and Level 2 categories.
As discussed in Note 5, the Company determined that the carrying value of a facility acquired form Am-Pac in 2008 and which is currently held for sale exceeded its fair value due to current market conditions. As a result, the Company recorded a $0.6 million adjustment during fiscal 2012 related to the fair value of this facility. This adjustment is included in selling, general and administrative expenses in the accompanying consolidated statement of comprehensive income (loss). The fair value for this facility was based upon quoted market prices from a broker for similar facilities (Level 2).
12. Employee Benefits:
The Company accounts for stock-based compensation awards in accordance with ASC 718—Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Company’s stock-based compensation plans include programs for stock options and restricted stock units.
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Stock Options
The Predecessor adopted the 2005 Management Stock Incentive Plan (the “2005 Plan”) in order to attract, retain and motivate directors, officers, employees and consultants of the Company and its subsidiaries. The 2005 Plan authorized the issuance of up to 190,857 shares of voting common stock under terms and conditions set by the Predecessor’s Board of Directors. A committee appointed by the Predecessor’s Board of Directors administered the plan and had sole authority to select those individuals to whom options may be granted and to determine the number of shares of the Predecessor’s Series A Common Stock that would be issuable upon exercise of the options granted. Options granted under the 2005 Plan generally vested based on performance or the occurrence of specified events, such as an initial public offering or company sale. Performance-based options vested at the end of each year based on the achievement of annual or cumulative EBITDA targets for the year. Options that vested on the basis of events such as an initial public offering or company sale did so only to the extent that the initial shareholders earned a specified return on its initial investment in the Predecessor’s shares.
Changes in options outstanding under the 2005 Plan are as follows:
| Options Outstanding |
Weighted Average Exercise Price |
Options Exercisable |
Weighted Average Exercise Price |
|||||||||||||
| January 2, 2010 |
149,015 | 170.38 | 67,468 | 117.65 | ||||||||||||
| Forfeited |
(4,296 | ) | 211.50 | n/a | n/a | |||||||||||
| Termination |
(144,719 | ) | 169.16 | 108,785 | 155.17 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| May 28, 2010 |
— | $ | — | — | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
In March 2010, Holdings board of directors approved a discretionary vesting of certain previously unvested stock options. The average fair value of these stock options using the Black-Scholes option-pricing model was $363.34. The following assumptions were used:
| March 2010 | ||||
| Risk-free interest rate |
1.26 | % | ||
| Dividend yield |
— | |||
| Expected remaining life |
2.25 years | |||
| Volatility |
44 | % | ||
This discretionary vesting was evaluated in conjunction with the accounting standard for modification of stock options. As the Predecessor did not have sufficient historical volatility data for Holdings own common stock, the stock price volatility utilized in the fair value calculation was based on the Predecessor’s peer group in the industry in which it does business. As a result of this evaluation, the Predecessor recorded non-cash compensation expense of $5.9 million in first quarter 2010.
On May 28, 2010, as a result of the Acquisition, all Holdings stock options that were already vested were converted into the right to receive the excess of $596.65 per share over the exercise price of each of the options. As a consequence, subsequent to the May 28, 2010 transaction date, all options to purchase previously existing Holdings common stock ceased to exist and the existing stock option plans were terminated.
In August 2010, the Company’s indirect parent company adopted a Management Equity Incentive Plan (the “2010 Plan”), pursuant to which the indirect parent company will grant options to selected employees and directors of the Company. The 2010 Plan, which includes both time-based and performance-based awards, provides that a maximum of 48.6 million shares of common stock of the indirect parent company are available for grant. As of December 29, 2012, the Company has 1.9 million shares available for future incentive awards.
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Changes in options outstanding under the 2010 Plan are as follows:
| Options Outstanding |
Weighted Average Exercise Price |
Options Exercisable |
Weighted Average Exercise Price |
|||||||||||||
| May 28, 2010 |
— | $ | — | — | $ | — | ||||||||||
| Granted |
44,448,000 | 1.00 | n/a | n/a | ||||||||||||
| Cancelled |
— | — | n/a | n/a | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| January 1, 2011 |
44,448,000 | 1.00 | — | — | ||||||||||||
| Granted |
1,900,000 | 1.00 | n/a | n/a | ||||||||||||
| Cancelled |
(1,749,600 | ) | 1.00 | n/a | n/a | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 31, 2011 |
44,598,400 | $ | 1.00 | 8,710,401 | $ | 1.00 | ||||||||||
| Granted |
2,277,600 | 1.14 | n/a | n/a | ||||||||||||
| Exercised |
(38,000 | ) | 1.00 | n/a | n/a | |||||||||||
| Cancelled |
(156,400 | ) | 1.00 | n/a | n/a | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 29, 2012 |
46,681,600 | $ | 1.01 | 17,594,936 | $ | 1.00 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Options granted under the 2010 Plan expire no later than 10 years from the date of grant and vest based on the passage of time and/or the achievement of certain performance targets in equal installments over three or five years. The weighted-average remaining contractual term for options outstanding and exercisable at December 29, 2012 was 7.8 years and 7.7 years, respectively. The fair value of each of the Company’s time-based stock option awards is expensed on a straight-line basis over the requisite service period, which is generally the three or five-year vesting period of the options. However, for options granted with performance target requirements, compensation expense is recognized when it is probable that the performance target will be achieved and the requisite service period is satisfied. At December 29, 2012 unrecognized compensation expense related to non-vested options granted under the 2010 Plan totaled $8.4 million and the weighted-average period over which this expense will be recognized is 2.3 years.
The weighted average fair value of the stock options granted during the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor was $0.50, $0.44 and $0.42, respectively, using the Black-Scholes option pricing model. The following weighted average assumptions were used:
| Fiscal Year Ended December 29, 2012 |
Fiscal Year Ended December 31, 2011 |
Seven Months Ended January 1, 2011 |
||||||||||
| Risk-free interest rate |
1.48 | % | 2.41 | % | 1.97 | % | ||||||
| Dividend yield |
— | — | — | |||||||||
| Expected life |
6.5 years | 6.4 years | 6.5 years | |||||||||
| Volatility |
42.81 | % | 40.75 | % | 39.45 | % | ||||||
As the Company does not have sufficient historical volatility data for Holdings own common stock, the stock price volatility utilized in the fair value calculation is based on the Company’s peer group in the industry in which it does business. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Because the Company does not have relevant data available regarding the expected life of the award, the expected life of the award is derived from the Simplified Method as allowed under SAB Topic 14.
Restricted Stock Units (RSUs)
In October 2010, the Company’s indirect parent company adopted the Non-Employee Director Restricted Stock Plan (the “2010 RSU Plan”), pursuant to which the indirect parent company will grant restricted stock
78
units to non-employee directors of the Company. Upon vesting, these awards entitle the holder to receive one share of common stock for each restricted stock unit granted. The 2010 RSU Plan provides that a maximum of 0.8 million shares of common stock of the indirect parent company may be granted to non-employee directors of the Company, of which 0.3 million remain available at December 29, 2012 for future incentive awards.
The following table summarizes RSU activity under the 2010 RSU Plan:
| Number of Shares |
Weighted Average Exercise Price |
|||||||
| Outstanding and unvested at May 28, 2010 |
— | $ | — | |||||
| Granted |
150,000 | 1.00 | ||||||
| Cancelled |
— | — | ||||||
|
|
|
|
|
|||||
| Outstanding and unvested at January 1, 2011 |
150,000 | $ | 1.00 | |||||
| Granted |
100,000 | 1.00 | ||||||
| Vested |
(75,000 | ) | 1.00 | |||||
| Cancelled |
— | — | ||||||
|
|
|
|
|
|||||
| Outstanding and unvested at December 31, 2011 |
175,000 | $ | 1.00 | |||||
| Granted |
219,298 | 1.14 | ||||||
| Vested |
(125,000 | ) | 1.00 | |||||
| Cancelled |
— | — | ||||||
|
|
|
|
|
|||||
| Outstanding and unvested at December 29, 2012 |
269,298 | $ | 1.11 | |||||
|
|
|
|
|
|||||
The fair value of each of the RSU awards is measured as the grant-date price of the common stock and is expensed on a straight- line basis over the requisite service period, which is generally the two year vesting period. At December 29, 2012, unrecognized compensation expense related to non-vested RSUs granted under the 2010 RSU Plan totaled $0.1 million and the weighted-average period over which this expense will be recognized is 0.5 years.
Compensation Expense
Stock-based compensation expense is included in selling general and administrative expenses within the accompanying consolidated statement of comprehensive income (loss). The amount of compensation expense recognized during a period is based on the portion of the granted awards that are expected to vest. Ultimately, the total expense recognized over the vesting period will equal the fair value of the awards as of the grant date that actually vest. The following table summarizes the compensation expense recognized:
| Successor | Predecessor | |||||||||||||||||
| Fiscal 2012 |
Fiscal 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
|||||||||||||||
| In thousands |
||||||||||||||||||
| Stock Options |
$ | 4,118 | $ | 3,999 | $ | 3,687 | $ | 5,892 | ||||||||||
| Restricted Stock Units |
231 | 115 | 19 | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 4,349 | $ | 4,114 | $ | 3,706 | $ | 5,892 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
Deferred Compensation Plan
The Company has a deferred compensation plan for its top executives and divisional employees covered by the executive bonus plan to encourage each participant to promote the long-term interests of the Company. Each participant is allowed to defer portions of their annual salary as well as bonuses received into the plan. In
79
addition to employee deferrals, the Company makes contributions on behalf of its top executives and certain of the divisional employees in varying amounts. The plan provides that an employee who becomes a participant on or before November 23, 1998, shall be fully vested in all amounts credited to such participant’s account. An employee who becomes a participant after November 23, 1998 shall be at all times fully vested in elective deferrals into such participant’s account and, as to contributions made by the Company, shall vest at a rate of twenty percent (20%) per year as long as such participant is an employee on January 1 of each year. The deferred compensation plan may be altered and amended by the Company’s Board of Directors.
At December 29, 2012, the Company’s obligation related to its deferred compensation plan was $2.7 million, recorded in the consolidated balance sheet within other non-current liabilities. At December 31, 2011, the Company’s obligation related to its deferred compensation plan was $2.3 million. The Company provides for funding of the obligation through a Rabbi Trust, which holds various investments, including mutual funds and money market funds. Amounts related to the Rabbi Trust were $2.7 million and $2.3 million at December 29, 2012 and December 31, 2011, respectively, and are recorded in the consolidated balance sheets within other non-current assets. Contributions made by the Company on behalf of its employees were less than $0.1 million during fiscal 2012, 2011 and 2010.
401(k) Plans
The Company maintains a qualified profit sharing and 401(k) plan for eligible employees. All accounts are funded based on employee contributions to the plan, with the limits of such contributions determined by the Board of Directors. Effective January 1, 2002, the benefit formula for all participants was determined to be a match of 50% of participant contributions, up to 6% of their compensation. The plan also provides for contributions in such amounts as the Board of Directors may annually determine for the profit sharing portion of the plan. Employees vest in the 401(k) match and profit sharing contribution over a 5-year period.
The Company match of participant contributions is recorded within selling, general and administrative expense. For the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011, the Successor contributed $2.0 million, $2.1 million and $1.2 million, respectively. The Predecessor contributed $0.7 million during the five months ended May 28, 2010.
13. Commitments and Contingencies:
Leases
The Company leases land, buildings, equipment and vehicles under various noncancellable operating leases, which expire between 2013 and 2026. Future minimum lease commitments, net of sublease income, at December 29, 2012 are as follows:
| In thousands |
||||
| 2013 |
$ | 75,271 | ||
| 2014 |
70,588 | |||
| 2015 |
60,715 | |||
| 2016 |
51,258 | |||
| 2017 |
46,013 | |||
| Thereafter |
158,610 | |||
|
|
|
|||
| Total |
$ | 462,455 | ||
|
|
|
|||
The Successor’s rent expense, net of sublease income, under these operating leases was $75.1 million in fiscal 2012, $59.1 million in fiscal 2011 and $29.5 million for the seven months ended January 1, 2011. The Predecessor’s rent expense, net of sublease income, under these operating leases was $20.0 million in the five months ended May 28, 2010.
80
On March 27, 2002, the Company completed an agreement for the sale and leaseback of three of its owned facilities. On February 1, 2012, the Company reacquired one of the three facilities included in the 2002 sale-leaseback transaction. Accordingly, the original lease was amended to extend the lease term on the two remaining facilities by 5 years as well as to adjust the future lease payments over the remaining 15 years. The Company reports this transaction as a capital lease using direct financing lease accounting. As such, the Company has a capital lease obligation of $12.5 million at December 29, 2012. See Note 9 for more information on this capital lease. Obligations under the Company’s other capital leases are not material.
The Company remains liable as a guarantor on certain leases related to Winston Tire Company. As of December 29, 2012, the Company’s total obligations, as guarantor on these leases, are approximately $2.8 million extending over six years. However, the Company has secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rentals of approximately $2.6 million. A provision has been made for the net present value of the estimated shortfall.
Legal and Tax Proceedings
The Company is involved from time to time in various lawsuits, including class action lawsuits as well as various audits and reviews regarding its federal, state and local tax filings, arising out of the ordinary conduct of its business. Management does not expect that any of these matters will have a material adverse effect on the Company’s business or financial condition. As to tax filings, the Company believes that the various tax filings have been made in a timely fashion and in accordance with applicable federal, state and local tax code requirements. Additionally, the Company believes that it has adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if events so dictate in accordance with FASB authoritative guidance. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in accordance with the accounting standards for income taxes. See Note 14 for further description of the accounting standards for income taxes and the related impacts.
14. Income Taxes:
The Company’s income tax provision (benefit) consisted of the following components:
| Successor | Predecessor | |||||||||||||||||
| Fiscal Year Ended December 29, 2012 |
Fiscal Year Ended December 31, 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
|||||||||||||||
| In thousands |
||||||||||||||||||
| Federal: |
||||||||||||||||||
| Current provision (benefit) |
$ | 5,420 | $ | 8,668 | $ | 792 | $ | 3,203 | ||||||||||
| Deferred provision (benefit) |
(9,802 | ) | (7,327 | ) | (20,078 | ) | (16,693 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
(4,382 | ) | 1,341 | (19,286 | ) | (13,490 | ) | |||||||||||
| State: |
||||||||||||||||||
| Current provision (benefit) |
1,884 | 3,278 | 960 | — | ||||||||||||||
| Deferred provision (benefit) |
(2,037 | ) | (262 | ) | (4,969 | ) | (1,737 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
(153 | ) | 3,016 | (4,009 | ) | (1,737 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Foreign: |
||||||||||||||||||
| Current provision (benefit) |
49 | — | — | — | ||||||||||||||
| Deferred provision (benefit) |
(1,192 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
(1,143 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total provision (benefit) |
$ | (5,678 | ) | $ | 4,357 | $ | (23,295 | ) | $ | (15,227 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||||
81
The provision (benefit) for income taxes differs from the amount of income taxes computed by applying the applicable U.S. statutory federal income tax rate of 35% to pretax income (loss), as a result of the following differences:
| Successor | Predecessor | |||||||||||||||||
| Fiscal Year Ended December 29, 2012 |
Fiscal Year Ended December 31, 2011 |
Seven Months Ended January 1, 2011 |
Five Months Ended May 28, 2010 |
|||||||||||||||
| In thousands |
||||||||||||||||||
| Income tax provision (benefit) computed at the federal statutory rate |
$ | (7,008 | ) | $ | 1,566 | $ | (20,862 | ) | $ | (17,957 | ) | |||||||
| State income taxes, net of federal income tax benefit |
(100 | ) | 613 | (2,203 | ) | (1,069 | ) | |||||||||||
| Benefit of lower foreign rate |
395 | — | — | — | ||||||||||||||
| Increase in state effective tax rate |
— | 2,073 | — | — | ||||||||||||||
| Permanent differences |
437 | 505 | 75 | 325 | ||||||||||||||
| Debt issuance costs |
(221 | ) | (200 | ) | — | — | ||||||||||||
| Non-deductible transaction costs |
430 | — | (364 | ) | 2,237 | |||||||||||||
| Non-deductible preferred stock dividends |
— | — | — | 338 | ||||||||||||||
| Tax settlements and other adjustments to uncertain tax positions |
138 | (376 | ) | 462 | 1,457 | |||||||||||||
| Increase (decrease) in valuation allowance |
132 | 176 | (403 | ) | (558 | ) | ||||||||||||
| Other |
119 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Income tax provision (benefit) |
$ | (5,678 | ) | $ | 4,357 | $ | (23,295 | ) | $ | (15,227 | ) | |||||||
|
|
|
|
|
|
|
|
|
|||||||||||
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and (b) operating loss and tax credit carry-forwards. As of December 29, 2012 and December 31, 2011, amounts related to deferred income taxes have been classified in the accompanying consolidated balance sheet as follows:
| Successor | ||||||||
| December 29, | December 31, | |||||||
| In thousands |
2012 | 2011 | ||||||
| Deferred tax assets (liabilities): |
||||||||
| Current |
$ | 16,458 | $ | 15,042 | ||||
| Noncurrent |
(285,345 | ) | (282,756 | ) | ||||
|
|
|
|
|
|||||
| Total |
$ | (268,887 | ) | $ | (267,714 | ) | ||
|
|
|
|
|
|||||
82
The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at December 29, 2012 and December 31, 2011 for the Successor are as follows:
| Successor | ||||||||
| December 29, | December 31, | |||||||
| In thousands |
2012 | 2011 | ||||||
| Deferred tax assets: |
||||||||
| Accrued expenses and liabilities |
$ | 8,490 | $ | 7,583 | ||||
| Net operating loss carry-forwards |
2,059 | 3,486 | ||||||
| Employee benefits |
7,594 | 4,894 | ||||||
| Inventory cost capitalization |
7,633 | 7,605 | ||||||
| Other assets |
954 | 3,228 | ||||||
| Other |
5,534 | 5,399 | ||||||
|
|
|
|
|
|||||
| Gross deferred tax assets |
32,264 | 32,195 | ||||||
| Less: Deferred tax valuation allowances |
(762 | ) | (840 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax assets |
31,502 | 31,355 | ||||||
|
|
|
|
|
|||||
| Deferred tax liabilities: |
||||||||
| Depreciation and amortization of intangibles |
(299,262 | ) | (298,134 | ) | ||||
| Other |
(1,127 | ) | (935 | ) | ||||
|
|
|
|
|
|||||
| Gross deferred tax liabilities |
(300,389 | ) | (299,069 | ) | ||||
|
|
|
|
|
|||||
| Net deferred tax assets (liabilities) |
$ | (268,887 | ) | $ | (267,714 | ) | ||
|
|
|
|
|
|||||
As part of the Merger, the Predecessor generated substantial tax deductions relating to the exercise of stock options and payments made for transaction expenses. At December 29, 2012, the balance of this acquired non-current deferred tax asset is $5.7 million, which represents the anticipated tax benefits that the Company expects to achieve in future years from such deductions. The remaining net deferred tax liability primarily relates to the expected future tax liability associated with the non-deductible, identified, intangible assets that were recorded during the Merger less existing tax deductible intangibles, assuming an effective tax rate of 39.6%. It is the Company’s intention to indefinitely reinvest all undistributed earnings of non-U.S. subsidiaries. As these earnings are considered permanently reinvested, no provisions for U.S. federal or state income taxes are required under ASC 740-30. Determination of the amount of unrecognized U.S. federal and state deferred tax liabilities on these unremitted earnings is not practicable.
Management regularly reviews the recoverability of deferred tax assets, and where appropriate, establishes a valuation allowance against them. The Company concluded that certain deferred tax assets related to certain state net operating losses (“NOLs”) and certain capital losses do not meet the requirement of being more likely than not that they will be realized. As a result, the Company established a valuation allowance against them.
At December 29, 2012, the Company had $2.3 million of NOLs available for federal tax purposes as well as $27.7 million available for state tax purposes. The NOLs are available to offset taxable income in future years and expire between 2013 and 2029. Except as discussed above, the Company expects to utilize these NOLs prior to their expiration date.
At December 29, 2012, the Company had unrecognized tax benefits of $2.0 million, of which $0.6 million is included within accrued expenses and $1.4 million is included within other liabilities within the accompanying consolidated balance sheet. The total amount of unrecognized tax benefits that, if recognized, would affect the Successor’s effective tax rate is $1.7 million as of December 29, 2012. In addition, $0.3 million related to temporary timing differences.
83
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Successor | Predecessor | |||||||||||||||||
| December 29, | December 31, | January 1, | May 28, | |||||||||||||||
| In thousands |
2012 | 2011 | 2011 | 2010 | ||||||||||||||
| Beginning balance |
$ | 1,815 | $ | 2,181 | $ | 2,329 | $ | 904 | ||||||||||
| (Reductions) additions based on tax positions related to the current year, net |
138 | (366 | ) | — | 1,425 | |||||||||||||
| Settlements |
— | — | — | — | ||||||||||||||
| Reductions for lapse in statute of limitations |
— | — | (148 | ) | — | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Ending balance |
$ | 1,953 | $ | 1,815 | $ | 2,181 | $ | 2,329 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
During the next 12 months, management does not believe it is reasonably possible that there will be a significant change in the Company’s uncertain tax benefits.
While the Company believes that it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than the Company’s accrued position. Accordingly, additional provisions of federal and state-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
The Company files federal income tax returns, as well as multiple state jurisdiction tax returns. The tax years 2008—2011 remain open to examination by the taxing jurisdictions to which the Company is subject.
15. Stockholders’ Equity
In connection with the Merger on May 28, 2010, all existing shares of American Tire Distributors Holdings, Inc. common stock and redeemable preferred stock was redeemed for a portion of the merger consideration. In addition, options or warrants to acquire shares of Holdings common stock were converted into the right to receive consideration in excess of the respective exercise price in complete satisfaction of the option or warrant.
In addition, TPG and certain co-investors contributed $675.4 million through the purchase of common stock in Holdings indirect parent company. In accordance with push-down accounting, the basis in these shares of common stock has been pushed down from the indirect parent company to Holdings and recorded in additional paid-in capital. Subsequent to May 28, 2010, certain members of Holdings management and certain board members purchased common stock in Holdings indirect parent company. At December 29, 2012 and December 31, 2011, these amounts totaled $8.7 million. Accordingly, the Company recorded the basis in these shares in additional paid-in capital.
On November 30, 2012, TPG and certain co-investors contributed $60.0 million through the purchase of 50.0 million shares of common stock in Holdings indirect parent company. The proceeds from this equity contribution were used to fund a portion of the purchase price for the acquisition of TriCan. Accordingly, the Company recorded the basis in these shares in additional paid-in capital. See Note 3 for additional information on the TriCan acquisition.
Common Stock
The authorized share capital of Holdings is $10, consisting of 1,000 common shares, par value $0.01. At December 29, 2012, Accelerate Holdings Corp. owns 100% of Holdings issued and outstanding common stock.
Accumulated Other Comprehensive Income (Loss)
The Company maintains a deferred compensation plan for certain eligible employees, in which the obligation is funded through a Rabbi Trust. Unrealized gains and losses on Rabbi Trust assets are recorded net of tax in accumulated other comprehensive income (loss) and amounted to $0.1 and $0.1 million at December 29, 2012 and December 31, 2011, respectively.
84
In addition, gains and losses resulting from the translation of foreign currency are recorded in accumulated other comprehensive income (loss) net of tax and amounted to $0.3 million at December 29, 2012.
16. Related Party Transaction:
Upon the closing of the Merger, the Company entered into a transaction and monitoring fee letter agreement with TPG pursuant to which the Company retained TPG to provide certain management, consulting, and financial services to the Company, when and as requested by the Company. The Company agreed to pay TPG a monitoring fee equal to 2.0% of adjusted earnings before interest, taxes, depreciation, amortization and other adjustments (“Adjusted EBITDA”). The monitoring fee is payable in quarterly installments in arrears at the end of each fiscal quarter. In the event of an initial public offering, sale of all or substantially all of the Company’s assets or a change of control transaction, TPG is entitled to receive, on its request and in lieu of any continuing payment of the monitoring fee, an aggregate termination fee of $12.5 million. For the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011, the Successor recorded $7.4 million, $4.6 million and $2.4 million, respectively in expense related to the monitoring fee for fiscal 2012, fiscal 2011 and fiscal 2010 which is included in selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss).
17. Subsequent Event:
On February 15, 2013, the board of directors of the Company’s indirect parent, Accelerate Parent Corp., amended the Management Equity Incentive Plan, or the 2010 Plan, to increase the maximum number of shares of common stock of the indirect parent company for which stock options may be granted under the 2010 Plan from 48.6 million to 52.1 million. In addition to the increase in the maximum number of shares, on February 15, 2013 the board of directors of Accelerate Parent Corp. approved the issuance of stock options to certain members of management. The approved options are for the purchase of up to 3.5 million shares of common stock, have an exercise price of $1.20 per share and vest over a three to five-year vesting period.
18. Subsidiary Guarantor Financial Information:
The following condensed consolidating financial statements are presented pursuant to Rule 3-10 of Regulation S-X and reflect the financial position, results of operations and cash flows of the Predecessor for periods prior to May 28, 2010 and the financial position, results of operations and cash flows of the Successor for periods after May 28, 2010.
As a result of the Merger on May 28, 2010, the Company repurchased and cancelled all of the Predecessor’s outstanding 10.75% Senior Notes, Floating Rate Notes, and 13% Senior Discount Notes. In addition, ATDI issued $250.0 million in aggregate principal amount of its Senior Secured Notes and $200.0 million in aggregate principal amount of its Senior Subordinated Notes. The Senior Secured Notes and the Senior Subordinated Notes are fully and unconditionally guaranteed, jointly and severally, by Holdings, Am-Pac, Tire Wholesalers and CTO. ATDI, Am-Pac, Tire Wholesalers and CTO are also borrowers and primary obligors under the U.S. ABL Facility, which is guaranteed by Holdings. TriCan is not a guarantor of the Senior Secured Notes or the Senior Subordinated Notes but they are borrowers and primary obligors under the Canadian ABL Facility. Tire Pros Francorp is not a guarantor of the Senior Secured Notes, the Senior Subordinated Notes, the U.S. ABL Facility or the Canadian ABL Facility. A guarantor subsidiary’s guarantee can be released in certain customary circumstances.
Accordingly, the Company updated the guarantor structure as of May 28, 2010 which resulted in the following revised column headings:
| • | Parent Company (Holdings), |
| • | Subsidiary Issuer (ATDI), |
| • | Subsidiary Guarantor (Am-Pac, Tire Wholesalers and CTO) and |
| • | Non-Guarantor Subsidiary (TriCan and Tire Pros FranCorp). |
85
ATDI is a direct wholly-owned subsidiary of Holdings and Am-Pac, Tire Wholesalers, CTO, TriCan and Tire Pros FranCorp are indirect wholly-owned subsidiaries of Holdings. As a result of the Merger, all periods presented have been retroactively adjusted to reflect the post-merger guarantor structure. In addition, during the third quarter of 2011, the Company merged a subsidiary guarantor (NCT) into the subsidiary issuer (ATDI).
The condensed consolidating financial information for the Company is as follows:
Condensed Consolidating Balance Sheets as of December29, 2012 and December 31, 2011 for the Successor are as follows:
| Successor | ||||||||||||||||||||||||
| In thousands |
As of December 29, 2012 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantor | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Current assets: |
||||||||||||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 12,319 | $ | 27 | $ | 13,605 | $ | — | $ | 25,951 | ||||||||||||
| Accounts receivable, net |
— | 277,160 | 1,435 | 22,708 | — | 301,303 | ||||||||||||||||||
| Inventories |
— | 681,656 | 503 | 39,513 | — | 721,672 | ||||||||||||||||||
| Assets held for sale |
— | 7,151 | — | — | — | 7,151 | ||||||||||||||||||
| Income tax receivable |
— | 369 | — | — | — | 369 | ||||||||||||||||||
| Intercompany receivables |
36,323 | — | 60,616 | — | (96,939 | ) | — | |||||||||||||||||
| Other current assets |
— | 27,290 | 5,908 | 3,955 | — | 37,153 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current assets |
36,323 | 1,005,945 | 68,489 | 79,781 | (96,939 | ) | 1,093,599 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Property and equipment, net |
— | 128,110 | 604 | 1,168 | — | 129,882 | ||||||||||||||||||
| Goodwill and other intangible assets, net |
418,592 | 700,869 | 25,448 | 76,932 | — | 1,221,841 | ||||||||||||||||||
| Investment in subsidiaries |
242,010 | 145,887 | — | — | (387,897 | ) | — | |||||||||||||||||
| Other assets |
8,729 | 48,430 | 317 | 1,204 | — | 58,680 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 705,654 | $ | 2,029,241 | $ | 94,858 | $ | 159,085 | $ | (484,836 | ) | $ | 2,504,002 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||||||
| Accounts payable |
$ | — | $ | 468,914 | $ | 3,058 | $ | 30,249 | $ | — | $ | 502,221 | ||||||||||||
| Accrued expenses |
— | 38,187 | 463 | 6,266 | — | 44,916 | ||||||||||||||||||
| Current maturities of long-term debt |
— | 487 | 6 | — | — | 493 | ||||||||||||||||||
| Intercompany payables |
— | 55,935 | 27,775 | 13,229 | (96,939 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current liabilities |
— | 563,523 | 31,302 | 49,744 | (96,939 | ) | 547,630 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Long-term debt |
— | 939,719 | 9 | 10,983 | — | 950,711 | ||||||||||||||||||
| Deferred income taxes |
— | 269,857 | 587 | 14,901 | — | 285,345 | ||||||||||||||||||
| Other liabilities |
— | 14,132 | 46 | 484 | — | 14,662 | ||||||||||||||||||
| Stockholders’ equity: |
||||||||||||||||||||||||
| Intercompany investment |
— | 280,622 | 64,935 | 97,454 | (443,011 | ) | — | |||||||||||||||||
| Common stock |
— | — | — | — | — | — | ||||||||||||||||||
| Additional paid-in capital |
756,338 | 12,072 | — | — | (12,072 | ) | 756,338 | |||||||||||||||||
| Accumulated earnings (deficit) |
(50,541 | ) | (50,541 | ) | (2,021 | ) | (14,137 | ) | 66,699 | (50,541 | ) | |||||||||||||
| Accumulated other comprehensive income (loss) |
(143 | ) | (143 | ) | — | (344 | ) | 487 | (143 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total stockholders’ equity |
705,654 | 242,010 | 62,914 | 82,973 | (387,897 | ) | 705,654 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities and stockholders’ equity |
$ | 705,654 | $ | 2,029,241 | $ | 94,858 | $ | 159,085 | $ | (484,836 | ) | $ | 2,504,002 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
86
| In thousands |
Successor As of December 31, 2011 |
|||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantor | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Assets |
||||||||||||||||||||||||
| Current assets: |
||||||||||||||||||||||||
| Cash and cash equivalents |
$ | — | $ | 14,118 | $ | — | $ | 861 | $ | — | $ | 14,979 | ||||||||||||
| Accounts receivable, net |
— | 268,937 | 1 | 5 | — | 268,943 | ||||||||||||||||||
| Inventories |
— | 641,710 | — | — | — | 641,710 | ||||||||||||||||||
| Assets held for sale |
— | 6,301 | — | — | — | 6,301 | ||||||||||||||||||
| Income tax receivable |
— | 1,601 | — | — | — | 1,601 | ||||||||||||||||||
| Intercompany receivables |
— | — | 59,966 | — | (59,966 | ) | — | |||||||||||||||||
| Other current assets |
— | 23,030 | 4,941 | 274 | — | 28,245 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current assets |
— | 955,697 | 64,908 | 1,140 | (59,966 | ) | 961,779 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Property and equipment, net |
— | 99,276 | 639 | 15 | — | 99,930 | ||||||||||||||||||
| Goodwill and other intangible assets, net |
418,592 | 762,960 | 1,852 | 1,067 | — | 1,184,471 | ||||||||||||||||||
| Investment in subsidiaries |
252,214 | 60,798 | — | — | (313,012 | ) | — | |||||||||||||||||
| Other assets |
8,691 | 47,683 | 3 | 6 | — | 56,383 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 679,497 | $ | 1,926,414 | $ | 67,402 | $ | 2,228 | $ | (372,978 | ) | $ | 2,302,563 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Liabilities and Stockholders’ Equity |
||||||||||||||||||||||||
| Current liabilities: |
||||||||||||||||||||||||
| Accounts payable |
$ | — | $ | 467,714 | $ | 2,153 | $ | — | $ | — | $ | 469,867 | ||||||||||||
| Accrued expenses |
— | 45,516 | 177 | — | — | 45,693 | ||||||||||||||||||
| Current maturities of long-term debt |
— | 141 | 17 | — | — | 158 | ||||||||||||||||||
| Intercompany payables |
23,678 | 32,613 | — | 3,675 | (59,966 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total current liabilities |
23,678 | 545,984 | 2,347 | 3,675 | (59,966 | ) | 515,718 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Long-term debt |
— | 835,635 | 15 | — | — | 835,650 | ||||||||||||||||||
| Deferred income taxes |
— | 280,088 | 587 | 2,081 | — | 282,756 | ||||||||||||||||||
| Other liabilities |
— | 12,493 | 127 | — | — | 12,620 | ||||||||||||||||||
| Stockholders’ equity: |
||||||||||||||||||||||||
| Intercompany investment |
— | 280,622 | 64,935 | — | (345,557 | ) | — | |||||||||||||||||
| Common stock |
— | — | — | — | — | — | ||||||||||||||||||
| Additional paid-in capital |
691,951 | 7,724 | — | — | (7,724 | ) | 691,951 | |||||||||||||||||
| Accumulated earnings (deficit) |
(36,195 | ) | (36,195 | ) | (609 | ) | (3,528 | ) | 40,332 | (36,195 | ) | |||||||||||||
| Accumulated other comprehensive income (loss) |
63 | 63 | — | — | (63 | ) | 63 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total stockholders’ equity |
655,819 | 252,214 | 64,326 | (3,528 | ) | (313,012 | ) | 655,819 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total liabilities and stockholders’ equity |
$ | 679,497 | $ | 1,926,414 | $ | 67,402 | $ | 2,228 | $ | (372,978 | ) | $ | 2,302,563 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
87
Condensed Consolidating Statements of Comprehensive Income (Loss) for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and the five months ended May 28, 2010 for the Predecessor are as follows:
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Fiscal Year Ended December 29, 2012 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Net sales |
$ | — | $ | 3,436,420 | $ | 8,999 | $ | 10,445 | $ | — | $ | 3,455,864 | ||||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
— | 2,866,048 | 7,528 | 13,845 | — | 2,887,421 | ||||||||||||||||||
| Selling, general and administrative expenses |
— | 491,761 | 3,131 | 11,516 | — | 506,408 | ||||||||||||||||||
| Transaction expenses |
— | 4,863 | 383 | — | — | 5,246 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income (loss) |
— | 73,748 | (2,043 | ) | (14,916 | ) | — | 56,789 | ||||||||||||||||
| Other (expense) income: |
||||||||||||||||||||||||
| Interest expense |
— | (72,857 | ) | — | (61 | ) | — | (72,918 | ) | |||||||||||||||
| Other, net |
— | (3,870 | ) | 5 | (30 | ) | — | (3,895 | ) | |||||||||||||||
| Equity earnings of subsidiaries |
(14,346 | ) | (12,021 | ) | — | — | 26,367 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations before income taxes |
(14,346 | ) | (15,000 | ) | (2,038 | ) | (15,007 | ) | 26,367 | (20,024 | ) | |||||||||||||
| Income tax provision (benefit) |
— | (654 | ) | (626 | ) | (4,398 | ) | — | (5,678 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | (14,346 | ) | $ | (14,346 | ) | $ | (1,412 | ) | $ | (10,609 | ) | $ | 26,367 | $ | (14,346 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Comprehensive income (loss) |
$ | (14,552 | ) | $ | (14,552 | ) | $ | — | $ | — | $ | 14,552 | $ | (14,552 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Fiscal Year Ended December 31, 2011 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Net sales |
$ | — | $ | 3,052,718 | $ | 488 | $ | (2,966 | ) | $ | — | $ | 3,050,240 | |||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
— | 2,534,697 | 282 | 41 | — | 2,535,020 | ||||||||||||||||||
| Selling, general and administrative expenses |
— | 430,095 | 906 | 6,109 | — | 437,110 | ||||||||||||||||||
| Transaction expenses |
— | 3,946 | — | — | — | 3,946 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income (loss) |
— | 83,980 | (700 | ) | (9,116 | ) | — | 74,164 | ||||||||||||||||
| Other (expense) income: |
||||||||||||||||||||||||
| Interest expense |
— | (67,580 | ) | — | — | — | (67,580 | ) | ||||||||||||||||
| Other, net |
— | (2,109 | ) | (1 | ) | — | — | (2,110 | ) | |||||||||||||||
| Equity earnings of subsidiaries |
117 | (255 | ) | — | — | 138 | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations before income taxes |
117 | 14,036 | (701 | ) | (9,116 | ) | 138 | 4,474 | ||||||||||||||||
| Income tax provision (benefit) |
— | 13,919 | (683 | ) | (8,879 | ) | — | 4,357 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | 117 | $ | 117 | $ | (18 | ) | $ | (237 | ) | $ | 138 | $ | 117 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Comprehensive income (loss) |
$ | (41 | ) | $ | (41 | ) | $ | — | $ | — | $ | 41 | $ | (41 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
88
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Seven Months Ended January 1, 2011 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Net sales |
$ | — | $ | 1,526,617 | $ | 443 | $ | (1,811 | ) | $ | — | $ | 1,525,249 | |||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
— | 1,316,286 | 387 | 6 | — | 1,316,679 | ||||||||||||||||||
| Selling, general and administrative expenses |
— | 223,901 | 1,014 | 3,598 | — | 228,513 | ||||||||||||||||||
| Transaction expenses |
— | 1,315 | — | — | — | 1,315 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income (loss) |
— | (14,885 | ) | (958 | ) | (5,415 | ) | — | (21,258 | ) | ||||||||||||||
| Other (expense) income: |
||||||||||||||||||||||||
| Interest expense |
— | (37,390 | ) | (1 | ) | — | — | (37,391 | ) | |||||||||||||||
| Other, net |
— | (959 | ) | (11 | ) | 12 | — | (958 | ) | |||||||||||||||
| Equity earnings of subsidiaries |
(36,312 | ) | (3,882 | ) | — | — | 40,194 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations before income taxes |
(36,312 | ) | (57,116 | ) | (970 | ) | (5,403 | ) | 40,194 | (59,607 | ) | |||||||||||||
| Income tax provision (benefit) |
— | (20,804 | ) | (379 | ) | (2,112 | ) | — | (23,295 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | (36,312 | ) | $ | (36,312 | ) | $ | (591 | ) | $ | (3,291 | ) | $ | 40,194 | $ | (36,312 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Comprehensive income (loss) |
$ | (36,091 | ) | $ | (36,091 | ) | $ | — | $ | — | $ | 36,091 | $ | (36,091 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Predecessor | ||||||||||||||||||||||||
| In thousands |
For the Five Months Ended May 28, 2010 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Net sales |
$ | — | $ | 935,400 | $ | 39 | $ | (514 | ) | $ | — | $ | 934,925 | |||||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
— | 775,671 | (2 | ) | 9 | — | 775,678 | |||||||||||||||||
| Selling, general and administrative expenses |
5,892 | 123,483 | 3,230 | 2,541 | — | 135,146 | ||||||||||||||||||
| Transaction expenses |
— | 42,608 | — | — | — | 42,608 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Operating income (loss) |
(5,892 | ) | (6,362 | ) | (3,189 | ) | (3,064 | ) | — | (18,507 | ) | |||||||||||||
| Other (expense) income: |
||||||||||||||||||||||||
| Interest expense |
(7,588 | ) | (25,081 | ) | — | — | — | (32,669 | ) | |||||||||||||||
| Other, net |
— | (77 | ) | (67 | ) | 17 | — | (127 | ) | |||||||||||||||
| Equity earnings of subsidiaries |
(26,597 | ) | (4,432 | ) | — | — | 31,029 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Income (loss) from operations before income taxes |
(40,077 | ) | (35,952 | ) | (3,256 | ) | (3,047 | ) | 31,029 | (51,303 | ) | |||||||||||||
| Income tax provision (benefit) |
(4,001 | ) | (9,355 | ) | (966 | ) | (905 | ) | — | (15,227 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net income (loss) |
$ | (36,076 | ) | $ | (26,597 | ) | $ | (2,290 | ) | $ | (2,142 | ) | $ | 31,029 | $ | (36,076 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Comprehensive income (loss) |
$ | (34,090 | ) | $ | (34,090 | ) | $ | — | $ | — | $ | 34,090 | $ | (34,090 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
89
Condensed Consolidating Statements of Cash Flows for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and the five months ended May 28, 2010 for the Predecessor are as follows:
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Fiscal Year Ended December 29, 2012 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||||||
| Net cash provided by (used in) operations |
$ | (60,000 | ) | $ | 69,733 | $ | (474 | ) | $ | 767 | $ | — | $ | 10,026 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||||||
| Acquisitions, net of cash acquired |
— | (117,324 | ) | 646 | 1,344 | — | (115,334 | ) | ||||||||||||||||
| Purchase of property and equipment |
— | (52,388 | ) | — | — | — | (52,388 | ) | ||||||||||||||||
| Purchase of assets held for sale |
— | (3,939 | ) | — | — | — | (3,939 | ) | ||||||||||||||||
| Proceeds from sale of property and equipment |
— | 77 | 19 | 6 | — | 102 | ||||||||||||||||||
| Proceeds from disposal of assets held for sale |
— | 3,738 | — | — | — | 3,738 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) investing activities |
— | (169,836 | ) | 665 | 1,350 | — | (167,821 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Borrowings from revolving credit facility |
— | 3,322,159 | — | 11,483 | — | 3,333,642 | ||||||||||||||||||
| Repayments of revolving credit facility |
— | (3,216,797 | ) | — | (501 | ) | — | (3,217,298 | ) | |||||||||||||||
| Outstanding checks |
— | (1,754 | ) | — | — | — | (1,754 | ) | ||||||||||||||||
| Payments of other long-term debt |
— | (1,823 | ) | (164 | ) | — | — | (1,987 | ) | |||||||||||||||
| Equity contribution from TPG |
60,000 | — | — | — | — | 60,000 | ||||||||||||||||||
| Payments of deferred financing costs |
— | (3,481 | ) | — | (298 | ) | — | (3,779 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) financing activities |
60,000 | 98,304 | (164 | ) | 10,684 | — | 168,824 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Effect of exchange rate changes on cash |
— | — | — | (57 | ) | — | (57 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | (1,799 | ) | 27 | 12,744 | — | 10,972 | |||||||||||||||||
| Cash and cash equivalents—beginning of period |
— | 14,118 | — | 861 | — | 14,979 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents—end of period |
$ | — | $ | 12,319 | $ | 27 | $ | 13,605 | $ | — | $ | 25,951 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
90
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Fiscal Year Ended December 31, 2011 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||||||
| Net cash provided by (used in) operations |
$ | — | $ | (91,233 | ) | $ | (99 | ) | $ | 326 | $ | — | $ | (91,006 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||||||
| Acquisitions, net of cash acquired |
— | (59,694 | ) | — | — | — | (59,694 | ) | ||||||||||||||||
| Purchase of property and equipment |
— | (31,044 | ) | — | — | — | (31,044 | ) | ||||||||||||||||
| Purchase of assets held for sale |
— | (2,975 | ) | (18 | ) | — | — | (2,993 | ) | |||||||||||||||
| Proceeds from sale of property and equipment |
— | 72 | 7 | — | — | 79 | ||||||||||||||||||
| Proceeds from disposal of assets held for sale |
— | 1,403 | — | — | — | 1,403 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) investing activities |
— | (92,238 | ) | (11 | ) | — | — | (92,249 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Borrowings from revolving credit facility |
— | 2,760,364 | — | — | — | 2,760,364 | ||||||||||||||||||
| Repayments of revolving credit facility |
— | (2,577,380 | ) | — | — | — | (2,577,380 | ) | ||||||||||||||||
| Outstanding checks |
— | 9,981 | — | — | — | 9,981 | ||||||||||||||||||
| Payments of other long-term debt |
— | (800 | ) | (22 | ) | — | — | (822 | ) | |||||||||||||||
| Payments of deferred financing costs |
— | (5,880 | ) | — | — | — | (5,880 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) financing activities |
— | 186,285 | (22 | ) | — | — | 186,263 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | 2,814 | (132 | ) | 326 | — | 3,008 | |||||||||||||||||
| Cash and cash equivalents—beginning of period |
— | 11,304 | 132 | 535 | — | 11,971 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents—end of period |
$ | — | $ | 14,118 | $ | — | $ | 861 | $ | — | $ | 14,979 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
91
| Successor | ||||||||||||||||||||||||
| In thousands |
For the Seven Months Ended January 1, 2011 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||||||
| Net cash provided by (used in) operations |
$ | (11,797 | ) | $ | (11,633 | ) | $ | (197 | ) | $ | 188 | $ | — | $ | (23,439 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||||||
| Acquisitions, net of cash acquired |
— | (11,042 | ) | 24 | — | — | (11,018 | ) | ||||||||||||||||
| Purchase of property and equipment |
— | (12,381 | ) | — | — | — | (12,381 | ) | ||||||||||||||||
| Purchase of assets held for sale |
— | (718 | ) | — | — | — | (718 | ) | ||||||||||||||||
| Proceeds from sale of property and equipment |
— | 74 | — | — | — | 74 | ||||||||||||||||||
| Proceeds from disposal of assets held for sale |
— | 6,806 | — | — | — | 6,806 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) investing activities |
— | (17,261 | ) | 24 | — | — | (17,237 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Borrowings from revolving credit facility |
— | 1,995,596 | — | — | — | 1,995,596 | ||||||||||||||||||
| Repayments of revolving credit facility |
— | (1,997,413 | ) | — | — | — | (1,997,413 | ) | ||||||||||||||||
| Outstanding checks |
— | 5,328 | — | — | — | 5,328 | ||||||||||||||||||
| Payments of other long-term debt |
— | (6,988 | ) | (28 | ) | — | — | (7,016 | ) | |||||||||||||||
| Payments of deferred financing costs |
— | (24,958 | ) | — | — | — | (24,958 | ) | ||||||||||||||||
| Payments for termination of interest rate swap agreements |
— | (2,804 | ) | — | — | — | (2,804 | ) | ||||||||||||||||
| Payment of seller fees on behalf of Buyer |
— | (16,792 | ) | — | — | — | (16,792 | ) | ||||||||||||||||
| 8% cumulative preferred stock redemption |
— | (30,102 | ) | — | — | — | (30,102 | ) | ||||||||||||||||
| Payments of predecessor senior notes |
— | (340,131 | ) | — | — | — | (340,131 | ) | ||||||||||||||||
| Equity contribution |
11,797 | — | — | — | — | 11,797 | ||||||||||||||||||
| Proceeds from issuance of long-term debt |
— | 446,900 | — | — | — | 446,900 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) financing activities |
11,797 | 28,636 | (28 | ) | — | — | 40,405 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | (258 | ) | (201 | ) | 188 | — | (271 | ) | |||||||||||||||
| Cash and cash equivalents—beginning of period |
— | 11,562 | 333 | 347 | — | 12,242 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents—end of period |
$ | — | $ | 11,304 | $ | 132 | $ | 535 | $ | — | $ | 11,971 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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| Predecessor | ||||||||||||||||||||||||
| In thousands |
For the Five Months Ended May 28, 2010 | |||||||||||||||||||||||
| Parent | Subsidiary | Subsidiary | Non-Guarantor | |||||||||||||||||||||
| Company | Issuer | Guarantors | Subsidiary | Eliminations | Consolidated | |||||||||||||||||||
| Cash flows from operating activities: |
||||||||||||||||||||||||
| Net cash provided by (used in) operations |
$ | 6,263 | $ | 21,901 | $ | (155 | ) | $ | 97 | $ | — | $ | 28,106 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from investing activities: |
||||||||||||||||||||||||
| Purchase of property and equipment |
— | (6,424 | ) | — | — | — | (6,424 | ) | ||||||||||||||||
| Purchase of assets held for sale |
— | (1,498 | ) | — | — | — | (1,498 | ) | ||||||||||||||||
| Proceeds from sale of property and equipment |
— | 194 | 20 | — | — | 214 | ||||||||||||||||||
| Proceeds from disposal of assets held for sale |
— | 185 | — | — | — | 185 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash (used in) provided by investing activities |
— | (7,543 | ) | 20 | — | — | (7,523 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash flows from financing activities: |
||||||||||||||||||||||||
| Borrowings from revolving credit facility |
— | 828,727 | — | — | — | 828,727 | ||||||||||||||||||
| Repayments of revolving credit facility |
— | (822,005 | ) | — | — | — | (822,005 | ) | ||||||||||||||||
| Outstanding checks |
— | (15,369 | ) | — | — | — | (15,369 | ) | ||||||||||||||||
| Payment of Discount Notes |
(6,263 | ) | — | — | — | — | (6,263 | ) | ||||||||||||||||
| Payments of other long-term debt |
— | (715 | ) | (6 | ) | — | — | (721 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net cash provided by (used in) financing activities |
(6,263 | ) | (9,362 | ) | (6 | ) | — | — | (15,631 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Net increase (decrease) in cash and cash equivalents |
— | 4,996 | (141 | ) | 97 | — | 4,952 | |||||||||||||||||
| Cash and cash equivalents—beginning of period |
— | 6,566 | 474 | 250 | — | 7,290 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Cash and cash equivalents—end of period |
$ | — | $ | 11,562 | $ | 333 | $ | 347 | $ | — | $ | 12,242 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
| Item 9A. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
| (a) | We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including the Chief Executive Officer and the Chief Financial Officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. |
| (b) | As of the end of the period covered by this Annual Report on Form 10-K, we have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level. |
Changes in Internal Controls Over Financial Reporting
During the quarter ended December 29, 2012, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information. |
None.
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| Item 10. | Directors, Executive Officers and Corporate Governance. |
The following table contains information regarding our current directors and executive officers. The table also contains information regarding the current directors of Accelerate Parent, our indirect parent. We have included information about the directors of Accelerate Parent because certain decisions relating to our business are made by the Board of Directors of Accelerate Parent, or the Accelerate Parent Board. Certain of our executive officers also serve in the same capacity as executive officers of ATDI, Accelerate Parent and Accelerate Holdings Corp., our direct parent. Directors hold their positions until the annual meeting of the stockholders at which their term expires or until their respective successors are elected and qualified. Executive officers hold their positions until the annual meeting of the board of directors or until their respective successors are elected and qualified.
| Name |
Age |
Position | ||
| William E. Berry |
58 | President and Chief Executive Officer; Director, Accelerate Parent and Holdings | ||
| J. Michael Gaither |
60 | Executive Vice President, General Counsel and Secretary; Director, Holdings | ||
| David L. Dyckman |
48 | Executive Vice President and Chief Operating Officer; Director, Holdings | ||
| Jason T. Yaudes |
39 | Executive Vice President and Chief Financial Officer | ||
| Phillip E. Marrett |
62 | Executive Vice President, Product Planning and Positioning | ||
| James M. Micali |
64 | Director, Accelerate Parent | ||
| Kevin Burns |
48 | Director, Accelerate Parent | ||
| Peter McGoohan |
31 | Director, Accelerate Parent | ||
| W. James Farrell |
70 | Director, Accelerate Parent | ||
| Gary M. Kusin |
61 | Director, Accelerate Parent | ||
| Carl Sewell |
69 | Director, Accelerate Parent | ||
| David Krantz |
43 | Director, Accelerate Parent |
Director and Nominee Experience and Qualifications
The Board of Directors of Holdings, or Holdings Board and Accelerate Parent Board each believe that they should possess a combination of skills, professional experience, and diversity of viewpoints necessary to oversee our business. In addition, the Holdings Board and Accelerate Parent Board believe that there are certain attributes that every director should possess, as reflected in its membership criteria. Accordingly, the Holdings Board and Accelerate Parent Board consider the qualifications of directors and director candidates individually and in the broader context of its overall composition and our current and future needs.
Among other things, the Holdings Board and Accelerate Parent Board have determined that it is important to have individuals with the following skills and experiences:
| • | Leadership experience, as directors with experience in significant leadership positions possess strong abilities to motivate and manage others and to identify and develop leadership qualities in others. |
| • | Knowledge of our industry, particularly distribution strategy and vendor and customer relations, which is relevant to understanding our business and strategy. |
| • | Operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan. |
| • | Risk management experience, which is relevant to oversight of the risks facing our business. |
| • | Financial/accounting experience, particularly knowledge of finance and financial reporting processes, which is relevant to understanding and evaluating our capital structure, financial statements and reporting requirements. |
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| • | Strategic planning experience, which is relevant to the Holdings Board’s and Accelerate Parent Board’s review of our strategies and monitoring their implementation and results. |
William E. Berry—President and Chief Executive Officer; Director, Accelerate Parent and Holdings. Mr. Berry has served on the Board of Directors of Accelerate Parent since May 2010 and has served on the Holdings Board and as our Chief Executive Officer since April 2009 and has been our President since May 2003. He was our Chief Operating Officer from May 2003 to April 2009, Executive Vice President and Chief Financial Officer from January 2002 to May 2003, and Senior Vice President of Finance for the Southeast Division from May 1998 to January 2002. Mr. Berry joined us in May 1998 as a result of our merger with Itco, where he served as Controller from 1984 to 1998, Executive Vice President in charge of business development and sales and marketing from 1996 to 1998 and prior to that was Senior Vice President of Finance. Prior to that, Mr. Berry held a variety of financial management positions for a subsidiary of the Dr Pepper Company and also spent three years in a public accounting firm. He holds a bachelor’s degree in business administration from Virginia Tech. As our President and Chief Executive Officer, Mr. Berry brings to the Holdings Board and Accelerate Parent Board leadership, industry, operations, risk management, financial and accounting and strategic planning experience, as well as in-depth knowledge of our business.
J. Michael Gaither—Executive Vice President, General Counsel and Secretary; Director, Holdings. Mr. Gaither has served on the Holdings Board since May 2010 and has been our General Counsel and Secretary since 1991 and has been an Executive Vice President since May 1999. He was our Treasurer from February 2001 to June 2003, and Senior Vice President from 1991 to May 1999. Prior to joining us, he was a lawyer in private practice. He holds a bachelor’s degree from Duke University and a JD from the University of North Carolina-Chapel Hill. Mr. Gaither brings to the Holdings Board industry, legal and risk management experience, as well as in-depth knowledge of our business.
David L. Dyckman—Executive Vice President and Chief Operating Officer; Director, Holdings. Mr. Dyckman has served on the Holdings Board since May 2010 and has been our Executive Vice President and Chief Operating Officer since January 2012. He was our Executive Vice President and Chief Financial Officer from January 2006 to January 2012. Prior to joining us, Mr. Dyckman was Executive Vice President and Chief Financial Officer of Thermadyne Holdings Corporation from January 2005 to December 2005, and Chief Financial Officer and Vice President of Corporate Development for NN, Inc. from April 1998 to December 2004. Mr. Dyckman holds a bachelor’s degree and an MBA from Cornell University. Mr. Dyckman brings to the Holdings Board financial and accounting and strategic planning experience, as well as in-depth knowledge of our business. Mr. Dyckman, effective December 2012, serves on the Board of Directors for PetroChoice Holdings, Inc.
Jason T. Yaudes—Executive Vice President and Chief Financial Officer. Mr. Yaudes has been our Executive Vice President and Chief Financial Officer since January 2012. Mr. Yaudes joined us in September 2006 as Vice President and Controller and has been Senior Vice President and Controller since December 2011. Prior to joining us, Mr. Yaudes worked with Timco Aviation Services, Inc. holding several positions ranging from Senior Financial Reporting Manager to Chief Accounting Officer. Between 1996 and 2002, Mr. Yaudes worked with the accounting firm of Arthur Andersen as a Manager in the Audit and Business Advisory Services group. Mr. Yaudes holds a bachelor’s degree from Appalachian State University and holds the designation as a Certified Public Accountant.
Phillip E. Marrett—Executive Vice President, Product Planning and Positioning. Mr. Marrett has been our Executive Vice President, Product Planning and Positioning since July 2011. He was our Executive Vice President of Procurement from March 2008 until June 2011 and our Regional Vice President in the Southeast Division from 1998 to March 2008. Prior to joining American Tire, he was employed by Itco from 1997 to 1998 and Dunlop Tire from 1976 to 1996.
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James M. Micali—Director, Accelerate Parent. Mr. Micali has served on the Board of Directors of Accelerate Parent since May 2010 and was previously a member of the Holdings Board from February 2009 until his resignation on May 28, 2010. Mr. Micali has been Senior Advisor to, and limited partner of, Azalea Fund III of the private equity firm Azalea Capital LLC since 2008. He served as “Of Counsel” with the law firm Ogletree Deakins LLC in Greenville, SC, from 2008 to 2011. He was Chairman and President of Michelin North America, Inc. from 1996 until his retirement in August 2008 and was a member of Michelin Group’s Executive Council from 2001 to 2008. Prior to that time, he was Executive Vice President, Legal and Finance, of Michelin North America from 1990 to 1996 and General Counsel and Secretary from 1985 to 1990. Mr. Micali is a director of SCANA Corporation and Sonoco Products Company. Mr. Micali holds a bachelor’s degree from Lake Forest College and a JD from Boston College Law School. Through his executive positions, including as Chairman and President of Michelin North America and his work as a lawyer, Mr. Micali brings to the Accelerate Parent Board leadership, industry, legal, risk management, financial and strategic planning experience. Mr. Micali also possesses company board experience.
Kevin Burns—Director, Accelerate Parent. Mr. Burns has served on the Board of Directors of Accelerate Parent since May 2010. Mr. Burns has been a partner in TPG Capital since 2003. In March 2008, he became the Partner responsible for TPG Capital’s Manufacturing/Industrials Sector within the North American Buyout Group. Prior to joining TPG Capital, from 1998 to 2003 he served as Executive Vice President and Chief Materials Officer of Solectron Corporation, a $12 billion electronics manufacturing services provider. Prior to joining Solectron, Mr. Burns served as Vice President of Worldwide Operations of the Power Generation Business Unit of Westinghouse Corporation, and President of Westinghouse Security Systems. Prior to Westinghouse, Mr. Burns was a consultant at McKinsey & Co., Inc. and spent three years at the General Electric Corporation in various operating roles. Mr. Burns holds a B.S. in Mechanical and Metallurgical Engineering (cum laude) from the University of Connecticut and an MBA from the Wharton School of Business. He currently serves as Chairman of the Board of Isola Group and is on the Board of Freescale Semiconductor and Graphic Packaging. Mr. Burns brings to the Accelerate Parent Board leadership, operations, financial and strategic planning experience. Mr. Burns also possesses company board experience.
Peter McGoohan—Director, Accelerate Parent. Mr. McGoohan has served on the Board of Directors of Accelerate Parent since January 2013. Mr. McGoohan is a Vice President of TPG Capital. He is focused on the firm’s industrials/manufacturing, energy and financial services investing efforts. Prior to joining TPG Capital in 2007, Mr. McGoohan was an investment banker at Goldman Sachs. Mr. McGoohan received his M.B.A. from the Stanford Graduate School of Business and is a summa cum laude graduate of Vanderbilt University. Mr. McGoohan brings to the Accelerate Parent Board risk management, financial and strategic planning experience.
W. James Farrell—Director, Accelerate Parent. Mr. Farrell has served on the Board of Directors of Accelerate Parent since October 2010. Mr. Farrell retired as Chairman & CEO of Illinois Tool Works Inc. (ITW), based in Glenview, Illinois on May 5, 2006. ITW is a multi-national manufacturer of highly engineered fasteners, components, assemblies and systems. ITW is comprised of approximately 875 decentralized operations in 54 countries with more than 65,000 employees and 2008 Revenues of approximately $16 billion. Mr. Farrell currently serves on the board of directors of Abbott, Allstate Insurance Company, and 3M. Mr. Farrell holds a bachelor’s degree in Electrical Engineering from the University of Detroit. Mr. Farrell brings to the Accelerate Parent Board leadership, risk management, operations, financial and strategic planning experience. Mr. Farrell also possesses company board experience.
Gary M. Kusin—Director, Accelerate Parent. Mr. Kusin has served on the Board of Directors of Accelerate Parent since October 2010. Mr. Kusin has been a Senior Advisor at TPG Capital since 2006. Mr. Kusin previously served as a President and Chief Executive Officer of FedEx Kinko’s Office and Print Services from 2001 to 2006. Mr. Kusin was responsible for the strategic growth and transformation of Kinko’s and oversaw the ultimate sale to FedEx. Mr. Kusin then assisted FedEx in the transition of Kinko’s into FedEx Kinko’s. During that two year transition Mr. Kusin served on the nine person Strategic Management Committee
97
for FedEx Corporation worldwide. Prior to joining Kinko’s in 2001, Mr. Kusin was chief executive officer of HQ Global Workplaces, the world leader in serviced offices, now a part of Regus. In 1995, Mr. Kusin co-founded Laura Mercier Cosmetics, a makeup line now sold through leading specialty and department stores worldwide, which he sold to Neiman-Marcus in 1998. Prior to co-founding Laura Mercier Cosmetics, starting in 1983, Mr. Kusin was president and co-founder of Babbage’s Inc., the leading consumer software specialty store chain in the United States, which now operates under the name GameStop. Earlier in his career, he was vice president and general merchandise manager for the Sanger-Harris division of Federated Department Stores, today operating as Macy’s. Mr. Kusin currently serves on the board of directors of Petco, Sabre Holdings, Savers and Fleetpride. Mr. Kusin served as a Director of Electronic Arts Inc. from 1995 to 2011 and as a Director of RadioShack Corporation from 2004 to 2005. Mr. Kusin holds a bachelor’s degree from the University of Texas and an MBA from the Harvard Business School. Mr. Kusin brings to the Accelerate Parent Board leadership, risk management, operations, financial and strategic planning experience. Mr. Kusin also possesses company board experience.
Carl Sewell—Director, Accelerate Parent. Mr. Sewell has served on the Board of Directors of Accelerate Parent since March 2011. He is the Chairman of Sewell Automotive Companies. In addition, Mr. Sewell currently serves on the Board of Trustees for Southern Methodist University and the Southern Methodist University, Cox School of Business, having served as past chairman for both. He holds a B.B.A. from Southern Methodist University. Mr. Sewell brings to the Accelerate Parent Board leadership, industry, financial and strategic planning experience.
David Krantz—Director, Accelerate Parent. Mr. Krantz has served on the Board of Directors of Accelerate Parent since March 2011. He is CEO of YP Holdings LLC. Prior to YP Holdings LLC, Mr. Krantz was President & CEO of AT&T Interactive. In addition to AT&T Interactive, Mr. Krantz has held several other senior leadership positions with AT&T. Prior to joining AT&T, Mr. Krantz held senior leadership positions at GoDigital Networks, a telecommunications equipment company, AOL/Netscape, Pacific Bell, and Sprint. Mr. Krantz holds a bachelor’s degree in Finance and Management from the University of Virginia’s McIntire School of Commerce and earned an MBA from Harvard University.Mr. Krantz brings to the Accelerate Parent Board leadership, industry, financial and strategic planning experience.
Board Composition and Independence
The Holdings Board consists of three directors, all of whom are executive officers of Holdings and so are not independent. The Accelerate Parent Board consists of eight directors. Our Sponsor has the right to nominate, and has nominated, all of the directors that serve on the Accelerate Parent Board. Because of their affiliations with the Sponsor and us, none of the directors of the Accelerate Parent Board other than Mr. Micali, Mr. Farrell, Mr. Sewell and Mr. Krantz are independent.
Code of Conduct
We have adopted a code of conduct that applies to all of our employees, including our principal executive officer and principal financial officer. A copy of our code of conduct is available, free of charge, upon written request sent to the legal department at our corporate offices located at 12200 Herbert Wayne Court, Suite 150, Huntersville, NC 28078.
| Item 11. | Executive Compensation. |
Introduction
All executive compensation and related decisions related to us are made by the Board of Directors of Accelerate Parent, which is the indirect parent of Holdings. The Accelerate Parent Board does not currently have a compensation committee; rather, the Accelerate Parent Board as a whole performs equivalent functions of a compensation committee.
98
Compensation Discussion and Analysis
Overview
This section provides an analysis of our compensation program and policies, the material compensation decisions made under those programs and policies, and the material factors considered in making those decisions. This section also includes a series of tables containing specific information about the compensation earned in fiscal 2012 by the following individuals, referred to as our named executive officers:
| • | William E. Berry, President and Chief Executive Officer; |
| • | Jason T. Yaudes, Executive Vice President and Chief Financial Officer; |
| • | J. Michael Gaither, Executive Vice President and General Counsel; |
| • | David L. Dyckman, Executive Vice President and Chief Operating Officer; and |
| • | Phillip E. Marrett, Executive Vice President, Product Planning and Positioning. |
The discussion below is intended to help you understand the detailed information provided in those tables and put that information into context within our overall compensation program.
Compensation Philosophy and Objectives
The overall goal of the Accelerate Parent Board in compensating our executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. The Accelerate Parent Board believes that both short-term and long-term incentive compensation paid to executive officers should be directly aligned with our performance, and that compensation should be structured to ensure that a significant portion of executives’ compensation opportunities is directly related to achievement of financial and operational goals and other factors that impact stockholder value.
The compensation decisions of the Accelerate Parent Board with respect to executive officer salaries, annual incentives and long-term incentive compensation opportunities are influenced by: (i) our executive’s level of responsibility and function, (ii) our overall performance and profitability and (iii) its assessment of the competitive marketplace. Its philosophy is to focus on total direct compensation opportunities through a mix of base salary, annual cash bonus and long-term incentives, including stock-based awards.
The Accelerate Parent Board also believe that the best way to directly align the interests of our executives with the interests of our stockholders is to make sure that our executives retain an appropriate level of equity ownership throughout their tenure with us. Our compensation program pursues this objective through our equity-based long-term incentive awards.
These programs are continually evaluated for effectiveness in achieving the stated objectives of the Accelerate Parent Board as well as to reflect the economic environment within which we operate. In this vein, recent events roiling the world’s economies provide a backdrop for the continued review of our compensation strategies. Accordingly, we adjusted shorter term compensation and incentives to help manage through the difficult economic environment while at the same time addressing alternative long-term strategies to reward long-term success and execution. This included freezing all salaries and compensation effective January 4, 2009, the first day of our 2009 fiscal year. The salary freeze continued for fiscal 2010 for our executive officers but was discontinued for fiscal 2011 and 2012.
99
Overview of Executive Compensation Components
In fiscal 2012, our executive compensation program consisted of several compensation elements, as illustrated in the table below.
| Pay Element |
What the Pay Element Rewards |
Purpose of the Pay Element | ||
| Base Salary |
Core competence of the executive relative to skills, experience and contributions to us. | Provides fixed compensation based on competitive market practice. | ||
| Annual Cash Incentive |
Contributions toward our achievement of specified financial targets and other key performance criteria. | Provides focus on meeting annual goals that lead to our long-term success.
• Provides annual performance-based cash incentive compensation.
• Motivates achievement of critical annual performance metrics. | ||
| Long-Term Incentives |
Stock Option Program | |||
| Vesting program based primarily on achievement of specified financial targets, thereby aligning executive’s interests with those of stockholders.
Continued employment with us during a 5-year vesting period. |
Provides focus on our performance.
• Executive ownership of equity securities of Accelerate Parent.
• Retention of the executives. | |||
| Retirement Benefits |
Our executive officers are eligible to participate in employee benefit plans available to our eligible employees, including both tax qualified and nonqualified retirement plans.
The Deferred Compensation Plan is a nonqualified plan comprised of a voluntary deferral program that allows the named executive officers to defer a portion of their annual salary and bonus and a noncontributory program that provides for certain contributions to be made on behalf of certain executives by us according to a Board approved schedule. While our funds are set aside to fund this plan, they remain available to our general creditors. |
Provides a tax-deferred retirement savings alternative to certain eligible executives. | ||
100
| Pay Element |
What the Pay Element Rewards |
Purpose of the Pay Element | ||
| Welfare Benefits |
Executives participate in employee benefit plans generally available to our employees, including medical, health, life insurance and disability plans.
Continuation of welfare benefits may occur as part of severance upon certain terminations of employment.
In addition, we sponsor an executive medical program for our executive officers, which provides for reimbursement for certain executive officers and eligible dependents for medical expenses not covered by the Group Medical Plan. |
These benefits are part of our broad-based total compensation program.
We believe we benefit from these perquisites by encouraging our executive officers to protect their health. | ||
| Additional Benefits and Perquisites |
Certain executive officers: Three club memberships.
Vehicle Allowance |
Consistent with offering our executives a competitive compensation program. | ||
| Termination Benefits |
Termination benefits are agreements with certain officers, including our named executive officers. The agreements provide severance benefits if an officer’s employment is terminated without cause or the officer leaves for good reason, each defined in the agreements. | Termination benefits are designed to retain executives and provide continuity to management. | ||
The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operations performance with long-term stockholder value, and encourages executive recruitment and retention.
Determination of Appropriate Pay Levels
Pay Philosophy and Competitive Standing
In general, the Accelerate Parent Board seeks to provide an overall compensation package that rewards for performance above specified targets. Our executive compensation package consists of salary, target annual bonus, and long-term incentives, as well as additional benefits and perquisites. To achieve competitive positioning for the annual cash compensation component, the Accelerate Parent Board sets base salaries to be competitive but provide high target annual bonus opportunities. Thus, our compensation is focused less on fixed pay and more on performance-based opportunities, while still remaining competitive overall. Targeted annual cash bonus opportunities are based on, among other things, our budgeted financial goals and other factors, which may fluctuate from year to year.
The Accelerate Parent Board also focuses on the executive’s tenure, individual performance and changes in responsibility as well as our overall annual budget goals. Additionally, it takes factors such as changes in cost of living into account.
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Base Salary
Historically, base salary levels have reflected a combination of factors including the executive’s experience and tenure, our overall annual budget, the executive’s individual performance, and changes in responsibility. The Accelerate Parent Board does not target base salary at any particular percent of total compensation. The Accelerate Parent Board reviews salary levels annually using the factors described above. The Chief Executive Officer and other senior management continue to participate in preparing salary recommendations for presentation to the Accelerate Parent Board.
In fiscal 2012, base pay increases granted to Messrs. Berry, Gaither and Marrett ranged from 7.7% to 25.0% and were established after considering job performance, internal pay alignment and equity, and marketplace competitiveness. During January 2012, Mr. Yaudes’ salary was increased to $350,000 in connection with his appointment as Chief Financial Officer and Mr. Dyckman’s salary was increased to $550,000 in connection with his appointment as Chief Operating Officer to reflect the increased responsibilities and duties commensurate with their new positions.
Annual Incentive Plan
Our annual incentive plan, which we refer to as the annual incentive plan, provides our executive officers an opportunity to earn annual cash bonuses based on our achievement of certain pre-established performance goals.
As in setting base salaries, the Accelerate Parent Board considers a combination of factors in establishing the annual target bonus opportunities for our named executive officers. Budgeted Adjusted EBITDA is a primary factor, as target bonus opportunities are adjusted annually when we set our budgeted Adjusted EBITDA goals for the year. Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization further adjusted to exclude certain non-cash, non-recurring, cost reduction and other adjustment items permitted in calculating covenant compliance under the indentures governing our senior notes. We do not target annual bonus opportunities at any particular percentage of total compensation.
Once the performance goals have been set and approved, the Accelerate Parent Board then sets a bonus pool for all executives covered by the annual incentive plan, whose size is equal to a designated percentage of Adjusted EBITDA actually achieved by us. No bonus pool is funded if actual performance falls below 90% of the Adjusted EBITDA goal. The pool grows pro-rata for actual performance between 90% and 100% of the Adjusted EBITDA goal. Above 100% of the Adjusted EBITDA goal, the pool grows by approximately 20% of each incremental Adjusted EBITDA dollar. The bonus pool is divided among participants in the annual incentive plan based on each participant’s designated percentage of the bonus pool, which percentages were established by the Accelerate Parent Board.
Payment under the annual incentive plan for fiscal 2012 was based on achievement of performance goals relating to Adjusted EBITDA. We set the Adjusted EBITDA goals for fiscal 2012 bonus opportunities at levels that were intended to reflect improvement in performance over the prior fiscal year, specific market conditions and better than average growth within our competitive industry. For fiscal 2012, the targeted bonus pool was $9.9 million, subject to adjustment, based upon an Adjusted EBITDA target of $194.6 million.The percentage of the targeted bonus pool designated for each named executive officer for fiscal 2012 was: Mr. Berry, 15.6%; Mr. Dyckman, 7.0%; Messrs. Yaudes, Gaither and Marrett, 5.4% each. For 2012, the targets for the annual incentive plan were not reached. However, given the fact of the Company’s performance in the face of a 2nd year of declining industry performance, the Accelerate Parent Board voted to declare a one-time discretionary bonus to be paid to participants as directed by the board. The bonus authorized was $4.0 million and actual bonuses to be paid to the named executive officers are included in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation”.
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Stock Option Plans
Prior to the Merger, we had one stock option plan in effect, the 2005 Management Stock Incentive Plan, which we refer to as the 2005 Plan. In connection with the Merger, the 2005 Plan was terminated and all outstanding options granted under the 2005 Plan were cancelled. Unvested options were cancelled without payment to the holders. Holders of vested options with an exercise price less than the per share merger consideration received an option cancellation payment equal to the difference between the per share merger consideration and the exercise price of the cancelled option.
Following the Merger, on August 30, 2010, Accelerate Parent adopted the Accelerate Parent Corp. Management Equity Incentive Plan, which we refer to as the 2010 Plan. The 2010 Plan was amended and restated on October 14, 2010 and further amended on February 15, 2013. The 2010 Plan is designed to promote the interests of Accelerate Parent and its direct and indirect affiliates and stockholders by providing key employees, directors, service providers and consultants incentives to encourage them (i) to continue working for Accelerate Parent and its affiliates; and (ii) to work to improve Accelerate Parent’s growth and profitability.
As amended, the 2010 Plan authorizes Accelerate Parent to issue options to purchase up to 52,100,000 shares of common stock of Accelerate Parent, or Accelerate Common Stock. As of March 4, 2013, Accelerate Parent has granted 50,181,602 options to our key employees and certain directors, including 3.5 million options that were approved for issuance by the Accelerate Parent Board in February 2013. After giving effect to the options that were approved in February 2013, our named executive officers have received the following stock option grants: 9,301,973 options to Mr. Berry, 2,661,398 to Mr. Yaudes, 5,232,360 to Mr. Dyckman, and 4,650,987 to each of Messrs. Gaither and Marrett.
Options granted pursuant to the 2010 Plan may be either (i) time-based or (ii) performance-based. In general, subject to certain exceptions, time-based options vest ratably on each of the first through fifth anniversaries of the grant date until 100% of the time-based options are fully vested and exercisable, provided the participant remains continuously employed by us through each such vesting date. In general, subject to certain exceptions, each performance-based option vests ratably on each of the first through fifth anniversaries of the grant date if, as of the end of the most recent fiscal year ending on or prior to each such anniversary, we have achieved the EBITDA target established for such fiscal year by the terms of the option. If the EBITDA target is not met for the relevant fiscal year, the performance-based option remains outstanding until terminated and immediately vests upon (i) achievement of cumulative EBITDA targets for the fiscal year and the first fiscal year following that fiscal year; or (ii) the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment of at least 220%. Similar to the time-based options, the participant must remain employed through the vesting date in order to exercise the performance-based options. Under the 2010 Plan, all options, vested or not, expire on the tenth anniversary of their grant date unless otherwise provided.
Under the 2010 Plan, upon termination of a participant’s employment for any reason, subject to the terms of the participant’s option agreement, all unvested options are forfeited and the vested portion of any options expire on the earlier of (i) the date the participant is terminated for cause; (ii) 30 days after the date employment is terminated by the participant for other than good reason; (iii) 90 days after (A) the date the participant is terminated by the Company for any reason other than cause, death or disability; or (B) the date employment is terminated by the participant for good reason; (iv) one year after the date the participant’s employment is terminated by reason of death or disability; and (v) the tenth anniversary of the grant date for the options. However, if a participant’s employment is terminated within two years of a change of control transaction either by us without cause or by the participant for good reason, 100% of the participant’s outstanding time-based options become immediately vested and exercisable. In addition, the option grant agreements for each of the named executive officers provide that in the event of termination by us without cause or by the participant for good reason, whether following a change of control transaction or not, (i) any time-based options that would have vested within six months of termination will become immediately vested on the termination date; and (ii) any performance-based options that would have vested within six months of termination if the employee had continued to be employed will vest upon the date the applicable performance criteria are determined to have been achieved.
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Compensation Committee Report
The Accelerate Parent Board performs equivalent functions of a compensation committee since the Accelerate Parent Board does not have a compensation committee. The Accelerate Parent Board has reviewed and discussed with management the following Compensation Discussion and Analysis. Based on such review and discussions, the Accelerate Parent Board approved the inclusion of the following Compensation Discussion and Analysis in this Annual Report on Form 10-K for the fiscal year ended December 29, 2012.
| THE ACCELERATE PARENT BOARD |
| William E. Berry |
| James M. Micali |
| Kevin Burns |
| Peter McGoohan |
| W. James Farrell |
| Gary M. Kusin |
| Carl Sewell |
| David Krantz |
Summary Compensation Table for Fiscal 2012, 2011 and 2010
The following table summarizes compensation for our named executive officers for fiscal years 2012, 2011 and 2010.
| Name and Principal Position |
Fiscal Year |
Salary ($) | Option Awards ($)(3) |
Non-Equity Incentive Plan Compensation ($) |
All Other Compensation ($) |
Total ($) | ||||||||||||||||
| William E. Berry |
2012 | $ | 750,000 | $ | — | $ | 600,000 | $ | 55,533 | $ | 1,405,533 | |||||||||||
| President and Chief Executive Officer |
2011 | 600,000 | — | 1,584,000 | 57,959 | 2,241,959 | ||||||||||||||||
| 2010 | 500,000 | 3,668,635 | 2,277,000 | 12,380,100 | 18,825,735 | |||||||||||||||||
| Jason T. Yaudes (1) |
2012 | 342,308 | 758,275 | 215,000 | 21,634 | 1,337,217 | ||||||||||||||||
| Executive Vice President and Chief Financial Officer |
||||||||||||||||||||||
| J. Michael Gaither |
2012 | 400,000 | — | 215,000 | 59,193 | 674,193 | ||||||||||||||||
| Executive Vice President, General Counsel and Secretary |
2011 | 350,000 | — | 545,000 | 56,276 | 951,276 | ||||||||||||||||
| 2010 | 290,000 | 1,834,318 | 810,900 | 5,947,889 | 8,883,107 | |||||||||||||||||
| David L. Dyckman (2) |
2012 | 550,000 | — | 280,000 | 27,499 | 857,499 | ||||||||||||||||
| Executive Vice President and Chief Operating Officer |
2011 | 350,000 | — | 727,000 | 28,430 | 1,105,430 | ||||||||||||||||
| 2010 | 290,000 | 2,063,607 | 810,900 | 2,302,285 | 5,466,792 | |||||||||||||||||
| Phillip E. Marrett |
2012 | 350,000 | — | 215,000 | 40,295 | 605,295 | ||||||||||||||||
| Executive Vice President, Product Planning and Positioning |
2011 | 325,000 | — | 545,000 | 39,051 | 909,051 | ||||||||||||||||
| 2010 | 270,000 | 1,834,318 | 810,900 | 1,316,610 | 4,231,828 | |||||||||||||||||
| (1) | Jason T. Yaudes was appointed Executive Vice President and Chief Financial Officer effective January 23, 2012. Mr. Yaudes was not a “named executive officer” of the Company during fiscal 2011 and 2010 and therefore his compensation is not required to be reported for those years. |
| (2) | Effective January 23, 2012, Mr. Dyckman was appointed Executive Vice President and Chief Operating Officer. Prior to January 23, 2012, Mr. Dyckman was our Executive Vice President and Chief Financial Officer. |
| (3) | Represents the aggregate grant date fair value of option awards granted during fiscal years ended December 29, 2012 and January 1, 2011 calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The fair value of the options was calculated using a Black-Scholes option pricing model. For a discussion of the assumptions used in the valuation, see Note 12 in our Notes to Consolidated Financial Statements. |
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All Other Compensation from Summary Compensation Table for Fiscal 2012, 2011 and 2010
The following table contains a breakdown of the compensation and benefits included under “All Other Compensation” in the Summary Compensation Table above.
| Name |
Fiscal Year |
Registrant Contributions to Non- Qualified Deferred Compensation Plan |
Vehicle Allowance |
401K Company Match |
Club Dues |
Life Insurance |
Executive Medical Benefits |
Long- term Disability |
Payments Related to Merger (1) |
Total ($) | ||||||||||||||||||||||||||||
| William E. Berry |
2012 | $ | 20,000 | $ | 19,200 | $ | 5,628 | $ | 5,544 | $ | 3,612 | $ | 994 | $ | 555 | $ | — | $ | 55,533 | |||||||||||||||||||
| 2011 | 20,000 | 19,200 | 8,250 | 5,544 | 3,612 | 596 | 757 | — | 57,959 | |||||||||||||||||||||||||||||
| 2010 | 20,000 | 18,400 | 8,250 | 5,544 | 2,108 | 3,676 | 605 | 12,321,517 | 12,380,100 | |||||||||||||||||||||||||||||
| Jason T. Yaudes |
2012 | — | 14,900 | 5,423 | — | 756 | — | 555 | — | 21,634 | ||||||||||||||||||||||||||||
| J. Michael Gaither |
2012 | 17,000 | 16,800 | 7,776 | 6,000 | 3,612 | 7,450 | 555 | — | 59,193 | ||||||||||||||||||||||||||||
| 2011 | 17,000 | 16,800 | 8,250 | 6,000 | 3,612 | 3,757 | 857 | — | 56,276 | |||||||||||||||||||||||||||||
| 2010 | 17,000 | 16,800 | 8,250 | 6,015 | 3,462 | 2,295 | 907 | 5,893,160 | 5,947,889 | |||||||||||||||||||||||||||||
| David L. Dyckman |
2012 | — | 14,400 | 7,238 | 2,760 | 1,260 | 1,286 | 555 | — | 27,499 | ||||||||||||||||||||||||||||
| 2011 | — | 14,400 | 8,250 | 2,760 | 1,260 | 903 | 857 | — | 28,430 | |||||||||||||||||||||||||||||
| 2010 | — | 14,400 | 8,250 | 1,840 | 795 | 599 | 907 | 2,275,494 | 2,302,285 | |||||||||||||||||||||||||||||
| Phillip E. Marrett |
2012 | 10,000 | 14,400 | 7,714 | — | 5,544 | 2,082 | 555 | — | 40,295 | ||||||||||||||||||||||||||||
| 2011 | 10,000 | 14,400 | 8,250 | — | 5,544 | — | 857 | — | 39,051 | |||||||||||||||||||||||||||||
| 2010 | 10,000 | 14,400 | 8,100 | — | 3,309 | 4,400 | 907 | 1,275,494 | 1,316,610 | |||||||||||||||||||||||||||||
| (1) | As described below under “Payments Received by Directors and Named Executive Officers in Connection with the Merger,” for any vested options under the 2005 Option Plan with an exercise price per share less than $596.65, our named executive officers received an option cancellation payment for each share underlying the vested options equal to the difference between $596.65 and the per-share exercise price. Mr. Dyckman also received a discretionary cash bonus of $1.0 million in connection with the Merger. |
Grants of Plan-Based Awards During Fiscal 2012
The following table sets forth certain information regarding the grant of plan-based awards made during fiscal 2012 to the named executive officers:
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
Estimated Future Payouts Under Equity Incentive Plan Awards (4) |
All Other Options: Number of Securities Underlying Options (#)(5) |
Exercise Price of Option Awards ($/Sh) |
Grant Date Fair Value of Option Awards |
||||||||||||||||||||||||||||||||
| Name |
Grant Date | Threshold ($)(1) |
Target ($)(2) | Maximum ($)(3) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||||||||
| William E. Berry |
$ | 776,100 | $ | 1,552,200 | $ | — | ||||||||||||||||||||||||||||||
| Jason T. Yaudes |
268,650 | 537,300 | — | |||||||||||||||||||||||||||||||||
| 1/23/2012 | 750,000 | 750,000 | 1.14 | $ | 758,275 | |||||||||||||||||||||||||||||||
| J. Michael Gaither |
268,650 | 537,300 | — | |||||||||||||||||||||||||||||||||
| David L. Dyckman |
348,250 | 696,500 | — | |||||||||||||||||||||||||||||||||
| Phillip E. Marrett |
268,650 | 537,300 | — | |||||||||||||||||||||||||||||||||
| (1) | Represents the minimum payment under the annual incentive plan if the threshold level of 90% of the Adjusted EBITDA target has been achieved during 2012. In fiscal 2012, the threshold level was not achieved but see footnote (2) for discussion of a one-time discretionary bonus approved by the Accelerate Parent Board. |
| (2) | Represents payments under the annual incentive plan if 100% of plan performance was achieved during fiscal 2012. In fiscal 2012, plan targets were not reached. However, the Accelerate Parent Board approved a one-time discretionary bonus to be paid to participants as directed by the board. Actual bonuses to be paid to the named executive officers are included in the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation.” |
| (3) | There is no limit to the maximum amount payable under the annual incentive plan. |
| (4) | Represents the number of performance-based options granted to our named executive officers under the 2010 Plan in fiscal 2012. Each performance-based option granted to our named executive officers vests ratably on each of the first |
105
| through fifth anniversaries of the grant date if, as of the end of the most recent fiscal year ending on or prior to each such anniversary, the Company has achieved the EBITDA target established for such fiscal year by the terms of the option. If EBITDA target is not met for the relevant fiscal year, the performance-based option remains outstanding until terminated and immediately vests upon (i) achievement of cumulative EBITDA targets for the relevant fiscal year and the first fiscal year following that fiscal year, or (ii) the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment of at least 220%. The participant must remain employed through the vesting date in order to exercise any performance-based options. |
| (5) | Represents the number of time-based options granted to our named executive officers under the 2010 Plan in fiscal 2012. Time-based options granted to our named executive officers vest ratably on each of the first through fifth anniversaries of the grant date, provided that the participant remains continuously employed by us through each vesting date. |
Outstanding Equity Awards at Fiscal 2012 Year End
The following table provides information concerning unexercised options for our named executive officers as of December 29, 2012, the last day of our 2012 fiscal year.
| Name |
Number of Securities Underlying Unexercised Options Exercisable (#) |
Number of Securities Underlying Unexercised Options Unexercisable (#) (1) |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (2) |
Option Exercise Price ($) |
Option Expiration Date |
|||||||||||||||
| William E. Berry |
3,456,000 | 2,592,000 | 2,592,000 | $ | 1.00 | 08/30/20 | ||||||||||||||
| Jason T. Yaudes |
388,800 | 291,600 | 291,600 | 1.00 | 08/30/20 | |||||||||||||||
| — | 750,000 | 750,000 | 1.14 | 01/23/22 | ||||||||||||||||
| J. Michael Gaither |
1,728,000 | 1,296,000 | 1,296,000 | 1.00 | 08/30/20 | |||||||||||||||
| David L. Dyckman |
1,944,000 | 1,458,000 | 1,458,000 | 1.00 | 08/30/20 | |||||||||||||||
| Phillip E. Marrett |
1,728,000 | 1,296,000 | 1,296,000 | 1.00 | 08/30/20 | |||||||||||||||
| (1) | Represents the number of unexercised time-based options held by our named executive officers as of December 29, 2012. These time-based options, all of which were granted under the 2010 Plan, vest ratably on each of the first through fifth anniversaries of the grant date, provided that the participant remains continuously employed by us through each vesting date. |
| (2) | Represents the number of unexercised performance-based options held by our named executive officers as of December 29, 2012. All of these performance-based options were granted under the 2010 Plan. Each performance-based option vests ratably on each of the first through fifth anniversaries of the grant date if, as of the end of the most recent fiscal year ending on or prior to each such anniversary, the Company has achieved the EBITDA target established for such fiscal year by the terms of the options. If the EBITDA target is not met for the relevant fiscal year, the performance-based option remains outstanding until terminated and immediately vest upon (i) achievement of cumulative EBITDA targets for the relevant fiscal year and the first fiscal year following that fiscal year, or (ii) the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment of at least 220%. The participant much remain employed through the vesting date in order to exercise any performance-based options. |
Nonqualified Deferred Compensation for Fiscal Year 2012
The following table sets forth information regarding our nonqualified deferred compensation plans, showing, with respect to each named executive officer, the aggregate contributions made by such executive officer during the fiscal year ended December 29, 2012, the aggregate contributions made by the Company during the fiscal year ended December 29, 2012, the aggregate earnings accrued during the fiscal year ended
106
December 29, 2012, the aggregate value of withdrawals and distributions to the executive officer during the fiscal year ended December 29, 2012 and the balance of account as of December 29, 2012.
| Name |
Executive Contributions in 2012 ($) (1) |
Registrant Contributions in 2012 ($) (2) |
Aggregate Earnings in 2012 ($) (3) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at December 29, 2012 ($) (4) |
|||||||||||||||
| William E. Berry |
$ | 28,769 | $ | 20,000 | $ | 31,183 | $ | — | $ | 384,658 | ||||||||||
| Jason T. Yaudes |
60,740 | — | 13,045 | — | 136,777 | |||||||||||||||
| J. Michael Gaither |
— | 17,000 | (1,911 | ) | — | 315,104 | ||||||||||||||
| David L. Dyckman |
— | — | — | — | — | |||||||||||||||
| Phillip E. Marrett |
— | 10,000 | 2,856 | — | 72,851 | |||||||||||||||
| (1) | Amounts in this column are included in the amounts reported as “Salary” or “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table for Fiscal Year 2012 for each of the named executive officers. |
| (2) | Amounts in this column reflect company contributions and are included in the Summary Compensation Table under the heading “All Other Compensation.” |
| (3) | Earnings on balances in the nonqualified deferred compensation plan equal the rate of return on investments elected by each participant in the plan. These amounts are not included in the Summary Compensation Table because the earnings are credited at a market rate of return. |
| (4) | The amounts in the table below are also being reported as compensation in the Summary Compensation Table in the years indicated: |
| Name |
Fiscal Year | Reported Amounts ($) |
||||||
| William E. Berry |
2012 | $ | 48,769 | |||||
| 2011 | 43,077 | |||||||
| 2010 | 43,490 | |||||||
| Jason T. Yaudes |
2012 | 60,740 | ||||||
| J. Michael Gaither |
2012 | 17,000 | ||||||
| 2011 | 17,577 | |||||||
| 2010 | 19,490 | |||||||
| David L. Dyckman |
2012 | — | ||||||
| 2011 | — | |||||||
| 2010 | — | |||||||
| Phillip E. Marrett |
2012 | 10,000 | ||||||
| 2011 | 10,000 | |||||||
| 2010 | 12,490 | |||||||
Potential Payments upon Termination
Employment Agreements
We currently have employment agreements with each of Messrs. Berry, Yaudes, Gaither, Dyckman and Marrett. The employment agreements provide for the payment of an annual base salary and bonus opportunities, as well as participation by each of them in the benefit plans and programs generally maintained by us for senior executives from time to time.
We or the employee may terminate the applicable employment agreement at any time. Upon termination of employment for any reason other than for “cause,” the employee is entitled to receive (1) a basic termination payment equal to (i) his base salary earned through the date of termination and (ii) the previous year’s bonus if the termination is after December 31 and before bonus has been awarded; and (2) continuation of health benefits
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for a specified period of time after termination of employment at the same rate that was paid by the employee before termination of employment. In addition, if we terminate the employee without “cause” or if the employee resigns for “good reason” (each as defined in his employment agreement), then he is entitled to an additional severance payment based on a multiple of his base salary and plan bonus. The employment agreements each contain confidentiality and non-compete provisions.
The specific severance payments and continuation periods for health benefits provided by the employment agreements for the named executive officers are as follows:
| • | Mr. Berry is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $25,000 for a period of two years and (ii) continuation of health benefits for Mr. Berry and his family until he reaches the age of 65. |
| • | Mr. Yaudes is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time for a period of 12 months and (ii) continuation of health benefits for a period of 12 months. |
| • | Mr. Gaither is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $22,222.22 for a period of 18 months and (ii) continuation of health benefits for a period of 18 months. |
| • | Mr. Dyckman is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $20,833.34 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months. |
| • | Mr. Marrett is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $19,583.33 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months. |
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Payment Summary
The table below reflects the amount of compensation payable to each named executive officer in the event of termination of the executive’s employment for various reasons. The table does not include nonqualified deferred compensation for which the named executive officers are fully vested or payments that would be made to a named executive officer under benefit plans or employment terms generally available to other salaried employees similarly situated, such as group life or disability insurance. The amounts shown assume termination of employment or a change in control as of December 29, 2012, the last day of our 2012 fiscal year.
| Name |
Payments upon Termination |
Termination without Cause or Resignation for Good Reason |
Termination for Cause or Resignation without Good Reason |
Death or Disability (1) |
Change in Control (2) |
|||||||||||||
| William E. Berry |
Severance and Noncompetition Agreement | $ | 2,100,000 | $ | — | $ | — | $ | — | |||||||||
| Bonus |
600,000 | 600,000 | 600,000 | — | ||||||||||||||
| Health Benefits |
70,026 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 2,770,026 | $ | 600,000 | $ | 600,000 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Jason T. Yaudes |
Severance and Noncompetition Agreement | $ | 350,000 | $ | — | $ | — | $ | — | |||||||||
| Bonus |
215,000 | 215,000 | 215,000 | — | ||||||||||||||
| Health Benefits | 10,004 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 575,004 | $ | 215,000 | $ | 215,000 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| J. Michael Gaither |
Severance and Noncompetition Agreement | $ | 1,000,000 | $ | — | $ | — | $ | — | |||||||||
| Bonus |
215,000 | 215,000 | 215,000 | — | ||||||||||||||
| Health Benefits |
13,137 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 1,228,137 | $ | 215,000 | $ | 215,000 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| David L. Dyckman |
Severance and Noncompetition Agreement | $ | 800,001 | $ | — | $ | — | $ | — | |||||||||
| Bonus |
280,000 | 280,000 | 280,000 | — | ||||||||||||||
| Health Benefits |
10,004 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 1,090,005 | $ | 280,000 | $ | 280,000 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Phillip E. Marrett |
Severance and Noncompetition Agreement | $ | 585,000 | $ | — | $ | — | $ | — | |||||||||
| Bonus |
215,000 | 215,000 | 215,000 | — | ||||||||||||||
| Health Benefits |
7,258 | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
$ | 807,258 | $ | 215,000 | $ | 215,000 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| (1) | In the event of the death or disability of a named executive officer, the named executive officer will receive benefits under our disability plan or payments under our life insurance plan, as appropriate. These payments are generally available to all employees and are therefore not included in the above table. |
| (2) | We do not provide our named executive officers with change in control benefits. If a named executive officer was terminated following a change in control, such officer would receive payments pursuant to the employment and severance agreements described above. |
Compensation of Directors
Holdings Board
The current members of the Holdings Board are employees of Holdings and do not receive separate compensation for their service as directors of Holdings.
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Accelerate Parent Board
For their service as members of the Accelerate Parent Board, each of James Farrell, Gary Kusin, James Micali, Carl Sewell, and David Krantz (the “Outside Directors”) will receive an annual fee of $150,000 in cash, payable in quarterly installments. Upon their appointment to the Accelerate Parent Board, each of the Outside Directors also received a one-time grant of options under the 2010 Plan to purchase 200,000 shares of Accelerate Common Stock at the fair market value on the date of grant. These options vest in three equal installments on each of the first three anniversaries of the date of grant. In October 2010, we adopted the Accelerate Parent Corp. Non-Employee Director Restricted Stock Plan (the “Restricted Stock Plan”). Each Outside Director receives an annual grant under the Restricted Stock Plan of restricted shares of Accelerate Common Stock valued at $50,000, with vesting to occur in two equal installments on each of the first two anniversaries of the date of grant. Each Outside Director also received a one-time opportunity to purchase up to $1,000,000 in Accelerate Common Stock, at a per share price equal to the fair market value on the date of purchase. These equity arrangements were to further align our Outside Directors’ interests with the interests of our stockholders. The members of the Accelerate Parent Board other than the Outside Directors do not receive separate compensation for their service as directors of Accelerate Parent.
The following table sets forth the compensation paid to the Outside Directors in fiscal 2012:
| Name |
Fees Earned or Paid in Cash ($) |
Stock Awards ($) (1) |
Total ($) |
|||||||||
| James Farrell |
$ | 150,000 | $ | 50,000 | $ | 200,000 | ||||||
| Gary Kusin |
150,000 | 50,000 | 200,000 | |||||||||
| James M. Micali |
150,000 | 50,000 | 200,000 | |||||||||
| Carl Sewell |
150,000 | 50,000 | 200,000 | |||||||||
| David Krantz |
150,000 | 50,000 | 200,000 | |||||||||
| (1) | Represents the aggregate grant date fair value for restricted stock granted during fiscal 2012 calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The fair value of the restricted stock was based on the stock price of Accelerate Common Stock on the grant date of $1.14 per share. |
Payments Received by Directors and Named Executive Officers in Connection with the Merger
None of our directors and none of our named executive officers other than Mr. Marrett held any shares in Holdings at the time of the Merger. Mr. Marrett held 2,364 shares of Holding’s Series A common stock at the time of the Merger. Under the terms of the Merger Agreement, in consideration for those shares, he received $596.65 per share, which we refer to as the per share merger consideration, or $1,412,873.19 in the aggregate.
In connection with the Merger, holders of vested options under the 2005 Plan with an exercise price less than the per share merger consideration received an option cancellation payment equal to the difference between the per share merger consideration and the exercise price of the cancelled option. Our named executive officers received aggregate option cancellation payments as follows: (i) $12,321,516.67 for Mr. Berry, (ii) $5,893,159.71 for Mr. Gaither, (iii) $1,275,493.59 for Mr. Dyckman and (iv) $1,275,493.59 for Mr. Marrett. Mr. Dyckman also received a discretionary cash bonus of $1.0 million in connection with the Merger.
Compensation Committee Interlocks and Insider Participation
Executive compensation and related decisions are made by the Accelerate Parent Board, which does not currently have a compensation committee.
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Indemnification of Officers and Directors
The articles of incorporation of Holdings and Accelerate Parent provide for the release of any person serving as our director from liability to us or our stockholders for damages for breach of fiduciary duty and for the indemnification by us of any person serving as a director, officer, employee or agent or other authorized person to the fullest extent permissible under the Delaware General Corporation Law. In addition, we have purchased a directors’ and officers’ insurance policy covering our officers and directors for liabilities that they may incur as a result of any action, or failure to act, by such officers and directors in their capacity as officers and directors.
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Accelerate Holdings Corp., or Accelerate Holdings, directly owns all our issued and outstanding stock. All of Accelerate Holdings’ issued and outstanding stock is directly owned by Accelerate Parent Corp., or Accelerate Parent. All equity interests in Accelerate Parent are owned, directly or indirectly, by the Sponsor, certain co-investors and certain of our employees, including certain of our named executive officers and directors.
The following table sets forth information with respect to the ownership as of March 1, 2013 for (a) each person known by us to own beneficially more than a 5% equity interest in Accelerate Parent, (b) each member of our board of directors, (c) each member of Accelerate Parent’s board of directors, (d) each of our named executive officers, and (e) all of the named executive officers and directors as a group. We have 1,000 shares of common stock outstanding, all of which are owned indirectly by Accelerate Parent. Share amounts indicated below reflect beneficial ownership, through Accelerate Parent, by such entities or individuals of these 1,000 shares of American Tire Distributors Holdings, Inc.
The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.
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Except as otherwise indicated in the footnotes below, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares. Unless otherwise noted, the address of each beneficial owner is c/o American Tire Distributors Holdings, Inc., 12200 Herbert Wayne Court, Suite 150, Huntersville, North Carolina 28078.
| Shares of Common Stock Beneficially Owned |
||||||||
| Number | Percent | |||||||
| 5% Stockholders |
||||||||
| TPG Capital (1) |
950.50 | 95.050 | % | |||||
| Executive Officers and Directors |
||||||||
| William E. Berry (2) |
3.57 | * | ||||||
| Jason T. Yaudes (3) |
* | * | ||||||
| J. Michael Gaither (4) |
* | * | ||||||
| David L. Dyckman (5) |
* | * | ||||||
| Phillip E. Marrett (6) |
* | * | ||||||
| W. James Farrell (7) |
1.49 | * | ||||||
| Gary Kusin (8) |
* | * | ||||||
| James Micali (9) |
* | * | ||||||
| Carl Sewell (10) |
* | * | ||||||
| David Krantz (11) |
* | * | ||||||
| Kevin Burns (12) |
950.50 | 95.050 | % | |||||
| Peter McGoohan (12) |
950.50 | 95.050 | % | |||||
| All directors and executive officers as a group (12 persons) |
960.17 | 96.017 | % | |||||
| * | Represents less than one percent or one share, as applicable. |
| (1) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by TPG Capital reflect an aggregate of the following record ownership: (i) 349,137,687 shares of Accelerate Parent held by TPG Accelerate VI, LP and (ii) 349,137,687 shares of Accelerate Parent held by TPG Accelerate V, LP. The address of TPG Capital is 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
| (2) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by William E. Berry reflect (i) 1,833,790 shares of Accelerate Parent held directly by Mr. Berry, (ii) 392,955 shares of Accelerate Parent held by the Trust FBO Meredith Elaine Berry U/A, a trust established for the benefit of Mr. Berry’s minor daughter, and (iii) 392,955 shares of Accelerate Parent held by the Trust FBO Michael Dolan Berry U/A, a trust established for the benefit of Mr. Berry’s minor son. Mr. Berry’s wife, Marianne Dolan Berry, is the trustee of each trust and has sole investment and dispositive power over the shares held by the trusts. Mr. Berry disclaims beneficial ownership of such shares. |
| (3) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by Jason T. Yaudes reflect his ownership of 57,500 shares of Accelerate Parent. |
| (4) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by J. Michael Gaither reflect his ownership of 632,500 shares of Accelerate Parent. |
| (5) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by David L. Dyckman reflect his ownership of 496,800 shares of Accelerate Parent. |
| (6) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by Phillip E. Marrett reflect his ownership of 572,700 shares of Accelerate Parent. |
| (7) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by W. James Farrell reflect his ownership of 1,000,000 shares of Accelerate Parent and 93,860 shares of restricted stock of Accelerate Parent. |
| (8) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by Gary Kusin reflect his ownership of 500,000 shares of Accelerate Parent and 93,860 shares of restricted stock of Accelerate Parent. |
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| (9) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by James Micali reflect his ownership of 250,000 shares of Accelerate Parent and 93,860 shares of restricted stock of Accelerate Parent. |
| (10) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by Carl Sewell reflect his ownership of 500,000 shares of Accelerate Parent and 93,860 shares of restricted stock of Accelerate Parent. |
| (11) | American Tire Distributors Holdings, Inc. shares shown as beneficially owned by David Krantz reflect his ownership 93,860 shares of restricted stock of Accelerate Parent. |
| (12) | Includes all shares held by TPG Accelerate V, LP and TPG Accelerate VI, LP. Each of Kevin Burns and Peter McGoohan may be deemed to be a beneficial owner of these interest due to his status as an employee of TPG Capital, and each such person disclaims beneficial ownership of any such interests in which he does not have a pecuniary interest. The address of each of Messrs. Burns and McGoohan is c/o TPG Capital, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
Equity Compensation Plan Information
| Plan category |
Number of securities to be issued upon the exercise of outstanding options, warrants and rights (a) |
Weighted- average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) (c) |
|||||||||
| Equity compensation plans approved by shareholders |
46,681,600 | $ | 1.01 | 1,880,400 | ||||||||
| Equity compensation plans not approved by shareholders |
— | — | — | |||||||||
|
|
|
|
|
|
|
|||||||
| Total |
46,681,600 | $ | 1.01 | 1,880,400 | ||||||||
|
|
|
|
|
|
|
|||||||
| Item 13. | Certain Relationships and Related Transactions and Director Independence. |
See Note 16 of Notes to Consolidated Financial Statements for discussion of our related party transactions. During fiscal 2012 and as of December 29, 2012, none of our directors meet the standard of independence as defined by the Securities and Exchange Commission. Management has evaluated all activities and transactions that have transpired with our directors and deem each to be at an arms’ length and no more favorable than transactions that we would have entered into with an independent third party.
| Item 14. | Principal Accountant Fees and Services. |
The following table sets forth the fees billed by our independent registered public accounting firm, PricewaterhouseCoopers LLP, during fiscal years 2012 and 2011.
| In thousands |
2012 | 2011 | ||||||
| Audit Fees (a) |
$ | 615 | $ | 585 | ||||
| Audit-Related Fees (b) |
104 | 58 | ||||||
| Tax Fees (c) |
149 | — | ||||||
|
|
|
|
|
|||||
| Total |
$ | 868 | $ | 643 | ||||
|
|
|
|
|
|||||
| (a) | Audit fees relate to professional services rendered for the audits of the annual consolidated financial statements of the Company and include quarterly reviews, statutory audits, issuance of consents, comfort letters and assistance with, and review of, documents filed with the SEC. |
| (b) | Audit-related fees include payment for services in connection with our acquisitions as well as consultation on accounting standards or transactions. |
| (c) | Tax fees include professional services related to tax compliance, tax planning and the review of federal and state tax returns. |
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Accelerate Parent Board Pre-Approval Policies and Procedures
In accordance with policies adopted by our board of directors, the Accelerate Parent Board has sole authority to approve all audit engagement fees and terms of our independent registered public accounting firm. The Accelerate Parent Board may delegate authority to pre-approve audit and non-audit services to any member of the Accelerate Parent Board whose decisions should be reviewed at the next scheduled meeting. The Accelerate Parent Board may not delegate pre-approval authority to management.
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| Item 15. | Exhibits and Financial Statement Schedules. |
| (a) | Documents filed as part of this Report: |
| 1. | The following items, including our consolidated financial statements, are set forth at Item 8 of this report: |
| • | Management’s Report on Internal Control over Financial Reporting |
| • | Reports of Independent Registered Public Accounting Firm |
| • | Consolidated Balance Sheets as of December 29, 2012 and December 31, 2011for the Successor |
| • | Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and the five months ended May 28, 2010 for the Predecessor |
| • | Consolidated Statements of Stockholders’ Equity for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and for the five months ended May 28, 2010 for the Predecessor |
| • | Consolidated Statements of Cash Flows for the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor and for the five months ended May 28, 2010 for the Predecessor |
| • | Notes to Consolidated Financial Statements |
| 2. | Financial Statement Schedule |
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years ended December 29, 2012 and December 31, 2011 and Seven Months Ended January 1, 2011 for the Successor and the Five Months Ended May 28, 2010 for the Predecessor
| Additions | ||||||||||||||||||||||||
| In thousands |
Balance Beginning of Year |
Charged to Costs and Expenses |
Charged to Other Accounts |
Deductions | Currency Translation |
Balance End of Year |
||||||||||||||||||
| Successor 2012 |
||||||||||||||||||||||||
| Allowance for doubtful accounts |
$ | 696 | $ | 1,996 | $ | — | $ | (1,740 | )(1) | $ | (2 | ) | $ | 950 | ||||||||||
| Acquisition exit cost reserves (2) |
3,865 | 528 | — | (2,549 | ) | (5 | ) | 1,839 | ||||||||||||||||
| Inventory reserves |
514 | 419 | (4) | — | (502 | ) | (21 | ) | 410 | |||||||||||||||
| Sales returns and allowances |
1,982 | 2,224 | — | (2,036 | ) | (3 | ) | 2,167 | ||||||||||||||||
| Valuation allowance on deferred tax assets |
840 | — | — | (396 | ) | — | 444 | |||||||||||||||||
| Successor 2011 |
||||||||||||||||||||||||
| Allowance for doubtful accounts |
$ | 340 | $ | 1,911 | $ | — | $ | (1,555 | )(1) | $ | — | $ | 696 | |||||||||||
| Acquisition exit cost reserves (2) |
6,975 | (498 | ) | — | (2,612 | ) | — | 3,865 | ||||||||||||||||
| Inventory reserves |
192 | 480 | (4) | — | (158 | ) | — | 514 | ||||||||||||||||
| Sales returns and allowances |
29 | 2,996 | — | (1,043 | ) | — | 1,982 | |||||||||||||||||
| Valuation allowance on deferred tax assets |
596 | 244 | — | — | — | 840 | ||||||||||||||||||
| Successor Seven Months ended January 1, 2011 |
||||||||||||||||||||||||
| Allowance for doubtful accounts |
$ | — | $ | 1,762 | $ | — | $ | (1,422 | )(1) | $ | — | $ | 340 | |||||||||||
| Acquisition exit cost reserves (2) |
6,820 | 257 | 2,273 | (3) | (2,375 | ) | — | 6,975 | ||||||||||||||||
| Inventory reserves |
— | 192 | (4) | — | — | — | 192 | |||||||||||||||||
| Sales returns and allowances |
— | (35 | ) | — | 64 | — | 29 | |||||||||||||||||
| Valuation allowance on deferred tax assets |
999 | — | — | (403 | ) | — | 596 | |||||||||||||||||
| Predecessor Five Months Ended May 28, 2010 |
||||||||||||||||||||||||
| Allowance for doubtful accounts |
$ | 2,280 | $ | 608 | $ | — | $ | (1,428 | )(1) | $ | — | $ | 1,460 | |||||||||||
| Acquisition exit cost reserves (2) |
8,704 | (109 | ) | — | (1,775 | ) | — | 6,820 | ||||||||||||||||
| Inventory reserves |
1,001 | 111 | (4) | — | — | — | 1,112 | |||||||||||||||||
| Sales returns and allowances |
1,255 | 732 | — | (882 | ) | — | 1,105 | |||||||||||||||||
| Valuation allowance on deferred tax assets |
1,558 | — | — | (559 | ) | — | 999 | |||||||||||||||||
| (1) | Accounts written off during the year, net of recoveries. |
| (2) | Amounts represent facilities closing cost of acquired distribution centers due to existing distribution centers being located in close proximity to the acquired distribution facilities. |
| (3) | Represents the fair value of closed facilities costs recorded in connection with acquisitions. |
| (4) | Amounts represent net changes in reserve levels for additionally calculated requirements or reductions resulting from sale of or scrapping of obsolete inventories. |
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| 3. | Exhibits: |
| 2.1 | Agreement and Plan of Merger, dated as of April 20, 2010, by and among American Tire Distributors Holdings, Inc., Accelerate Holdings Corp., Accelerate Acquisition Corp. and Investcorp International, Inc., in its capacity as a representative of the stockholders, optionholders and warrantholders of American Tire Distributors Holdings, Inc. (incorporated by reference to exhibit 2.1 to American Tire Distributors Holdings, Inc.’s Form 8-K filed April 23, 2010). | |
| 3.1 | Fifth Restated Certificate of Incorporation of American Tire Distributors, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 3.2 | Amended and Restated Bylaws of American Tire Distributors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 3.3 | Second Amended and Restated Certificate of Incorporation of American Tire Distributors Holdings, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 3.4 | Amended and Restated Bylaws of American Tire Distributors Holdings, Inc. (incorporated by reference to Exhibit 3.4 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 3.5 | Articles of Incorporation of Am-Pac Tire Dist. Inc., as amended (incorporated by reference to Exhibit 3.5 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 3.6 | Bylaws of Am-Pac Tire Dist. Inc., as amended (incorporated by reference to Exhibit 3.6 to the Registrant’s Registration Statement on Form S-4/A filed January 24, 2011). | |
| 4.1 | Senior Secured Notes Indenture, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., as Subsidiary Guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of the 9.750% Senior Secured Notes due 2017 (incorporated by reference to exhibit 4.1 to American Tire Distributors Holdings, Inc.’s Form 8-K filed June 2, 2010). | |
| 4.2 | Senior Subordinated Notes Indenture, dated as of May 28, 2010 among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., as Subsidiary Guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of the 11.50% Senior Subordinated Notes due 2018 (incorporated by reference to exhibit 4.2 to American Tire Distributors Holdings, Inc.’s Form 8-K filed June 2, 2010). | |
| 4.3 | Form of 9.750% Senior Secured Notes due 2017 (included in Exhibit 4.1). | |
| 4.4 | Security Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc. American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 4.5 | Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Bank of America, N.A. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.5 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 4.6 | Intercreditor and Collateral Agency Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 4.7 | Form of 11.50% Senior Subordinated Notes due 2018 (included in Exhibit 4.2). | |
117
| 4.8 | Registration Rights Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and Banc of America Securities LLC, Barclays Capital Inc., RBC Capital Markets Corporation and UBS Securities LLC (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.1 | Sixth Amended and Restated Credit Agreement, dated as of November 30, 2012, among American Tire Distributors, Inc., ATD Acquisition Co. V Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Firestone of Denham Springs, Inc., Tire Wholesalers, Inc., ATD Acquisition Co. IV, Lenders party thereto and Bank of America, N.A. as Administrative and Collateral Agent and Lender. * | |
| 10.2 | Amended and Restated Pledge and Security Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and the Bank of New York Mellon trust Company, N.A. (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.3 | Second Amended and Restated Pledge and Security Agreement, dated as of November 30, 2012, among American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., American Tire Distributors Holdings, Inc., Tire Wholesalers, Inc., Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil, ATD Acquisition Co. IV. and Bank of America, N.A. * | |
| 10.4 | Canadian Pledge and Security Agreement, dated as of November 30, 2012, among ATD Acquisition Co. V Inc., Triwest Trading (Canada) Ltd. and Bank of America, N.A. * | |
| 10.5 | Amended and Restated Accelerate Parent Corp. Management Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.6 | Form of Option Grant Agreement under the 2010 Amended and Restated Accelerate Parent Corp. Management Equity Incentive Plan for directors (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.7 | Form of Option Grant Agreement under the 2010 Amended and Restated Accelerate Parent Corp. Management Equity Incentive Plan for certain employees (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.8 | Accelerate Parent Corp. Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.9 | Form of Restricted Stock Grant Agreement under the 2010 Accelerate Parent Corp. Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.10 | Transaction and Monitoring Fee Letter Agreement, dated as of May 28, 2010, between American Tire Distributors, Inc. and TPG Capital, L.P. (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.11 | Indemnification Agreement, dated as of May 28, 2010, among American Tire Distributors Holdings, Inc., American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., Tire Pros Francorp and TPG Capital, L.P. (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.12 | Accelerate Parent Corp. Management Stockholders’ Agreement, dated as of June 15, 2010, among Accelerate Parent Corp., TPG Partners V, L.P. and TPG Partners VI, L.P. (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.13 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and Richard P. Johnson (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
118
| 10.14 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and J. Michael Gaither (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.15 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and Phillip E. Marrett (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.16 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and Daniel K. Brown (incorporated by reference to Exhibit 10.15 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.17 | Executive Employment Agreement, dated as of December 6, 2005, between American Tire Distributors, Inc. and David L. Dyckman (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report Form 10-K filed March 31, 2006). | |
| 10.18 | First Amendment to Executive Employment Agreement, dated as of March 3, 2008, between American Tire Distributors, Inc. and Richard P. Johnson (incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K filed March 26, 2008). | |
| 10.19 | Second Amendment to Executive Employment Agreement, dated as of April 6, 2009, between American Tire Distributors, Inc. and Richard P. Johnson (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed May 18, 2009). | |
| 10.20 | Separation Agreement and General Release, dated as of May 21, 2010, between American Tire Distributors Holdings, Inc. and Richard P. Johnson (incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form S-4 filed December 20, 2010). | |
| 10.21 | Amended and Restated Employment Agreement, dated as of April 6, 2009, between American Tire Distributors, Inc. and William E. Berry (incorporated by reference to exhibit 10.1 to the Registrant’s Form 8-K filed June 3, 2009). | |
| 10.22 | Employment Agreement, dated as of January 23, 2012, between American Tire Distributors, Inc. and Jason T. Yaudes (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed January 23, 2012). | |
| 12.1 | Statement setting forth the Computation of Ratio of Earnings to Fixed Charges.* | |
| 21.1 | Chart of the subsidiaries of American Tire Distributors Holdings, Inc.* | |
| 31.1 | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 32.1 | Certifications of Principal Executive Officer and Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 101 | The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Statements of Stockholder’s Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements.** | |
| * | Filed herewith. |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. |
119
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized, on March 11, 2013.
| AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC. | ||
| By: |
/S/ WILLIAM E. BERRY | |
| Name: |
William E. Berry | |
| Title: |
President and Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on March 11, 2013.
| Signature |
Title |
Date | ||
|
/S/ WILLIAM E. BERRY William E. Berry |
Director, President and Chief Executive Officer (Principle Executive Officer) | March 11, 2013 | ||
|
/S/ JASON T. YAUDES Jason T. Yaudes |
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
March 11, 2013 | ||
|
/S/ DAVID L. DYCKMAN David L. Dyckman |
Director, Executive Vice President and Chief Operating Officer | March 11, 2013 | ||
| /S/ J. MICHAEL GAITHER J. Michael Gaither |
Director, Executive Vice President, General Counsel and Secretary | March 11, 2013 | ||
120
Exhibit 10.1
SIXTH AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 30, 2012
among
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as the Lenders,
and
BANK OF AMERICA, N.A.,
as the Administrative Agent and Collateral Agent,
and
AMERICAN TIRE DISTRIBUTORS, INC.
and the other U.S. Borrowers referred to herein,
as the U.S. Borrowers,
and
ATD ACQUISITION CO. V INC., as a Canadian Borrower,
and
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.,
as Holdings
and
The Subsidiaries of American Tire Distributors, Inc.
from time to time parties hereto
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
WELLS FARGO CAPITAL FINANCE, LLC, and
SUNTRUST ROBINSON HUMPHREY, INC.,
as the Joint-Lead Arrangers and Joint Book Managers,
and
WELLS FARGO CAPITAL FINANCE, LLC and
SUNTRUST BANK,
as Syndication Agents
TABLE OF CONTENTS
Page
| ARTICLE I. DEFINITIONS | ||||
| SECTION 1.01 |
Defined Terms | - 2 - | ||
| SECTION 1.02 |
Classification of Loans | - 58 - | ||
| SECTION 1.03 |
Terms Generally | - 58 - | ||
| SECTION 1.04 |
Accounting Terms; GAAP | - 58 - | ||
| SECTION 1.05 |
Amendment and Restatement of Existing Credit Agreement | - 58 - | ||
| SECTION 1.06 |
Interpretation (Quebec) | - 59 - | ||
| SECTION 1.07 |
Currency Calculations | - 59 - | ||
| ARTICLE II. THE CREDITS | ||||
| SECTION 2.01 |
Revolving Commitments | - 59 - | ||
| SECTION 2.02 |
Revolving Loans and Borrowings | - 60 - | ||
| SECTION 2.03 |
Requests for Revolving Borrowings | - 61 - | ||
| SECTION 2.04 |
Protective Advances and Overadvances | - 62 - | ||
| SECTION 2.05 |
Swingline Loans | - 63 - | ||
| SECTION 2.06 |
Letters of Credit | - 66 - | ||
| SECTION 2.07 |
Funding of Borrowings | - 70 - | ||
| SECTION 2.08 |
Type; Interest Elections | - 71 - | ||
| SECTION 2.09 |
Termination and Reduction of Revolving Commitments | - 72 - | ||
| SECTION 2.10 |
Repayment of Loans; Evidence of Debt | - 73 - | ||
| SECTION 2.11 |
Prepayment of Loans | - 74 - | ||
| SECTION 2.12 |
Fees | - 75 - | ||
| SECTION 2.13 |
Interest | - 76 - | ||
| SECTION 2.14 |
Alternate Rate of Interest | - 78 - | ||
| SECTION 2.15 |
Increased Costs | - 78 - | ||
| SECTION 2.16 |
Break Funding Payments | - 79 - | ||
| SECTION 2.17 |
Taxes. | - 80 - | ||
| SECTION 2.18 |
Payments Generally; Allocation of Proceeds; Sharing of Set-offs | - 82 - | ||
| SECTION 2.19 |
Mitigation Obligations; Replacement of Lenders | - 84 - | ||
| SECTION 2.20 |
Illegality | - 85 - | ||
| SECTION 2.21 |
Cash Receipts. | - 85 - | ||
| SECTION 2.22 |
Reserves; Change in Reserves; Decisions by Agent | - 87 - | ||
| SECTION 2.23 |
Revolving Commitment Increases | - 87 - | ||
| SECTION 2.24 |
Borrower Agent | - 90 - | ||
| SECTION 2.25 |
Joint and Several Liability of the U.S. Borrowers | - 90 - | ||
| SECTION 2.26 |
Loan Account; Statement of Obligations | - 92 - | ||
| SECTION 2.27 |
Extensions of Revolving Loans and Revolving Commitments | - 92 - | ||
| SECTION 2.28 |
Defaulting Lenders | - 95 - | ||
| SECTION 2.29 |
Currency Matters | - 96 - | ||
| SECTION 2.30 |
Currency Fluctuations | - 97 - | ||
| SECTION 2.31 |
Obligations of the Canadian Loan Parties | - 97 - | ||
i
| ARTICLE III. REPRESENTATIONS AND WARRANTIES | ||||||
| SECTION 3.01 |
Organization; Powers | - 98 - | ||||
| SECTION 3.02 |
Authorization; Enforceability | - 98 - | ||||
| SECTION 3.03 |
Governmental Approvals; No Conflicts | - 98 - | ||||
| SECTION 3.04 |
Financial Condition; No Material Adverse Change | - 98 - | ||||
| SECTION 3.05 |
Properties | - 99 - | ||||
| SECTION 3.06 |
Litigation and Environmental Matters | - 99 - | ||||
| SECTION 3.07 |
Compliance with Laws, No Default | - 99 - | ||||
| SECTION 3.08 |
Investment Company Status | - 100 - | ||||
| SECTION 3.09 |
Taxes | - 100 - | ||||
| SECTION 3.10 |
ERISA; Canadian Pension Plans | - 100 - | ||||
| SECTION 3.11 |
Disclosure | - 100 - | ||||
| SECTION 3.12 |
Solvency | - 101 - | ||||
| SECTION 3.13 |
Insurance | - 101 - | ||||
| SECTION 3.14 |
Capitalization and Subsidiaries | - 101 - | ||||
| SECTION 3.15 |
Security Interest in Collateral | - 101 - | ||||
| SECTION 3.16 |
Labor Disputes | - 102 - | ||||
| SECTION 3.17 |
Federal Reserve Regulations | - 102 - | ||||
| SECTION 3.18 |
Senior Indebtedness | - 102 - | ||||
| SECTION 3.19 |
Intellectual Property | - 103 - | ||||
| SECTION 3.20 |
Use of Proceeds | - 103 - | ||||
| SECTION 3.21 |
Anti-Terrorism Laws | - 103 - | ||||
| ARTICLE IV. CONDITIONS | ||||||
| SECTION 4.01 |
Effective Date | - 103 - | ||||
| SECTION 4.02 |
Each Credit Event | - 106 - | ||||
| ARTICLE V. AFFIRMATIVE COVENANTS | ||||||
| SECTION 5.01 |
Financial Statements; Borrowing Base and Other Information | - 107 - | ||||
| SECTION 5.02 |
Notices of Material Events | - 110 - | ||||
| SECTION 5.03 |
Existence; Conduct of Business | - 110 - | ||||
| SECTION 5.04 |
Payment of Obligations | - 111 - | ||||
| SECTION 5.05 |
Maintenance of Properties | - 111 - | ||||
| SECTION 5.06 |
Books and Records; Inspection Rights; Appraisals; Field Examinations | - 111 - | ||||
| SECTION 5.07 |
Reserved | - 112 - | ||||
| SECTION 5.08 |
Compliance with Laws | - 112 - | ||||
| SECTION 5.09 |
Use of Proceeds | - 112 - | ||||
| SECTION 5.10 |
Insurance | - 112 - | ||||
| SECTION 5.11 |
Additional Loan Parties; Additional Collateral; Further Assurances | - 112 - | ||||
| SECTION 5.12 |
Designation of Subsidiaries | - 114 - | ||||
| SECTION 5.13 |
Post-Closing Covenant Regarding Amalgamation of Canadian Borrower and Triwest | - 114 - | ||||
ii
| ARTICLE VI. NEGATIVE COVENANTS | ||||||
| SECTION 6.01 |
Indebtedness | - 115 - | ||||
| SECTION 6.02 |
Liens | - 120 - | ||||
| SECTION 6.03 |
Fundamental Changes | - 124 - | ||||
| SECTION 6.04 |
Investments, Loans, Advances, Guarantees and Acquisitions | - 125 - | ||||
| SECTION 6.05 |
Asset Sales | - 129 - | ||||
| SECTION 6.06 |
Sale and Lease-Back Transactions | - 130 - | ||||
| SECTION 6.07 |
Accounting Changes | - 130 - | ||||
| SECTION 6.08 |
Restricted Payments; Certain Payments of Indebtedness | - 130 - | ||||
| SECTION 6.09 |
Transactions with Affiliates | - 134 - | ||||
| SECTION 6.10 |
Restrictive Agreements | - 135 - | ||||
| SECTION 6.11 |
Amendment of Material Documents | - 136 - | ||||
| SECTION 6.12 |
Fixed Charge Coverage Ratio | - 136 - | ||||
| SECTION 6.13 |
Canadian Pension Plans | - 136 - | ||||
| ARTICLE VII. EVENTS OF DEFAULT | ||||||
| SECTION 7.01 |
Events of Default | - 136 - | ||||
| SECTION 7.02 |
Cure Right | - 139 - | ||||
| SECTION 7.03 |
Exclusion of Immaterial Subsidiaries | - 140 - | ||||
| ARTICLE VIII. THE AGENT | ||||||
| ARTICLE IX. MISCELLANEOUS | ||||||
| SECTION 9.01 |
Notices | - 144 - | ||||
| SECTION 9.02 |
Waivers; Amendments | - 145 - | ||||
| SECTION 9.03 |
Expenses; Indemnity; Damage Waiver | - 147 - | ||||
| SECTION 9.04 |
Successors and Assigns | - 149 - | ||||
| SECTION 9.05 |
Survival | - 153 - | ||||
| SECTION 9.06 |
Counterparts; Integration; Effectiveness | - 154 - | ||||
| SECTION 9.07 |
Severability | - 154 - | ||||
| SECTION 9.08 |
Right of Setoff | - 154 - | ||||
| SECTION 9.09 |
Governing Law; Jurisdiction; Consent to Service of Process | - 155 - | ||||
| SECTION 9.10 |
WAIVER OF JURY TRIAL | - 155 - | ||||
| SECTION 9.11 |
Headings | - 155 - | ||||
| SECTION 9.12 |
Confidentiality | - 155 - | ||||
| SECTION 9.13 |
Several Obligations; Nonreliance; Violation of Law | - 156 - | ||||
| SECTION 9.14 |
USA PATRIOT Act | - 156 - | ||||
| SECTION 9.15 |
Disclosure | - 157 - | ||||
| SECTION 9.16 |
Appointment for Perfection | - 157 - | ||||
| SECTION 9.17 |
Interest Rate Limitation | - 157 - | ||||
| SECTION 9.18 |
Cumulative Effect; Conflict of Terms; Entire Agreement; Credit Inquiries; No Advisory or Fiduciary Responsibility | - 157 - | ||||
| SECTION 9.19 |
Confirmation, Ratification and Affirmation by Loan Parties | - 158 - | ||||
| SECTION 9.20 |
INTERCREDITOR AGREEMENT | - 159 - | ||||
| SECTION 9.21 |
Judgment Currency | - 159 - | ||||
| SECTION 9.22 |
Canadian Anti-Money Laundering Legislation | - 160 - | ||||
iii
| ARTICLE X. LOAN GUARANTY | ||||||
| SECTION 10.01 |
Guaranty | - 160 - | ||||
| SECTION 10.02 |
Guaranty of Payment | - 160 - | ||||
| SECTION 10.03 |
No Discharge or Diminishment of Loan Guaranty | - 161 - | ||||
| SECTION 10.04 |
Defenses Waived | - 161 - | ||||
| SECTION 10.05 |
Rights of Subrogation | - 162 - | ||||
| SECTION 10.06 |
Reinstatement; Stay of Acceleration | - 162 - | ||||
| SECTION 10.07 |
Information | - 162 - | ||||
| SECTION 10.08 |
Maximum Liability | - 162 - | ||||
| SECTION 10.09 |
Contribution | - 163 - | ||||
| SECTION 10.10 |
Liability Cumulative | - 164 - | ||||
| SECTION 10.11 |
Termination; Release of Guarantors and Borrowers | - 164 - | ||||
| SCHEDULES: Commitment Schedule |
||||
| Schedule 1.01(a) | Existing Letters of Credit | |||
| Schedule 1.01(b) | Immaterial Subsidiaries | |||
| Schedule 1.01(c) | Mortgaged Properties | |||
| Schedule 1.01(d) | Permitted Inventory Locations | |||
| Schedule 3.14 | Capitalization and Subsidiaries | |||
| Schedule 4.01(b) | Local Counsel | |||
| Schedule 6.01 | Existing Indebtedness | |||
| Schedule 6.02 | Existing Liens | |||
| Schedule 6.04 | Existing Investments | |||
| Schedule 6.05 | Specified Asset Sales | |||
| Schedule 6.09 | Transactions with Affiliates | |||
| Schedule 6.10 | Existing Restrictions | |||
| EXHIBITS: | ||||
| Exhibit A — | Form of Assignment and Assumption | |||
| Exhibit B — | Form of Borrowing Base Certificate | |||
| Exhibit C — | Form of Compliance Certificate | |||
| Exhibit D — | Form of Joinder Agreement | |||
| Exhibit E — | Form of Letter of Credit Request | |||
| Exhibit F-1 — | Form of Borrowing Request | |||
| Exhibit F-2 — | Form of Swingline Borrowing Request | |||
| Exhibit G-1—Exhibit G-2— | Form of Canadian Revolving Note Form of U.S. Revolving Note |
|||
| Exhibit H — | Form of Vendor Lien Subordination Agreement | |||
| Exhibit I — | Form of Mortgage | |||
| Exhibit J — | Form of Intercompany Note | |||
iv
This SIXTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 30, 2012 (this “Agreement”), is made by and among AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the “Company”) and successor by merger to ATD Acquisition Co. III, a Delaware corporation, and successor by merger to The Bowlus Service Company, an Ohio corporation, ATD ACQUISITION CO. V INC., a corporation organized under the laws of Canada (the “Initial Canadian Borrower”), AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., a Delaware corporation (“Holdings”), each other subsidiary of the Company from time to time party hereto, the Lenders, and BANK OF AMERICA, N.A., as administrative agent for the Lenders hereunder and as collateral agent for the Secured Parties (in such capacities, together with its successors in such capacities, the “Agent”).
WHEREAS, capitalized terms used and not defined in the preamble and these recitals shall have the respective meanings set forth for such terms in Section 1.01 hereof;
WHEREAS, pursuant to the Canadian Acquisition Agreement, contemporaneously with the funding of the initial Loans hereunder, the Initial Canadian Borrower will purchase the Equity Interests of Triwest (the “Canadian Acquisition”), and the Initial Canadian Borrower will amalgamate with Triwest (the Initial Canadian Borrower, after giving effect to the amalgamation with Triwest, the “Amalgamated Company”) on or after the Effective Date;
WHEREAS, the Company, certain of the other Loan Parties, certain of the Lenders party thereto, Bank of America, N.A., as administrative agent and collateral agent, and the other parties thereto are parties to that certain Fifth Amended and Restated Credit Agreement dated as of May 28, 2010 (as amended, restated, modified or supplemented prior to the date hereto, the “Existing Credit Agreement”);
WHEREAS, the Company has requested that, immediately upon the satisfaction in full of the applicable conditions precedent set forth in Article IV below, the Existing Credit Agreement be amended and restated as provided herein and that, from and after the Effective Date, (a) the U.S. Revolving Lenders extend credit in the form of U.S. Revolving Loans at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding not in excess of $850,000,000 or the aggregate amount of U.S. Revolving Commitments in effect from time to time, (b) the U.S. Swingline Lender extend credit at any time and from time to time during the Availability Period in the form of U.S. Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $85,000,000, (c) the Applicable Issuing Banks issue Letters of Credit for the account of U.S. Borrowers in an aggregate face amount at any time outstanding not in excess of $50,000,000, (d) the Canadian Revolving Lenders extend credit in the form of Canadian Revolving Loans at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding not in excess of the Dollar Equivalent Amount of $60,000,000 or the aggregate amount of Canadian Revolving Commitments in effect from time to time, (e) the Canadian Swingline Lender extend credit at any time and from time to time during the Availability Period in the form of Canadian Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of the Dollar Equivalent Amount of $6,000,000, and (f) the Applicable Issuing Banks issue Letters of Credit for the account of a Canadian Borrower in an aggregate face amount at any time outstanding not in excess of the Dollar Equivalent Amount of $10,000,000; and
WHEREAS, the U.S. Revolving Lenders have indicated their willingness to so amend and restate the Existing Credit Agreement, and the Revolving Lenders have indicated their willingness to enter into this Agreement, and to extend such credit, and the Applicable Issuing Banks have indicated their willingness to issue Letters of Credit, in each case on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree to amend and restate the Existing Credit Agreement in its entirety as set forth herein as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“ABL First Lien Collateral” has the meaning specified in the Intercreditor Agreement.
“ABR Loan” means a U.S. Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Alternate Base Rate.
“Account” means an “Account,” as defined in Article 9 of the UCC or in the PPSA, as applicable.
“Account Debtor” means any Person obligated on an Account.
“ACH” means automated clearing house transfers.
“Acquired EBITDA” means, with respect to any Acquired Entity or Business or any Converted Restricted Subsidiary (any of the foregoing, a “Pro Forma Entity”) for any period, the amount for such period of EBITDA of such Pro Forma Entity (determined using such definitions as if references to the Company and its Subsidiaries therein were to such Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro Forma Entity in a manner not inconsistent with GAAP.
“Acquired Entity or Business” has the meaning assigned to such term in the definition of the term “EBITDA”.
“Additional Canadian Revolving Commitment Lender” has the meaning assigned to such term in Section 2.23(b).
“Additional Revolving Commitment Lender” has the meaning assigned to such term in Section 2.23(b).
“Additional U.S. Revolving Commitment Lender” has the meaning assigned to such term in Section 2.23(b).
“Adjusted LIBOR Rate” means, for any Interest Period, the LIBOR Rate for such Interest Period or, if the Board imposes a Reserve Percentage with respect to eurodollar deposits in dollars in the London interbank market, the rate obtained by dividing (a) the LIBOR Rate for such Interest Period by (b) 1 minus the Reserve Percentage.
“Adjustment Date” means (i) with respect to determinations of the Applicable Rate and the Average Historical Excess Availability, the first day of each calendar month, and (ii) with respect to determinations of the Average Revolving Loan Utilization, the first day of each January, April, July and October.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Agent.
- 2 -
“Affiliate” means, 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.
“Agent” has the meaning assigned to such term in the preamble to this Agreement.
“Aggregate Borrowing Base” means the sum of the U.S. Borrowing Base and the Canadian Borrowing Base.
“Aggregate Incremental Capacity” has the meaning assigned to such term in Section 2.23(a).
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the U.S. Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, and (c) the LIBOR Rate for an Interest Period of one month commencing on such date plus 1%; provided that, for the avoidance of doubt, for purposes of calculating the LIBOR Rate pursuant to clause (c) above, the LIBOR Rate for any day shall be based on the rate per annum determined by the Agent at approximately 11:00 a.m. (London time) on such day by reference to BBA LIBOR (as published by Reuters or other commercially available source designated by the Agent) for a period equal to one-month. Any change in the Alternate Base Rate due to a change in the U.S. Prime Rate, the Federal Funds Effective Rate or the LIBOR Rate shall be effective from and including the effective date of such change in the U.S. Prime Rate, the Federal Funds Effective Rate or the LIBOR Rate, respectively.
“Amalgamated Company” has the meaning assigned to such term in the recitals of this Agreement.
“Anti-Terrorism Laws” shall mean any Requirement of Law relating to terrorism or money laundering including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, the PATRIOT Act and the Proceeds of Crime Act.
“Applicable Defaulting Lender” means, with respect to a Borrower Group, a Lender having Borrower Group Commitments to the Borrowers within such Borrower Group that is a Defaulting Lender.
“Applicable Funding Account” means, with respect to the Borrowers within any Borrower Group, the Funding Account for such Borrowers.
“Applicable Funding Lender” means, with respect to a Borrower Group, an Extending Lender having a Borrower Group Commitment to the Borrowers within such Borrower Group.
“Applicable Guaranteed Obligations” means (a) with respect to the U.S. Obligations, the U.S. Guaranteed Obligations, and (b) with respect to the Canadian Obligations, the Canadian Guaranteed Obligations.
“Applicable Guarantor” means (a) with respect to the U.S. Obligations, the U.S. Guarantors, and (b) with respect to the Canadian Obligations, the Canadian Obligations Guarantors.
“Applicable Issuing Bank” means, with respect to a Borrower Group, an Issuing Bank for such Borrower Group.
- 3 -
“Applicable Lenders” means, with respect to a Borrower Group, Lenders having Borrower Group Commitments to the Borrowers within such Borrower Group.
“Applicable Obligated Party” has the meaning assigned to such term in Section 10.02.
“Applicable Percentage” means (a) with respect to any U.S. Revolving Lender, with respect to U.S. Revolving Loans, U.S. LC Exposure or U.S. Swingline Loans, a percentage equal to a fraction the numerator of which is such U.S. Revolving Lender’s U.S. Revolving Commitment and the denominator of which is the aggregate U.S. Revolving Commitments of all U.S. Revolving Lenders (if the U.S. Revolving Commitments have terminated or expired, the Applicable Percentage of any U.S. Revolving Lender shall be determined based upon such U.S. Revolving Lender’s share of the aggregate U.S. Revolving Exposures at that time), and (b) with respect to any Canadian Revolving Lender, with respect to Canadian Revolving Loans, Canadian LC Exposure or Canadian Swingline Loans, a percentage equal to a fraction the numerator of which is such Canadian Revolving Lender’s Canadian Revolving Commitment and the denominator of which is the aggregate Canadian Revolving Commitments of all Canadian Revolving Lenders (if the Canadian Revolving Commitments have terminated or expired, the Applicable Percentage of any Canadian Revolving Lender shall be determined based upon such Canadian Revolving Lender’s share of the Dollar Equivalent Amount of the aggregate Canadian Revolving Exposures at that time).
“Applicable Rate” means, for any day, with respect to any Floating Rate Loan or Interest Period Loan, the applicable rate per annum set forth below under the caption “Floating Rate Spread” or “Interest Period Spread”, as the case may be, based upon the Average Historical Excess Availability as of the most recent Adjustment Date; provided that until the first Adjustment Date occurring on or after the date that is three (3) months after the Effective Date, the “Applicable Rate” shall be the applicable rate per annum set forth below in Category 2:
| Average Historical Excess Availability |
Floating Rate Spread |
Interest Period Spread |
||||||
| Category 1 |
||||||||
| Average Historical Excess Availability less than 33% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
1.00 | % | 2.00 | % | ||||
| Category 2 |
||||||||
| Average Historical Excess Availability greater than or equal to 33% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base, but less than 66% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
0.75 | % | 1.75 | % | ||||
| Category 3 | ||||||||
| Average Historical Excess Availability greater than or equal to 66% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
0.50 | % | 1.50 | % | ||||
- 4 -
The Applicable Rate shall be adjusted monthly on a prospective basis on each Adjustment Date based upon the Average Historical Excess Availability in accordance with the table above; provided that (i) if an Event of Default shall have occurred and be continuing at the time any reduction in the Applicable Rate would otherwise be implemented, no such reduction shall be implemented until the date on which such Event of Default shall no longer be continuing, and (ii) if any Borrowing Base Certificate delivered pursuant to this Agreement is at any time restated or otherwise revised, or if the information set forth in any such Borrowing Base Certificate otherwise proves to be false or incorrect such that the Applicable Rate would have been higher than was otherwise in effect during any period, without constituting a waiver of any Default or Event of Default arising as a result thereof, interest due under this Agreement shall be immediately recalculated at such higher rate for any applicable periods and shall be due and payable on demand and shall be payable only to the Applicable Lenders whose Borrower Group Commitments were outstanding during such period when the Applicable Rate should have been higher (regardless of whether such Lenders remain parties to this Agreement at the time such payment is made).
“Applicable Security Agreement” means, with respect to the U.S. Loan Parties, the U.S. Security Agreement and, with respect to the Canadian Loan Parties, the Canadian Security Agreements.
“Applicable Swingline Lender” means BANA with respect to U.S. Swingline Loans and BANA (acting through its Canada branch), with respect to Canadian Swingline Loans.
“Approved Fund” means any Person (other than an natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (1) a Lender, (2) an Affiliate or branch of a Lender or (3) an entity or an Affiliate or branch of an entity that administers, advises or manages a Lender.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Agent, in the form of Exhibit A or any other form approved by the Agent.
“Attributable Debt” in respect of a Sale and Lease Back Transaction means, as at the time of determination, the present value (discounted at the interest rate for such lease, as determined by the Company) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease Back Transaction (including any period for which such lease has been extended); provided, however, that if such Sale and Lease Back Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation”.
“Availability Period” means 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.
“Availability Reserves” means, without duplication of any other reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as the Agent from time to time determines in its Permitted Discretion as being appropriate (a) to reflect any impediments to the Agent’s
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ability to realize upon the Collateral consisting of Borrowing Base Assets included in either Borrowing Base, (b) to reflect claims and liabilities that the Agent determines will need to be satisfied in connection with the realization upon the Collateral consisting of Borrowing Base Assets included in either Borrowing Base, or (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of either Borrowing Base.
“Available Revolving Commitment” means, at any time, with respect to any Applicable Lender, (a) if such Applicable Lender is a U.S. Revolving Lender, the U.S. Revolving Commitment of such U.S. Revolving Lender then in effect minus the U.S. Revolving Exposure of such U.S. Revolving Lender at such time, and (b) if such Applicable Lender is a Canadian Revolving Lender, the Canadian Revolving Commitment of such Canadian Revolving Lender then in effect, minus the Canadian Revolving Exposure of such Canadian Revolving Lender at such time.
“Average Historical Excess Availability” means, at any Adjustment Date, the average daily Excess Availability for the one-month period immediately preceding such Adjustment Date.
“Average Revolving Loan Utilization” means, at any Adjustment Date, the sum of (a) the average daily aggregate U.S. Revolving Exposures (excluding any U.S. Revolving Exposure resulting from any outstanding U.S. Swingline Loans) for the three-month period immediately preceding such Adjustment Date (or, if less, the period from the Effective Date to such Adjustment Date), divided by the aggregate U.S. Revolving Commitments at such time, plus (b) the average daily aggregate Canadian Revolving Exposures (excluding any Canadian Revolving Exposures resulting from any outstanding Canadian Swingline Loans) for the three-month period immediately preceding such Adjustment Date (or, if less, the period from the Effective Date to such Adjustment Date), divided by the aggregate Canadian Revolving Commitments at such time.
“BANA” means Bank of America, N.A., a national banking association, acting in its individual capacity, and its successors and assigns.
“BANA Account” has the meaning assigned to such term in Section 2.21(c).
“B/F Subordination Agreement” means the Amended and Restated Subordination Agreement dated November 6, 2002, as amended and reaffirmed on December 19, 2008, December 10, 2010, and May 21, 2012, and as further amended, restated or otherwise modified from time to time thereafter, among Bridgestone/Firestone, the Agent, the Company, and the other parties thereto.
“Banking Services” means each and any of the following bank services provided to any Loan Party by the Agent, any Revolving Lender or any of their respective Affiliates or branches: (a) commercial credit cards, merchant card services, purchase or debit cards, (b) treasury management services (including, without limitation, controlled disbursement, ACH transactions, return items and interstate depository network services) and (c) any other demand deposit or operating account relationships or other cash management services, including under Cash Management Agreements.
“Banking Services Obligations” of the Loan Parties means any and all obligations of the Loan Parties, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.
“Banking Services Reserves” means all Reserves which the Agent from time to time after the occurrence and during the continuation of a Liquidity Event establishes in its Permitted Discretion as being appropriate to reflect reasonably anticipated Banking Services Obligations then provided or outstanding.
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“Bankruptcy Law” means Title 11 of the United States Code, the BIA, the CCAA or any similar foreign, federal, provincial or state law for the relief of debtors as now or hereinafter in effect.
“Bankruptcy Proceeding” means (a) any voluntary or involuntary case or proceeding under any applicable Bankruptcy Law or any proceeding of the type specified in Section 7.01(g) or (h), in each case, with respect to Holdings, the Company, or any Material Subsidiary, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to Holdings, the Company, any Canadian Borrower or any Material Subsidiary or with respect to a material portion of their respective assets, (c) any liquidation, dissolution, reorganization or winding up of Holdings, the Company, or any Material Subsidiary whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings, the Company, or any Material Subsidiary.
“BBA LIBOR” has the meaning assigned to such term in the definition of “LIBOR Rate”.
“BIA” means the Bankruptcy and Insolvency Act (Canada) and the regulations promulgated thereunder.
“Blocked Account Agreement” has the meaning assigned to such term in Section 2.21(a).
“Blocked Accounts” has the meaning assigned to such term in Section 2.21(a).
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means a U.S. Borrower or a Canadian Borrower, as applicable.
“Borrower Agent” has the meaning assigned to such term in Section 2.24.
“Borrower Group” means a group consisting of (a) the U.S. Borrowers and each other U.S. Loan Party, or (b) the Canadian Borrowers and each other Canadian Loan Party, as applicable. For the avoidance of doubt, any Borrowings under the U.S. Commitments shall be made to the U.S. Borrowers and any Borrowings under the Canadian Commitments shall be made to a Canadian Borrower.
“Borrower Group Commitments” means, with respect to the Commitment of a Lender to fund Revolving Loans to the Borrowers within a Borrower Group, or to participate in Letters of Credit issued for the account of Borrowers within a Borrower Group, the amount of the Commitment of such Lender with respect to such Borrower Group as shown on the Commitment Schedule from time to time, as such Commitment may be (a) reduced from time to time pursuant to Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23.
“Borrowing” means any (a) Loans of the same Class and Type made, converted or continued on the same date and, in the case of Interest Period Loans, as to which a single Interest Period is in effect, (b) Swingline Loan or (c) Protective Advance or Overadvance Loan.
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“Borrowing Base” means, with respect to the U.S. Borrowers, the U.S. Borrowing Base, and, with respect to the Canadian Borrowers, the Canadian Borrowing Base.
“Borrowing Base Assets” means any Loan Party’s Inventory and Receivables and other assets directly related thereto, including documents, instruments, general intangibles, deposit accounts and the proceeds of all of the same.
“Borrowing Base Certificate” means a certificate, signed and certified as accurate and complete by a Financial Officer of the Company, in substantially the form of Exhibit B or another form which is acceptable to the Agent in its reasonable discretion.
“Borrowing Request” means a request by the Borrower Agent for a Revolving Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit F-1, or such other form as shall be approved by the Agent.
“Bridgestone/Firestone” means Bridgestone/Firestone North American Tire, LLC, a Delaware limited liability company and successor by merger to Bridgestone/Firestone, Inc., an Ohio corporation.
“Business Day” (a) means any day that is not a Saturday, Sunday or other day on which commercial banks in New York, New York or Charlotte, North Carolina are authorized or required by law to remain closed; provided that, when used in connection with a LIBOR Rate 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 and (b) when used with reference to any Canadian Revolving Loan, shall also exclude a day on which banks in Toronto, Ontario, Canada are authorized or required by law to remain closed.
“Calculation Date” has the meaning assigned to such term in Section 2.30(a).
“Canadian Acquisition” has the meaning assigned to it in the recitals of this Agreement.
“Canadian Acquisition Agreement” means that certain Share Purchase Agreement dated as of November 30, 2012, among Seller, Selling Shareholders, the Initial Canadian Borrower, and the Company, as parent guarantor, together with all exhibits, schedules and disclosure letters thereto.
“Canadian Acquisition Funds” means (a) the payment of the acquisition consideration to the equity holders of the Initial Canadian Borrower under the Canadian Acquisition Agreement, (b) the payment of Transaction Expenses and (c) the Refinancing.
“Canadian BA Rate” means, with respect to each Interest Period for a Canadian BA Rate Loan, the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers’ acceptances having an identical or comparable term as the proposed Canadian BA Rate Loan displayed and identified as such on the display referred to as the “CDOR Page” (or any display substituted therefor) of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto time on the immediately preceding Business Day); provided that if such rate does not appear on the CDOR Page at such time on such date, the rate for such date will be the annual discount rate (rounded upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 a.m. Toronto time on such day at which a Canadian chartered bank listed on Schedule 1 of the Bank Act (Canada) as selected by the Agent is then offering to purchase Canadian Dollar bankers’ acceptances accepted by it having such specified term (or a term as closely as possible comparable to such specified term).
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“Canadian BA Rate Loan” means a Canadian Revolving Loan, or portion thereof, funded in Canadian Dollars and bearing interest calculated by reference to the Canadian BA Rate.
“Canadian Base Rate” means for any day, the greatest of (i) the per annum rate of interest in effect for such day as publicly announced from time to time by BANA (acting through its Canada branch) in Toronto, Ontario as its “base rate” (the “base rate” being a rate set by BANA (acting through its Canada branch) based upon various factors including costs and desired return of BANA (acting through its Canada branch), general economic conditions and other factors, and used as a reference point for pricing some loans in Dollars in Canada made at its “base rate”, which may be priced at, above or below such announced rate), (ii) the Federal Funds Rate for such date, plus one-half of one percent (0.50%) per annum, or (iii) the LIBOR Rate for a thirty (30) day Interest Period, plus one percent (1.00%) per annum. Any change in the “base rate” announced by BANA (acting through its Canada branch) shall take effect at the opening of business on the day specified in the public announcement of such change. Each interest rate based upon the Canadian Base Rate hereunder, shall be adjusted simultaneously with any change in the Canadian Base Rate. In the event that BANA (acting through its Canada branch) (including any successor or assignee) does not at any time publicly announce such a “base rate,” the subparagraph (i) of this definition shall mean the “base rate” publicly announced by a Schedule I Bank under the Bank Act (Canada) for Dollar loans in Canada, as selected by the Agent.
“Canadian Base Rate Loan” means a Canadian Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Canadian Base Rate.
“Canadian Borrower” means, prior to the Canadian Acquisition, the Initial Canadian Borrower and after giving effect to the amalgamation with Triwest, the Amalgamated Company, and each other Canadian Subsidiary that becomes a Canadian Borrower pursuant to Section 5.11(a).
“Canadian Borrowing Base” means the Dollar Equivalent Amount of:
(a) during the Canadian Initial Borrowing Base Period, the Canadian Initial Borrowing Base, and
(b) at all times thereafter, (i) 85% of the Dollar Equivalent Amount of the Value of Eligible Receivables of the Canadian Loan Parties, plus (ii) the lesser of (A) 70% of the Dollar Equivalent Amount of the Value of Eligible Tire Inventory of the Canadian Loan Parties and (B) 85% of the Dollar Equivalent Amount of Net Orderly Liquidation Value of Eligible Tire Inventory of the Canadian Loan Parties, plus (iii) the lesser of (A) 50% of the Dollar Equivalent Amount of the Value of Eligible Non-Tire Inventory of the Canadian Loan Parties and (B) 85% of the Dollar Equivalent Amount of the Net Orderly Liquidation Value of Eligible Non-Tire Inventory of the Canadian Loan Parties, minus (iv) without duplication (including without duplication of clause (d) of the definition of “U.S. Borrowing Base”), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22.
Notwithstanding the foregoing, on or before the sixtieth (60th) day following the Effective Date, a field examination and inventory appraisal with respect to Canadian Loan Parties and their Borrowing Base Assets shall be delivered to the Agent, all of which shall be in form and substance reasonably satisfactory to the Agent. If such field examination or such appraisal is not in form and substance reasonably satisfactory to the Agent, then on and after the 91st day following the Closing Date, the amount of the Canadian Borrowing Base shall be $-0-. The Canadian Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section
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5.01(h) and adjusted by the Agent in the exercise of its Permitted Discretion and in accordance with Section 2.22 based upon additional information, if any, received after the date of delivery of such Borrowing Base Certificate. With respect to any Borrowing Base Certificate delivered pursuant to the final proviso at the end of Section 5.01(h), the Canadian Borrowing Base shall be calculated immediately after giving effect to the applicable acquisition, subject, in each case, to the requirements of the last paragraph of Section 6.04.
“Canadian Collateral” means the U.S. Collateral and any and all property owned, leased or operated by a Canadian Loan Party subject to a security interest or Lien under the Collateral Documents and any and all other property of each Canadian Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of the Agent, on behalf of itself and the Secured Parties, to secure the Canadian Obligations; provided, however, that Canadian Collateral shall not at any time include any Margin Stock.
“Canadian Commitment” means a Canadian Revolving Commitment, including an Extended Canadian Revolving Commitment.
“Canadian Dollars or Cdn $” means the lawful currency of Canada.
“Canadian Excess Availability” means, at any time, the Dollar Equivalent Amount equal to the sum of (a) the lesser of (i) the aggregate total Canadian Revolving Commitments at such time and (ii) the Canadian Borrowing Base at such time (as determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h)), plus (b) the Dollar Equivalent Amount of all unrestricted cash and cash equivalents of the Canadian Loan Parties at such time (to the extent held in Qualified Accounts), minus (c) the aggregate of the Canadian Revolving Exposures (including the Dollar Equivalent Amount of the Canadian LC Exposure) of all Canadian Revolving Lenders at such time.
“Canadian Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.
“Canadian Guarantors” means Triwest and each Canadian Subsidiary (other than any Excluded Subsidiary) that hereafter becomes a party to this Agreement as a Loan Party and a Guarantor pursuant to a Joinder Agreement and each Canadian Borrower to the extent of the Canadian Guaranteed Obligations of each other Canadian Borrower, and their respective successors and assigns.
“Canadian Initial Borrowing Base” means, at any time during the Canadian Initial Borrowing Base Period, the Dollar Equivalent Amount equal to the lesser of (a) $40,000,000 and (b) the sum of the following: (i) 60% of the net book value of the Receivables of all Canadian Loan Parties, plus (ii) 40% of the net book value of the Inventory of all Canadian Loan Parties, minus (iii) without duplication (including without duplication of clause (d) of the definition of “U.S. Borrowing Base”), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22; provided that each of the percentages set forth in subclauses (i) and (ii) of clause (b) above shall be reduced by 5.0% on the date that occurs sixty (60) days after the Effective Date.
“Canadian Initial Borrowing Base Period” means the period commencing on the Effective Date and ending on the earlier of (a) the ninetieth day after the Effective Date and (b) such earlier date as the Canadian Borrowers may elect after delivery to the Agent of both a field examination and inventory appraisal with respect to the Canadian Loan Parties’ Borrowing Base Assets in each case in form and substance reasonably satisfactory to the Agent; provided that notwithstanding the delivery of an acceptable field examination and inventory appraisal with respect to the Canadian Loan Parties’ Borrowing Base Assets, the Canadian Borrowers may elect to keep the Canadian Initial Borrowing Base in effect until the ninetieth (90th) day after the Effective Date.
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“Canadian LC Collateral Account” has the meaning assigned to such term in Section 2.06(j).
“Canadian LC Disbursement” means a payment made by an Applicable Issuing Bank pursuant to a drawing on a Canadian Letter of Credit.
“Canadian LC Exposure” means, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding Canadian Letters of Credit at such time plus (b) the aggregate amount of all Canadian LC Disbursements that have not yet been reimbursed by or on behalf of the Canadian Borrowers or any other Canadian Loan Party at such time, less (c) the amount then on deposit in the Canadian LC Collateral Account. The Canadian LC Exposure of any Canadian Revolving Lender at any time shall be its Applicable Percentage of the total Canadian LC Exposure at such time.
“Canadian Letter of Credit” means a Letter of Credit issued for the account of a Canadian Borrower under the Canadian Commitments pursuant to this Agreement.
“Canadian Loan Party” means a Canadian Borrower or a Canadian Guarantor.
“Canadian MEPP” means a Canadian Pension Plan that is either (i) a multi-employer pension plan as defined in the PBA or (ii) a plan that provides target benefits as defined in the PBA, in either case being a plan where the employer’s contribution obligations to such plan are set out in one or more collective agreements and are defined contribution in nature.
“Canadian Obligations” mean the collective reference to (a) the due and punctual payment of (i) the principal of and premium, if any, and interest at the applicable rate provided in this Agreement (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 made to a Canadian Borrower, 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 a Canadian Borrower under this Agreement in respect of any Canadian Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide cash collateral, and (iii) all other monetary 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 a Canadian Borrower or any other Canadian Loan Party to any of the Secured Parties under this Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of a Canadian Borrower under or pursuant to this Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each other Canadian Loan Party under or pursuant to this Agreement or the other Loan Documents, (d) the due and punctual payment and performance of all Secured Swap Obligations of a Canadian Loan Party and (e) the due and punctual payment and performance of all Banking Services Obligations of a Canadian Loan Party. Notwithstanding the foregoing, (i) the obligations of Holdings, the Company or any Subsidiary in respect of any Secured Swap Obligations or any Banking Services Obligations of a Canadian Loan Party shall be secured and guaranteed pursuant to the Collateral Documents and the Loan Guaranty only to the extent that, and for so long as, the other Canadian Obligations are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement and the other Loan Documents shall not require the consent of the holders of Secured Swap Obligations or the holders of Banking Services Obligations of a Canadian Loan Party.
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“Canadian Obligations Guarantor Percentage” has the meaning assigned to it in Section 10.09.
“Canadian Obligations Guarantors” means, collectively, the U.S. Loan Parties and the Canadian Guarantors.
“Canadian Obligations Non-Paying Guarantor” has the meaning assigned to it in Section 10.09.
“Canadian Obligations Paying Guarantor” has the meaning assigned to it in Section 10.09.
“Canadian Overadvance” means at any time the amount by which the aggregate outstanding Canadian Revolving Exposures exceed the Canadian Borrowing Base.
“Canadian Overadvance Condition” means and is deemed to exist any time the aggregate outstanding Canadian Revolving Exposures exceed the Canadian Borrowing Base.
“Canadian Overadvance Loan” means a Loan to a Canadian Borrower at a time when a Canadian Overadvance Condition exists.
“Canadian Overnight Rate” means the Bank of Canada overnight rate, which is the rate of interest charged by the Bank of Canada on one-day loans to financial institutions, for such day.
“Canadian Pension Plan” means a plan, program or arrangement which is required to be registered as a pension plan under any applicable pension benefits standards or tax statute or regulation in Canada maintained or contributed to by, or to which there is or may be an obligation to contribute by, any Loan Party in respect of its Canadian employees or former employees.
“Canadian Prime Rate” means, for any day, the greater of the per annum (i) rate of interest in effect for such day as publicly announced from time to time by BANA (acting through its Canada branch) in Toronto, Ontario as its “prime rate” (the “prime rate” being a rate set by BANA (acting through its Canada branch) based upon various factors, including costs and desired return of BANA (acting through its Canada branch), general economic conditions and other factors, and used as a reference point for pricing some loans in Canadian Dollars in Canada made at its “prime rate”, which may be priced at, above, or below such announced rate, (ii) the sum of one-half of one percent (0.50%) plus the Canadian Overnight Rate, and (iii) the sum of one percent (1.00%) plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers’ acceptances displayed and identified as such on the display referred to as the “CDOR Page” (or any display substituted therefor) of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto time on the immediately preceding Business Day) for a 30 day interest period as determined on such day. Any change in the “prime rate” announced by BANA (acting through its Canada branch) shall take effect at the opening of business on the day specified in the public announcement of such change. Each interest rate based upon the Canadian Prime Rate hereunder, shall be adjusted simultaneously with any change in the Canadian Prime Rate. In the event that BANA (acting through its Canada branch) (including any successor or assignee), does not at any time publicly announce such a “prime rate”, the sub-paragraph (i) of this definition of “Canadian Prime Rate” shall mean the “prime rate” publicly announced by a Schedule 1 Bank under the Bank Act (Canada) for Canadian Dollar loans in Canada, as selected by the Agent.
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“Canadian Prime Rate Loan” means a Canadian Revolving Loan, or portion thereof, funded in Canadian Dollars and bearing interest calculated by reference to the Canadian Prime Rate.
“Canadian Protective Advance” means a Protective Advance made to or for the account of a Canadian Borrower.
“Canadian Qualified Lender” means a financial institution that is listed on Schedule I, II or III of the Bank Act (Canada), has received an approval to have a financial establishment in Canada pursuant to Section 522.21 of the Bank Act (Canada) or is not a foreign bank for purposes of the Bank Act (Canada), and if such financial institution is not resident in Canada or is not deemed to be resident in Canada for purposes of the ITA, then such financial institution deals at arm’s length with each Canadian Loan Party for purposes of the ITA.
“Canadian Revolving Commitment” means, with respect to each Canadian Revolving Lender, the commitment of such Canadian Revolving Lender to make Canadian Revolving Loans and to acquire participations in Canadian Protective Advances, Canadian Letters of Credit and Canadian Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Canadian Revolving Lender’s Canadian Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23. The initial amount of each Canadian Revolving Lender’s Canadian Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Canadian Revolving Commitment, as applicable. The aggregate amount of the Canadian Revolving Lenders’ Canadian Revolving Commitments as of the Effective Date is $60,000,000.
“Canadian Revolving Exposure” means, with respect to any Canadian Revolving Lender at any time, the Dollar Equivalent Amount of the sum of the outstanding principal amount of such Lender’s Canadian Revolving Loans and its Canadian LC Exposure and an amount equal to its Applicable Percentage of the aggregate principal amounts of Canadian Swingline Loans and Canadian Protective Advances outstanding at such time.
“Canadian Revolving Lender” means, as of any date of determination, a Lender with a Canadian Revolving Commitment or, if the Canadian Revolving Commitments have terminated or expired, a Lender with Canadian Revolving Exposure. Unless the context otherwise requires, the term “Canadian Revolving Lenders” includes the Canadian Swingline Lender.
“Canadian Revolving Loan” means the loans and advances made by the Canadian Revolving Lenders pursuant to this Agreement, including a Loan made pursuant to Section 2.01(a), Canadian Swingline Loans and Canadian Protective Advances.
“Canadian Security Agreements” means those certain general security agreements and deeds of hypothec dated on or about the date hereof, between each of the Canadian Loan Parties and the Agent.
“Canadian Subsidiary” means each Subsidiary of a Canadian Borrower or Triwest organized under the laws of Canada or any province or territory thereof.
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“Canadian Swingline Lender” means BANA (acting through its Canada branch), in its capacity as lender of Canadian Swingline Loans hereunder.
“Canadian Swingline Loan” means a Loan made by the Canadian Swingline Lender pursuant to Section 2.05.
“Capital Expenditures” means, for any period, without duplication, any expenditure for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP; provided that the term “Capital Expenditures” shall not include (i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed from insurance proceeds or compensation awards paid on account of a Recovery Event, (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, (iii) the purchase of plant, property or equipment to the extent financed with the proceeds of sales, transfers or other dispositions that are not required to be applied to prepay Revolving Loans pursuant to Section 2.11(c), (iv) expenditures that are accounted for as capital expenditures by the Company or any Subsidiary and that actually are paid for by a Person other than the Company or any Subsidiary and for which neither the Company nor any Subsidiary has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such Person or any other Person (whether before, during or after such period, it being understood, however, that only the amount of expenditures actually provided or incurred by the Company or any Subsidiary in such period and not the amount required to be provided or incurred in any future period shall constitute “Capital Expenditures” in the applicable period), (v) the book value of any asset owned by the Company or any Subsidiary prior to or during such period to the extent that such book value is included as a capital expenditure during such period as a result of such Person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period; provided that (x) any expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period in which such expenditure actually is made and (y) such book value shall have been included in Capital Expenditures when such asset was originally acquired, (vi) any expenditures that constitute Permitted Acquisitions (or similar investments) and expenditures made in connection with the Transactions on or about the Effective Date or in connection with the amalgamation of the Initial Canadian Borrower and Triwest, (vii) any capitalized interest expense reflected as additions to property, plant or equipment in the consolidated balance sheet of the Company and the Subsidiaries for such period or (viii) any Lease Expenses.
“Capital Lease Obligations” of any Person means 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 are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the amount thereof accounted for as a liability determined in accordance with GAAP.
“Cash Management Agreement” means any agreement entered into from time to time between any Loan Party, on the one hand, and the Agent or any Lender or any of their Affiliates or branches on the other, in connection with cash management services for collections, other Banking Services and for operating, payroll and trust accounts of such Loan Party provided by such Agent, Lender or their Affiliates or branches, including ACH services, controlled disbursement services, electronic funds transfer services, information reporting services, lockbox services, stop payment services and wire transfer services.
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“CCAA” means the Companies’ Creditors Agreement Act (Canada) and the regulations promulgated thereunder.
“Change in Control” shall be deemed to have occurred if (a) prior to a Qualified Public Offering, the Permitted Holders (i) shall fail to have the right, directly or indirectly, by voting power, contract or otherwise, to elect or designate for election at least a majority of the Board of Directors of Holdings or (ii) shall fail to own, directly or indirectly, beneficially and of record, shares of Holdings in an amount equal to more than 50% of the amount of shares owned, directly or indirectly, by the Permitted Holders, beneficially and of record, as of the Effective Date and such ownership by the Permitted Holders shall not represent the largest single block of voting securities of Holdings held, directly or indirectly, by any Person or related group for purposes of Section 13(d) of the Exchange Act, (b) after a Qualified Public Offering, any “person” or “group” (within the meaning of Rule 13d-5 of the Exchange Act but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, TopCo, and, if applicable, any intermediate holding company parent of Holdings which is owned, directly or indirectly, by the Permitted Holders, shall “beneficially own” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of Holdings (or the Company after a Qualified Public Offering of the Company) and the percentage of the aggregate ordinary voting power represented by such Equity Interests beneficially owned by such person or group exceeds the percentage of the aggregate ordinary voting power represented by Equity Interests of Holdings (or the Company after a Qualified Public Offering of the Company) then beneficially owned, directly or indirectly, by the Permitted Holders, unless (i) the Permitted Holders have, at such time, the right or the ability, directly or indirectly, by voting power, contract or otherwise to elect or designate for election at least a majority of the Board of Directors of Holdings (or the Company after a Qualified Public Offering of the Company) or (ii) during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the board of directors of Holdings (or the Company after a Qualified Public Offering of the Company) shall be occupied by persons who were (x) members of the board of directors of Holdings on the Effective Date or nominated by the board of directors of Holdings (or of the Company after a Qualified Public Offering of the Company) or by one or more Permitted Holders or Persons nominated by one or more Permitted Holders or (y) appointed by directors so nominated, (c) any change in control (or similar event, however denominated) with respect to Holdings or the Company shall occur under and as defined in the Senior Secured Note Documents, the Senior Subordinated Note Documents or any other Subordinated Indebtedness of Holdings or its Subsidiaries constituting Material Indebtedness, or (d) at any time, Holdings shall cease to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of the Company.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority. It is understood and agreed that (i) the Dodd–Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203, H.R. 4173), all Laws relating thereto and all interpretations and applications thereof and (ii) 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 regulatory authorities, in each case pursuant to Basel III, shall, for the purpose of this Agreement, be deemed to be adopted subsequent to the date of this Agreement; provided that, it is the applicable Lender’s general policy or practice to demand compensation in similar circumstances under comparable provisions of other financing agreements.
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“Chattel Paper” means any “chattel paper,” as such term is defined in the UCC (or, with respect to any chattel paper of any Canadian Loan Party, as such term is defined in the PPSA), including electronic chattel paper, now owned or hereafter acquired by any Loan Party, wherever located.
“Class” (a) when used in reference to any Loan to, or Borrowing by, the U.S. Borrowers, refers to whether such Loan, or the Loans comprising such Borrowing, are U.S. Revolving Loans, Extended U.S. Revolving Loans (of the same Extension Series), U.S. Swingline Loans, U.S. Protective Advances or U.S. Overadvance Loans; and when used in reference to any Commitment, refers to whether such Commitment is a U.S. Revolving Commitment or an Extended U.S. Revolving Commitment (of the same Extension Series), and (b) when used in reference to any Loan to, or Borrowing by, a Canadian Borrower, refers to whether such Loan, or the Loans comprising such Borrowing, are Canadian Revolving Loans, Extended Canadian Revolving Loans (of the same Extension Series), Canadian Swingline Loans, Canadian Protective Advances or Canadian Overadvance Loans; and when used in reference to any Commitment, refers to whether such Commitment is a Canadian Revolving Commitment or an Extended Canadian Revolving Commitment (of the same Extension Series).
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” means the Canadian Collateral or the U.S. Collateral, as applicable.
“Collateral Access Agreement” has the meaning assigned to such term in the Security Agreements.
“Collateral Documents” means, collectively, the Security Agreements, the Mortgages and any other documents granting a Lien upon the Collateral as security for payment of the U.S. Obligations or the Canadian Obligations.
“Commitment” means a U.S. Commitment or a Canadian Commitment, as applicable.
“Commitment Fee Rate” means, a rate per annum equal to 0.25%; provided that, commencing on January 1, 2013, for any day thereafter, the applicable rate per annum set forth below based upon the Average Revolving Loan Utilization as of the most recent Adjustment Date:
| Average Revolving Loan Utilization |
Commitment Fee Rate |
|||
| Less than or equal to 50% |
0.375 | % | ||
| Greater than 50% |
0.250 | % | ||
The Commitment Fee Rate shall be adjusted quarterly on a prospective basis on each Adjustment Date based upon the Average Revolving Loan Utilization in accordance with the table above; provided that if an Event of Default shall have occurred and be continuing at the time any reduction in the Commitment Fee Rate would otherwise be implemented, no such reduction shall be implemented until the date on which such Event of Default shall have been cured or waived.
“Commitment Schedule” means the Schedule attached hereto identified as such.
“Company” has the meaning assigned to such term in the preamble to this Agreement.
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“Consolidated Total Indebtedness” means, as at any date of determination, an amount equal to the sum of (a) the aggregate amount of all outstanding Indebtedness of the Company and its Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, (b) obligations in respect of Capital Lease Obligations and (c) debt obligations evidenced by bonds, notes, debentures or similar instruments.
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound other than the Obligations.
“Control” means the possession, directly or indirectly, of the power 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. “Controlling” and “Controlled” have meanings correlative thereto.
“Controlled Investment Affiliate” means, as to any Person, any other Person, which directly or indirectly is in control of, is controlled by, or is under common control with such Person and is organized by such Person (or any Person controlling such Person) primarily for making direct or indirect equity or debt investments in the Company and/or other companies.
“Converted Restricted Subsidiary” has the meaning assigned to such term in the definition of “EBITDA”.
“Converted Unrestricted Subsidiary” has the meaning assigned to such term in the definition of “EBITDA”.
“Cooper Subordination Agreement” means that certain Vendor Lien Subordination Agreement dated October 28, 2004, between the Agent and Cooper Tire & Rubber Company.
“Cost” means the cost of purchase of Inventory determined according to the accounting policies used in the preparation of the Company’s audited financial statements.
“Cure Amount” shall have the meaning assigned to such term in Section 7.02.
“Cure Right” shall have the meaning assigned to such term in Section 7.02.
“DDAs” means any checking or other demand deposit account maintained by any Loan Party. All funds in such DDAs shall be conclusively presumed to be Collateral and proceeds of Collateral; and the Agent and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in the DDAs, subject to the Security Agreements and the Intercreditor Agreement.
“Default” means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Defaulting Lender” means any Applicable Lender that (a) fails to make any payment or provide funds to the Agent or any Borrower within the applicable Borrower Group as required hereunder or fails otherwise to perform its obligations under any Loan Document, and such failure is not cured within two Business Days, (b) notified the Agent or a Loan Party in writing that it does not intend to satisfy any such obligation or (c) been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or becomes the subject of a Bankruptcy Proceeding.
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“Derivative Transaction” means (a) an interest-rate transaction, including an interest-rate swap, basis swap, forward rate agreement, interest rate option (including a cap, collar, and floor), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward deposits accepted), (b) an exchange-rate transaction, including a cross-currency interest-rate swap, a forward foreign-exchange contract, a currency option, and any other instrument linked to exchange rates that gives rise to similar credit risks, (c) an equity derivative transaction, including an equity-linked swap, an equity-linked option, a forward equity-linked contract, and any other instrument linked to equities that gives rise to similar credit risk and (d) a commodity (including precious metal) derivative transaction, including a commodity-linked swap, a commodity-linked option, a forward commodity-linked contract, and any other instrument linked to commodities that gives rise to similar credit risks; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Company or its subsidiaries shall be a Derivative Transaction.
“Designated Disbursement Account” has the meaning assigned to such term in Section 2.21(d).
“Dilution Reserve” means, with respect to a Borrower Group, an amount equal to the excess of (i) non-cash reductions to the U.S. Borrowers’ or the Canadian Loan Parties’, as applicable, Receivables (on a combined basis) during a 12-month period prior to the date of determination as established by the Borrowers’ records or by a field examination conducted by the Agent’s employees or representatives, expressed as a percentage of the U.S. Borrowers’ or the Canadian Loan Parties’, as applicable, Receivables (on a combined basis) outstanding during the same period, as the same may be adjusted by the Agent in the exercise of its Permitted Discretion, over (ii) 5%, multiplied by an amount equal to Eligible Receivables as of the date of determination.
“Disqualified Equity Interests” means any Equity Interest which, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change in control or asset sale so long as any right of the holders thereof upon the occurrence of a change in control or asset sale event shall be subject to the occurrence of the Termination Date), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part (except as a result of a change in control or asset sale so long as any right of the holders thereof upon the occurrence of a change in control or asset sale event shall be subject to the occurrence of the Termination Date), (c) requires the payment of any cash dividend or any other scheduled cash payment constituting a return of capital, in each case, prior to the date that is ninety-one (91) days after the earlier of the Maturity Date and the occurrence of the Termination Date or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one (91) days after the earlier of the Maturity Date and the occurrence of the Termination Date; provided that if such Equity Interest is issued to any plan for the benefit of employees of Holdings or any of its subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Equity Interest solely because it may be required to be repurchased by Holdings or any of its subsidiaries in order to satisfy applicable statutory or regulatory obligations.
“Document” has the meaning assigned to such term in Article 9 of the UCC (or, with respect to any “document of title” of any Canadian Loan Party, as such term is defined in the PPSA).
“Dollar Equivalent Amount” means on any date, with respect to any amount denominated in Dollars, such amount in Dollars, and with respect to any stated amount in a currency other than Dollars, the amount of Dollars that the Agent determines (which determination shall be conclusive and binding absent manifest error) would be necessary to be sold on such date at the applicable Exchange Rate to obtain the stated amount of the other currency.
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“Dollars” or “$” refers to lawful money of the United States of America.
“Domestic Subsidiaries” means all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia.
“EBITDA” means, for any period, Net Income for such period, plus
(a) without duplication and to the extent already deducted (and not added back) in arriving at such Net Income, the sum of the following amounts for such period:
(i) Interest Expense for such period,
(ii) provision for taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds),
(iii) depreciation and amortization (including amortization of intangible assets established through purchase accounting and amortization of deferred financing fees or costs),
(iv) Non-Cash Charges,
(v) extraordinary, unusual or non-recurring charges (including fees and expenses relating thereto),
(vi) cash restructuring charges, accruals or reserves (including restructuring costs related to acquisitions before and after the Effective Date) incurred during any period on or prior to the second anniversary of the Effective Date; provided that, the aggregate amount of restructuring charges, accruals or reserves incurred under this clause (vi) in such Test Period shall not exceed, when combined with the aggregate amount of cost savings added pursuant to clause (xii) below in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to this clause (vi), clause (xii) below, or Pro Forma Adjustments),
(vii) the amount of any minority interest expense (or income (loss) allocable to non-controlling interests) consisting of Subsidiary income attributable to minority equity interests of third parties in any non-wholly-owned Subsidiary deducted (and not added back in such period to Net Income),
(viii) the amount of management, monitoring, consulting and advisory fees, (including termination and transaction fees) and related indemnities and expenses paid or accrued in such period to (or on behalf of) the Sponsor, to the extent otherwise permitted by Sections 6.09 and 6.11(c),
(ix) losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business),
(x) any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any equity subscription or equity holder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed during such period to the capital of the Company or Net Cash Proceeds of an issuance of Qualified Equity Interests,
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(xi) cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to paragraph (b) below for any previous period and not added back, and
(xii) in connection with any restructuring of Holdings and its Subsidiaries not in the ordinary course, the amount of cost savings resulting from, or expected by the Company in good faith to be realized as a result of, actions taken or committed to be taken pursuant to a factually supportable plan, in each case in connection with such restructuring prior to the time that EBITDA is to be determined for such period (which cost savings shall be added to EBITDA until fully realized and calculated on a Pro Forma Basis as though such cost savings had been realized on the first day of the relevant period), net of the amount of actual benefits realized from such actions; provided that (A) such cost savings are reasonably identifiable and factually supportable, as certified to the Agent on a Pro Forma Adjustment Certificate, (B) no cost savings shall be added pursuant to this clause (xii) to the extent duplicative of any expenses or charges relating to such cost savings that are included in clause (vi) above or in the definition of the term “Pro Forma Adjustment” and (C) the aggregate amount of cost savings added pursuant to this clause (xii) shall not exceed for any Test Period, (i) the actual cost savings expected in good faith to be realized as a result of such actions during such Test Period commencing with the date EBITDA is being determined (as opposed to the annualized impact of cost savings) and (ii) when combined with the aggregate amount of restructuring charges, accruals or reserves incurred under clause (vi) above in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to clause (vi) above, this clause (xii), or Pro Forma Adjustments)),
less
(b) without duplication and to the extent included in arriving at such Net Income, the sum of the following amounts for such period:
(i) non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Net Income or EBITDA in any prior period),
(ii) gains on asset sales, disposals and abandonments (other than asset sales, disposals and abandonments in the ordinary course of business),
(iii) the amount of any minority interest income (or income (loss) allocable to non-controlling interests) consisting of Subsidiary loss attributable to minority equity interests of third parties in any non-wholly owned Subsidiary added (and not deducted) in such period in arriving at Net Income,
(iv) cash expenditures (or any netting arrangements resulting in increased cash expenditures) not deducted in arriving at EBITDA or Net Income in any period to the extent non-cash losses relating to such income were added in the calculation of EBITDA pursuant to paragraph (a) above for any previous period and not deducted, and
(v) extraordinary, unusual and non-recurring gains (less all fees and expenses relating thereto),
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in each case, as determined on a consolidated basis for the Company and the Subsidiaries in accordance with GAAP; provided that,
(i) to the extent included in Net Income, there shall be excluded in determining EBITDA currency translation gains and losses,
(ii) to the extent included in Net Income, there shall be excluded in determining EBITDA for any period, any adjustments resulting from the application of Statement of Financial Accounting Standards No. 133,
(iii) there shall be included in determining EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by the Company or any Subsidiary during such period to the extent not subsequently sold, transferred or otherwise disposed of (but not including the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property, business or asset acquired, including pursuant to the Transactions or pursuant to a transaction consummated prior to the Effective Date, and not subsequently so disposed of, an “Acquired Entity or Business”) and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a “Converted Restricted Subsidiary”), based on the Acquired EBITDA of such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis and (B) an adjustment equal to the amount of the Pro Forma Adjustment for such period (including the portion thereof occurring prior to such acquisition or conversion) as specified in the Pro Forma Adjustment Certificate delivered to the Agent (for further delivery to the Lenders); and
(iv) there shall be excluded in determining EBITDA for any period the EBITDA of any Person, property, business or asset sold, transferred or otherwise disposed of, closed or classified as discontinued operations by the Company or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold, transferred or otherwise disposed of, closed or classified, a “Sold Entity or Business” and the EBITDA associated with such Sold Entity or Business, “Disposed EBITDA”) and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a “Converted Unrestricted Subsidiary”), based on the Disposed EBITDA of such Sold Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer, disposition, closure, classification or conversion) determined on a historical Pro Forma Basis; provided that notwithstanding anything to the contrary contained herein or in any classification under GAAP of any Person, business, assets or operations in respect of which a definitive agreement for the Sold Entity or Business thereof has been entered into as discontinued operations, no pro forma effect shall be given to any discontinued operations (and the EBITDA attributable to any such Person, business, assets or operations shall not be excluded for any purposes hereunder) until such Sold Entity or Business shall have been consummated.
“Effective Date” means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02), which date was November 30, 2012.
“Eligible Assignee” means (a) a Lender, (b) a commercial bank, insurance company, or company engaged in the business of making asset-based loans or commercial loans or a commercial finance company, which Person, together with its Affiliates and branches, has a combined capital and surplus in excess of $750,000,000, (c) any Affiliate or branch of a Lender under common Control with such Lender, or (d) an Approved Fund of a Lender, and if a Canadian Revolving Lender, a Canadian Qualified Lender, unless an Event of Default shall have occurred and be continuing; provided that, in any event, “Eligible Assignee” shall not include (i) any natural person, (ii) any Defaulting Lender or (iii) Holdings, the Company, any other Loan Party or any Subsidiary of any of the foregoing.
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“Eligible Inventory” means, collectively, Eligible Tire Inventory and Eligible Non-Tire Inventory.
“Eligible Non-Tire Inventory” means items of Inventory (other than tires) of a Borrower or a Canadian Guarantor subject to the Lien in favor of the Agent held for sale in the ordinary course of the business of such Borrower or such Canadian Guarantor (but not including packaging or shipping materials or maintenance supplies) that meet all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Inventory is owned by a Borrower or a Canadian Guarantor and is subject to a first priority perfected Lien in favor of the Agent;
(b) such Inventory is not subject to any other Lien other than Liens permitted by Section 6.02 so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent;
(c) such Inventory consists of raw materials or finished goods and does not consist of work-in-process, supplies or consigned goods;
(d) such Inventory is in good condition and meets in all material respects all material standards applicable to such goods, their use or sale imposed by any Governmental Authority having regulatory authority over such matters;
(e) such Inventory is currently either usable or saleable, at prices approximating at least the cost thereof, in the normal course of the applicable Borrower’s or applicable Canadian Guarantor’s business;
(f) such Inventory is not obsolete or returned (except Inventory that is placed back into stock in the ordinary course of business) or repossessed or used goods taken in trade;
(g) (i) such Inventory owned by a U.S. Borrower is either located within the United States at one of the Permitted Inventory Locations or is in transit within the United States from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days, and (ii) such Inventory owned by a Canadian Loan Party is either located at one of the Permitted Inventory Locations or is in transit from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days;
(h) if such Inventory is located at any location leased by a Loan Party, (i) the lessor has delivered to the Agent a Collateral Access Agreement as to such location or (ii) a Rent Reserve with respect to such location has been established by the Agent in its Permitted Discretion; and
(i) such Inventory is not subject to any warehouse receipt or negotiable Document unless in the possession of the Agent, and if such Inventory is located in any third party warehouse or is in the possession of a bailee and is not evidenced by a Document, (i) such warehouseman or bailee has delivered to the Agent a Collateral Access Agreement and such other documentation as the Agent may reasonably require or (ii) an appropriate Reserve has been established by the Agent in its Permitted Discretion.
With respect to any Inventory of a Borrower or a Canadian Guarantor within a Borrower Group that was acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Inventory, within a reasonable time following request of the Borrower Agent.
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“Eligible Receivable” means the unpaid portion of a Receivable payable in Dollars to a U.S. Borrower or payable in Dollars or Canadian Dollars to a Canadian Loan Party, in each case, subject to the Lien in favor of the Agent net of any returns, discounts, credits or other allowances or deductions agreed to by a Borrower or a Canadian Guarantor and net of any amounts owed by a Borrower or a Canadian Guarantor to the Account Debtor on such Receivable (including to the extent of any set-off), which Receivable meets all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Receivable is owned by a Borrower or a Canadian Guarantor and represents a complete bona fide transaction which requires no further act under any circumstances on the part of any Borrower or any Canadian Guarantor to make such Receivable payable by the Account Debtor;
(b) such Receivable is not past due more than 60 days after its due date, which due date shall not be later than 90 days after the invoice date;
(c) such Receivable does not arise out of any transaction with any Subsidiary of a Borrower or any Canadian Guarantor;
(d) such Receivable is not owing by an Account Debtor from which an aggregate amount of more than 50% of the Receivables owing therefrom are, based on the most recent Borrowing Base Certificate, not Eligible Receivables pursuant to clause (b) above;
(e) if the Account Debtor with respect thereto is located outside of the United States of America, Canada or Puerto Rico, the goods which gave rise to such Receivable were shipped after receipt by the applicable Borrower or applicable Canadian Guarantor from the Account Debtor of an irrevocable letter of credit that has been confirmed by a financial institution reasonably acceptable to the Agent, and on terms, reasonably acceptable to the Agent, payable in the full face amount of the face value of the Receivable in Dollars or Canadian Dollars at a place of payment located within the United States or Canada and has been duly assigned to the Agent, except that up to $5,000,000 of such Receivables outstanding at any time that are otherwise Eligible Receivables, may be included in Eligible Receivables without such letter of credit supports;
(f) such Receivable is not subject to the Assignment of Claims Act of 1940, as amended from time to time, the Financial Administration Act, (Canada), as amended from time to time, or any other applicable law now or hereafter existing similar in effect thereto, unless the applicable Borrower or applicable Canadian Guarantor has assigned its right to payments of such Receivable so as to comply with the Assignment of Claims Act of 1940, as amended from time to time, the Financial Administration Act, (Canada), as amended from time to time, or any such other applicable law, or to any contractual provision accepted in writing by such Borrower or such Canadian Guarantor prohibiting its assignment or requiring notice of or consent to such assignment which notice or consent has not been made or obtained;
(g) Receivables with respect to which the representations and warranties set forth in the Applicable Security Agreement applicable to Receivables are not correct in any material respect;
(h) such Receivable is not disputed, and is not subject to a claim, counterclaim, discount, deduction, reserve, allowance, recoupment, offset or chargeback that has been asserted with respect thereto by the applicable Account Debtor (but only to the extent of such dispute, claim, counterclaim, discount, deduction, reserve, allowance, recoupment, offset or chargeback);
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(i) such Receivable is not owed by an Account Debtor that is subject to a Bankruptcy Proceeding or that is liquidating, dissolving or winding up its affairs or otherwise deemed not creditworthy by the Agent in its Permitted Discretion;
(j) the goods the sale of which gave rise to such Receivable were shipped or delivered to the Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis or on the basis of any other similar understanding, and such goods have not been returned or rejected;
(k) such Receivable is not owing by an Account Debtor whose then-existing Eligible Receivables owing to (i) the U.S. Borrowers, based on the most recent Borrowing Base Certificate, exceed 20% of the net amount of all Eligible Receivables of the U.S. Borrowers, but such Receivable shall be ineligible only to the extent of such excess and (ii) the Canadian Loan Parties, based on the most recent Borrowing Base Certificate, exceed 20% of the net amount of all Eligible Receivables of the Canadian Loan Parties, but such Receivable shall be ineligible only to the extent of such excess;
(l) such Receivable is evidenced by a customary invoice or other customary documentation reasonably satisfactory to the Agent in its Permitted Discretion;
(m) such Receivable is a valid, legally enforceable obligation of the Account Debtor with respect thereto and is not subject to any present or contingent (and no facts exist which are the basis for any future), offset, deduction or counterclaim, dispute or other defense on the part of such Account Debtor, except that any Receivable that is subject to any offset, deduction or counterclaim shall be ineligible only to the extent of such offset, deduction or counterclaim;
(n) such Receivable does not arise under or is not related to any warranty obligation of a Borrower or a Canadian Guarantor or any charges by a Borrower or a Canadian Guarantor of fees for the time value of money;
(o) such Receivable is not evidenced by Chattel Paper or an Instrument of any kind;
(p) such Receivable is subject to a first priority perfected Lien in favor of the Agent; and
(q) such Receivable is not subject to any Lien, other than Liens permitted by Section 6.02, so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent.
With respect to any Receivables of any Borrower or any Canadian Guarantor within a Borrower Group that were acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Receivables, within a reasonable time following request of the Borrower Agent.
“Eligible Subordinated Vendor Inventory” means Eligible Tire Inventory that is subject to a Subordinated Vendor Lien.
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“Eligible Tire Inventory” means items of Inventory of tires of a Borrower or a Canadian Guarantor subject to the Lien in favor of the Agent (including Eligible Subordinated Vendor Inventory) held for sale in the ordinary course of the business of such Borrower or such Canadian Guarantor (but not including packaging or shipping materials or maintenance supplies) that meet all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Inventory is owned by a Borrower or a Canadian Guarantor and is subject a first priority perfected Lien in favor of the Agent;
(b) such Inventory is not subject to any other Lien other than Liens permitted by Section 6.02 so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent;
(c) such Inventory consists of raw materials or finished goods and does not consist of work-in-process, supplies or consigned goods;
(d) such Inventory is in good condition and meets in all material respects all material standards applicable to such goods, their use or sale imposed by any Governmental Authority having regulatory authority over such matters;
(e) such Inventory is currently either usable or saleable, at prices approximating at least the cost thereof, in the normal course of the applicable Borrower’s or the applicable Canadian Guarantor’s business;
(f) such Inventory is not obsolete or returned (except Inventory that is placed back into stock in the ordinary course of business) or repossessed or used goods taken in trade;
(g) (i) such Inventory owned by a U.S. Borrower is either located within the United States at one of the Permitted Inventory Locations or is in transit within the United States from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days, and (ii) such Inventory owned by a Canadian Loan Party is either located at one of the Permitted Inventory Locations or is in transit from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days;
(h) if such Inventory is located at any location leased by a Loan Party, (i) the lessor has delivered to the Agent a Collateral Access Agreement as to such location or (ii) a Rent Reserve with respect to such location has been established by the Agent in its Permitted Discretion; and
(i) such Inventory is not subject to any warehouse receipt or negotiable Document unless in the possession of the Agent, or if such Inventory is located in any third party warehouse or is in the possession of a bailee and is not evidenced by a Document, (i) such warehouseman or bailee has delivered to the Agent a Collateral Access Agreement and such other documentation as the Agent may reasonably require or (ii) an appropriate Reserve has been established by the Agent in its Permitted Discretion.
With respect to any Inventory of any Borrower or any Canadian Guarantor within a Borrower Group that was acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Inventory, within a reasonable time following request of the Borrower Agent.
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“Environmental Laws” means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating to the protection of the environment, the preservation or reclamation of natural resources, the management, transportation, disposal, release or threatened release of any Hazardous Material or to health and safety matters (to the extent related to the exposure to any Hazardous Material).
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement in writing pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means shares of capital stock, partnership interests, membership interests in a limited liability company or unlimited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
“ERISA Event” means (a) any Reportable Event; (b) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Plan; (c) a determination that any Plan is in “at risk” status (within the meaning of Section 303(i)(4) of ERISA); (d) the filing pursuant to Section 412(d) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by a Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (f) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice of an intent to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the incurrence by a Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (h) the receipt by a Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is Insolvent or in Reorganization, within the meaning of Title IV of ERISA.
“Event of Default” has the meaning assigned to such term in Article VII.
“Excess Amount” has the meaning assigned to such term in Section 2.30(c).
“Excess Availability” means, at any time, an amount equal to the sum of the U.S. Excess Availability and the Canadian Excess Availability.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
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“Exchange Rate” means on any date, (a)(i) with respect to Canadian Dollars in relation to Dollars, the exchange rate reported by Bloomberg, at which Canadian Dollars are offered on such date for Dollars as of the end of the preceding Business Day, and (ii) with respect to Dollars in relation to Canadian Dollars, the exchange rate reported by Bloomberg, at which Canadian Dollars are offered on such date for Dollars or (b) if such report is unavailable for any reason, the spot rate for the purchase of the first currency with the second currency as in effect during the preceding Business Day in the Agent’s principal foreign exchange trading office for the first currency.
“Excluded Accounts” has the meaning assigned to such term in each of the U.S. Security Agreement and the Canadian Security Agreements, as applicable.
“Excluded Equity Interests” shall mean (a) any Equity Interests with respect to which the Company and the Agent have reasonably determined that the cost or other consequences (including any material adverse tax consequences) of pledging such Equity Interests shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (b) solely in the case of any pledge of Equity Interests of any Foreign Subsidiary or any Excluded Disregarded Entity to secure the U.S. Obligations, any Equity Interests that are voting Equity Interests of such Foreign Subsidiary or Excluded Disregarded Entity in excess of 65% of the outstanding voting Equity Interests of such class, (c) any Equity Interests to the extent the pledge thereof would be prohibited by any Requirement of Law, (d) the Equity Interests of any Subsidiary that is not wholly owned by the Company and its Subsidiaries at the time such Subsidiary becomes a Subsidiary (for so long as such Subsidiary remains a non-wholly owned Subsidiary), (e) the Equity Interests of any Immaterial Subsidiary or Unrestricted Subsidiary, (f) the Equity Interests of any Subsidiary of a Foreign Subsidiary (other than, with respect to any pledge of the Equity Interests of any Canadian Subsidiary to secure only the Canadian Obligations, the Equity Interests of such Canadian Subsidiary) and (g) any Equity Interests of a joint venture to the extent that the joint venture agreement applicable thereto restricts the pledge of such Equity Interests.
“Excluded Subsidiary” shall mean (a) any Subsidiary that is not a wholly owned Subsidiary on any date such Subsidiary would otherwise be required to become a Loan Party pursuant to the requirements of Section 5.11 (for so long as such Subsidiary remains a non-wholly owned Subsidiary), (b) any Subsidiary that is prohibited by Requirements of Law, by any Contractual Obligation existing on the Effective Date or by any Contractual Obligation existing at the time such Subsidiary becomes a Subsidiary of the Company, in each case from guaranteeing the Obligations (and for so long as such restrictions or any replacement or renewal thereof is in effect), (c) solely in the case of a guarantee of the U.S. Obligations, any Domestic Subsidiary that is (i) treated as a disregarded entity for U.S. federal income tax purposes and substantially all of its assets consist of the stock of one or more Foreign Subsidiaries that are controlled foreign corporations within the meaning of Section 957 of the Code (any such excluded Domestic Subsidiary, an “Excluded Disregarded Entity”) or (ii) a direct or indirect Subsidiary of a Foreign Subsidiary that is a controlled foreign corporation within the meaning of Section 957 of the Code, (d) any Immaterial Subsidiary and any Unrestricted Subsidiary, (e) any other Subsidiary with respect to which the Company and the Agent have reasonably determined that the cost or other consequences (including any material adverse tax consequences) of providing a guarantee shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (f) each Foreign Subsidiary (other than with respect to a guarantee by a Canadian Subsidiary of the Canadian Obligations of a Canadian Subsidiary), (g) each other Domestic Subsidiary acquired pursuant to a Permitted Acquisition and financed with Indebtedness incurred pursuant to Section 6.01(j) or (k) and permitted by the proviso to subclause (z) of such Sections and each Subsidiary that guarantees such Indebtedness to the extent that, and for so long as, the financing documentation relating to such Permitted Acquisition to which such Subsidiary is a party prohibits such Subsidiary from guaranteeing the Obligations and (h) Tire Pros Francorp.
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“Excluded Taxes” means, with respect to the Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Company or any other Loan Party hereunder, (a) Taxes imposed on or measured by net income (however denominated) franchise taxes and branch profits taxes, in each case (i) imposed by the United States of America or Canada, or any political subdivision thereof, or by the jurisdiction or any political subdivision thereof 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 (ii) that are Other Connection Taxes, (b) other than in the case of an assignee pursuant to a request by the Borrower Agent under Section 2.19(b), any U.S. federal withholding tax that is imposed on amounts payable to a Lender at the time such Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Lender’s failure to comply with Section 2.17(e) or (f), as applicable, except to the extent that such 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 Company or any other Loan Party with respect to such withholding tax pursuant to Section 2.17(a), and (c) any withholding tax that is imposed under FATCA.
“Existing Class” means each Class of Existing Revolving Commitments.
“Existing Credit Agreement” has the meaning assigned to such term in the recitals to this Agreement.
“Existing Letter of Credit” means any letter of credit previously issued for the account of the Company or any other Loan Party by a Lender or an Affiliate of a Lender that is (a) outstanding on the Effective Date and (b) listed on Schedule 1.01(a).
“Existing Revolving Commitments” has the meaning assigned to such term in Section 2.27(a).
“Existing Revolving Loans” has the meaning assigned to such term in Section 2.27(a).
“Existing Subordination Agreements” means the B/F Subordination Agreement, the Pirelli Subordination Agreement and the Cooper Subordination Agreement.
“Existing Subordinated Vendors” means Bridgestone/Firestone, Cooper Tire & Rubber Company and Pirelli Tire LLC.
“Extended Canadian Loans/Commitments” means Extended Canadian Revolving Loans and/or Extended Canadian Revolving Commitments.
“Extended Canadian Revolving Commitments” has the meaning assigned to such term in Section 2.27(a).
“Extended Canadian Revolving Loans” has the meaning assigned to such term in Section 2.27(a).
“Extended Loans/Commitments” means Extended Revolving Loans and/or Extended Revolving Commitments.
“Extended Revolving Commitments” has the meaning assigned to such term in Section 2.27(a).
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“Extended Revolving Loans” has the meaning assigned to such term in Section 2.27(a).
“Extended U.S. Loans/Commitments” means Extended U.S. Revolving Loans and/or Extended U.S. Revolving Commitments.
“Extended U.S. Revolving Commitments” has the meaning assigned to such term in Section 2.27(a).
“Extended U.S. Revolving Loans” has the meaning assigned to such term in Section 2.27(a).
“Extending Lender” has the meaning assigned to such term in Section 2.27(b).
“Extension Agreement” has the meaning assigned to such term in Section 2.27(c).
“Extension Election” has the meaning assigned to such term in Section 2.27(b).
“Extension Request” shall mean Revolving Extension Requests.
“Extension Series” shall mean all Extended Revolving Commitments that are established pursuant to the same Extension Agreement (or any subsequent Extension Agreement to the extent such Extension Agreement expressly provides that Extended Revolving Commitments provided for therein are intended to be a part of any previously established Extension Series) and that provide for the same interest margins and extension fees.
“FATCA” means Sections 1471 through 1474 of the Code, as of the Effective Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“Federal Funds Effective Rate” means, (a) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the applicable Business Day (or on the preceding Business Day, if the applicable day is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such rate is published on the next Business Day, the average rate (rounded up, if necessary, to the nearest 1/8 of 1%) charged to the Agent on the applicable day on such transactions, as determined by the Agent.
“Fee Letter” means the amended and restated fee letter, dated as of November 16, 2012, between the Agent, the Company and certain other parties.
“Financial Officer” means the chief financial officer, treasurer or controller of the Company.
“First Priority Lien” means any Lien on any asset of any U.S. Loan Party that is granted under the Senior Secured Notes Security Documents and that, pursuant and subject to the provisions of the Intercreditor Agreement, is senior in priority to the Liens of the Agent on the U.S. Collateral.
“Fixed Charges” means, with reference to any period, without duplication, the sum of (a) Interest Expense actually paid in cash for such period, plus (b) the aggregate amount of scheduled principal payments in respect of long-term Consolidated Total Indebtedness of the Company and the
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Subsidiaries made during such period (other than payments made by the Company or any Subsidiary to the Company or a Subsidiary) plus (c) any payments on account of Disqualified Equity Interests or preferred Equity Interests (whether in the nature of dividends, redemption, repurchase or otherwise) required to be made in such period, all calculated for such period for the Company and its Subsidiaries on a consolidated basis.
“Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of:
(i)(A) EBITDA of the Company and its Subsidiaries for the most recent Test Period ended on or prior to such date of determination plus (B) only for purposes of the calculation of the Fixed Charge Coverage Ratio under, and as provided in, Section 7.02, Permitted Cure Securities minus (C) taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes (including in respect of repatriated funds), net of cash refunds received, of the Company and its Subsidiaries paid in cash during such Test Period minus (D) Unfinanced Capital Expenditures made by the Company and its Subsidiaries during such Test Period, to
(ii) Fixed Charges payable by the Company and its Subsidiaries in cash during such Test Period;
In calculating the Fixed Charge Coverage Ratio in connection with the making of any Specified Payment (other than with regard to investments in Domestic Subsidiaries (whether Restricted or Unrestricted), U.S. domestic-organized joint ventures and other U.S. domestic investments, in each case under Section 6.04(w)) at any time when Excess Availability on a Pro Forma Basis is less than 35% of the lesser of (A) the aggregate Revolving Commitments and (B) the Aggregate Borrowing Base, the amount of Fixed Charges included in clause (ii) above shall include, without duplication of any payments already constituting Fixed Charges, the amount of such Specified Payment actually made on such date of determination.
For purposes of calculating the Fixed Charge Coverage Ratio for any period ending prior to the first anniversary of the Effective Date, Interest Expense shall be an amount equal to actual Interest Expense from the Effective Date through the date of determination multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the Effective Date through the date of determination.
“Floating Rate Loan” means an ABR Loan, a Canadian Prime Rate Loan or a Canadian Base Rate Loan.
“Foreign Lender” means (a) in respect of a U.S. Borrower, a Lender that is not a “United States person” within the meaning of Section 7701(a)(30) of the Code, and (b) in respect of a Canadian Borrower, a Lender that is a “non-resident person” for purposes of the ITA.
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
“Foreign Subsidiary Borrowing Base” means, as of any date, an amount equal to the sum of (a) 85% of the aggregate book value of all accounts receivable of the applicable Foreign Subsidiary or Subsidiaries (other than the Canadian Loan Parties) and (b) 70% of the aggregate book value of all inventory owned by the applicable Foreign Subsidiary or Subsidiaries (other than the Canadian Loan Parties).
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“Foreign Subsidiary Total Assets” means the total assets of the Foreign Subsidiary or Subsidiaries that are not Loan Parties, as determined in accordance with GAAP in good faith by the Company, without intercompany eliminations between such Foreign Subsidiaries and the Company and its other Subsidiaries.
“Funding Account” has the meaning assigned to such term in Section 4.01(g).
“GAAP” means generally accepted accounting principles in the United States of America in effect and applicable to that accounting period in respect of which reference to GAAP is being made, subject to the provisions of Section 1.04.
“Governmental Authority” means the government of the United States of America, Canada, any other nation or any political subdivision thereof, whether state, provincial, territorial, municipal or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“Guarantee” of or by any Person (the “Guarantor”) means any obligation, contingent or otherwise, of the Guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the “Primary Obligor”) in any manner, whether directly or indirectly, and including any obligation of the Guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Effective Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.
“Hazardous Materials” means 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, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Holdings” has the meaning assigned to such term in the preamble to this Agreement.
“Immaterial Subsidiary” means, at any date of determination, any Subsidiary designated as such in writing by the Company to the Agent and that (a) contributed 5.0% or less of EBITDA for the Test Period most recently ended prior to such date of determination and (b) had consolidated assets representing 5.0% or less of the Total Assets of the Company and the Subsidiaries on the last day of the Test Period most recently ended prior to such date of determination. The Immaterial Subsidiaries as of the Effective Date are listed on Schedule 1.01(b).
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“Immediate Family Members” means with respect to any individual, such individual’s child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, qualified domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships) and any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
“Indebtedness” of any Person means (in each case, whether such obligation is with full or limited recourse), without duplication, (a) any obligation of such Person for borrowed money, (b) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (c) any obligation of such Person to pay the deferred purchase price of property or services, except (i) accrued expenses and trade accounts payable that arise in the ordinary course of business and (ii) any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP, (d) all Capital Lease Obligations of such Person, (e) all obligations of such Person in respect of Disqualified Equity Interests, (f) any obligation of such Person (whether or not contingent) to any other Person in respect of a letter of credit or other Guarantee issued by such other Person, (g) any Swap Obligation, except that if any Swap Agreement relating to such Swap Obligation provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount thereof, (h) any Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on any asset of such Person (provided that the amount of such Indebtedness shall be the lesser of the fair market value of such asset at the date of determination determined by such Person in good faith and the amount of such Indebtedness of others so secured) and (i) any Indebtedness of others Guaranteed by such Person. For all purposes hereof, the Indebtedness of any Person shall exclude purchase price holdbacks arising in the ordinary course of business in respect of a portion of the purchase price of an asset to satisfy warranties or other unperformed obligations of the seller of such asset (other than earn-out obligations).
“Indemnified Taxes” means Taxes other than Excluded Taxes.
“Information” has the meaning assigned to such term in Section 3.11(a).
“Initial Canadian Borrower” has the meaning assigned to such term in the preamble to this Agreement.
“Insolvent” with respect to any Multiemployer Plan, means the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.
“Instrument” shall have the meaning assigned to such term in Article 9 of the UCC or the PPSA, as applicable.
“Intercompany Note” means the Intercompany Subordinated Note, dated as of May 28, 2010, substantially in the form of Exhibit J hereto executed by Holdings, the Company and each other Subsidiary of Borrowers.
“Intercreditor Agreement” means the Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010, among Holdings, the Company, the Subsidiaries party from time to time thereto, the Agent and the Noteholder Collateral Agent.
“Interest Election Request” means a request by the Borrower Agent to convert or continue a Borrowing in accordance with Section 2.08.
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“Interest Expense” means, with respect to any period, without duplication, the sum of:
(1) consolidated interest expense of the Company and its Restricted Subsidiaries for such period with respect to all outstanding Indebtedness of the Company and its Subsidiaries, to the extent such expense was deducted (and not added back) in computing Net Income (including (a) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers’ acceptances during such period, (b) non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Swap Agreements or other Derivative Transactions pursuant to GAAP or Statement of Financial Accounting Standards No. 133), (c) the interest component of Capital Lease Obligations and (d) net payments, if any, made (less net payments, if any, received) pursuant to obligations under interest rate Swap Agreements with respect to Indebtedness, and excluding (i) accretion or accrual of discounted liabilities not constituting Indebtedness, (ii) any expense resulting from the discounting of any Indebtedness in connection with the application of recapitalization accounting or, if applicable, purchase accounting, (iii) all additional interest or liquidated damages then owing pursuant to any registration rights agreement and any comparable “additional interest” or liquidated damages with respect to other securities designed to compensate the holders thereof for a failure to publicly register such securities, (iv) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses and amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (v) any expensing of commitment and other financing fees, (vi) any interest in respect of items excluded from Indebtedness in the proviso to the definition thereof, (vii) any one-time costs associated with breakage in respect of Swap Agreements for interest rates and (viii) penalties and interest relating to taxes); plus
(2) consolidated capitalized interest of the Company and its Subsidiaries for such period, whether paid or accrued; less
(3) interest income for such period.
For purposes of this definition, (x) interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP and (y) the Interest Expense of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries shall be excluded.
“Interest Payment Date” means (a) with respect to any ABR Loan (other than a U.S. Swingline Loan), the first calendar day of each January, April, July and October and the Maturity Date, (b) with respect to any Canadian Prime Rate Loan or any Canadian Base Rate Loan (other than a Canadian Swingline Loan), the first Business Day of each January, April, July and October and the Maturity Date, (c) with respect to any Interest Period Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of an Interest Period 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 (or, with respect to any Canadian BA Rate Loan, if such day is not a Business Day, the next succeeding Business Day), (d) with respect to any U.S. Swingline Loan, the first calendar day of each January, April, July and October and the Maturity Date, and (e) with respect to any Canadian Swingline Loan, the first Business Day of each January, April, July and October and the Maturity Date.
“Interest Period” means (a) with respect to any Interest Period Loan, 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 (or, to the extent available to and agreed to by each
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Lender, nine or twelve months) thereafter, as the Borrower Agent may elect; provided that (i) 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 and (ii) 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. 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 Period Loan” means a LIBOR Rate Loan or a Canadian BA Rate Loan.
“Inventory” means “Inventory,” as defined in the U.S. Security Agreement (or, with respect to any inventory of a Canadian Loan Party, “Inventory” as defined in the PPSA).
“Investment Grade Securities” means (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Permitted Investments), (b) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 by Moody’s or the equivalent of such rating by such rating organization, or if no rating of S&P’s or Moody’s then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Borrowers and their Subsidiaries and (c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment and/or distribution.
“IRS” has the meaning assigned to such term in Section 2.17(e).
“Issuing Bank” means each of Bank of America, N.A. and any other Revolving Lender which at the request of the Borrower Agent and after notice to the Agent agrees to become an Issuing Bank and, solely with respect to any Existing Letter of Credit (and any amendment, renewal or extension thereof in accordance with this Agreement), the Lender or Affiliate of a Lender that issued such Existing Letter of Credit. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate or branch with respect to Letters of Credit issued by such Affiliate or branch.
“ITA” means the Income Tax Act (Canada) and the regulations promulgated thereunder.
“Joinder Agreement” has the meaning assigned to such term in Section 5.11.
“Joint Lead Arrangers” means Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Capital Finance, LLC, and SunTrust Robinson Humphrey, Inc.
“LC Collateral Account” has the meaning assigned to such term in Section 2.06(j).
“LC Disbursement” means a U.S. LC Disbursement or a Canadian LC Disbursement.
“LC Exposure” means the sum of the U.S. LC Exposure and the Dollar Equivalent Amount of Canadian LC Exposure.
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“Lease Expense” means, for any period, all rental expenses of the Company and its Subsidiaries during such period under operating leases for real or personal property (including in connection with Sale and Lease-Back Transactions), but excluding real estate taxes, insurance costs and common area maintenance charges and net of sublease income; provided that Lease Expense shall not include (a) obligations under vehicle leases entered into in the ordinary course of business, (b) all such rental expenses associated with assets acquired pursuant to the Transactions and pursuant to an acquisition (including a Permitted Acquisition) to the extent that such rental expenses relate to operating leases (i) in effect at the time of (and immediately prior to) such acquisition and (ii) related to periods prior to such acquisition, (c) Capital Lease Obligations, all as determined on a consolidated basis in accordance with GAAP and (d) the effects from applying purchase accounting.
“Lenders” means the Persons listed on the Commitment Schedule and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
“Letter of Credit” means any standby or commercial letter of credit issued (or, in the case of an Existing Letter of Credit, deemed to be issued) pursuant to this Agreement.
“Letter of Credit Request” has the meaning assigned to such term in Section 2.06(b).
“LIBOR Rate” means, with respect to any Interest Period, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%), determined by the Agent at approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source designated by the Agent); or (b) if BBA LIBOR is not available for any reason, the interest rate at which Dollar deposits in the approximate amount of the LIBOR Rate Loan would be offered by the Agent’s London branch to major banks in the London interbank Eurodollar market.
“LIBOR Rate Loan” means a Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Adjusted LIBOR Rate.
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, deemed, statutory or constructive trust, assignment by way of security, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, trust receipt, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities; provided that in no event shall an operating lease be deemed to be a Lien.
“Liquidity Event” means the determination by the Agent that (a) Excess Availability is less than the greater of (1) 10.0% of the lesser of (A) the aggregate Revolving Commitments and (B) the Aggregate Borrowing Base and (2) $30,000,000, in either case for a period of five consecutive Business Days, or (b) an Event of Default has occurred; provided that the Agent has notified the Borrower Agent of either thereof. The occurrence of a Liquidity Event shall be deemed continuing (i) until such date as such Event of Default shall no longer be continuing and (ii) until such date as Excess Availability exceeds such amount for thirty (30) consecutive days, in which event a Liquidity Event shall no longer be deemed to be continuing.
“Loan Account” has the meaning assigned to such term in Section 2.26.
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“Loan Documents” means this Agreement, any promissory notes issued pursuant to the Agreement, the Fee Letter, any Letters of Credit or Letter of Credit applications, the Collateral Documents, the Perfection Certificates, and the Intercreditor Agreement.
“Loan Guarantor” means each Canadian Obligations Guarantor and each U.S. Guarantor.
“Loan Guaranty” means Article X of this Agreement.
“Loan Parties” means the U.S. Loan Parties and the Canadian Loan Parties.
“Loans” means the loans and advances made by the Lenders pursuant to this Agreement, including Revolving Loans, Swingline Loans, Protective Advances and Extended Revolving Loans.
“Management Services Agreements” means, collectively, (a) the transaction and monitoring fee letter agreement among the Company and the Sponsor dated as of May 28, 2010, pursuant to which the Sponsor agrees to provide certain advisory services to TopCo, Holdings and the Company in exchange for certain fees and (b) the indemnification agreement among TopCo, Holdings, the Company and the Sponsor dated as of May 28, 2010.
“Management Stockholders” means the management officers or employees of the Company or its Subsidiaries who are investors in Holdings, TopCo or any direct or indirect parent thereof.
“Margin Stock” has the meaning assigned to such term in Regulation U.
“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations or financial condition of the Company and the Subsidiaries, taken as a whole, (b) the ability of the Company and the other Loan Parties (taken as a whole) to perform their obligations under the Loan Documents or (c) the rights of, or remedies available to the Agent, the Issuing Banks or the Lenders under, the Loan Documents.
“Material Indebtedness” means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of Holdings, the Company and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of determining Material Indebtedness, the “obligations” of Holdings, the Company or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that Holdings, the Company or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
“Material Subsidiary” means each Subsidiary (including the Initial Canadian Borrower and subsequently the Amalgamated Company), other than an Immaterial Subsidiary.
“Maturity Date” means (a) in the case of the Revolving Commitments, November 16, 2017, or any earlier date on which the Revolving Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof; provided that if, on March 1, 2017, either (i) more than $50,000,000 in aggregate principal amount of Senior Secured Notes remain outstanding the scheduled final maturity date of which is earlier than 91 days after November 16, 2017 or (ii) if any principal amount of Senior Secured Notes remains outstanding the scheduled maturity date of which is earlier than 91 days after November 16, 2017 and Excess Availability, calculated on a Pro Forma Basis, is less than 12.5% of the aggregate of the Revolving Commitments, then the Maturity Date for the Revolving Commitments shall be March 1, 2017, and (b) in the case of any Extension Series of Extended Revolving Commitments, the maturity date related thereto.
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“Maximum Liability” has the meaning assigned to such term in Section 10.08.
“Moody’s” means Moody’s Investors Service, Inc. and any successor to its rating agency business.
“Mortgaged Properties” means, initially, the owned real properties of the Loan Parties specified on Schedule 1.01(c), and shall include each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.11.
“Mortgages” means any mortgage, deed of trust, deed of immovable hypothec or other agreement entered into by the owner of a Mortgaged Property and the Agent, which conveys or evidences a Lien in favor of the Agent, for the benefit of the Secured Parties, on such Mortgaged Property, substantially in the form of Exhibit I with respect to real property located in the United States (with such changes thereto as may be necessary to account for local law matters) or otherwise in such form as agreed between the Company and the Agent, to secure the U.S. Obligations or the Canadian Obligations; provided that to the extent any real property located in Canada is required to become Mortgaged Property hereunder, such property will be pursuant to a Mortgage to be agreed reasonably satisfactory to the Agent and Company.
“Multiemployer Plan” means a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA in respect of which a Borrower or any ERISA Affiliate is an “employer” (as defined in Section 3(5) of ERISA).
“Net Cash Proceeds” means, with respect to any sale, transfer or other disposition of assets, any Recovery Event, any incurrence or issuance of Indebtedness or any issuance of Equity Interests (each, a “Proceeds Event”), (a) the gross cash proceeds (including payments from time to time in respect of installment obligations, if applicable) received by or on behalf of Holdings, the Company or any of the Subsidiaries in respect of such Proceeds Event, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by Holdings, the Company or any of the Subsidiaries in connection with such Proceeds Event (including withholding taxes imposed on the repatriation of any such proceeds),
(ii) the amount of any reasonable reserve established in accordance with GAAP against any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated with the assets that are the subject of such Proceeds Event and (y) retained by Holdings, the Company or any of the Subsidiaries including any pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction; provided that the amount of any subsequent reduction of such reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be Net Cash Proceeds of such Proceeds Event occurring on the date of such reduction,
(iii) in the case of any Proceeds Event constituting a sale, transfer or disposition of assets or a Recovery Event by any non-wholly owned Subsidiary, the pro rata portion of the net cash proceeds thereof (calculated without regard to this clause (iii)) attributable to minority interests and not available for distribution to or for the account of the Company or a wholly-owned Subsidiary as a result thereof, and
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(iv) reasonable and customary fees, commissions, expenses (including attorney’s fees, investment banking fees, survey costs, title insurance premiums and recording charges, transfer taxes, deed or mortgage recording taxes and other customary expenses and brokerage, consultant and other customary fees), issuance costs, discounts and other costs paid by Holdings, the Company or any of the Subsidiaries, as applicable, in connection with such Proceeds Event (other than those payable to Holdings, the Company or any Subsidiary), in each case only to the extent not already deducted in arriving at the amount referred to in clause (a) above.
“Net Income” means, for any period, the consolidated net income (or loss) of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided, however, that, without duplication,
(a) the cumulative effect of a change in accounting principles (effected either through cumulative effect adjustment or a retroactive application, in each case, in accordance with GAAP) and changes as a result of the adoption or modification of accounting policies during such period shall be excluded;
(b) any net after-tax effect of gains or losses attributable to asset dispositions or abandonments (including any disposal of abandoned or discontinued operations) or the sale or other disposition of any Equity Interests of any Person other than in the ordinary course of business as determined in good faith by the Company shall be excluded;
(c) the Net Income for such period of any Person that is not a Subsidiary or is an Unrestricted Subsidiary or that is accounted for by the equity method of accounting, shall be excluded; provided that Net Income of the Company shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash or Permitted Investments (or to the extent converted into cash or Permitted Investments) to the Company or a Subsidiary thereof in respect of such period and the net losses of any such Person shall only be included to the extent funded with cash from the Company or any Subsidiary;
(d) effects of adjustments (including the effects of such adjustments pushed down to the Company and its Subsidiaries) in the inventory, property and equipment, software, goodwill, other intangible assets, in-process research and development, deferred revenue, debt line items and other noncash charges in the Company’s consolidated financial statements pursuant to GAAP resulting from the application of recapitalization accounting or, if applicable, purchase accounting in relation to the Transactions or any consummated acquisition or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded,
(e) any after-tax effect of income (loss) from the early extinguishment of Indebtedness or Swap Obligations or other Derivative Transactions shall be excluded;
(f) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities or as a result of a change in law or regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded;
(g) any non-cash compensation charge or expense, including any such charge or expense arising from the grants of stock appreciation or similar rights, stock options, restricted stock or other rights or equity incentive programs shall be excluded, and any cash charges associated with the rollover, acceleration, or payout of Equity Interests by management of the Company or any of its direct or indirect parent companies in connection with the Transactions, shall be excluded;
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(h) any fees, expenses or charges incurred during such period, or any amortization thereof for such period, in connection with any acquisition, sale or disposition, recapitalization, investment, issuance, incurrence or repayment of Indebtedness, issuance of Equity Interests, refinancing transaction or amendment or modification of any debt instrument (in each case, including any such transaction consummated prior to the Effective Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case, whether or not successful, shall be excluded;
(i) accruals and reserves that are established or adjusted within twelve months after the Effective Date that are so required to be established or adjusted as a result of the Transactions (or within twelve months after the closing of any acquisition that are so required to be established as a result of such acquisition) in accordance with GAAP shall be excluded;
(j) any expenses, charges or losses that are covered by indemnification or other reimbursement provisions in connection with any investment, acquisition or any sale, conveyance, transfer or other disposition of assets permitted under this Agreement, to the extent actually reimbursed, or, so long as the Company has made a determination that a reasonable basis exists for indemnification or reimbursement and only to the extent that such amount is (i) not denied by the applicable carrier (without any right of appeal thereof) within 180 days and (ii) in fact indemnified or reimbursed within 365 days of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so indemnified or reimbursed within such 365 days), shall be excluded;
(k) to the extent covered by insurance and actually reimbursed, or, so long as the Company has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 365 days of the date of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so reimbursed within such 365 day period), expenses, charges or losses with respect to liability or casualty events or business interruption shall be excluded;
(l) any net unrealized gain or loss (after any offset) resulting in such period from Swap Obligations or other Derivative Transactions and the application of Accounting Standards Codification 815 shall be excluded;
(m) any net unrealized gain or loss (after any offset) resulting in such period from currency translation and transaction gains or losses including those related to currency remeasurements of Indebtedness (including any net loss or gain resulting from Swap Obligations for currency exchange risk) and any other monetary assets and liabilities shall be excluded; and
(n) effects of adjustments to accruals and reserves during a prior period relating to any change in the methodology of calculating reserves for returns, rebates and other chargebacks (including government program rebates) shall be excluded.
In addition, to the extent not already included in the Net Income of the Company and its Subsidiaries, notwithstanding anything to the contrary in the foregoing, Net Income shall include the amount of proceeds received from business interruption insurance and reimbursements of any expenses and charges that are covered by indemnification or other reimbursement provisions in connection with any investment or any sale, conveyance, transfer or other disposition of assets permitted under this Agreement.
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“Net Orderly Liquidation Value” means, with respect to Inventory of any Person, the orderly liquidation value thereof, net of all costs of liquidation thereof, as based upon the most recent Inventory appraisal conducted in accordance with this Agreement and expressed as a percentage of Cost of such Inventory.
“Non-Cash Charges” mean (a) any impairment charge or asset write-off or write-down of intangible assets (including goodwill), long-lived assets, and investments in debt and equity securities pursuant to GAAP, (b) all losses from investments recorded using the equity method, (c) all Non-Cash Compensation Expenses, (d) the non-cash impact of purchase accounting, (e) the non-cash impact of accounting changes or restatements and (f) other non-cash charges (provided that, in each case, that if any non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period).
“Non-Cash Compensation Expense” means any non-cash expenses and costs that result from the issuance of stock-based awards, partnership interest-based awards and similar incentive-based compensation awards or arrangements.
“Non-Consenting Lender” has the meaning assigned to such term in Section 9.02(e).
“Non-Ordinary Course Asset Disposition” mean any sale, transfer or other disposition by one or more Loan Parties of Borrowing Base Assets with a Value in an aggregate amount in excess of the Dollar Equivalent Amount of $10,000,000.
“Noteholder Collateral Agent” has the meaning assigned to such term in the Intercreditor Agreement.
“Noteholder First Lien Collateral” has the meaning assigned to such term in the Intercreditor Agreement.
“Obligated Party” has the meaning assigned to such term in Section 10.02.
“Obligations” mean, collectively, the U.S. Obligations and the Canadian Obligations.
“Other Connection Taxes” means, with respect to the Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Company or any other Loan Party hereunder, Taxes that are imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient 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).
“Other Information” has the meaning assigned to such term in Section 3.11(b).
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“Other Taxes” means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).
“Overadvance” means (a) with respect to the U.S. Borrowing Base, a U.S. Overadvance and (b) with respect to the Canadian Borrowing Base, a Canadian Overadvance.
“Overadvance Condition” means (a) with respect to the U.S. Borrowing Base, a U.S. Overadvance Condition and (b) with respect to the Canadian Borrowing Base, a Canadian Overadvance Condition.
“Overadvance Loan” means (a) with respect to the U.S. Borrowers, a U.S. Overadvance Loan, and (b) with respect to a Canadian Borrower, a Canadian Overadvance Loan.
“Participant” has the meaning assigned to such term in Section 9.04(c).
“Participant Register” has the meaning assigned to such term in Section 9.04(c).
“PATRIOT ACT” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, 115 Stat. 272 (2001).
“Payment Conditions” means, at any time of determination with respect to any Specified Payment, as of the date of such Specified Payment and after giving effect thereto, that (a) no Event of Default exists or has occurred and is continuing, (b) if the amount of any such Specified Payment exceeds $5,000,000, Excess Availability shall be not less than 12.5% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base immediately after giving effect to the making of such Specified Payment and, with respect to Specified Payments under Sections 6.08(a)(x) and 6.08(b)(vi), Excess Availability (after giving Pro Forma Effect to such Specified Payment as of such date and during the thirty (30) consecutive day period immediately preceding the making of such Specified Payment) shall not have been less than 12.5% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base, and (c) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to the making of such Specified Payment (after giving Pro Forma Effect to such Specified Payment as if such Specified Payment had been made as of the first day of such Test Period) shall be equal to or greater than 1.00 to 1.00, provided that, satisfaction of this clause (c) shall not be required with respect to any Specified Payment when Excess Availability (after giving Pro Forma Effect to such Specified Payment as of such date and during the thirty (30) consecutive day period immediately preceding the making of such Specified Payment) shall not have been less than 20.0% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base.
“PBA” means the Pension Benefits Act (Ontario) or similar legislation of any other Canadian federal or provincial jurisdiction, and the regulations promulgated thereunder applicable to a Canadian Pension Plan.
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
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“Pension Event” means solely with respect to Canadian Pension Plans (a) the whole or partial withdrawal of a Canadian Loan Party or any of its Subsidiaries from a Canadian Pension Plan during a plan year; or (b) the filing of a notice of proposal to terminate in whole or in part a Canadian Pension Plan or the treatment of a Canadian Pension Plan amendment as a termination or partial termination; or (c) the issuance of a notice of proposal by any Governmental Authority to terminate in whole or in part or have an administrator or like body appointed to administer a Canadian Pension Plan; or (d) any other event or condition which might constitute grounds for the termination of, winding up or partial termination or winding up or the appointment of a trustee to administer, any Canadian Pension Plan, to the extent any relevant Government Authority has so notified a Canadian Loan Party, unless such grounds are being duly contested by a Canadian Loan Party in good faith.
“Perfection Certificate” means, with respect to the U.S. Loan Parties, a certificate in the form of Exhibit H to the Security Agreement or any other form approved by the Agent and, with respect to the Canadian Loan Parties, a form approved by the Agent.
“Permitted Acquisition” means the acquisition, by merger, amalgamation, or otherwise, by the Company or any Subsidiary of assets or businesses of a Person (including assets constituting a business unit, line of business or division of such Person) or of the Equity Interests of a Person; provided that as of the date of such acquisition and after giving effect thereto, (i) no Event of Default shall exist or have occurred and be continuing or would result therefrom after giving Pro Forma Effect thereto; (ii) the acquired assets, division or Person are in the same or generally related line of business as that conducted by the Company and the Subsidiaries during the then current and most recent fiscal year or businesses reasonably related or ancillary thereto; (iii) in the event that the purchase price of the proposed acquisition is greater than $15,000,000, after giving effect to such Permitted Acquisition, Excess Availability shall not be less than 10.0% of the lesser of (x) the Revolving Commitments and (y) the Aggregate Borrowing Base as calculated after giving Pro Forma Effect to such Permitted Acquisition; provided, however, that in no event shall the number of acquisitions involving a purchase price of $15,000,000 or less exceed (two) 2 per fiscal year unless the Excess Availability threshold of this clause (iii) is also met; (iv) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to such Permitted Acquisition (after giving Pro Forma Effect to such Permitted Acquisition as if such Permitted Acquisition had been consummated as of the first day of such Test Period) shall be equal to or greater than 1.0 to 1.0, provided that, satisfaction of this clause (iv) shall not be required with respect to any Permitted Acquisition if Excess Availability (after giving Pro Forma Effect to such Permitted Acquisition as of such date) is not less than 17.5% of the lesser of (i) the Revolving Commitments and (ii) the Borrowing Base; and (v) the Company and the Subsidiaries shall comply, and (if applicable) shall cause the acquired Person to comply, with the applicable provisions of Section 5.11 and the Collateral Documents.
“Permitted Cure Security” means any Qualified Equity Interest of Holdings.
“Permitted Discretion” means the Agent’s commercially reasonable credit judgment in establishing Reserves and exercised in good faith in accordance with customary business practices for similar asset-based lending facilities, based upon its consideration of any factor that it reasonably believes (i) could materially adversely affect the quantity, quality, mix or value of Collateral (including any applicable laws that may inhibit collection of a Receivable), the enforceability or priority of the Agent’s Liens thereon, or the amount that the Agent, the Lenders or the Issuing Banks could receive in liquidation of any Collateral; (ii) that any collateral report or financial information delivered by any Loan Party is incomplete, inaccurate or misleading in any material respect; (iii) materially increases the likelihood of any Bankruptcy Proceeding involving a Loan Party; or (iv) creates or could result in an Event of Default. In exercising such judgment, the Agent may consider any factors that could materially increase the credit risk of lending to the Borrowers on the security of the Collateral.
“Permitted Encumbrances” means:
(a) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than thirty (30) days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
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(b) Liens imposed by law, such as carriers’, warehousemen’s, materialmen’s, repairmen’s and mechanics’ Liens, in each case for sums not yet overdue for a period of more than thirty (30) days or being contested in good faith by appropriate actions if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(c) Liens securing judgments for the payment of money not constituting an Event of Default under Section 7.01(j) so long as such Liens are adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired or with respect to which execution has been stayed; and
(d) Subordinated Vendor Liens;
provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.
“Permitted Holders” means the Sponsors and Management Stockholders.
“Permitted Inventory Locations” means, with respect to any Loan Party, each location listed on Schedule 1.01(d) for such Loan Party and from time to time (a) with respect to any U.S. Loan Party, each other location within the United States which the Company has notified the Agent is a location at which Inventory of a U.S. Loan Party is maintained and (b) with respect to the Canadian Loan Parties, each other location within a Canadian province or territory of which the Company has notified the Agent is a location at which Inventory of a Canadian Loan Party subject to Agent’s first priority perfected Lien (other than Permitted Encumbrances) is maintained.
“Permitted Investments” means (a) marketable securities issued or directly and unconditionally guaranteed as to interest and principal by the United States government, the Canadian government or any agency of the United States government or the Canadian government, in each case having maturities of not more than 12 months from the date of acquisition thereof; (b) securities issued by (i) any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof or any political subdivision of any such state or any public instrumentality thereof; or (ii) any province of Canada or any political subdivision of any such province or any public instrumentality thereof or any political subdivision of any such province or any public instrumentality thereof, in each case having maturities of not more than 12 months from the date of acquisition thereof and, at the time of acquisition, having an investment grade rating generally available from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, then from another nationally recognized rating service); (c) commercial paper issued by any Revolving Lender or any bank holding company owning any Revolving Lender who is not a Defaulting Lender at the time of acquisition thereof; (d) commercial paper maturing no more than 12 months after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally recognized rating service); (e) domestic, Canadian and Eurodollar certificates of deposit or bankers’ acceptances issued or accepted by any Revolving Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or the laws of Canada that is at least (i) “adequately capitalized” (as defined in the regulations of its primary banking regulator) and (ii) has Tier 1 capital (as defined in such regulations) of not less than $250,000,000, in each case maturing within 12 months after issuance or acceptance thereof; (f) repurchase agreements with a
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term of not more than 30 days for underlying securities of the type described in clauses (a), (b) and (e) above entered into with any bank meeting the qualifications specified in clause (e) above or securities dealers of recognized national standing; (g) marketable short-term money market and similar securities having a rating of at least A-1 or P-1 from either S&P or Moody’s (or, if at any time neither S&P nor Moody’s shall be rating such obligations, an equivalent rating from another nationally recognized rating service); (h) shares of investment companies that are registered under the Investment Company Act of 1940 and invest solely in one or more of the types of securities described in clauses (a) through (g) above; and (i) in the case of investments by any Foreign Subsidiary or investments made in a country outside the United States of America, other customarily utilized high-quality investments in the country where such Foreign Subsidiary is located or in which such investment is made that would customarily constitute “cash equivalents”.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Pirelli Subordination Agreement” means that certain Lien Subordination Agreement dated January 13, 2003, between the Agent and Pirelli Tire LLC.
“Plan” means any employee pension benefit plan (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, and in respect of which a Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
“PPSA” means the Personal Property Security Act (Ontario) and the regulations promulgated thereunder, as amended from time to time, provided if validity, perfection and effect of perfection and non-perfection of the Agent’s security interest in or Lien on any Collateral of any Canadian Loan Party are governed by the personal property security laws of any jurisdiction other than Ontario, PPSA shall mean those personal property security laws (including the Civil Code of Quebec) in such other jurisdiction for the purposes of the provisions hereof relating to such validity, perfection, and effect of perfection and non-perfection and for the definitions related to such provisions, as from time to time in effect.
“Priority Payable Reserve” means reserves established in the Permitted Discretion of the Agent for amounts secured by any Liens, choate or inchoate, which rank or are capable of ranking in priority to the Agent’s Liens and/or for amounts which may represent costs relating to the enforcement of the Agent’s Liens including, without limitation, in the Permitted Discretion of the Agent, any such amounts due and not paid for wages or vacation pay (including such amounts protected by the Wage Earner Protection Program Act (Canada), amounts due and not paid under any legislation relating to workers’ compensation or to employment insurance, all amounts deducted or withheld and not paid and remitted when due under the ITA, sales tax, goods and services tax, value added tax, harmonized sales tax, excise tax, tax payable pursuant to Part IX of the Excise Tax Act (Canada) or similar provincial legislation, government royalties, amounts currently or past due and not paid for realty, municipal or similar taxes (to the extent impacting personal or movable property), all amounts currently or past due and not contributed, remitted or paid to any Plan or under any Canadian Pension Plan, the PBA or any similar legislation and, with respect to any Canadian Pension Plan that provides benefits on a defined benefit basis, any Unfunded Pension Liability).
“Proceeds of Crime Act” means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and the regulations promulgated thereunder.
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“Pro Forma Adjustment” means, with respect to the Acquired EBITDA of the applicable Pro Forma Entity or the EBITDA of the Company, in either case arising from any Specified Transaction, the pro forma increase or decrease in such Acquired EBITDA or such EBITDA, as the case may be, either (a) permitted to be reflected in pro forma financial information under Rule 11.02 of Regulation S-X under the Securities Act or (b) projected by the Company in good faith to result from actions taken, committed to be taken or planned to be taken pursuant to a factually supported plan entered into in connection with such Specified Transaction prior to the time in which such Acquired EBITDA or such EBITDA is required to be calculated; provided that such cost savings referred to in this clause (b) (x) are factually supportable and determined in good faith by the Company, as certified to the Agent on a Pro Forma Adjustment Certificate, (y) do not exceed the actual cost savings expected in good faith to be realized by the Company during the Test Period commencing with the date as of which EBITDA is being determined (as opposed to the annualized impact of such cost savings) and (2) the aggregate amount of Pro Forma Adjustments shall not exceed for any Test Period, when combined with the aggregate amount of restructuring charges, accruals or reserves incurred under clause (a)(vi) of the definition of EBITDA in such Test Period and the aggregate amount of cost savings added pursuant to clause (a)(xii) of the definition of EBITDA in such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to such clause (a)(vi), such clause (a)(xii) or such Pro Forma Adjustments).
“Pro Forma Adjustment Certificate” means any certificate of a Financial Officer delivered pursuant to Section 5.01(l) or setting forth the information described in clause (iv) to Section 5.01(d).
“Pro Forma Balance Sheet” has the meaning assigned to such term in Section 3.04(a).
“Pro Forma Balance Sheet Date” has the meaning assigned to such term in Section 3.04(a).
“Pro Forma Basis”, “Pro Forma Compliance” and “Pro Forma Effect” means, with respect to compliance with any test or covenant hereunder, that (A) to the extent applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions 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 test or 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 sale, transfer or other disposition of all or substantially all Equity Interests in any Subsidiary of the Company or any division, product line, or facility used for operations of the Company or any of its Subsidiaries, shall be excluded, and (ii) in the case of a Permitted Acquisition or investment described in the definition of the term “Specified Transaction”, shall be included, (b) any retirement or repayment of Indebtedness and (c) any Indebtedness incurred or assumed by the Company or any of the Restricted 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 that is or would be in effect with respect to such Indebtedness as at the relevant date of determination; provided that, without limiting the application of the Pro Forma Adjustment pursuant to (A) above (but without duplication thereof), the foregoing pro forma adjustments may be applied to any such test or covenant solely to the extent that such adjustments are consistent with the definition of EBITDA and give effect to events (including operating expense reductions) that are (i) (x) directly attributable to such transaction, (y) expected to have a continuing impact on the Company and the Restricted Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of the term “Pro Forma Adjustment”. For the avoidance of doubt, any pro forma basis, compliance or effect for acquisitions or dispositions will include the corresponding impact on interest, capital expenditures and, if any, other fixed charges.
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“Pro Forma Entity” means any Acquired Entity or Business or any Converted Restricted Subsidiary.
“Projections” means any projections and any forward-looking statements of the Company and the Subsidiaries furnished to the Lenders or the Agent by or on behalf of Holdings, the Company or any of the Subsidiaries prior to the Effective Date.
“Protective Advance” has the meaning assigned to such term in Section 2.04.
“Purchasing Debt Affiliate” means any Affiliate of the Company, including the Sponsor, other than Holdings, the Company, any other Loan Party and the Subsidiaries of any of the foregoing.
“Qualified Accounts” means any investment account of the Borrowers and the Guarantors maintained with the Agent and subject to the Agent’s first-priority Lien and a control agreement in favor of the Agent.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Qualified Public Offering” means the initial underwritten public offering of common Equity Interests of Holdings or any direct or indirect parent of Holdings or the Company pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (other than a registration statement on Form S-8 or any successor form).
“Real Property Collateral Requirements” means, with respect to any Mortgaged Property, each of the following, in form and substance reasonably satisfactory to the Agent:
(a) a Mortgage on such Mortgaged Property;
(b) evidence that a counterpart of the Mortgage has been recorded or delivered to the appropriate title insurance company subject to arrangements reasonably satisfactory to the Agent for the prompt recording thereof;
(c) an ALTA or other mortgagee’s title policy or amendment thereto (or a marked unconditional binder thereof insuring the Lien of the Mortgage at ordinary rates);
(d) an opinion of counsel in the jurisdiction in which such Mortgaged Property is located as to the recordability and enforceability of the applicable Mortgage in the relevant jurisdiction; and
(e) a flood zone certificate (or the Canadian equivalent) in favor of the Agent, and, if any Mortgaged Property with improvements located thereon is being identified as being within a special flood hazard area (or the Canadian equivalent), flood insurance in an amount required by applicable law.
“Receivables” means Accounts.
“Recovery Event” has the meaning specified in Section 6.05(f).
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“Refinancing” means the repayment or refinancing of all third party Indebtedness for borrowed money of Triwest and its Subsidiaries existing on the Effective Date and the rollover and restatement of amounts outstanding under the Existing Credit Agreement, but excluding (a) any capital or financing leases, deferred purchase price and purchase money or vendor financing arrangements, in each case outstanding on the Effective Date and (b) other Indebtedness set forth on Schedule 6.01.
“Register” has the meaning assigned to such term in Section 9.04.
“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, employees, agents, advisors, other representatives and controlling persons of such Person and such Person’s Affiliates.
“Rent Reserve” means an amount approximately equal to the aggregate monthly rent payable by the Borrowers or Canadian Guarantors on all leased properties in respect of which landlord’s or warehouseman’s waivers, in form and substance reasonably acceptable to the Agent, or Collateral Access Agreements, are not in effect or such greater amount as the Agent may, in its Permitted Discretion, reasonably determine to be appropriate.
“Reorganization” means, with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.
“Report” means reports prepared by the Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Loan Parties’ assets from information furnished by or on behalf of the Loan Parties, after the Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Agent, subject to the provisions of Section 9.12.
“Reportable Event” means any “reportable event,” as defined in Section 4043(c) of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived.
“Required Lenders” means, at any time and subject to the limitations set forth in Section 9.04(g), Revolving Lenders having Revolving Exposure and unused Revolving Commitments representing more than 50% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time (and, if at any time there are seven or more Lenders hereunder, then the Required Lenders must include at least three Lenders representing such percentage of the sum of the total Revolving Exposure and unused Revolving Commitments at such time); provided that (i) the Revolving Exposure and unused Revolving Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time and (ii) if any Extended Revolving Commitments are outstanding, such Commitments shall be included in the determination of the Required Lenders.
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“Required Reserve Notice” means (a) so long as no Event of Default has occurred and is continuing, at least three days’ advance notice to the Borrower Agent, and (b) if an Event of Default has occurred and is continuing, one days’ advance notice to the Borrower Agent (or no advance notice to the Borrower Agent, as may reasonably be determined to be appropriate by the Agent in its Permitted Discretion to protect the interests of the Lenders).
“Requirement of Law” means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Reserves” means all (if any) Availability Reserves (including Dilution Reserves, Rent Reserves, Priority Payable Reserves (with respect to the Canadian Borrowing Base only), and, if a Liquidity Event exists, Banking Services Reserves and Secured Swap Reserves), and any and all other reserves which the Agent deems necessary in its Permitted Discretion, all without duplication.
“Reserve Percentage” means the reserve percentage (expressed as a decimal, rounded up to the nearest 1/8th of 1%) applicable to member banks under regulations issued from time to time by the Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”).
“Reset Date” has the meaning assigned to such term in Section 2.30(a).
“Responsible Officer” of any Person means the chief executive officer, the president, any vice president, the chief operating officer or any Financial Officer of such Person and any other officer or similar official thereof responsible for the administration of the obligations of such Person in respect of this Agreement, and, as to any document delivered on the Effective Date (but subject to the express requirements set forth in Article IV), shall include any secretary or assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
“Restricted Debt Payment” has the meaning assigned to such term in Section 6.08(b).
“Restricted Indebtedness” has the meaning assigned to such term in Section 6.08(b).
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Holdings or the Company, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in Holdings or the Company or any option, warrant or other right to acquire any such Equity Interests in Holdings or the Company.
“Restricted Subsidiary” means any Subsidiary that is not an Unrestricted Subsidiary.
“Revolving Borrowing” means a request for Revolving Loans.
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“Revolving Commitment Increase” has the meaning assigned to such term in Section 2.23(b).
“Revolving Commitment Increase Date” has the meaning assigned to such term in Section 2.23(b).
“Revolving Commitments” means the U.S. Revolving Commitments and the Canadian Revolving Commitments.
“Revolving Exposure” means, with respect to any Applicable Lender that is a U.S. Revolving Lender, its U.S. Revolving Exposure and, with respect to any Applicable Lender that is a Canadian Revolving Lender, its Canadian Revolving Exposure.
“Revolving Extension Request” has the meaning assigned to such term in Section 2.27(a).
“Revolving Lender” means, as of any date of determination, a U.S. Revolving Lender or a Canadian Revolving Lender, as applicable.
“Revolving Loan” means a U.S. Revolving Loan or a Canadian Revolving Loan, as applicable.
“S&P” means Standard & Poor’s Financial Services LLC, a wholly-owned subsidiary of the McGraw-Hill Companies, Inc., and any successor to its rating agency business.
“Sale and Lease-Back Transaction” has the meaning assigned to such term in Section 6.06.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of its functions.
“Second Priority Lien” means any Lien on any asset of any U.S. Loan Party that is granted under the Senior Secured Notes Security Documents and that, pursuant and subject to the provisions of the Intercreditor Agreement, is junior in priority to the Liens of the Agent in the Collateral.
“Section 2.27 Additional Agreement” has the meaning assigned to such term in Section 2.27(c).
“Secured Obligations” means, with respect to the U.S. Loan Parties, all Obligations, and, with respect to the Canadian Loan Parties, the Canadian Obligations.
“Secured Parties” means (a) with respect to Liens granted to the Agent to secure all Secured Obligations, the “Secured Parties,” as defined in the U.S. Security Agreement, and (b) with respect to Liens granted to the Agent to secure Secured Obligations consisting of Canadian Obligations, the “Secured Parties,” as defined in the Canadian Security Agreements.
“Secured Swap Obligations” means all Swap Obligations owing to the Agent, a Joint Lead Arranger, a Revolving Lender or any Affiliate or branch thereof and with respect to which the Company (or other Loan Party) and the Revolving Lender or other Person referred to above in this definition party thereto shall have delivered (except in the case of the Agent) written notice to the Agent, at or prior to the time that the Swap Agreement relating to such obligation is entered into or, if later, the time that such Revolving Lender becomes a party to this Agreement, that such a transaction has been entered into and that it constitutes a Secured Swap Obligation entitled to the benefits of the Collateral Documents and the Intercreditor Agreement. For the avoidance of doubt, all Swap Obligations owing to the Agent shall constitute Secured Swap Obligations.
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“Secured Swap Reserves” means all Reserves which the Agent from time to time after the occurrence and during the continuation of a Liquidity Event establishes in its Permitted Discretion as being appropriate to reflect reasonably anticipated Secured Swap Obligations then provided or outstanding.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
“Security Agreements” means, collectively, (a) the U.S. Security Agreement and (b) each Canadian Security Agreement.
“Seller” means 1278104 Alberta Inc., a corporation incorporated under the laws of the province of Alberta, Canada.
“Selling Shareholder” means each shareholder of Seller referenced in the Canadian Acquisition Agreement.
“Senior Secured Leverage Ratio” means, as of the date of determination, the ratio of (a) the Consolidated Total Indebtedness of the Company and its Subsidiaries as of the last day of the most recent Test Period ended on or prior to such date of determination, which Indebtedness is secured by Liens, less an amount equal to the amount of any cash and Permitted Investments of the Company and its Subsidiaries as of such date, to (b) EBITDA of the Company and its Subsidiaries for such Test Period.
“Senior Secured Note Documents” means the Senior Secured Note Indenture and all other instruments, agreements and other documents evidencing the Senior Secured Notes or providing for any Guarantee or other right in respect thereof.
“Senior Secured Note Indenture” means the indenture under which the Senior Secured Notes are issued.
“Senior Secured Notes” means the Company’s 9 3/4% Senior Secured Fixed Rate Notes due 2017, in an initial aggregate principal amount of $250,000,000.
“Senior Secured Notes Security Documents” means the “Noteholder Lien Security Documents” (as defined in the Intercreditor Agreement).
“Senior Subordinated Notes” means the Company’s 11.5% Senior Subordinated Notes due 2018, in an initial aggregate principal amount of $200,000,000.
“Senior Subordinated Note Documents” means the indenture and note purchase agreement under which the Senior Subordinated Notes are issued and/or governed and all other instruments, agreements and other documents evidencing the Senior Subordinated Notes or providing for any Guarantee or other right in respect thereof.
“Settlement” and “Settlement Date” have the meanings assigned to such terms in Section 2.05(b).
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“Specified Existing Revolving Commitment Class” has the meaning assigned to such term in Section 2.27.
“Specified Payment” means (a) any investment, loan or advance pursuant to Section 6.04(v), (b) any Restricted Payment pursuant to Section 6.08(a)(x), and (c) any Restricted Debt Payment pursuant to Section 6.08(b)(vi).
“Specified Transaction” means, with respect to any period, any investment (including any acquisition), sale, transfer or other disposition of assets, incurrence or repayment of Indebtedness, Restricted Payment, Subsidiary designation or other event that by the terms of the Loan Documents requires “Pro Forma Compliance” with a test or covenant hereunder or requires such test or covenant to be calculated on a “Pro Forma Basis”.
“Sponsor” means TPG Capital, L.P. and its Affiliates but not including, however, any portfolio companies of the foregoing.
“Subordinated Indebtedness” of a Person means any Indebtedness of such Person the payment of which is subordinated to payment of the Secured Obligations on terms at least as favorable to the Lenders as those contained in the Senior Subordinated Note Documents.
“Subordinated Vendor Inventory Eligibility Conditions” means each of the following conditions precedent, the satisfaction of each of which, as reasonably determined by the Agent, shall be a condition to the inclusion in a Borrowing Base of any Eligible Subordinated Vendor Inventory:
(i) the relevant Loan Parties shall have given the Agent at least ten (10) Business Days prior written notice of their intent to include Inventory subject to a Vendor Lien in a Borrowing Base;
(ii) the relevant Loan Parties shall have given the Agent copies of the security agreement and all related documentation delivered by or on behalf of the applicable vendor and the applicable Borrower or Canadian Guarantor at least ten (10) Business Days prior to the proposed date of inclusion of such Inventory in a Borrowing Base; and
(iii) the relevant Loan Parties and the applicable vendor shall have executed and delivered to the Agent a duly executed and completed Vendor Lien Subordination Agreement (in form substantially similar to Exhibit H or such other form as is reasonably acceptable to the Agent) at least ten (10) Business Days prior to the proposed date of inclusion of such Inventory in a Borrowing Base.
Eligible Subordinated Vendor Inventory shall be included in a Borrowing Base on the 5th Business Day after the Agent’s determination that each of the foregoing conditions has been satisfied. If at any time any of the foregoing conditions ceases to be satisfied, the Eligible Subordinated Vendor Inventory shall be deemed ineligible and excluded from the Borrowing Bases.
“Subordinated Vendor Lien” means a Vendor Lien that has been subordinated to the Lien of the Agent on the Collateral (i) in the case of the Existing Subordinated Vendors, to the extent and in the manner provided in the Existing Subordination Agreements, (ii) in the case of each other vendor, to the extent and in the manner provided in the Vendor Lien Subordination Agreement executed by such vendor and with respect to this clause (ii), subject to the satisfaction of each of the Subordinated Vendor Inventory Eligibility Conditions.
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“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or 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.
“Subsidiary” means, unless the context otherwise requires, a subsidiary of the Company. Notwithstanding the foregoing (and except for purposes of Sections 3.06, 3.09, 3.10, 3.14, 5.04, 5.08, and the definition of “Unrestricted Subsidiary” contained herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries for purposes of this Agreement.
“Super Majority Lenders” means, at any time and subject to the limitations set forth in Section 9.04(g), Revolving Lenders having Revolving Exposure and unused Revolving Commitments representing more than 66 2/3% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time; provided that (i) the Revolving Exposure and unused Revolving Commitments of any Defaulting Lender shall be disregarded in the determination of the Super Majority Lenders at any time and (ii) if any Extended Revolving Commitments are outstanding, such Commitments shall be included in the determination of the Super Majority Lenders.
“Swap Agreement” means any agreement with respect to any Derivative Transaction between the Company or any Subsidiary and any other Person.
“Swap Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Swap Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Swap Agreement transaction.
“Swingline Borrowing Request” means a request by Borrower Agent for a Swingline Loan in accordance with Section 2.05 and substantially in the form attached hereto as Exhibit F-2, or such other form as shall be approved by the Agent (acting reasonably).
“Swingline Exposure” means, with respect to any Revolving Lender, at any time, such Revolving Lender’s Applicable Percentage of the Swingline Loans outstanding at such time.
“Swingline Lender” means the U.S. Swingline Lender or the Canadian Swingline Lender.
“Swingline Loan” means a U.S. Swingline Loan or a Canadian Swingline Loan.
“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Termination Date” means the date on which all Obligations are indefeasibly paid in full in cash (other than Secured Swap Obligations, Banking Services Obligations and any contingent or inchoate obligations not then due and payable) and the Commitments and all Letters of Credit are terminated (other than Letters of Credit that have been cash collateralized on terms set forth in Section 2.06(j) or back-stopped following the termination of the Commitments).
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“Test Period” means, for any determination under this Agreement, the four consecutive fiscal quarters of the Company then last ended and for which financial statements have been delivered to the Agent pursuant to Section 5.01(a) or Section 5.01(b), as applicable.
“Title Insurance Company” means the title insurance company providing the Title Insurance Policies.
“Title Insurance Policies” means the lender’s title insurance policies issued to Agent with respect to the Mortgaged Properties.
“TopCo” means Accelerate Holdings Corp. a Delaware corporation.
“Total Assets” means the total assets of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, as shown on the most recent balance sheet of the Company or such other Person as may be expressly stated.
“Transaction Expenses” means any fees or expenses incurred or paid by or on behalf of the Sponsor, TopCo, Holdings, the Company or any of their respective Subsidiaries or Affiliates in connection with the Transactions and the transactions contemplated hereby and thereby.
“Transactions” means, collectively, (a) the Canadian Acquisition and the payment of the Canadian Acquisition Funds, (b) the Refinancing, (c) the amendment and restatement of the Existing Credit Agreement and other Loan Documents and the funding of the Revolving Loans on the Effective Date and the use of the proceeds thereof, (d) the consummation of any other transactions connected with the foregoing and (e) the payment of Transaction Expenses.
“Trigger Event” means, at any time, that Excess Availability is less than the greater of (a) $25,000,000 and (b) 10.0% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base. Upon the occurrence of any Trigger Event, such Trigger Event shall be deemed to be continuing notwithstanding that Excess Availability may thereafter exceed the amount set forth in the preceding sentence unless and until Excess Availability exceeds such amount for thirty (30) consecutive days, in which event a Trigger Event shall no longer be deemed to be continuing.
“Triwest” means Triwest Trading (Canada) Ltd., a corporation organized under the laws of Canada.
“Triwest Loan” has the meaning ascribed to such term in Section 5.11(b)(iii).
“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 (a) in the case of Loans to the U.S. Borrowers, the Adjusted LIBOR Rate or the Alternate Base Rate, (b) in the case of Loans to the Canadian Borrowers denominated in Dollars, the Adjusted LIBOR Rate or the Canadian Base Rate, and (c) in the case of Loans to the Canadian Borrowers denominated in Canadian Dollars, the Canadian BA Rate or the Canadian Prime Rate.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.
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“Unfinanced Capital Expenditures” means, with respect to any Person and for any period, Capital Expenditures made by such Person during such period and not financed from any Net Cash Proceeds or Revolving Loans.
“Uncontrolled Cash” means all amounts from time to time on deposit in the Designated Disbursement Account.
“Unfunded Pension Liability” means the excess of a Plan’s benefit liabilities under Section 4001(a)(16) of ERISA or other applicable law, over the current value of that Plan’s assets, determined in accordance with the assumptions used for funding the Plan pursuant to Section 412 of the Code or other applicable laws for the applicable plan year and includes, with respect to any Canadian Pension Plan which provides benefits on a defined benefit basis, any unfunded liability, solvency deficiency or wind up deficiency as determined for the purposes of the PBA.
“Unrestricted Subsidiary” means any Subsidiary of the Company designated by the Company after the Effective Date as an Unrestricted Subsidiary hereunder by written notice to the Agent in accordance with Section 5.12.
“Unsubordinated Vendor Debt” means Vendor Debt that is not Subordinated Indebtedness.
“U.S. Borrower” means any of the Company, Am-Pac Tire Dist. Inc., a California corporation, and each other Domestic Subsidiary of the Company that becomes a U.S. Borrower pursuant to Section 5.11(a).
“U.S. Borrower Percentage” has the meaning assigned to such term in Section 2.25(f).
“U.S. Borrower’s Maximum Liability” has the meaning assigned to such term in Section 2.25(e).
“U.S. Borrowing Base” means, at any time, (a) 85% of the Value of Eligible Receivables of the U.S. Borrowers, plus (b) the lesser of (i) 70% of the Value of Eligible Tire Inventory of the U.S. Borrowers and (ii) 85% of Net Orderly Liquidation Value of Eligible Tire Inventory of the U.S. Borrowers, plus (c) the lesser of (i) 50% of the Value of Eligible Non-Tire Inventory of the U.S. Borrowers and (ii) 85% of the Net Orderly Liquidation Value of Eligible Non-Tire Inventory of the U.S. Borrowers, minus (d) without duplication (including without duplication of clause (d) of the definition of “Canadian Borrowing Base”), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22. The U.S. Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h) and adjusted by the Agent in the exercise of its Permitted Discretion and in accordance with Section 2.22 based upon additional information, if any, received after the date of delivery of such Borrowing Base Certificate. With respect to any Borrowing Base Certificate delivered pursuant to the final proviso at the end of Section 5.01(h), the U.S. Borrowing Base shall be calculated immediately after giving effect to the applicable acquisition, subject, in each case, to the requirements of the last paragraph of Section 6.04.
“U.S. Collateral” means any and all property owned, leased or operated by a Person subject to a security interest or Lien under the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of the Agent, on behalf of itself and the Secured Parties, to secure the U.S. Obligations or Canadian Obligations, as applicable; provided however that U.S. Collateral shall not at any time include any Margin Stock.
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“U.S. Commitment” means a U.S. Revolving Commitment, including an Extended U.S. Revolving Commitment.
“U.S. Excess Availability” means, at any time, an amount equal to the sum of (a) the lesser of (i) the aggregate total U.S. Revolving Commitments at such time and (ii) the U.S. Borrowing Base at such time (as determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h)), plus (b) all unrestricted cash and cash equivalents of the U.S. Loan Parties at such time (to the extent held in Qualified Accounts), minus (c) the aggregate U.S. Revolving Exposures (including the U.S. LC Exposure) of all U.S. Revolving Lenders at such time.
“U.S. Guaranteed Obligations” has the meaning assigned to such term in Section 10.01.
“U.S. Guarantor Percentage” has the meaning assigned to such term in Section 10.01.
“U.S. Guarantors” means Holdings, ATD Acquisition Co. IV, a Delaware corporation, Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil, a Louisiana corporation, Tire Wholesalers, Inc., a Washington corporation and each other Domestic Subsidiary (other than any Excluded Subsidiary) that hereafter becomes a party to this Agreement as a Loan Party and a Guarantor pursuant to a Joinder Agreement, and their respective successors and assigns.
“U.S. LC Collateral Account” has the meaning assigned to such term in Section 2.06(j).
“U.S. LC Disbursement” means a payment made by an Applicable Issuing Bank pursuant to a drawing on a U.S. Letter of Credit.
“U.S. LC Exposure” means, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding U.S. Letters of Credit at such time plus (b) the aggregate amount of all U.S. LC Disbursements that have not yet been reimbursed by or on behalf of the Company or any other U.S. Loan Party at such time, less (c) the amount then on deposit in the U.S. LC Collateral Account. The U.S. LC Exposure of any U.S. Revolving Lender at any time shall be its Applicable Percentage of the total U.S. LC Exposure at such time.
“U.S. Letter of Credit” means a Letter of Credit issued for the account of a U.S. Borrower.
“U.S. Loan Party” means a U.S. Borrower or a U.S. Guarantor.
“U.S. Non-Paying Borrower” has the meaning assigned to such term in Section 2.25(f).
“U.S. Non-Paying Guarantor” has the meaning assigned to such term in Section 10.09.
“U.S. Obligations” mean the collective reference to (a) the due and punctual payment of (i) the principal of and premium, if any, and interest at the applicable rate provided in this Agreement (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 made to the U.S. Borrowers, 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 a U.S. Borrower under this Agreement in respect of any U.S. Letter of Credit, when and as due, including payments in respect of
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reimbursement of disbursements, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide cash collateral, and (iii) all other monetary 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 a U.S. Borrower or any other U.S. Loan Party to any of the Secured Parties under this Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the U.S. Borrowers under or pursuant to this Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each other U.S. Loan Party under or pursuant to this Agreement or the other Loan Documents, (d) the due and punctual payment and performance of all Secured Swap Obligations of a U.S. Loan Party and (e) the due and punctual payment and performance of all Banking Services Obligations of a U.S. Loan Party. Notwithstanding the foregoing, (i) the obligations of Holdings, the Company or any Subsidiary in respect of any Secured Swap Obligations or any Banking Services Obligations of a U.S. Loan Party shall be secured and guaranteed pursuant to the Collateral Documents and the Loan Guaranty only to the extent that, and for so long as, the other U.S. Obligations are so secured and guaranteed and (ii) any release of U.S. Collateral or Guarantors effected in the manner permitted by this Agreement and the other Loan Documents shall not require the consent of the holders of Secured Swap Obligations or the holders of Banking Services Obligations of a U.S. Loan Party.
“U.S. Obligations Paying Borrower” has the meaning assigned to such term in Section 2.25(f).
“U.S. Obligations Paying Guarantor” has the meaning assigned to such term in Section 10.09.
“U.S. Overadvance” means at any time the amount by which the aggregate outstanding U.S. Revolving Exposures exceed the U.S. Borrowing Base.
“U.S. Overadvance Condition” means and is deemed to exist any time the aggregate outstanding U.S. Revolving Exposures exceed the U.S. Borrowing Base.
“U.S. Overadvance Loan” means an ABR Loan made to a U.S. Borrower at a time when a U.S. Overadvance Condition exists.
“U.S. Prime Rate” means the rate of interest announced by the Agent from time to time as its prime rate. Such rate is set by the Agent on the basis of various factors, including its 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 rate. Any change in such rate announced by the Agent shall take effect at the opening of business on the day specified in the public announcement of such change.
“U.S. Protective Advance” means a Protective Advance made to or for the account of a U.S. Borrower.
“U.S. Revolving Commitment” means, with respect to each U.S. Revolving Lender, the commitment of such U.S. Revolving Lender to make U.S. Revolving Loans and to acquire participations in U.S. Protective Advances, U.S. Letters of Credit and U.S. Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such U.S. Revolving Lender’s U.S. Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to
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Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23. The initial amount of each U.S. Revolving Lender’s U.S. Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its U.S. Revolving Commitment, as applicable. The aggregate amount of the U.S. Revolving Lenders’ U.S. Revolving Commitments as of the Effective Date is $850,000,000.
“U.S. Revolving Exposure” means, with respect to any U.S. Revolving Lender at any time, the sum of the outstanding principal amount of such Lender’s U.S. Revolving Loans and its U.S. LC Exposure and an amount equal to its Applicable Percentage of the aggregate principal amounts of U.S. Swingline Loans and U.S. Protective Advances outstanding at such time.
“U.S. Revolving Lender” means, as of any date of determination, a Lender with a U.S. Revolving Commitment or, if the U.S. Revolving Commitments have terminated or expired, a Lender with U.S. Revolving Exposure. Unless the context otherwise requires, the term “U.S. Revolving Lenders” includes the U.S. Swingline Lender.
“U.S. Revolving Loan” means the loans and advances made by the U.S. Revolving Lenders pursuant to this Agreement, including a Loan made pursuant to Section 2.01(a), U.S. Swingline Loans and U.S. Protective Advances.
“U.S. Security Agreement” means that certain Second Amended and Restated Pledge and Security Agreement dated as of the date hereof, between the U.S. Loan Parties and the Agent.
“U.S. Swingline Lender” means BANA, in its capacity as lender of U.S. Swingline Loans hereunder.
“U.S. Swingline Loan” means a Loan made by the U.S. Swingline Lender pursuant to Section 2.05.
“Value” with reference to the value of Eligible Tire Inventory or Eligible Non-Tire Inventory, as the case may be, on any date, means value determined on the basis of the lower of cost or market value of such Eligible Tire Inventory or Eligible Non-Tire Inventory, as the case may be, with the cost thereof calculated on a FIFO (or first in, first out) accounting basis as determined in accordance with GAAP, and with reference to Eligible Receivables, the book value thereof determined in accordance with GAAP.
“Vendor Debt” means any Indebtedness of the Company or any Subsidiary to any vendor of tires.
“Vendor Lien” means a Lien created in favor of a vendor of tires to a Borrower or a Canadian Guarantor, that encumbers exclusively all or any of such vendor’s branded tire inventory and does not encumber any proceeds thereof or any other Collateral.
“Vendor Lien Subordination Agreement” means an agreement substantially in the form of Exhibit H hereto (or such other form as is reasonably satisfactory to the Agent (it being understood that the Existing Subordination Agreements are acceptable to the Agent)) whereby, among other things, a vendor of tires subordinates its Vendor Lien to the Lien of the Agent on the Collateral.
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“Withdrawal Liability” means 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.
“Withholding Agent” means any Borrower or the Agent.
SECTION 1.02 Classification of Loans. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Revolving Loan”) or by Type (e.g., a “LIBOR Rate Loan”) or by Class and Type (e.g., a “LIBOR Rate Loan that is a Revolving Loan”).
SECTION 1.03 Terms Generally. 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 agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, amended and restated, extended, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, amendment and restatements, extensions, supplements 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 and (e) 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.
SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Company notifies the Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Effective Date in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance with the provisions of Section 9.02.
SECTION 1.05 Amendment and Restatement of Existing Credit Agreement. This Agreement amends and restates the Existing Credit Agreement, and on and after the date hereof, each reference in any Loan Document to “the Credit Agreement”, “therein”, “thereof”, “thereunder” or words of similar import when referring to the Existing Credit Agreement shall mean, and shall hereafter be a reference to, the Existing Credit Agreement, as amended and restated by this Agreement. Each Loan Party hereby acknowledges and agrees, as of the date hereof, for itself and for each of its Subsidiaries, that it does not have any claims, offsets, counterclaims, cross-complaints, defenses or demands of any kind or nature whatsoever under or relating to the Existing Credit Agreement, the other “Loan Documents” (as defined in the Existing Credit Agreement) or any of the obligations existing thereunder that could be asserted to reduce or eliminate all or any part of the obligation of any Loan Party to pay any amounts owed thereunder, or to assert any claim for affirmative relief or damages against any lender party thereto. Nothing contained herein is intended to be or operate as a novation or an accord and satisfaction of the Existing Credit Agreement or the Secured Obligations evidenced or secured thereby or provided for thereunder.
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SECTION 1.06 Interpretation (Quebec). For purposes of any Collateral located in the Province of Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other purposes pursuant to which the interpretation or construction of a Loan Document may be subject to the laws of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province of Quebec, (a) “personal property” shall be deemed to include “movable property”, (b) “real property” shall be deemed to include “immovable property”, (c) “tangible property” shall be deemed to include “corporeal property”, (d) “intangible property” shall be deemed to include “incorporeal property”, (e) “security interest”, “mortgage” and “lien” shall be deemed to include a “hypothec”, “prior claim” and a “resolutory clause”, (f) all references to filing, registering or recording under the UCC or the PPSA shall be deemed to include publication under the Civil Code of Quebec, (g) all references to “perfection” of or “perfected” Liens shall be deemed to include a reference to an “opposable” or “set up” Liens as against third parties, (h) any “right of offset”, “right of setoff” or similar expression shall be deemed to include a “right of compensation”, (i) “goods” shall be deemed to include “corporeal movable property” other than chattel paper, documents of title, instruments, money and securities, (j) an “agent” shall be deemed to include a “mandatary”, (k) “construction liens” shall be deemed to include “legal hypothecs”, (l) “joint and several” shall be deemed to include “solidary”, (m) “gross negligence or willful misconduct” shall be deemed to be “intentional or gross fault”, (n) “beneficial ownership” shall be deemed to include “ownership on behalf of another as mandatary”, (o) “easement” shall be deemed to include “servitude”, (p) “priority” shall be deemed to include “prior claim”, (q) “survey” shall be deemed to include “certificate of location and plan”, and (r) “fee simple title” shall be deemed to include “absolute ownership”. The parties hereto confirm that it is their wish that this Agreement and any other document executed in connection with the transactions contemplated herein be drawn up in the English language only (except if another language is required under any applicable law) and that all other documents contemplated thereunder or relating thereto, including notices, may also be drawn up in the English language only. Les parties aux présentes confirment que c’est leur volonté que cette convention et les autres documents de crédit soient rédigés en langue anglaise seulement et que tous les documents, y compris tous avis, envisagés par cette convention et les autres documents peuvent être rédigés en la langue anglaise seulement (sauf si une autre langue est requise en vertu d’une loi applicable).
SECTION 1.07 Currency Calculations. Unless expressly provided otherwise, all references in the Loan Documents to Loans, Letters of Credit, Obligations, Commitments, Borrowing Base components and other amounts shall be denominated in Dollars. The Dollar Equivalent Amount of any amounts denominated or reported under a Loan Document in a currency other than Dollars shall be determined by the Agent on a daily basis, based on the current Exchange Rate. Borrowers shall report Value and other Borrowing Base components to the Agent in the currency invoiced by the Loan Parties or shown in the Loan Parties’ financial records, and unless expressly provided otherwise, herein shall deliver financial statements and calculate financial covenants in Dollars. Notwithstanding anything herein to the contrary, if any Obligation is funded and expressly denominated in a currency other than Dollars, the Loan Parties shall repay such Obligation in such other currency.
ARTICLE II.
THE CREDITS
SECTION 2.01 Revolving Commitments . (a) Subject to the terms and conditions set forth herein, each U.S. Revolving Lender agrees, severally and not jointly, to make U.S. Revolving Loans to the U.S. Borrowers from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such U.S. Revolving Lender’s U.S. Revolving Exposure exceeding such U.S. Revolving Lender’s U.S. Revolving Commitment, or (ii) the total U.S. Revolving Exposures exceeding the lesser of (x) the sum of the total U.S. Revolving Commitments and (y) the U.S. Borrowing Base (subject to the Agent’s authority, in its sole discretion, to make U.S. Protective Advances and U.S. Overadvances pursuant to the terms of Section 2.04). Within the foregoing limits and subject to the terms and conditions set forth herein, the U.S. Borrowers may borrow, repay and reborrow U.S. Revolving Loans.
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(b) Subject to the terms and conditions set forth herein, each Canadian Revolving Lender agrees, severally and not jointly, to make Canadian Revolving Loans to a Canadian Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Canadian Revolving Lender’s Canadian Revolving Exposure exceeding such Canadian Revolving Lender’s Canadian Revolving Commitment, or (ii) the total Canadian Revolving Exposures exceeding the lesser of (x) the sum of the total Canadian Revolving Commitments and (y) the Canadian Borrowing Base (subject to the Agent’s authority, in its sole discretion, to make Canadian Protective Advances and Canadian Overadvances pursuant to the terms of Section 2.04). Within the foregoing limits and subject to the terms and conditions set forth herein, a Canadian Borrower may borrow, repay and reborrow Canadian Revolving Loans.
SECTION 2.02 Revolving Loans and Borrowings
(a) Each U.S. Revolving Loan (other than a U.S. Swingline Loan or a U.S. Protective Advance) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the U.S. Revolving Lenders ratably in accordance with their respective U.S. Commitments of the applicable Class. Each Canadian Revolving Loan (other than a Canadian Swingline Loan or a Canadian Protective Advance) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Canadian Revolving Lenders ratably in accordance with their respective Canadian Commitments of the applicable Class. Any Protective Advance and any Swingline Loan shall be made in accordance with the procedures set forth in Sections 2.04 and 2.05, respectively.
(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of (i) in the case of Revolving Loans to the U.S. Borrowers, ABR Loans or LIBOR Rate Loans, (ii) in the case of Revolving Loans to a Canadian Borrower denominated in Dollars, Canadian Base Rate Loans or LIBOR Rate Loans, and (iii) in the case of Revolving Loans to a Canadian Borrower denominated in Canadian Dollars, Canadian Prime Rate Loans or Canadian BA Rate Loans, in each case, as the Borrower Agent may request in accordance herewith. Each Swingline Loan and each Protective Advance (x) made for the account of the U.S. Borrowers shall be an ABR Loan, (y) made to or for the account of a Canadian Borrower in Dollars shall be a Canadian Base Rate Loan, and (z) made to or for the account of a Canadian Borrower in Canadian Dollars shall be a Canadian Prime Rate Loan. Each Revolving Lender at its option may make any Interest Period Loan by causing any domestic or foreign branch or Affiliate of such Revolving Lender to make such Revolving Loan; provided that (i) any exercise of such option shall not affect the obligation of the Borrowers within a Borrowing Group to repay such Revolving Loan made to such Borrower Group in accordance with the terms of this Agreement and (ii) in exercising such option, such Revolving Lender shall use reasonable efforts to minimize any increase in the Adjusted LIBOR Rate or the Canadian BA Rate or increased costs to the Borrowers resulting therefrom (which obligation of such Lender shall not require it to take, or refrain from taking, actions that it determines would result in increased costs for which it will not be compensated hereunder or that it otherwise determines would be disadvantageous to it and in the event of such request for costs for which compensation is provided under this Agreement, the provisions of Section 2.15 shall apply).
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(c) At the commencement of each Interest Period for any Revolving Borrowing that is an Interest Period Loan, such Revolving Borrowing shall comprise an aggregate principal amount that is an integral multiple of (i) $500,000 and not less than $1,000,000 in the case of LIBOR Rate Loans or (ii) Cdn $500,000 and not less than Cdn $1,000,000 in the case of Canadian BA Rate Loans. Each Revolving Borrowing that is an ABR Loan or a Canadian Base Rate Loan when made shall be in a minimum principal amount of $500,000 and each Revolving Borrowing that is a Canadian Prime Rate Loan when made shall be in a minimum principal amount of Cdn $500,000; provided that a Floating Rate Loan to a Borrower within a Borrower Group may be made in a lesser aggregate amount that is equal to the entire unused balance of the total Revolving Commitments of such Borrower Group or that is required to finance the reimbursement of an LC Disbursement with respect to such Borrower Group as contemplated by Section 2.06(e). Revolving Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of, with respect to LIBOR Rate Loans, ten different Interest Periods in effect at any time outstanding, and with respect to Canadian BA Rate Loans, five different Interest Periods in effect at any time outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower Agent shall not be entitled to request, or to elect to convert or continue, any Revolving Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower Agent shall notify the Agent of such request either in writing by delivery of a Borrowing Request (by hand or facsimile) signed by the Borrower Agent (a) in the case of an Interest Period Loan other than a Canadian BA Rate Loan, not later than 12:00 noon, New York City time, two (2) Business Days before the date of the proposed Borrowing, (b) in the case of a Canadian BA Rate Loan, not later than 12:00 noon, Toronto, Ontario time, three (3) Business Days before the date of the proposed Borrowing, or (c) in the case of a Floating Rate Loan (including any such notice of a Floating Rate Loan to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e)), not later than 12:00 noon, New York City time, or with respect to Canadian Prime Rate Loans or Canadian Base Rate Loans, 12:00 noon, Toronto, Ontario time, on the date of the proposed Borrowing. Each such written Borrowing Request shall specify the following information in compliance with Section 2.01:
(i) the aggregate amount of the requested Revolving Borrowing;
(ii) the currency in which such Loans are to be denominated (and if not specified, it shall be deemed a request for (A) ABR Loans in Dollars if on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans in Canadian Dollars if on behalf of a Canadian Borrower);
(iii) whether the Revolving Borrowing requested is to be a Floating Rate Loan or an Interest Period Loan (and if not specified, the Revolving Borrowing requested shall be deemed a request for (A) ABR Loans if requested for or on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans if requested for and on behalf of a Canadian Borrower, unless the request specifies such Loans are to be denominated in Dollars in which case it shall be deemed a request for Canadian Base Rate Loans);
(iv) the date of such Revolving Borrowing, which shall be a Business Day;
(v) in the case of Interest Period Loans, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period” (and, if not specified, the Interest Period requested shall be deemed a request for an Interest Period Loan with an Interest Period of one month’s duration);
(vi) the location and number of the applicable Borrower’s account to which funds are to be disbursed; and
(vii) the identity of the Borrower of such Revolving Borrowing.
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Promptly following receipt of a Borrowing Request in accordance with this Section, the Agent shall advise each Applicable Lender of the details thereof and of the amount of such Applicable Lender’s Loan to be made as part of the requested Borrowing.
SECTION 2.04 Protective Advances and Overadvances. (a) Subject to the limitations set forth below (and notwithstanding anything to the contrary in Section 4.02), the Agent is authorized by the Borrowers and the Revolving Lenders, from time to time in the Agent’s sole discretion (but shall have absolutely no obligation), to make Loans to the Borrowers of a Borrower Group, on behalf of all Applicable Lenders with respect to such Borrower Group whether or not any condition precedent set forth in Section 4.02 has been satisfied or waived, including the failure to comply with the conditions set forth in Section 2.01, which the Agent, in its Permitted Discretion, deems necessary or desirable (x) to preserve or protect the Collateral, or any portion thereof, (y) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (z) to pay any other amount chargeable to or required to be paid by the Borrowers within such Borrower Group pursuant to the terms of this Agreement, including payments of reimbursable expenses (including costs, fees, and expenses as described in Section 9.03) and other sums payable by the Borrowers within such Borrower Group under the Loan Documents (each such Loan made to the U.S. Borrowers, a “U.S. Protective Advance”; each such Loan made to a Canadian Borrower, a “Canadian Protective Advance”; and U.S. Protective Advances and Canadian Protective Advances, “Protective Advances” and each a “Protective Advance”). Any U.S. Protective Advance may be made in a principal amount that would cause the aggregate U.S. Revolving Exposure to exceed the U.S. Borrowing Base; provided that no U.S. Protective Advance may be made to the extent that, after giving effect to such U.S. Protective Advance (together with the outstanding principal amount of all other U.S. Protective Advances), the aggregate principal amount of U.S. Protective Advances outstanding hereunder would exceed, as determined on the date of such proposed U.S. Protective Advance, and is not known by the Agent to exceed, together with U.S. Overadvances described in Section 2.04(c), 10% of the U.S. Revolving Commitments at such time, or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period, and provided further that, the aggregate amount of outstanding U.S. Protective Advances plus any U.S. Overadvances described in Section 2.04(c) plus the aggregate of all other U.S. Revolving Exposure shall not exceed the aggregate total U.S. Commitments. Any Canadian Protective Advance may be made in a principal amount that would cause the aggregate Canadian Revolving Exposure to exceed the Canadian Borrowing Base; provided that no Canadian Protective Advance may be made to the extent that, after giving effect to such Canadian Protective Advance (together with the outstanding principal amount of all other Canadian Protective Advances), the aggregate Dollar Equivalent Amount of principal amount of Canadian Protective Advances outstanding hereunder would exceed, as determined on the date of such proposed Canadian Protective Advance, and is not known by the Agent to exceed, together with Canadian Overadvances described in Section 2.04(c), 10% of the Canadian Revolving Commitments at such time, or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period, and provided further that, the aggregate Dollar Equivalent Amount of outstanding Canadian Protective Advances plus Dollar Equivalent Amount of any Canadian Overadvances described in Section 2.04(c) plus the aggregate Dollar Equivalent Amount of all other Canadian Revolving Exposure shall not exceed the aggregate total Canadian Commitments. Protective Advances may be made even if the conditions precedent set forth in Section 4.02 have not been satisfied or waived. The Agent agrees to use reasonable efforts to deliver prompt notice to the Applicable Lenders with respect to a Borrower Group of any Protective Advance or Overadvance made by it to a Borrower within such Borrower Group. The U.S. Protective Advances shall be secured by the Agent’s Liens on the U.S. Collateral securing payment of the U.S. Obligations and shall constitute ABR Loans and U.S. Obligations hereunder. The Canadian Protective Advances shall be made by the Agent through its Canada branch and shall be secured by the Agent’s Liens on the Collateral
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securing payment of the Canadian Obligations and shall constitute Canadian Prime Rate Loans, if funded in Canadian Dollars, or Canadian Base Rate Loans, if funded in Dollars, and Canadian Obligations hereunder. The Agent’s authorization to make Protective Advances may be revoked at any time by the Required Lenders. Any such revocation must be in writing and shall become effective prospectively upon the Agent’s receipt thereof. The making of a Protective Advance on any one occasion shall not obligate any Agent to make any Protective Advance on any other occasion. At any time that the conditions precedent set forth in Section 4.02 have been satisfied or waived, the Agent may request the Applicable Lenders with respect to a Borrower Group to make a Revolving Loan to repay a Protective Advance made by the Agent to a Borrower within such Borrower Group. At any other time, the Agent may require the Applicable Lenders with respect to such Borrower Group to fund their risk participations described in Section 2.04(b).
(b) Upon the making of a Protective Advance by the Agent (whether before or after the occurrence of a Default) to a Borrower within such Borrower Group, each Applicable Lender with respect to such Borrower Group shall be deemed, without further action by any party hereto, unconditionally and irrevocably to have purchased from the Agent without recourse or warranty, an undivided interest and participation in such Protective Advance in proportion to its Applicable Percentage. From and after the date, if any, on which any Applicable Lender with respect to a Borrower Group is required to fund its participation in any Protective Advance to a Borrower within such Borrower Group purchased hereunder, the Agent shall promptly distribute to such Applicable Lender, such Applicable Lender’s Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such Protective Advance.
(c) Notwithstanding anything to the contrary contained elsewhere in this Section 2.04 or this Agreement or the other Loan Documents and whether or not a Default or Event of Default exists at the time, the Agent may require all Applicable Lenders with respect to a Borrower Group to honor requests or deemed requests by the Borrowers within such Borrower Group for Revolving Loans at a time that an Overadvance Condition with respect to such Borrower Group exists or which would result in an Overadvance Condition with respect to such Borrower Group and (i) each U.S. Revolving Lender shall be obligated to continue to make its Applicable Percentage of any such U.S. Overadvance Loan up to a maximum amount outstanding equal to its U.S. Revolving Commitment, so long as such U.S. Overadvance is not known by the Agent to exceed, together with U.S. Protective Advances described in Section 2.04(a), 10% of the U.S. Revolving Commitments at such time or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period and (ii) each Canadian Revolving Lender shall be obligated to continue to make its Applicable Percentage of any such Canadian Overadvance Loan up to a maximum amount outstanding equal to its Canadian Revolving Commitment so long as such Canadian Overadvance is not known by the Agent to exceed, together with Canadian Protective Advances described in Section 2.04(a), 10% of the Canadian Revolving Commitments at such time or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period.
SECTION 2.05 Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Applicable Swingline Lender with respect to a Borrower Group may in its discretion, and in reliance upon the agreements of the Applicable Lenders with respect to such Borrower Group set forth in this Section 2.05, make available Swingline Loans to the Borrowers within such Borrower Group from time to time during the Availability Period in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding U.S. Swingline Loans exceeding $85,000,000, (ii) the aggregate Dollar Equivalent Amount of principal amount of outstanding Canadian Swingline Loans exceeding $6,000,000, (iii) the total U.S. Revolving Exposures exceeding the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base, or (iv) the total Canadian Revolving Exposures exceeding the lesser of the total Canadian Revolving Commitments and the
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Canadian Borrowing Base; provided that no Applicable Swingline Lender shall be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers within each Borrower Group may borrow, prepay and reborrow Swingline Loans. To request a Swingline Loan for a Borrower within a Borrower Group, the Borrower Agent shall notify the Agent of such request by telephone (confirmed by a Swingline Borrowing Request), not later than 1:00 p.m., New York City time, or, with respect to Canadian Swingline Loans, 1:00 p.m., Toronto, Ontario time, on the day of a proposed Swingline Loan to such Borrower. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day), amount and currency (which shall be Dollars in the case of any Swingline Loan made to a U.S. Borrower or Dollars or Canadian Dollars in the case of a Swingline Loan made to a Canadian Borrower) of the requested Swingline Loan. The Agent will promptly advise the Applicable Swingline Lender of any such notice received from the Borrower Agent. The Applicable Swingline Lender shall make each Swingline Loan available to the Borrowers within a Borrower Group by means of a credit to the Applicable Funding Account of such Borrower Group or otherwise in accordance with the instructions of the Borrower Agent (including, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Applicable Issuing Bank, and in the case of repayment of another Loan or fees or expenses as provided by Section 2.18(c), by remittance to the Agent to be distributed to the Lenders) on the requested date of such Swingline Loan.
(b) To facilitate administration of the Revolving Loans, the Revolving Lenders and the Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans and the Swingline Loans and the Protective Advances shall take place on a periodic basis in accordance with this clause (b). The Agent shall request settlement (a “Settlement”) with the Applicable Lenders on at least a weekly basis, or on a more frequent basis if so determined by the Agent, (A) on behalf of the Applicable Swingline Lender, with respect to each outstanding Swingline Loan to a Borrower within the applicable Borrower Group and (B) with respect to collections received from such Borrower Group, in each case, by notifying the Applicable Lenders of such requested Settlement by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:30 p.m. New York City time, or with respect to Canadian Lenders, 2:30 p.m. Toronto, Ontario time, on the date of such requested Settlement (the “Settlement Date”). Each Applicable Lender (other than the Applicable Swingline Lender, in the case of Swingline Loans to the Borrowers within a Borrower Group) shall make the amount of such Applicable Lender’s Applicable Percentage of the outstanding principal amount of the Swingline Loans to such Borrowers within such Borrower Group with respect to which Settlement is requested available to the Agent, to such account of the Agent as the Agent may designate, not later than 3:30 p.m., New York City time, or with respect to Canadian Lenders, 3:30 p.m. Toronto, Ontario time, on the Settlement Date applicable thereto, which may occur before or after the occurrence or during the continuation of a Default or an Event of Default and whether or not the applicable conditions precedent set forth in Article IV have then been satisfied without regard to the any minimum amount specified therein. Such amounts made available to the Agent shall be applied against the amounts of the applicable Swingline Loan and, together with the portion of such Swingline Loan representing the Applicable Swingline Lender’s pro rata share thereof, shall constitute Revolving Loans of the Applicable Lenders. If any such amount is not made available to the Agent by any Applicable Lender on the Settlement Date applicable thereto, the Agent shall, on behalf of the Applicable Swingline Lender with respect to each outstanding Swingline Loan to a Borrower within the applicable Borrower Group, be entitled to recover such amount on demand from such Applicable Lender together with interest thereon at, with respect to U.S. Swingline Loans, the Federal Funds Effective Rate, and with respect to Canadian Swingline Loans, the Canadian Overnight Rate, in each case, for the first three days from and after the Settlement Date and thereafter at the interest rate then applicable to Floating Rate Loans to such Borrower Group in the applicable currency in which such Swingline Loan is denominated. Between Settlement Dates the Agent may pay over to the Applicable Swingline Lender any payments received by the Agent,
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which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans of the Borrowers within the Borrower Group for which such Applicable Swingline Lender is the Applicable Swingline Lender, for application to the Applicable Swingline Lender’s Revolving Loans or Swingline Loans to such Borrower Group. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to the Applicable Swingline Lender’s Revolving Loans to such Borrower Group, the Applicable Swingline Lender shall pay to the Agent for the accounts of the Applicable Lenders, to be applied to the outstanding Revolving Loans of such Applicable Lenders to such Borrower Group, an amount such that each Applicable Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Applicable Percentage of the Revolving Loans to such Borrower Group. During the period between Settlement Dates, the Applicable Swingline Lender with respect to Swingline Loans to the Borrowers within such Borrower Group, the Agent with respect to Protective Advances to such Borrower Group and each Applicable Lender with respect to its Revolving Loans to such Borrower Group shall be entitled to interest thereon at the applicable rate or rates payable under this Agreement.
(c) In addition, the Applicable Swingline Lender may by written notice given to the Agent not later than 1:00 p.m., New York City time, or, with respect to Canadian Swingline Loans, 1:00 p.m., Toronto, Ontario time, on any Business Day require the Applicable Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding that were made to the Borrowers within the Borrower Group with respect to which such Applicable Lenders issued Commitments. Such notice shall specify the aggregate amount of Swingline Loans to such Borrower Group in which the Applicable Lenders will participate. Promptly upon receipt of such notice, the Agent will give notice thereof to each Applicable Lender, specifying in such notice such Applicable Lender’s Applicable Percentage of such Swingline Loan or Loans to such Borrower Group. Each Applicable Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Agent, for the account of the Applicable Swingline Lender, such Applicable Lender’s Applicable Percentage of such Swingline Loan or Loans to such Borrower Group. Each Applicable Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans made to the Borrowers within the Borrower Group with respect to which such Applicable Lender has issued a Commitment 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. Each Applicable Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Applicable Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Applicable Lenders), and the Agent shall promptly pay to the Applicable Swingline Lender the amounts so received by it from the Applicable Lenders. The Agent shall notify the Borrower Agent of any participations in any Swingline Loan acquired pursuant to this paragraph. Any amounts received by the Applicable Swingline Lender from the Borrowers with the applicable Borrower Group (or other party on behalf of any such Borrower) in respect of a Swingline Loan after receipt by the Applicable Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Agent; any such amounts received by the Agent shall be promptly remitted by the Agent to the Applicable Lenders that shall have made their payments pursuant to this paragraph and to the Applicable Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Applicable Swingline Lender or the Agent, as applicable, if and to the extent such payment is required to be refunded to any Borrower with such Borrower Group for any reason. The purchase of participations in a Swingline Loan made to a Borrower within a Borrower Group pursuant to this paragraph shall not relieve the Borrowers within such Borrower Group of any default in the payment thereof.
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SECTION 2.06 Letters of Credit. (a) General. On and after the Effective Date, each Existing Letter of Credit shall be deemed to be a U.S. Letter of Credit issued hereunder for all purposes of this Agreement and the other Loan Documents and for purposes hereof will be deemed to have been issued on the Effective Date. Subject to the terms and conditions set forth herein, (i) each Applicable Issuing Bank with respect to a Borrower Group agrees, in reliance upon the agreements of the other Applicable Lenders to such Borrower Group set forth in this Section 2.06, (A) from time to time on any Business Day during the period from the Effective Date to but not including the 5th Business Day, prior to the Maturity Date, upon the request of the Borrower Agent, to issue Letters of Credit denominated in Dollars only (or, in the case of Letters of Credit issued under the Canadian Commitments, Dollars or Canadian Dollars, as requested by a Canadian Borrower) and issued on sight basis only for the account of one or more of the Borrowers of such Borrower Group (or any other Subsidiary of the Company so long as the Company is a joint and several co-applicant, and references to the Company or a “Borrower” in this Section 2.06 shall be deemed to include reference to such Subsidiary) and to amend or renew Letters of Credit previously issued by it, in accordance with Section 2.06(b), and (B) to honor drafts under the Letters of Credit, and (ii) the Applicable Lenders severally agree to participate in the Letters of Credit issued pursuant to Section 2.06(d) for the account of the Borrowers within such Borrower Group (including, with respect to U.S. Revolving Lenders, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company). Subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(b) Notice of 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 Borrower Agent shall hand deliver or facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Applicable Issuing Bank) to the Applicable Issuing Bank and the Agent, at least two (2) Business Days, in advance of the requested date of issuance (or such shorter period as is acceptable to the applicable Issuing Bank), a request to issue in the form of Exhibit E attached hereto (each a “Letter of Credit Request”). To request an amendment, extension or renewal of a Letter of Credit, the Borrower Agent shall submit such a request on its letterhead, addressed to the Applicable Issuing Bank (with a copy to the Agent) at least two (2) Business Days, in advance of the requested date of amendment, extension or renewal, identifying the Letter of Credit to be amended, renewed or extended, and specifying the proposed date (which shall be a Business Day) and other details of the amendment, extension or renewal. Requests for issuance, amendment, renewal or extension must be accompanied by such other information as shall be necessary to issue, amend, renew or extend such Letter of Credit. If requested by the Applicable Issuing Bank, the Borrower Agent also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. 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 Borrower Agent to, or entered into by the Borrower Agent or any Borrower within a Borrower Group with, the Applicable Issuing Bank relating to any Letter of Credit issued for the account of a Borrower within such Borrower Group, the terms and conditions of this Agreement shall control. A Letter of Credit shall be issued, amended, renewed or extended if (and on issuance, amendment, renewal or extension of each Letter of Credit the applicable Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the U.S. Exposure shall not exceed $50,000,000, (ii) the Dollar Equivalent Amount of Canadian LC Exposure shall not exceed $10,000,000, (iii) the total U.S. Revolving Exposures shall not exceed the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base, and (iv) the total Canadian Revolving Exposures shall not exceed the lesser of the total Canadian Revolving Commitments and the Canadian Borrowing Base. Promptly after the delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof,
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the Applicable Issuing Bank will also deliver to the Borrower Agent and the Agent a true and complete copy of such Letter of Credit or amendment. Upon receipt of such Letter of Credit or amendment, the Agent shall notify the Applicable Lenders, in writing, of such Letter of Credit or amendment, and if so requested by an Applicable Lender the Agent will provide such Applicable Lender with a copy of such Letter of Credit or amendment. With respect to commercial Letters of Credit, each Applicable Issuing Bank shall, on the first Business Day of each week, submit to the Agent, by facsimile, a report detailing the daily aggregate total of commercial Letters of Credit issued by such Applicable Issuing Bank for the previous calendar week.
(c) Expiration Date. Each standby Letter of Credit shall expire not later than the earlier of (i) the date one year after the date of the issuance of such Letter of Credit and (ii) the date that is five (5) Business Days prior to the Maturity Date; provided that any standby Letter of Credit may provide for the automatic extension thereof for any number of additional periods each of up to one year in duration (none of which, in any event, shall extend beyond the date referred to in clause (ii) of this paragraph (c)). Each commercial Letter of Credit shall expire on the earlier of (i) 180 days after the date of the issuance of such Letter of Credit and (ii) the date that is thirty (30) days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) for the account of a Borrower within a Borrower Group and without any further action on the part of the Applicable Issuing Bank or the Applicable Lenders, the Applicable Issuing Bank hereby grants to each Applicable Lender, and each Applicable Lender hereby acquires from such Applicable Issuing Bank, a participation in such Letter of Credit equal to such Applicable Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Applicable Lender hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Applicable Issuing Bank, such Applicable Lender’s Applicable Percentage of each LC Disbursement made by such Applicable Issuing Bank and not reimbursed by the Borrowers within the applicable Borrower Group on the date due as provided in paragraph (e) of this Section 2.06, or of any reimbursement payment required to be refunded to any Borrower within such Borrower Group for any reason. Each Applicable Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit issued for the account of a Borrower within a Borrower Group 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 to such Borrower Group, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Applicable Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued for the account of a Borrower within a Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company), the Borrowers within such Borrower Group shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, or with respect to Canadian LC Disbursements, 12:00 noon Toronto, Ontario time, on the Business Day immediately following the date the Borrower Agent receives notice of such LC Disbursement under paragraph (g) of this Section 2.06; provided that the Borrower Agent may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment (i) owing by the U.S. Borrowers be financed with an ABR Loan or U.S. Swingline Loan or (ii) owing by a Canadian Borrower be financed with a Canadian Base Rate Loan or Canadian Swingline Loan (if the Letter of Credit drawn upon was denominated in Dollars) or Canadian Prime Rate Loan or Canadian Swingline Loan (if the Letter of Credit drawn upon was denominated in Canadian Dollars), in each case, in an equivalent amount and, to the extent so financed, the obligation of the Borrowers within the applicable Borrower Group to make such payment
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shall be discharged and replaced by the resulting Floating Rate Loan or Swingline Loan. If the Borrowers within a Borrower Group fail to make such payment when due, the Agent shall notify each Applicable Lender of the applicable LC Disbursement, the payment then due from the Borrowers within such Borrower Group in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Applicable Lender shall pay to the Agent its Applicable Percentage of the payment then due from the Borrowers within the applicable Borrower Group, in the same manner as provided in Section 2.07 with respect to Loans made by such Applicable Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Applicable Lenders), and the Agent shall promptly pay to the Applicable Issuing Bank the amounts so received by it from the Applicable Lenders. Promptly following receipt by the Agent of any payment from the Borrowers within a Borrower Group pursuant to this paragraph, the Agent shall distribute such payment to the Applicable Issuing Bank or, to the extent that Applicable Lenders have made payments pursuant to this paragraph to reimburse such Applicable Issuing Bank, then to such Applicable Lenders and such Applicable Issuing Bank as their interests may appear.
(f) Obligations Absolute. The obligation of the Borrowers within each Borrower Group to reimburse LC Disbursements with respect to Letters of Credit issued for the account of such Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company) as provided in paragraph (e) of this Section 2.06 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 Applicable Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, any Borrower’s obligations hereunder. Neither the Agent, the Applicable Lenders nor any Applicable Issuing Bank, nor any of their Related Parties, 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 such Applicable Issuing Bank; provided that the foregoing shall not be construed to excuse such Applicable Issuing Bank from liability to the Borrowers within a Borrower Group to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by each Borrower to the extent permitted by applicable law) suffered by any Borrower within such Borrower Group that are caused by such Applicable 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 or willful misconduct on the part of the Applicable Issuing Bank (as finally determined by a court of competent jurisdiction), such Applicable 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 Applicable 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.
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(g) Disbursement Procedures. The Applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by such Applicable Issuing Base. Such Applicable Issuing Bank shall promptly notify the Agent and the Borrower Agent by telephone (confirmed by facsimile) of such demand for payment and whether such Applicable 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 within the applicable Borrower Group of their obligation to reimburse such Applicable Issuing Bank and the Applicable Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If an Applicable Issuing Bank shall make any LC Disbursement in respect of any Letter of Credit issued for the account of a Borrower within a Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company), then, unless the Borrowers within such Borrower Group 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 within such Borrower Group reimburse such LC Disbursement, at the rate per annum then applicable to ABR Loans that are Revolving Loans (in the case of any such Letter of Credit issued for the account of a U.S. Borrower), Canadian Base Rate Loans that are Revolving Loans (in the case of any such Letter of Credit denominated in Dollars that is issued for the account of a Canadian Borrower) or Canadian Prime Rate Loans that are Revolving Loans (in the case of any such Letter of Credit denominated in Canadian Dollars that issued for the account of a Canadian Borrower); provided that, if the Borrowers within a Borrower Group fail to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(f) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of payment by any Applicable Lender pursuant to paragraph (e) of this Section to reimburse such Applicable Issuing Bank shall be for the account of such Applicable Lender to the extent of such payment.
(i) Replacement of an Issuing Bank. An Issuing Bank may be replaced at the written request of the Borrower Agent and without the consent of the Agent at any time by written agreement among the Borrower Agent, the replaced Issuing Bank and the successor Issuing Bank, and acknowledged by the Agent. The Agent shall notify the Applicable Lenders of any such replacement of an Applicable Issuing Bank. At the time any such replacement shall become effective, the Borrowers within the applicable Borrower Group shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced 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 to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If (A) any Event of Default shall occur and be continuing, (B) an Overadvance Condition shall at any time exist, (C) the Maturity Date shall occur or (D) if and to the extent required in accordance with the provisions of Section 2.28, on the Business Day that the Borrower Agent receives notice from the Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, the Applicable Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, upon such demand, the Borrowers within each Borrower Group (or in the case of clause (B), the Borrowers within the Borrower Group with respect to which an Overadvance Condition exists) shall deposit, in an account
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with the Agent, in the name of the Agent and for the benefit of the Applicable Lenders (a “LC Collateral Account” and the LC Collateral Account funded by the U.S. Borrowers, the “U.S. LC Collateral Account” and the LC Collateral Account funded by a Canadian Borrower , the “Canadian LC Collateral Account”), an amount in cash equal to 103% of the LC Exposure of such Borrower Group as of such date; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower described in clause (g) or (h) of Article VII. Such deposit made by U.S. Borrowers shall be held by the Agent as collateral for the payment and performance of the Obligations in accordance with the provisions of this paragraph (j). Such deposit made by a Canadian Borrower shall be held by the Agent as collateral for the payment and performance of the Canadian Obligations in accordance with the provisions of this paragraph (j). The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account and each Borrower within a Borrower Group hereby grants the Agent a security interest in the LC Collateral Account funded by such Borrower Group. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Agent and at the risk and expense of the Borrowers within the applicable Borrower Group that funded such LC Collateral Account, 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 Agent to reimburse the Applicable 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 within the applicable Borrower Group for the LC Exposure to such Borrower Group at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Applicable Lenders with LC Exposure to such Borrower Group representing greater than 50% of the total LC Exposure to such Borrower Group), be applied to satisfy other Obligations (or, in the case of the Canadian LC Collateral Account, the Canadian Obligations). If the Borrowers within a Borrower Group are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (together with all interest and other earnings with respect thereto, to the extent not applied as aforesaid) shall be returned promptly to the Borrowers within such Borrower Group but in no event later than three (3) Business Days after such Event of Default has been cured or waived. If Borrowers within a Borrower Group fail to provide any cash collateral as required by this Section 2.06(j), the Applicable Lenders may (and, upon direction of the Agent, shall) advance, as Revolving Loans, the amount of the cash collateral required (whether or not the Commitments have terminated, a Protective Advance or Overadvance exists or the conditions in Article IV are satisfied).
SECTION 2.07 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, or with respect to Canadian Revolving Loans, 1:00 p.m., Toronto, Ontario time, to the account of the Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage; provided that, Swingline Loans shall be made as provided in Section 2.05. The Agent will make such Loans available to the Borrowers within the applicable Borrower Group by promptly crediting the amounts so received, in like funds, to the Applicable Funding Account or as otherwise directed by the Borrower Agent; provided that Floating Rate Loans made to finance the reimbursement of (i) an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Agent to the Applicable Issuing Bank and (ii) a Protective Advance shall be retained by the Agent to be applied as contemplated by Section 2.04 (and the Agent shall, upon the request of the Borrower Agent, deliver to the Borrower Agent a reasonably detailed accounting of such application).
(b) Unless the Agent shall have received notice from an Applicable Lender prior to the proposed date of any Borrowing by a Borrower within a Borrower Group that such Lender will not make available to the Agent such Lender’s share of such Borrowing, the Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and
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may, in reliance upon such assumption, make available to the Borrowers within such Borrower Group a corresponding amount. In such event, if an Applicable Lender has not in fact made its share of the applicable Borrowing available to the Agent, then the Applicable Lender and the Borrowers within the applicable Borrower Group severally agree to pay to the Agent forthwith on demand (without duplication) such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers within such Borrower Group to but excluding the date of payment to the Agent, at (i) in the case of such Lender, the greater of, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, and, in each case, a rate determined by the Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrowers within a Borrower Group, the interest rate applicable to Floating Rate Loans to such Borrowers in the applicable currency. If such Lender pays such amount to the Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Agent or any Borrower within a Borrower Group or any Loan Party may have against any Lender as a result of any default by such Lender hereunder.
SECTION 2.08 Type; Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of an Interest Period Loan, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower Agent may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of an Interest Period Loan, may elect Interest Periods therefor, all as provided in this Section 2.08. The Borrower Agent may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Applicable Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section 2.08 shall not apply to Swingline Loans or Protective Advances, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower Agent shall notify the Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower Agent were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be confirmed promptly by hand delivery or facsimile to the Agent of a written Interest Election Request in a form approved by the Agent and signed by the Borrower Agent.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the 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 Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting 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 Borrowing is to be a Floating Rate Loan or an Interest Period Loan; and
(iv) if the resulting Borrowing is an Interest Period Loan, the Type, and 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”.
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If any such Interest Election Request requests an Interest Period Loan but does not specify an Interest Period, then the Borrower Agent shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Agent shall advise each Applicable Lender of the details thereof and of such Applicable Lender’s portion of each resulting Borrowing.
(e) If the Borrower Agent fails to deliver a timely Interest Election Request with respect to an Interest Period Loan prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Floating Rate Loan in the same currency. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Agent, at the request of the Required Lenders, so notifies the Borrower Agent, then, so long as an Event of Default is continuing (i) no outstanding Borrowing with respect to Revolving Loans may be converted to or continued as an Interest Period Loan and (ii) unless repaid, each Interest Period Loan shall be converted to a Floating Rate Loan in the same currency at the end of the then-current Interest Period applicable thereto.
(f) The conversion of any Borrowing pursuant to this Section 2.08 shall not be, and shall not be deemed to be, a discharge, rescission, extinguishment, novation or substitution of the Borrowing and following such conversion, the Borrowing shall continue to be the same obligation and not a new obligation.
SECTION 2.09 Termination and Reduction of Revolving Commitments. (a) Unless previously terminated, all Revolving Commitments shall terminate on the Maturity Date applicable to them and each Extension Series of Extended Revolving Commitments shall terminate on the Maturity Date applicable to such Series.
(b) Upon delivering the notice required by Section 2.09(d), the Borrower Agent may at any time terminate the Revolving Commitments upon (i) the payment in full of all outstanding Revolving Loans, together with accrued and unpaid interest thereon, (ii) the cancellation and return of all outstanding Letters of Credit (or alternatively, with respect to each such Letter of Credit, the furnishing to the Agent of a cash deposit (or at the discretion of the Agent a back up standby letter of credit reasonably satisfactory to the Agent) equal to 103% of the LC Exposure as of such date) and (iii) the payment in full of all accrued and unpaid fees and all reimbursable expenses then due and payable under the Loan Documents.
(c) Upon delivering the notice required by Section 2.09(d), the Borrower Agent may from time to time reduce the Revolving Commitments of any Class; provided that (i) each reduction of the Revolving Commitments of a Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000, (ii) the Borrower Agent shall not reduce the Revolving Commitments of any Class if, after giving effect to any concurrent prepayment of the Revolving Loans of such Class in accordance with Section 2.10, the sum of (A) in the case of the U.S. Revolving Commitments, the U.S. Revolving Exposures would exceed the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base or (B) in the case of the Canadian Revolving Commitments, the Canadian Revolving Exposures would exceed the lesser of the total Canadian Revolving Commitments and the Canadian Borrowing Base, and (iii) any such reduction shall apply proportionately and permanently to reduce the Revolving Commitments of each of the Applicable Lenders within such Class, except that, notwithstanding the foregoing, in connection with the establishment on any date of any Extended Revolving Commitments pursuant to Section 2.27 to the Borrowers within a Borrower Group, the Revolving Commitments of any one or more the Applicable Lenders providing any such Extended
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Revolving Commitments on such date shall be reduced in an amount equal to the amount of the Revolving Commitments so extended on such date (provided that (x) after giving effect to any such reduction and to the repayment of any Revolving Loans made on such date, the U.S. Revolving Exposure of any such U.S. Revolving Lender does not exceed the lesser of the U.S. Revolving Commitment thereof and its Applicable Percentage of the U.S. Borrowing Base (such U.S. Revolving Exposure, U.S. Revolving Commitment and Applicable Percentage being determined in each case, for the avoidance of doubt, exclusive of such Lender’s Extended Revolving Commitment and any exposure in respect thereof), (y) after giving effect to any such reduction and to the repayment of any Revolving Loans made on such date, the Canadian Revolving Exposure of any such Canadian Revolving Lender does not exceed the lesser of the Canadian Revolving Commitment thereof and its Applicable Percentage of the Canadian Borrowing Base (such Canadian Revolving Exposure, Canadian Revolving Commitment and Applicable Percentage being determined in each case, for the avoidance of doubt, exclusive of such Lender’s Extended Revolving Commitment and any exposure in respect thereof), and (z) for the avoidance of doubt, any such repayment of Revolving Loans contemplated by the preceding clauses shall be made in compliance with the requirements of Section 2.18 with respect to the ratable allocation of payments hereunder, with such allocation being determined after giving effect to any exchange pursuant to Section 2.27 of Revolving Commitments and Revolving Loans into Extended Revolving Commitments and Extended Revolving Loans, respectively, and prior to any reduction being made to the Revolving Commitment of any other Lender).
(d) The Borrower Agent shall notify the Agent of any election to terminate or reduce the Revolving Commitments to the Borrowers of any Class under paragraph (b) or (c) of this Section at least three (3) 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 Agent shall advise the Applicable Lenders of the contents thereof. Any termination or reduction of the Revolving Commitments pursuant to this Section 2.09 shall be permanent.
SECTION 2.10 Repayment of Loans; Evidence of Debt. (a) Each Borrower within a Borrower Group hereby unconditionally promises to pay (i) to the Agent for the account of each Applicable Lender the then unpaid principal amount of each Revolving Loan made by such Applicable Lender on the Maturity Date, (ii) to the Agent the then unpaid amount of each Protective Advance made to or for the account of the Borrowers within such Borrower Group on the earlier of the Maturity Date and demand by the Agent, (iii) to the Applicable Swingline Lender the then unpaid principal amount of each Swingline Loan made by such Applicable Swingline Lender on the Maturity Date and (iv) to the Agent for the account of each Applicable Extending Lender of each Extension Series made available to the Borrowers within such Borrower Group, the then unpaid principal amount of each Extended Revolving Loan of such Extension Series on the maturity date for such Extension Series; provided that on each date that a Revolving Loan to a Borrower within a Borrower Group is made while any Swingline Loan or Protective Advance made to the Borrowers within such Borrower Group is outstanding, the Borrowers within such Borrower Group shall repay all such Swingline Loans and Protective Advances with the proceeds of such Revolving Loan then outstanding.
(b) At all times after the occurrence and during the continuance of a Liquidity Event and notification thereof by the Agent to the Borrower Agent (subject to the provisions of Section 2.18(b) and to the terms of the Security Agreement), on each Business Day, at or before 1:00 p.m., New York City time, or with respect to Canadian Revolving Loans, 1:00 p.m. Toronto, Ontario time, the Agent shall apply all immediately available funds credited to the BANA Account of a Borrower Group or such other account of such Borrower Group directed by the Agent pursuant to Section 2.21(b), first to pay any fees or expense reimbursements then due to the Agent, the Applicable Issuing Banks and the Applicable Lenders (other than in connection with Banking Services or Secured Swap Obligations), pro rata, second to pay interest due and payable in respect of any Revolving Loans (including Swingline Loans) made to
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the Borrowers within such Borrower Group and any Protective Advances made to the Borrowers within such Borrower Group that may be outstanding, pro rata, third to prepay the principal of any Protective Advances made to the Borrowers within such Borrower Group that may be outstanding, pro rata, and fourth to prepay the principal of the Revolving Loans (including Swingline Loans) made to the Borrowers within such Borrower Group and to cash collateralize outstanding LC Exposure of the Applicable Issuing Bank and Applicable Lenders with respect to such Borrower Group, pro rata. It being understood that in no event shall any of the Canadian Loan Parties make any payment hereunder or under any other Loan Document on account of any U.S. Obligations.
(c) Each Applicable Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers within a Borrower Group to such Applicable Lender resulting from each Loan made by such Lender to any Borrower within such Borrower Group, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(d) The Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder to a Borrower within a Borrower Group, the Class and Type thereof and the Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers within such Borrower Group to each Applicable Lender hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Applicable Lenders and each Applicable Lender’s share thereof.
(e) The entries made in the accounts maintained pursuant to paragraph (c) or (d) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Applicable Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers within a Borrower Group to repay the Loans made to the Borrowers within such Borrower Group in accordance with the terms of this Agreement.
(f) Any Applicable Lender may request that Revolving Loans made by it to the Borrowers within a Borrower Group be evidenced by a promissory note. In such event, the Borrowers within such Borrower Group shall prepare, execute and deliver to such Applicable Lender a promissory note payable to such Applicable Lender and its registered assigns and in substantially the form of Exhibit G-1 hereto, in the case of any promissory note issued to a Canadian Lender, and Exhibit G-2, in the case of any promissory note issued to a U.S. Lender.
SECTION 2.11 Prepayment of Loans. (a) Upon prior notice in accordance with paragraph (d) of this Section 2.11, the Borrowers within a Borrower Group shall have the right at any time and from time to time to prepay any Revolving Borrowing owing by such Borrowers in whole or in part without premium or penalty (but subject to Section 2.16).
(b) Except for U.S. Protective Advances and U.S. Overadvance Loans permitted under Section 2.04, in the event and on each Business Day on which the total U.S. Revolving Exposure exceeds the lesser of (i) the aggregate U.S. Revolving Commitments and (ii) the U.S. Borrowing Base, the U.S. Borrowers shall promptly prepay first, any outstanding U.S. Swingline Loans in an amount equal to such excess U.S. Swingline Loans, second, if any excess remains after prepaying all U.S. Swingline Loans, any outstanding U.S. Revolving Loans in an amount equal to any remaining excess and third, if any excess remains after prepaying all U.S. Swingline Loans and all U.S. Revolving Loans, depositing an amount in cash in an amount equal to any remaining excess in the U.S. LC Collateral Account. Except for Canadian Protective Advances and Canadian Overadvance Loans permitted under Section 2.04, in the event and on each Business Day on which the total Canadian Revolving Exposure exceeds the lesser of
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(i) the aggregate Canadian Revolving Commitments and (ii) the Canadian Borrowing Base, the Canadian Borrowers shall promptly prepay first, any outstanding Canadian Swingline Loans in an amount equal to such excess Canadian Swingline Loans, second, if any excess remains after prepaying all Canadian Swingline Loans, any outstanding Canadian Revolving Loans in an amount equal to any remaining excess and third, if any excess remains after prepaying all Canadian Swingline Loans and all Canadian Revolving Loans, depositing an amount in cash in an amount equal to any remaining excess in the Canadian LC Collateral Account.
(c) On each occasion that a Non-Ordinary Course Asset Disposition or Recovery Event occurs with respect to any Borrower Group when (i) with respect to U.S. Borrowers, U.S. Excess Availability is less than 12.5% of the lesser of (A) the U.S. Revolving Commitments and (B) the U.S. Borrowing Base, or (ii) with respect to the Canadian Borrowers, Canadian Excess Availability is less than 12.5% of the lesser of (A) the Canadian Revolving Commitments and (B) the Canadian Borrowing Base, then, in either case, , the Borrowers within such Borrower Group shall promptly prepay after receipt of any Net Cash Proceeds therefrom, first, any outstanding Swingline Loans owing by such Borrowers, in an amount equal to such Net Cash Proceeds, second, if any Net Cash Proceeds remain after prepaying all Swingline Loans owing by such Borrowers, any outstanding Revolving Loans owing by such Borrowers in an amount equal to any remaining Net Cash Proceeds, and third, if any Net Cash Proceeds remain after prepaying all Swingline Loans and all Revolving Loans owing by such Borrowers, depositing an amount in cash equal to any remaining Net Cash Proceeds in the LC Collateral Account of such Borrowers.
(d) The Borrower Agent shall notify the Agent (and, in the case of prepayment of a Swingline Loan, the Applicable Swingline Lender) by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of an Interest Period Loan, not later than 12:00 noon, New York City time, or with respect to Canadian BA Rate Loans, 12:00 noon, Toronto, Ontario time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of a Floating Rate Loan, not later than 10:00 a.m., New York City time, or with respect to Canadian Prime Rate Loans or Canadian Base Rate Loans, 10:00 a.m., Toronto, Ontario time, on the day of prepayment, or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, or with respect to Canadian Swingline Loans, 12:00 noon, Toronto, Ontario time, on the date of prepayment. Each such notice shall specify the prepayment date, the Borrower Group obligated thereon and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Agent shall advise the Applicable 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. Each prepayment of a Borrowing of the Borrowers within a Borrower Group shall be applied ratably to the Loans of such Borrower Group included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.
SECTION 2.12 Fees. (a) The Borrowers within each Borrower Group agree to pay to the Agent for the account of each Applicable Lender a commitment fee, which shall accrue at the Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Applicable Lender during the period from and including the Effective Date to but excluding the date on which the Applicable Lenders’ Revolving Commitments to such Borrowers terminate. Accrued commitment fees owing by (i) a Canadian Borrower shall be payable in arrears on the first Business Day of each January, April, July and October and on the date on which the Canadian Revolving Commitments to such Borrower terminate, commencing on the first such date to occur after the date hereof, and (ii) U.S. Borrowers shall be payable in arrears on the first calendar day of each January, April, July and October and on the date on which the U.S. Revolving Commitments to such Borrowers terminate, commencing on the first such date to occur after the date hereof. 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 calculating the commitment fees only, no portion of the Revolving Commitments to such Borrowers shall be deemed utilized as a result of outstanding Swingline Loans owing by such Borrowers.
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(b) The Borrowers within each Borrower Group agree to pay (i) to the Agent for the account of each Applicable Lender a participation fee with respect to its participations in Letters of Credit issued for the account of a Borrower within such Borrower Group (including, in the case of U.S. Revolving Lenders any Letter of Credit with respect to which the Company is a co-applicant with a Subsidiary of the Company), which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Interest Period Loans on the daily amount of such Applicable Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements made for the account of any such Borrower), during the period from and including the Effective Date to but excluding the later of the date on which such Applicable Lender’s Revolving Commitment terminates and the date on which such Applicable Lender ceases to have any LC Exposure, and (ii) to each Applicable Issuing Bank, for its own account, a fronting fee, in respect of each Letter of Credit issued by such Applicable Issuing Bank for the period from the date of issuance of such Letter of Credit through the expiration date of such Letter of Credit (or if terminated on an earlier date to the termination date of such Letter of Credit), computed at a rate equal to 0.125% per annum or such other percentage per annum to be agreed upon between the Borrower Agent and such Applicable Issuing Bank of the daily stated amount of such Letter of Credit, as well as such Applicable Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder; provided that no fronting fee payable pursuant to this clause (ii) shall be less than the Dollar Equivalent Amount of $500.00 per annum. Participation fees and fronting fees accrued through and including the last day of each March, June, September and December shall be payable by (i) the Canadian Borrowers on the first Business Day of each January, April, July and October, and (ii) U.S. Borrowers on the first calendar day of each January, April, July and October, in each case, 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 Revolving Commitments of the Borrowers within the applicable Borrower Group terminate and any such fees accruing after the date on which such Commitments terminate shall be payable on demand. Any other fees payable to any Applicable Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All 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.
(c) The Borrowers within each Borrower Group agree to pay to the Agent, for its own account, such agency fees as may be separately agreed upon by the Company and the Agent with respect to such Borrower Group, including pursuant to the Fee Letter, payable in the amounts and at the times so agreed.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Agent (or to the Applicable Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
SECTION 2.13 Interest. (a) The Revolving Loans that are ABR Loans (including each U.S. Swingline Loan and each U.S. Protective Advance) shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Revolving Loans that are LIBOR Rate Loans shall bear interest at the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
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(c) The Revolving Loans that are Canadian Base Rate Loans (including each Canadian Swingline Loan denominated in Dollars and each Canadian Protective Advance denominated in Dollars) shall bear interest at the Canadian Base Rate plus the Applicable Rate.
(d) The Revolving Loans that are Canadian Prime Rate Loans (including each Canadian Swingline Loan denominated in Canadian Dollars and each Canadian Protective Advance denominated in Canadian Dollars) shall bear interest at the Canadian Prime Rate plus the Applicable Rate.
(e) The Revolving Loans that are Canadian BA Rate Loans shall bear interest at the Canadian BA Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(f) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers within a Borrower Group hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount (A) owed by the U.S. Borrowers, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section, (B) owed by the Canadian Borrowers in Dollars, 2% plus the rate applicable to Canadian Base Rate Loans, or (C) owed by the Canadian Borrowers in Canadian Dollars, 2% plus the rate applicable to Canadian Prime Rate Loans.
(g) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the applicable Commitments; provided that (i) interest accrued pursuant to paragraph (f) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a Floating Rate Loan prior to the end of the 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 Interest Period 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.
(h) All interest and fees hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the U.S. Prime Rate, the Canadian Base Rate, the Canadian Prime Rate, and the Canadian BA Rate shall be computed on the basis of a year of 365 days, and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For the purposes of the Interest Act (Canada), (i) whenever any interest under this Agreement is calculated using a rate based on a year of 360 days or any other period of time that is less than a calendar year, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the applicable rate based on the number of days in the calendar year, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest is payable (or compounded) ends, and (z) divided by 360, or such other period of time that is less than the calendar year, (ii) the principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement, and (iii) the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields.
(i) The applicable Alternate Base Rate, Adjusted LIBOR Rate, LIBOR Rate, Canadian BA Rate, Canadian Base Rate and Canadian Prime Rate shall be determined by the Agent, and such determination shall be conclusive absent manifest error.
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SECTION 2.14 Alternate Rate of Interest. If prior to the commencement of any Interest Period for an Interest Period Loan:
(i) the Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate, the LIBOR Rate, or the Canadian BA Rate, as applicable, for such Interest Period; or
(ii) the Agent is advised by the Required Lenders that the Adjusted LIBOR Rate, the LIBOR Rate, or the Canadian BA Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Agent shall promptly give notice thereof to the Borrower Agent and the Applicable Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Agent notifies the Borrower Agent and the Applicable 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 LIBOR Rate Loan or a Canadian BA Rate Loan, as applicable, shall be ineffective and such Borrowing shall be converted to a Floating Rate Loan in the same currency on the last day of the Interest Period applicable thereof, and (ii) if any Borrowing Request requests an Interest Period Loan, such Borrowing shall be made as a Floating Rate Loan in the same currency.
SECTION 2.15 Increased Costs. (a) If any Change in Law shall 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 Applicable Lender (except any such reserve requirement reflected in the Adjusted LIBOR Rate) or Applicable Issuing Bank; or impose on any Applicable Lender or Applicable Issuing Bank or the London interbank market any other condition affecting this Agreement or Interest Period Loans made by such Applicable Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Applicable Lender of making or maintaining any Interest Period Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Applicable Lender or Applicable 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 Applicable Lender or Applicable Issuing Bank hereunder (whether of principal, interest or otherwise), then, following delivery of the certificate contemplated by paragraph (c) of this Section, the Borrowers within the applicable Borrower Group will pay to such Applicable Lender or Applicable Issuing Bank, as applicable, such additional amount or amounts as will compensate such Applicable Lender or Applicable Issuing Bank, as applicable, for such additional costs incurred or reduction suffered (except for any Taxes, which shall be dealt with exclusively pursuant to Section 2.17).
(b) If any Applicable Lender or Applicable 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 Applicable Lender’s or Applicable Issuing Bank’s capital or on the capital of such Applicable Lender’s or Applicable 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 Applicable Lender, or the Letters of Credit issued by such Applicable Issuing Bank, to a level below that which such Applicable Lender or such Applicable Issuing Bank or such Applicable Lender’s or such Applicable Issuing Bank’s holding company could have achieved but for such Change in Law other than due to Taxes, which shall be dealt with exclusively pursuant to Section 2.17 (taking into consideration such Applicable Lender’s or such Applicable Issuing Bank’s policies and the policies of such Applicable Lender’s or such Applicable Issuing Bank’s holding company with respect to capital adequacy), then from time to time following delivery of the certificate contemplated by paragraph (c) of this Section the Borrowers within the applicable Borrower Group will pay to such Applicable Lender or such Applicable Issuing Bank, as applicable, such additional amount or amounts as will compensate such Applicable Lender or such Applicable Issuing Bank or such Applicable Lender’s or such Applicable Issuing Bank’s holding company for any such reduction suffered.
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(c) A certificate of an Applicable Lender or an Applicable Issuing Bank setting forth the amount or amounts necessary to compensate such Applicable Lender or Applicable Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower Agent and shall be conclusive absent manifest error. The Borrowers within the applicable Borrower Group shall pay such Applicable Lender or Applicable Issuing Bank, as applicable, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Applicable Lender or Applicable Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Applicable Lender’s or Applicable Issuing Bank’s right to demand such compensation; provided that the Borrowers within the applicable Borrower Group shall not be required to compensate an Applicable Lender or an Applicable Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Applicable Lender or Applicable Issuing Bank, as applicable, notifies the Borrower Agent of the Change in Law giving rise to such increased costs or reductions and of such Applicable Lender’s or Applicable 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 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Interest Period Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Interest Period Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Interest Period Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(d) and is revoked in accordance therewith), or (d) the assignment of any Interest Period Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower Agent pursuant to Section 2.19 or 9.02(e), then, in any such event, the Borrowers within the affected Borrower Group shall compensate each Applicable Lender for the loss, cost and expense attributable to such event. In the case of an Interest Period Loan, such loss, cost or expense to any Applicable Lender shall be deemed to be the amount determined by such Applicable 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 or Canadian BA Rate, as applicable, 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 Applicable 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 Applicable Lender setting forth any amount or amounts that such Applicable Lender is entitled to receive pursuant to this Section and the basis therefor and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower Agent and shall be conclusive absent manifest error. The Borrowers within the effected Borrower Group shall pay such Applicable Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
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SECTION 2.17 Taxes.
(a) Any and all payments by or on account of any obligation of any Loan Party hereunder or any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if a Loan Party shall be required to deduct, withhold, or remit any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions or remittances applicable to additional sums payable under this Section) the Agent, Applicable Lender or any Applicable Issuing Bank (as applicable) receives an amount equal to the sum it would have received had no such deductions or remittances, been made, (ii) such Loan Party shall make such deductions and remittances, and (iii) such Loan Party shall timely pay and remit the full amount deducted to the relevant Governmental Authority in accordance with applicable law. If at any time a Loan Party is required by applicable law to make any deduction, remittance or withholding from any sum payable hereunder, such Loan Party shall promptly notify the Applicable Lender, Agent or Applicable Issuing Bank upon becoming aware of the same. In addition, each Applicable Lender, Agent or Applicable Issuing Bank shall promptly notify a Loan Party upon becoming aware of any circumstances as a result of which a Loan Party is or would be required to make any deduction, remittance, or withholding from any sum payable hereunder.
(b) In addition, the Loan Parties within each Borrower Group shall pay any Other Taxes with respect to the Loans and Commitments to the Borrowers within such Borrower Group and this Agreement as it relates to such Borrower Group to the relevant Governmental Authority in accordance with applicable law.
(c) Each Loan Party within a Borrower Group shall indemnify the Agent, each Applicable Lender and each Applicable Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Agent, such Applicable Lender or such Applicable Issuing Bank, as applicable, on or with respect to any payment by or on account of any obligation of such Loan Party hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other 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 the Borrower Agent by an Applicable Lender or an Applicable Issuing Bank, or by the Agent on its own behalf or on behalf of an Applicable Lender, or an Applicable Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a Loan Party to a Governmental Authority, such Loan Party shall deliver to the Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower Agent (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower Agent as will permit such payments to be made without withholding or at a reduced rate (including any documentation necessary to prevent withholding under Sections 1471 or 1472 of the Code). In particular, on or prior to the date which is ten (10) Business Days after the Effective Date, each Foreign Lender in respect of a U.S. Borrower shall deliver to the Borrower Agent (with a copy to the Agent) two duly signed, properly completed copies of Internal Revenue Service (“IRS”) Form W-8BEN or any successor thereto (relating to such Foreign Lender and entitling it to an exemption from, or reduction of, United States withholding tax on payments to be made to such Foreign Lender by any
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Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document), IRS Form W-8ECI or any successor thereto (relating to payments to be made to such Foreign Lender by any Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document), IRS Form W-8IMY (and any applicable underlying IRS Forms) or such other evidence reasonably satisfactory to the Borrower Agent and the Agent that such Foreign Lender is entitled to an exemption from, or reduction of, United States withholding tax, including any exemption pursuant to Section 871(h) or 881(c) of the Code, and in the case of a Foreign Lender claiming such an exemption under Section 881(c) of the Code, a certificate that establishes in writing to the Borrower Agent and the Agent that such Foreign Lender is not (i) a “bank” as defined in Section 881(c)(3)(A) of the Code, (ii) a 10-percent shareholder within the meaning of Section 871(h)(3)(B) of the Code, or (iii) a controlled foreign corporation related to a Borrower with the meaning of Section 864(d)(4) of the Code. Thereafter and from time to time, each such Foreign Lender shall (A) promptly so long as it is eligible to do so submit to the Borrower Agent (with a copy to the Agent) such additional duly completed and signed copies of one or more of such forms or certificates (or such successor forms or certificates as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is reasonably satisfactory to the Borrower Agent and the Agent of any available exemption from, or reduction of, United States withholding taxes in respect of all payments to be made to such Foreign Lender by any Borrower or other Loan Party pursuant to this Agreement, or any other Loan Document, in each case, (1) on or before the date that any such form, certificate or other evidence expires or becomes obsolete, (2) after the occurrence of any event requiring a change in the most recent form, certificate or evidence previously delivered by it to the Borrower Agent and (3) from time to time thereafter if reasonably requested by the Borrower Agent or the Agent, and (B) promptly notify the Borrower Agent and the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. For the avoidance of doubt, if, as a result of a Change in Law, a Foreign Lender is no longer legally able to provide documentation with respect to an exemption from or a reduction of withholding tax, such Foreign Lender will be treated as complying with this Section 2.17(e) and such inability will not affect the Foreign Lender’s rights under Section 2.17(a). If a payment made to a Lender under this Agreement would be subject to U.S. Federal withholding Tax imposed by FATCA, such Lender shall deliver to the Withholding Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Withholding 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 Withholding Agent as may be necessary for the Withholding Agent to comply with its obligations under FATCA, to determine that such Lender has complied with such Lender’s obligations under FATCA, applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable) or to determine the amount to deduct and withhold from such payment. Solely for purposes of this paragraph (e), “FATCA” shall include any amendments made to FATCA after the Effective Date.
(f) Each Lender, Agent or Issuing Bank that is a “United States person” within the meaning of Section 7701(a)(30) of the Code, agrees to complete and deliver to the Borrower Agent a statement signed by an authorized signatory of the Lender to the effect that it is a United States person together with a duly completed and executed copy of IRS Form W-9 or successor form and any documentation necessary to prevent withholding under Sections 1471 or 1472 of the Code, to the extent applicable.
(g) If the Agent, a Lender, or an Issuing Bank determines, in good faith in its reasonable sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which such Loan Party has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to such Loan Party (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
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expenses of the Agent or such Lender (including any Taxes imposed with respect to such refund) as is determined by the Agent or such Lender in good faith in its sole discretion, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that such Loan Party, upon the request of the Agent or such Lender, agrees to repay as soon as reasonably practicable the amount paid over to such Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to such Loan Party or any other Person.
(h) If the Borrower Agent determines in good faith that a reasonable basis exists for contesting any Indemnified Taxes or Other Taxes for which additional amounts have been paid under this Section 2.17, the Applicable Lender, Agent or Applicable Issuing Bank shall cooperate with the Borrower Agent in challenging such Indemnified Taxes or Other Taxes, at the expense of the Borrowers within the applicable Borrower Group, if so requested by the Borrower Agent in writing.
SECTION 2.18 Payments Generally; Allocation of Proceeds; Sharing of Set-offs. (a) Unless otherwise specified, each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., New York City time, or with respect to Canadian LC Disbursements, 2:00 p.m., Toronto, Ontario time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the 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 Agent to the applicable account designated to the Borrower Agent by the Agent, except payments to be made directly to the Applicable Issuing Bank or the Applicable Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Except to the extent otherwise provided herein, if any payment hereunder 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. Any payment required to be made by the Agent hereunder shall be deemed to have been made by the time required if the Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Agent to make such payment. At all times that the circumstances specified in Section 2.21(d) are in effect, solely for purposes of determining the amount of Revolving Loans available for borrowing purposes, checks and cash or other immediately available funds from collections of items of payment and proceeds of any Collateral shall be applied in whole or in part against the applicable Obligations, on the day of receipt, subject to actual collection.
(b) (i) Subject in all respects to the provisions of the Intercreditor Agreement, all proceeds of U.S. Collateral received by the Agent after an Event of Default has occurred and is continuing shall upon election by the Agent or at the direction of the Required Lenders be applied, first, to, ratably, pay any fees, indemnities, or expense reimbursements then due to the Agent or any U.S. Issuing Bank from the U.S. Borrowers (other than in connection with Banking Services or Secured Swap Obligations), second, ratably, to pay any fees or expense reimbursements then due to the U.S. Revolving Lenders (other than in connection with Banking Services or Secured Swap Obligations), third, to pay interest due and payable in respect of any U.S. Revolving Loans from the U.S. Borrowers (including any U.S. Swingline Loans) and any U.S. Protective Advances, ratably, fourth, to pay the principal of the U.S. Protective Advances, fifth, to prepay principal on the U.S. Revolving Loans (other than the U.S.
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Protective Advances) and unreimbursed U.S. LC Disbursements, ratably, sixth, to pay an amount to the Agent equal to 103% of the U.S. LC Exposure on such date, to be held in the U.S. LC Collateral Account as cash collateral for such Obligations, seventh, to pay any amounts owing with respect to Banking Services and Secured Swap Obligations that are U.S. Obligations, ratably, eighth, to the payment of any other U.S. Obligation due to the Agent or any U.S. Revolving Lender, ninth, to the Canadian Obligations in the order provided in Section 2.18(b)(ii), tenth, as provided for under the Intercreditor Agreement and eleventh, to the U.S. Borrowers or as the Borrower Agent shall direct.
(ii) All proceeds of Canadian Collateral received by the Agent after an Event of Default has occurred and is continuing shall upon election by the Agent or at the direction of the Required Lenders be applied, first, to, ratably, pay any fees, indemnities, or expense reimbursements then due to the Agent or any Canadian Issuing Bank from the Canadian Loan Parties (other than in connection with Banking Services or Secured Swap Obligations), second, ratably, to pay any fees or expense reimbursements then due to the Canadian Revolving Lenders from the Canadian Loan Parties (other than in connection with Banking Services or Secured Swap Obligations), third, to pay interest due and payable in respect of any Canadian Revolving Loans (including any Canadian Swingline Loans) and any Canadian Protective Advances, ratably, fourth, to pay the principal of the Canadian Protective Advances, fifth, to prepay principal on the Canadian Revolving Loans (other than the Canadian Protective Advances) and unreimbursed Canadian LC Disbursements, ratably, sixth, to pay an amount to the Agent equal to 103% of the Canadian LC Exposure on such date, to be held in the Canadian LC Collateral Account as cash collateral for such Obligations, seventh, to pay any amounts owing with respect to Banking Services and Secured Swap Obligations that are Canadian Obligations, ratably, eighth, to the payment of any other Canadian Obligation due to the Agent or any Canadian Revolving Lender from any Canadian Loan Party, and ninth, to the Canadian Borrowers or as the Borrower Agent shall direct.
(c) If any Applicable Lender shall, by exercising any right of set-off 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, Swingline Loans or Protective Advances with respect to the applicable Borrower Group resulting in such Applicable Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements, Swingline Loans or Protective Advances owing by the Borrowers within such Borrower Group and accrued interest thereon than the proportion received by any other Applicable Lender to the Borrowers within such Borrower Group, then the Applicable Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group that are held by the other Applicable Lenders at such time outstanding to the extent necessary so that the benefit of all such payments shall be shared by the Applicable Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group; provided that (A) 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 (B) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by an Applicable Lender as consideration for the assignment of or sale of a participation in any of its Revolving Loans or participations in LC Disbursements, Swingline Loans or Protective Advances to any assignee or participant. Each Borrower within a Borrower Group consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Applicable Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Applicable Lender were a direct creditor of such Borrower in the amount of such participation.
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(d) Unless the Agent shall have received notice from the Borrower Agent prior to the date on which any payment is due to the Agent for the account of the Applicable Lenders or the Applicable Issuing Bank hereunder that the Borrowers within the applicable Borrower Group will not make such payment, the Agent may assume that the Borrowers within such Borrower Group have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Applicable Lenders or the Applicable Issuing Bank, as applicable, the amount due. In such event, if the Borrowers within such Borrower Group have not in fact made such payment, then each of the Applicable Lenders or the Applicable Issuing Bank, as applicable, severally agrees to repay to the Agent forthwith on demand the amount so distributed to such Applicable Lender or Applicable 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 Agent, at the greater of, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, and, in each case, a rate determined by the Agent in accordance with banking industry rules on interbank compensation.
(e) If any Applicable Lender shall fail to make any payment required to be made by it pursuant to Sections 2.04(b), 2.05(b), 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(c) or 9.03(c), then the Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Agent for the account of such Applicable Lender to satisfy such Applicable Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
(f) Anything contained herein to the contrary notwithstanding, the Agent may (but shall not be required to), in its discretion, retain any payments or other funds received by the Agent that are otherwise to be provided to an Applicable Defaulting Lender hereunder, and may apply such funds to such Applicable Defaulting Lender’s defaulted obligations or readvance such funds to the Borrowers within the applicable Borrower Group in connection with the funding of any Revolving Loan to such Borrowers or issuance of any Letters of Credit for the account of such Borrowers hereunder, including cash collateralization thereof, in accordance with this Agreement.
SECTION 2.19 Mitigation Obligations; Replacement of Lenders. (a) If any Applicable Lender requests compensation under Section 2.15, or if any Borrower within a Borrower Group is required to pay any additional amount to any Applicable Lender or any Governmental Authority for the account of any Applicable Lender pursuant to Section 2.17, then such Applicable Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans to the Borrowers within such Borrower Group hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Applicable Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as applicable, in the future and (ii) would not subject such Applicable Lender to any material unreimbursed cost or expense and would not otherwise be disadvantageous to such Applicable Lender in any material respect. The Borrowers within the applicable Borrower Group hereby agree to pay all reasonable costs and expenses incurred by any Applicable Lender in connection with any such designation or assignment.
(b) If any Applicable Lender requests compensation under Section 2.15, or if any Borrower within a Borrower Group is required to pay any additional amount to any Applicable Lender or any Governmental Authority for the account of any Applicable Lender pursuant to Section 2.17, or if any Applicable Lender is an Applicable Defaulting Lender, then the Borrower Agent may, at its sole expense and effort, upon notice to such Applicable Lender and the Agent, replace such Applicable Lender by requiring such Applicable Lender to assign and delegate (and such Applicable Lender shall be obligated to assign and delegate), without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall
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assume such obligations (which assignee may be another Lender, if such Lender accepts such assignment); provided that (i) the Borrower Agent shall have received the prior written consent of the Agent and each Applicable Issuing Bank, which consent in each case shall not unreasonably be withheld, (ii) such Applicable Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group, accrued interest thereon, accrued fees and all other amounts payable to it hereunder with respect to such Borrower Group, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers within such Borrower Group (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. The Agent is irrevocably appointed as attorney-in-fact to execute any Assignment and Assumption(s) if the Applicable Defaulting Lender fails to execute the same. A Lender (other than a Defaulting 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 Borrower Agent to require such assignment and delegation cease to apply. Nothing in this Section 2.19 shall be deemed to prejudice any rights that any Borrower within a Borrower Group or any Applicable Issuing Bank may have against any Applicable Lender that is an Applicable Defaulting Lender.
SECTION 2.20 Illegality. If any Applicable Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted after the Effective Date that it is unlawful, for such Applicable Lender or its applicable lending office to make or maintain any Interest Period Loans, then, on notice thereof by such Applicable Lender to the Borrower Agent through the Agent, any obligations of such Applicable Lender to make or continue Interest Period Loans or to convert Floating Rate Loans to Interest Period Loans shall be suspended until such Applicable Lender notifies the Agent and the Borrower Agent that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower Agent shall upon demand from such Applicable Lender (with a copy to the Agent), either convert all Interest Period Loans of such Lender to Floating Rate Loans in the same currency, either on the last day of the Interest Period therefor, if such Applicable Lender may lawfully continue to maintain such Interest Period Loans to such day, or immediately, if such Applicable Lender may not lawfully continue to maintain such Loans. Upon any such prepayment or conversion, the Borrowers within the applicable Borrower Group shall also pay accrued interest on the amount so prepaid or converted. Each Applicable Lender agrees to designate a different lending office if such designation will avoid the need for such notice and will not, in the determination of such Applicable Lender, otherwise be disadvantageous to it.
SECTION 2.21 Cash Receipts. (a) Each U.S. Loan Party has entered into, and each Canadian Loan Party shall, within ninety (90) days after the Effective Date (or such later date approved by the Agent in its reasonable discretion), enter into, a control agreement (each, a “Blocked Account Agreement”), in form reasonably satisfactory to the Agent, with the Agent and any bank with which such Loan Party maintains a DDA (other than an Excluded Account) (collectively, the “Blocked Accounts”). Each Loan Party acknowledges and agrees that each Blocked Account shall operate solely as a collections account and that such Loan Party shall maintain a separate disbursement account for the disbursement of monies to third parties in the ordinary course of their business and other similar disbursement activities, including the presentment of checks and any ACH transfers.
(b) Each U.S. Loan Party agrees that it will cause all proceeds of the ABL First Lien Collateral (other than the Uncontrolled Cash) and for any Canadian Loan Parties, the equivalent portion of the Canadian Collateral to “ABL First Lien Collateral” (other than Uncontrolled Cash) to be deposited into a Blocked Account, which deposits may be made through a remote scanning process for purposes of depositing payment items into the Blocked Accounts from time to time. Each Loan Party agrees that it will promptly cause all such payment items to be scanned and deposited into Blocked Accounts and will provide copies at the Agent’s reasonable written request of any and all agreements entered into by a Loan Party with any third party that provides the scanning equipment or the services to reconcile the invoices with any scanned payment items.
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(c) Each Blocked Account Agreement shall require, after the occurrence and during the continuance of an Event of Default or other Liquidity Event (and delivery of notice thereof from the Agent to the Borrower Agent and the other parties to such instrument or agreement) the ACH or wire transfer no less frequently than once per Business Day (unless the Termination Date shall have occurred), of all available cash balances and cash receipts, including the then contents or then entire ledger balance of each Blocked Account (net of such minimum balance, not to exceed the Dollar Equivalent Amount of $250,000 as may be required to be maintained in the subject Blocked Account by the bank at which such Blocked Account is maintained and other than any Uncontrolled Cash), to an account maintained for each Borrower Group by the Agent at BANA (each a “BANA Account”) or such other account as directed by the Agent. Subject to the terms of the applicable Security Agreement, all amounts received in a BANA Account or such other account shall be applied (and allocated) by the Agent in accordance with Section 2.10(b); provided that if the circumstances described in Section 2.18(b) are applicable, all such amounts shall be applied in accordance with such Section 2.18(b).
(d) If, at any time after the occurrence and during the continuance of an Event of Default or other Liquidity Event, any cash or cash equivalents owned by any Loan Party (other than (i) an amount not to exceed $10,000,000 in the aggregate that is on deposit in segregated DDAs which the Borrower Agent designates in writing to the Agent as being the “uncontrolled cash account” (the “Designated Disbursement Account”), which funds shall not be funded from, or when withdrawn from the Designated Disbursement Account, shall not be replenished by, funds constituting proceeds of the ABL First Lien Collateral or, for any Canadian Loan Parties, the equivalent portion of the Canadian Collateral to “ABL First Lien Collateral” so long as such Event of Default or other Liquidity Event continues, (ii) de minimus cash or cash equivalents from time to time inadvertently misapplied by any Loan Party and (iii) payroll, trust and tax withholding accounts (other than Excluded Accounts) funded in the ordinary course of business and required by applicable law) are deposited to any account, or held or invested in any manner, otherwise than in a Blocked Account subject to a Blocked Account Agreement, the Agent shall be entitled to require the applicable Loan Party within a Borrower Group to close such account and have all funds therein transferred to a Blocked Account of such Borrower Group, and to cause all future deposits to be made to a Blocked Account of such Borrower Group.
(e) The Loan Parties may close DDAs or Blocked Accounts and/or open new DDAs or Blocked Accounts, subject to the contemporaneous execution and delivery to the Agent of a Blocked Account Agreement consistent with the provisions of this Section 2.21 and otherwise reasonably satisfactory to the Agent.
(f) Subject to clause (h) below, the BANA Account for each Borrower Group shall at all times be under the sole dominion and control of the Agent. Each Loan Party within a Borrower Group hereby acknowledges and agrees that, except to the extent otherwise provided in the Security Agreement, (i) such Loan Party has no right of withdrawal from the BANA Account for such Borrower Group, (ii) the funds on deposit in such BANA Account shall at all times continue to be collateral security for all of the applicable Obligations, and (iii) the funds on deposit in such BANA Account shall be applied as provided in this Agreement and, with respect to the U.S. Collateral, the Intercreditor Agreement. In the event that, notwithstanding the provisions of this Section 2.21, any Loan Party within a Borrower Group receives or otherwise has dominion and control of any proceeds or collections required to be transferred to the BANA Account for such Borrower Group pursuant to Section 2.21(c), such proceeds and collections shall be held in trust by such Loan Party for the Agent, shall not be commingled with any of such Loan Party’s other funds or deposited in any account of such Loan Party and shall promptly be deposited into such BANA Account or dealt with in such other fashion as such Loan Party may be instructed by the Agent.
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(g) So long as (i) no Event of Default has occurred and is continuing, and (ii) no other Liquidity Event as to which the Agent has notified the Borrower Agent has occurred and is continuing, the Loan Parties within each Borrower Group may direct, and shall have sole control over, the manner of disposition of funds in the Blocked Accounts of such Borrower Group.
(h) Any amounts held or received in a BANA Account for any Borrower Group (including all interest and other earnings with respect thereto, if any) at any time (x) after the Termination Date or (y) all Events of Default and other Liquidity Events have been cured shall (subject in the case of clause (x), to the provisions of the Intercreditor Agreement with respect to the U.S. Collateral) be remitted to the operating account of a Borrower within such Borrower Group as specified by the Borrower Agent.
SECTION 2.22 Reserves; Change in Reserves; Decisions by Agent. (a) The Agent may at any time and from time to time in the exercise of its Permitted Discretion establish and increase or decrease Reserves; provided that, as a condition to the establishment of any new category of Reserves, or any increase in Reserves resulting from a change in the manner of determination thereof, any Required Reserve Notice shall have been given to the Borrower Agent. The amount of any Reserve established by the Agent shall have a reasonable relationship to the event, condition or other matter that is the basis for the Reserve. Upon delivery of such notice, the Agent shall be available to discuss the proposed Reserve or increase, and the Borrowers may take such action as may be required so that the event, condition or matter that is the basis for such Reserve or increase no longer exists, in a manner and to the extent reasonably satisfactory to the Agent in the exercise of its Permitted Discretion. In no event shall such notice and opportunity limit the right of the Agent to establish or change such Reserve, unless the Agent shall have determined in its Permitted Discretion that the event, condition or other matter that is the basis for such new Reserve or such change no longer exists or has otherwise been adequately addressed by the Borrowers. Notwithstanding anything herein to the contrary, (i) Reserves shall not duplicate eligibility criteria contained in the definition of “Eligible Receivable”, “Eligible Tire Inventory” or “Eligible Non-Tire Inventory” and vice versa, or reserves or criteria deducted in computing the cost or market value or Value of any Eligible Receivable, any Eligible Tire Inventory or any Eligible Non-Tire Inventory or the Net Orderly Liquidation Value of any Eligible Tire Inventory or any Eligible Non-Tire Inventory and vice versa, and (ii) Reserves deducted in computing the Canadian Borrowing Base shall not be duplicative of Reserves deducted in computing the U.S. Borrowing Base and vice versa.
SECTION 2.23 Revolving Commitment Increases. (a) So long as no Default or Event of Default then exists, or would result therefrom, the Borrower Agent shall have the right at any time, and from time to time, to request one or more increases in the amount of the total Commitments in an aggregate amount not to exceed $200,000,000 (up to $50,000,000 of which may be allocated to Canadian Revolving Commitment Increases) or, if less, the amount by which $1,110,000,000 exceeds the total Commitments then in effect (such amount, the “Aggregate Incremental Capacity”). Anything contained herein to the contrary notwithstanding, (i) the aggregate amount of Commitments and, without duplication, Loans outstanding hereunder at any time, including the aggregate amount of Revolving Commitment Increases, shall not exceed $1,110,000,000 at any time, (ii) the aggregate amount of U.S. Commitments and, without duplication, U.S. Revolving Loans outstanding hereunder at any time, including the aggregate amount of U.S. Revolving Commitment Increases, shall not exceed $1,050,000,000 at any time, and (iii) the aggregate amount of Canadian Commitments and, without duplication, the Dollar Equivalent Amount of Canadian Revolving Loans outstanding hereunder at any time, including the aggregate amount of Canadian Revolving Commitment Increases, shall not exceed $110,000,000 at any time.
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(b) Revolving Commitment Increases. (i) The Agent or any other Person may arrange for existing Applicable Lenders to the Borrowers within any Borrower Group to increase their Revolving Commitments to the Borrowers within such Borrower Group or for other Persons to become Applicable Lenders to the Borrowers within such Borrower Group hereunder and to issue revolving commitments in an amount equal to the amount of the increase in the aggregate total of Revolving Commitments requested by the Borrower Agent for the Borrowers within such Borrower Group (each such increase by either means, a “Revolving Commitment Increase”, each such Revolving Commitment Increase issued to U.S. Borrowers, a “U.S. Revolving Commitment Increase” and each such Revolving Commitment Increase issued to the Canadian Borrowers, a “Canadian Revolving Commitment Increase”, and each such Person issuing, or Applicable Lender increasing, its Revolving Commitment, an “Additional Revolving Commitment Lender”, and each such Additional Revolving Commitment Lender to U.S. Borrowers, an “Additional U.S. Revolving Commitment Lender” and each such Additional Revolving Commitment Lender to the Canadian Borrowers, an “Additional Canadian Revolving Lender”); provided, however, that (A) no Revolving Lender shall be obligated to provide a Revolving Commitment Increase as a result of any such request by the Borrower Agent, provided that the Borrower Agent shall not be obligated to provide any existing Revolving Lender with the opportunity to provide a Revolving Commitment Increase and (B) any Additional Revolving Commitment Lender that is not an existing Revolving Lender shall be an Eligible Assignee and shall be subject to the approval of the Agent, each Issuing Bank and the Borrower Agent (each such consent not to be unreasonably withheld). Each Revolving Commitment Increase shall be in a minimum aggregate amount of at least $20,000,000 and in integral multiples of $1,000,000 in excess thereof. Each Revolving Commitment Increase shall be subject to the terms and conditions set forth in this Section 2.23(b) and any Revolving Loans pursuant to such Revolving Commitment Increase or new Revolving Commitments shall be on the same terms and conditions as all other Revolving Loans, except with respect to any fees payable in connection therewith as may be separately agreed among the Borrower Agent and the Additional Revolving Commitment Lenders.
(ii) No Revolving Commitment Increase shall become effective unless and until each of the following conditions have been satisfied:
(A) the Borrower Agent, the Agent, and any Additional Revolving Commitment Lender shall have executed and delivered a customary joinder to the Loan Documents;
(B) the Borrowers within the Borrower Group that are receiving such Revolving Commitment Increase shall have paid such fees and other compensation as the Borrower Agent and each such Additional Revolving Commitment Lender may agree;
(C) the Borrower Agent shall have delivered to the Agent and the Revolving Lenders an opinion or opinions, in form and substance reasonably satisfactory to the Agent, from counsel to the Borrowers reasonably satisfactory to the Agent (it being agreed that the counsel that delivers the legal opinions on the Effective Date shall be satisfactory to the Agent) and dated such date;
(D) to the extent requested by any Additional Revolving Commitment Lender that has issued an Additional Revolving Commitment to the Borrowers within a Borrower Group, a promissory note will be issued, at the expense of the Borrowers within such Borrower Group, to such Additional Revolving Commitment Lender, to be in conformity with the requirements of Section 2.10 (with appropriate modification) to the extent necessary to reflect the new Revolving Commitment of such Additional Revolving Commitment Lender; and
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(E) the Borrower Agent shall have delivered to the Agent (1) the resolutions adopted by each Loan Party approving or consenting to such Revolving Commitment Increase and (2) a certificate of a Responsible Officer of the Company to the effect that, after giving effect to the requested Revolving Commitment Increase, (x) no Event of Default shall have occurred and be continuing and (y) the representations and warranties of the Loan Parties set forth in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the date of such Revolving Credit Increase, as applicable, 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 (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) as of such earlier date).
(iii) The Agent shall promptly notify each Lender as to the effectiveness of each Revolving Commitment Increase (with each date of such effectiveness being referred to herein as a “Revolving Commitment Increase Date”), and at such time (A) the aggregate total Revolving Commitments and the aggregate total Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Revolving Commitment Increase, (B) in the case of any U.S. Revolving Commitment Increase, the aggregate total U.S. Revolving Commitments and the aggregate total U.S. Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such U.S. Revolving Commitment Increase, (C) in the case of any Canadian Revolving Commitment Increase, the aggregate total Canadian Revolving Commitments and the aggregate total Canadian Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Canadian Revolving Commitment Increase, (D) the Commitment Schedule shall be deemed modified, without further action, to reflect the revised Revolving Commitments of the Lenders, and (E) this Agreement shall be deemed amended, without further action, to the extent necessary to reflect such increased aggregate total Commitments.
(iv) In connection with Revolving Commitment Increases to the Borrowers within a Borrower Group hereunder, the Applicable Lenders and the Borrowers within such Borrower Group agree that, notwithstanding anything to the contrary in this Agreement, (A) the Borrowers within such Borrower Group shall, in coordination with the Agent, (1) repay outstanding Revolving Loans of certain Applicable Lenders, and obtain Revolving Loans from certain other Applicable Lenders (including the Additional Revolving Commitment Lenders to such Borrower Group), or (2) take such other actions as reasonably may be required by the Agent, in each case to the extent necessary so that all of the Applicable Lenders effectively participate in each of the outstanding Revolving Loans to such Borrower Group pro rata on the basis of their Applicable Percentages (determined after giving effect to any increase in the aggregate total Revolving Commitments pursuant to this Section 2.23); and (B) the Borrowers within such Borrower Group shall pay to the Applicable Lenders any costs of the type referred to in Section 2.16 in connection with any repayment and/or prepayment of Revolving Loans required pursuant to preceding clause (A). Without limiting the obligations of the Borrowers provided for in this Section 2.23(b), the Agent and the Applicable Lenders agree that they will use their commercially reasonable efforts to attempt to minimize the costs of the type referred to in Section 2.16 which the Borrowers receiving a Revolving Commitment Increase would otherwise occur in connection with the implementation of an increase in the aggregate total Revolving Commitments and the aggregate total Commitments hereunder.
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SECTION 2.24 Borrower Agent. Each Borrower hereby designates the Company as its representative and agent (in such capacity, the “Borrower Agent”) for all purposes under the Loan Documents, including requests for Loans and Letters of Credit, designation of interest rates, delivery or receipt of communications, preparation and delivery of Borrowing Base Certificates and financial reports, receipt and payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with covenants), and all other dealings with the Agent, the Issuing Banks or any Lender. The Borrower Agent hereby accepts such appointment. The Agent, the Issuing Banks, and the Lenders shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication (including any notice of borrowing) delivered by Borrower Agent on behalf of any Borrower. The Agent, the Issuing Banks, and the Lenders may give any notice or communication with a Borrower hereunder to the Borrower Agent on behalf of such Borrower. Each of the Agent, the Issuing Banks and the Lenders shall have the right, in its discretion, to deal exclusively with the Borrower Agent for any or all purposes under the Loan Documents. Each Borrower agrees that any notice, election, communication, representation, agreement or undertaking made on its behalf by the Borrower Agent shall be binding upon and enforceable against it. Anything contained herein to the contrary notwithstanding, no Borrower (other than the Borrower Agent) shall be authorized to request any Borrowing or Letter of Credit hereunder without the prior written consent of the Company.
SECTION 2.25 Joint and Several Liability of the U.S. Borrowers. (a) Each U.S. Borrower agrees that it is absolutely and unconditionally jointly and severally liable, as co-borrower, for the prompt payment and performance of all U.S. Obligations and all agreements of each of the U.S. Borrowers under the Loan Documents. Each U.S. Borrower agrees that its co-borrower obligations hereunder are direct obligations of payment and not of collection, that such obligations shall not be discharged until the Termination Date.
(b) It is agreed among each U.S. Borrower, the Agent, the Applicable Issuing Banks and the Applicable Lenders that the provisions of this Section 2.25 are of the essence of the transaction contemplated by the Loan Documents and that, but for such provisions, the Agent, the Applicable Issuing Banks and the Applicable Lenders would decline to make Loans the U.S. Borrowers and issue Letters of Credit for the account of U.S. Borrowers. Each U.S. Borrower acknowledges that its obligations pursuant to this Section are necessary to the conduct and promotion of its business, and can be expected to benefit such business.
(c) Nothing contained in this Agreement (including any provisions of this Section 2.25 to the contrary) shall limit the liability of (i) any U.S. Borrower to pay Loans made directly or indirectly to that U.S. Borrower (including Loans advanced to any other U.S. Borrower and then re-loaned or otherwise transferred to, or for the benefit of, such U.S. Borrower), U.S. LC Exposure and all accrued interest, fees, expenses and other related U.S. Obligations with respect thereto, for which such U.S. Borrower shall be primarily liable for all purposes hereunder, or (ii) the Company in respect of all of the U.S. Obligations under the Loan Documents. The Agent, the Applicable Issuing Banks and the U.S. Revolving Lenders shall have the right, at any time in their discretion, to condition Loans and Letters of Credit upon a separate calculation of borrowing availability for each U.S. Borrower and to restrict the disbursement and use of such Loans and Letters of Credit to such U.S. Borrower.
(d) Each U.S. Borrower has requested that the Agent and the U.S. Revolving Lenders make this credit facility available to the U.S. Borrowers on a combined basis, in order to finance the U.S. Borrowers’ business most efficiently and economically. The U.S. Borrowers’ business is a mutual and collective enterprise, and the U.S. Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each U.S. Borrower and ease the administration of their relationship with the U.S. Revolving Lenders, all to the mutual advantage of the U.S. Borrowers. The U.S. Borrowers acknowledge and agree that the Agent’s and the U.S. Revolving Lenders’ willingness to extend credit to the U.S. Borrowers and to administer the U.S. Collateral on a combined basis, as set forth herein, is done solely as an accommodation to the U.S. Borrowers and at the U.S. Borrowers’ request.
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(e) 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 U.S. Borrower under this Section 2.25 or under this Agreement would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such U.S. Borrower’s liability under this Section 2.25 or under this Agreement, then, notwithstanding any other provision of this Section 2.25 to the contrary, the amount of such liability shall, without any further action by the U.S. Borrowers or the Applicable Lenders, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant U.S. Borrower’s maximum liability (“U.S. Borrower’s Maximum Liability”). This Section 2.25(e) with respect to the U.S. Borrower’s Maximum Liability of each U.S. Borrower is intended solely to preserve the rights of the Applicable Lenders to the maximum extent not subject to avoidance under applicable law, and no U.S. Borrower nor any other Person or entity shall have any right or claim under this Section with respect to such U.S. Borrower’s Maximum Liability, except to the extent necessary so that the obligations of any U.S. Borrower hereunder shall not be rendered voidable under applicable law. Each U.S. Borrower agrees that the U.S. Obligations may at any time and from time to time exceed the U.S. Borrower’s Maximum Liability of each U.S. Borrower without impairing this Section 2.25 or this Agreement, or affecting the rights and remedies of the Applicable Lenders hereunder, provided that nothing in this sentence shall be construed to increase any U.S. Borrower’s obligations hereunder beyond its U.S. Borrower’s Maximum Liability.
(f) In the event any U.S. Borrower (a “U.S. Paying Borrower”) shall make any payment or payments under this Section 2.25 or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Agreement, each other U.S. Borrower (each a “U.S. Non-Paying Borrower”) shall contribute to such U.S. Paying Borrower an amount equal to such U.S. Non-Paying Borrower’s “U.S. Borrower Percentage” of such payment or payments made, or losses suffered, by such U.S. Paying Borrower. For purposes of this Section 2.25, each U.S. Non-Paying Borrower’s “U.S. Borrower Percentage” with respect to any such payment or loss by a U.S. Paying Borrower shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such U.S. Non-Paying Borrower’s U.S. Borrower’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such U.S. Non-Paying Borrower’s U.S. Borrower’s Maximum Liability has not been determined, the aggregate amount of all monies received by such U.S. Non-Paying Borrower from any other U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate U.S. Borrower’s Maximum Liability of all U.S. Borrowers hereunder (including such U.S. Paying Borrower) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a U.S. Borrower’s Maximum Liability has not been determined for any U.S. Borrower, the aggregate amount of all monies received by such U.S. Borrowers from any other U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any U.S. Borrower’s several liability for the entire amount of the U.S. Obligations (up to such U.S. Borrower’s Maximum Liability). Each of the U.S. Borrowers covenants and agrees that its right to receive any contribution under this Section 2.25 from a U.S. Non-Paying Borrower shall be subordinate and junior in right of payment to the U.S. Obligations until the Termination Date. This provision is for the benefit of all of the Agent, the Applicable Issuing Banks, the Applicable Lenders, the U.S. Borrowers and the other U.S. Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
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SECTION 2.26 Loan Account; Statement of Obligations. (a) The Agent shall maintain in accordance with its usual and customary practices an account or accounts (“Loan Account”) evidencing the Indebtedness of the Borrowers within each Borrower Group resulting from each Revolving Loan made to such Borrowers or issuance of a Letter of Credit for the account of such Borrowers from time to time and all other payment Obligations of such Borrowers hereunder or under the other Loan Documents, including accrued interest, fees and expenses thereon. Any failure of the Agent to record anything in the Loan Account, or any error in doing so, shall not limit or otherwise affect the obligation of the Borrowers within each Borrower Group to pay any amount owing by such Borrower Group hereunder. The Agent may maintain a single Loan Account for each Borrower Group in the name of the Borrower Agent, and each Borrower within each Borrower Group confirms that such arrangement shall have no effect on the joint and several character of its liability for the Obligations of such Borrower Group. In the absence of manifest error, entries made in the Loan Account shall constitute presumptive evidence of the information contained therein.
(b) The Borrowers within each Borrower Group hereby authorize the Agent, from time to time without prior notice to the Borrowers within such Borrower Group, to charge to the Loan Account of such Borrower Group all interest and all fees payable hereunder or under any of the other Loan Documents, all costs and expenses payable by any Loan Party within such Borrower Group hereunder or under any of the other Loan Documents, all fees and costs provided for in Section 2.12 with respect to such Borrower Group, and all other payments due and payable under any Loan Document, which amounts so charged shall thereafter constitute Revolving Loans owing by the Borrowers within such Borrower Group hereunder which shall accrue interest at the rate then applicable to Revolving Loans that are ABR Loans in the case of Revolving Loans owing by U.S. Borrowers, Canadian Base Rate Loans in the case of Revolving Loans denominated in Dollars and owing by the Canadian Borrowers or Canadian Prime Rate Loans in the case of Revolving Loans denominated in Canadian Dollars and owing by the Canadian Borrowers (unless and until converted into Interest Period Loans in accordance with the terms hereof); provided that the Agent shall not be authorized to charge any such amount to the Loan Account unless the same shall not have been paid by any Loan Party within the applicable Borrower Group when payment of such amount has otherwise become due and payable hereunder or under any other Loan Document. Any interest not paid by any Loan Party within a Borrower Group within two Business Days after such payment of such amount has otherwise become due and payable hereunder or under any other Loan Document shall be compounded by being charged to the Loan Account of such Borrower Group and shall thereafter constitute Revolving Loans hereunder owing by the Borrowers within such Borrower Group and shall accrue interest at the rate then applicable to Revolving Loans that are ABR Loans in the case of Revolving Loans owing by U.S. Borrowers, Canadian Base Rate Loans in the case of Revolving Loans denominated in Dollars and owing by the Canadian Borrowers or Canadian Prime Rate Loans in the case of Revolving Loans denominated in Canadian Dollars and owing by the Canadian Borrowers (unless and until converted into Interest Period Loans in accordance with the terms hereof).
SECTION 2.27 Extensions of Revolving Loans and Revolving Commitments. (a) The Borrower Agent may at any time and from time to time request that all or a portion of the Revolving Commitments to the Borrowers within a Borrower Group (including any previously extended Revolving Commitments to such Borrowers) existing at the time of such request (each, an “Existing Revolving Commitment” and any related revolving loans under any such facility, “Existing Revolving Loans”) be exchanged to extend the termination date thereof and the scheduled maturity date(s) of any payment of principal with respect to all or a portion of any principal amount of Existing Revolving Loans related to such Existing Revolving Commitments (any such Existing Revolving Commitments which have been so extended, “Extended Revolving Commitments”, any such Extended Revolving Commitments to the U.S. Borrowers, “Extended U.S. Revolving Commitments”, any such Extended Revolving Commitments to the Canadian Borrowers, “Extended Canadian Revolving Commitments” and
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any related Revolving Loans, “Extended Revolving Loans”, any Extended Revolving Loans to the U.S. Borrowers, “Extended U.S. Revolving Loans” and any Extended Revolving Loans to the Canadian Borrowers, “Extended Canadian Revolving Loans”) and to provide for other terms consistent with this Section 2.27. Prior to entering into any Extension Agreement with respect to any Extended Revolving Commitments to the Borrowers within a Borrower Group, the Borrower Agent shall provide a notice to the Agent (who shall provide a copy of such notice to each of the Applicable Lenders of the applicable Class of Existing Revolving Commitments) (a “Revolving Extension Request”) setting forth the proposed terms of the Extended Revolving Commitments to be established thereunder, which terms shall be identical to those applicable to the Existing Revolving Commitments from which they are to be extended (the “Specified Existing Revolving Commitment Class”) except (x) all or any of the final maturity dates of such Extended Revolving Commitments may be delayed to later dates than the final maturity dates of the Existing Revolving Commitments of the Specified Existing Revolving Commitment Class, (y) the all-in pricing (including, without limitation, margins, fees and premiums) with respect to the Extended Revolving Commitments may be higher or lower than the all-in pricing (including, without limitation, margins, fees and premiums) for the Existing Revolving Commitments of the Specified Existing Revolving Commitment Class and (z) the commitment fee rate with respect to the Extended Revolving Commitments may be higher or lower than the commitment fee rate for Existing Revolving Commitments of the Specified Existing Revolving Commitment, in each case, to the extent provided in the applicable Extension Agreement; provided that, notwithstanding anything to the contrary in this Section 2.27 or otherwise, (1) the borrowing and repayment (other than in connection with a permanent repayment and termination of commitments) of the Extended Revolving Loans under any Extended Revolving Commitments to the Borrowers within any Borrower Group shall be made on a pro rata basis with any borrowings and repayments of the Existing Revolving Loans to the Borrowers within such Borrower Group (the mechanics for which may be implemented through the applicable Extension Agreement and may include technical changes related to the borrowing and repayment procedures of this Agreement), (2) assignments and participations of Extended Revolving Commitments and Extended Revolving Loans shall be governed by the assignment and participation provisions set forth in Section 9.04 and (3)(I) in the case of Section 2.09, no permanent repayment of Extended Revolving Loans by the Borrowers within a Borrower Group (and corresponding permanent reduction in the related Extended Revolving Commitments to such Borrowers) shall be permitted unless all Existing Revolving Loans to such Borrowers and all Existing Revolving Commitments to such Borrowers of the Specified Existing Revolving Commitment Class, shall have been repaid in full and terminated, respectively and (II) in all other cases, no termination of Extended Revolving Commitments to the Borrowers within a Borrower Group and no repayment of Extended Revolving Loans by such Borrowers accompanied by a corresponding permanent reduction in Extended Revolving Commitments to such Borrowers shall be permitted unless such termination or repayment (and corresponding reduction) is accompanied by at least a pro rata termination or permanent repayment (and corresponding pro rata permanent reduction), as applicable, of the Existing Revolving Loans to such Borrowers and Existing Revolving Commitments to such Borrowers of the Specified Existing Revolving Commitment Class (or all Existing Revolving Commitments of such Class and related Existing Revolving Loans shall have otherwise been terminated and repaid in full). Any Extended Revolving Commitments of any Extension Series shall constitute a separate Class of Revolving Commitments from Existing Revolving Commitments of the Specified Existing Revolving Commitment Class and from any other Existing Revolving Commitments (together with any other Extended Revolving Commitments so established on such date).
(b) The Borrower Agent shall provide the applicable Extension Request with respect to the Existing Revolving Commitments of the Borrowers within any Borrower Group at least ten (10) Business Days prior to the date on which the Applicable Lenders under the Existing Class are requested to respond. Any Applicable Lender (an “Extending Lender”) wishing to have all or a portion of its Revolving Commitments (or any earlier Extended Revolving Commitments) of an Existing Class subject to such Extension Request exchanged into Extended Loans/Commitments shall notify the Agent (an
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“Extension Election”) on or prior to the date specified in such Extension Request of the amount of its Revolving Commitments (and/or any earlier Extended Revolving Commitments) which it has elected to convert into Extended Loans/Commitments to such Borrowers, but in no event shall any Applicable Lender be required to become an Extending Lender. In the event that the aggregate amount of Revolving Commitments (and any earlier Extended Revolving Commitments) subject to Extension Elections with respect to any Borrower Group exceeds the amount of Extended Loans/Commitments requested by such Borrower Group pursuant to the Extension Request, Revolving Commitments (and any earlier Extended Revolving Commitments) subject to Extension Elections with respect to such Borrower Group shall be exchanged to Extended Loans/Commitments with respect to such Borrower Group on a pro rata basis based on the amount of Revolving Commitments (and any earlier Extended Revolving Commitments) included in each such Extension Election. Notwithstanding the conversion of any Existing Revolving Commitment into an Extended Revolving Commitment, such Extended Revolving Commitment shall be treated identically to all Existing Revolving Commitments of the Specified Existing Revolving Commitment Class for purposes of the obligations of an Applicable Lender in respect of Swingline Loans under Section 2.05 and Letters of Credit under Section 2.06, except that the applicable Extension Agreement may provide that the last day for making Swingline Loans and/or the last day for issuing Letters of Credit with respect to the Borrowers within the applicable Borrower Group may be extended and the related obligations to make Swingline Loans and issue Letters of Credit with respect to such Borrowers may be continued (pursuant to mechanics set forth in the applicable Extension Agreement) so long as the Applicable Swingline Lender and/or the Applicable Issuing Bank, as applicable, have consented to such extensions (it being understood that no consent of any other Lender shall be required in connection with any such extension).
(c) Extended Loans/Commitments shall be established pursuant to an amendment (an “Extension Agreement”) to this Agreement (which, except to the extent expressly contemplated by the penultimate sentence of this Section 2.27(c) and notwithstanding anything to the contrary set forth in Section 9.02, shall not require the consent of any Lender other than the Extending Lenders with respect to the Extended Loans/Commitments established thereby) executed by the Borrower Agent, the Agent and the Extending Lenders. Notwithstanding anything to the contrary in this Section 2.27 and without limiting the generality or applicability of Section 9.02 to any Section 2.27 Additional Agreements, any Extension Agreement may provide for additional terms and/or additional amendments other than those referred to or contemplated above (any such additional amendment, a “Section 2.27 Additional Agreement”) to this Agreement and the other Loan Documents; provided that such Section 2.27 Additional Agreements do not become effective prior to the time that such Section 2.27 Additional Agreements have been consented to (including, without limitation, pursuant to consents applicable to holders of any Extended Loans/Commitments provided for in any Extension Agreement) by such of the Lenders, Loan Parties and other parties (if any) as may be required in order for such Section 2.27 Additional Agreements to become effective in accordance with Section 9.02. It is understood and agreed that each Lender has consented, and shall at the effective time thereof be deemed to consent to each amendment to this Agreement and the other Loan Documents authorized by this Section 2.27 and the arrangements described above in connection therewith except that the foregoing shall not constitute a consent on behalf of any Lender to the terms of any Section 2.27 Additional Agreement. In connection with any Extension Agreement, the Borrower Agent shall deliver an opinion of counsel reasonably acceptable to the Agent (i) as to the enforceability of such Extension Agreement, this Agreement as amended thereby, and such of the other Loan Documents (if any) as may be amended thereby (in the case of such other Loan Documents as contemplated by the immediately preceding sentence), (ii) to the effect that such Extension Agreement, including without limitation, the Extended Loans/Commitments provided for therein, does not conflict with or violate the terms and provisions of Section 9.02 of this Agreement and (iii) as to any other matter reasonably requested by the Agent.
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SECTION 2.28 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the Available Revolving Commitment of such Defaulting Lender pursuant to Section 2.12(a);
(b) the Commitment and U.S. Revolving Exposure or Canadian Revolving Exposure, as applicable, of such Defaulting Lender shall not be included in determining whether all Lenders, all affected Lenders, the Required Lenders or the Super Majority Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 9.02); provided that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender;
(c) if any Swingline Exposure or LC Exposure exists at the time an Applicable Lender becomes a Defaulting Lender then:
(i) all or any part of such Swingline Exposure and LC Exposure of such Applicable Defaulting Lender with respect to the Borrowers within the applicable Borrower Group shall be reallocated among the non-Applicable Defaulting Lenders with respect to such Borrower Group in accordance with their respective Applicable Percentages (excluding, for purposes of calculating the Applicable Percentages, the Commitments and Loans of the Applicable Defaulting Lender) but only to the extent (x) the sum of all non-Applicable Defaulting Lenders’ U.S. Revolving Exposures or Canadian Revolving Exposures, as applicable, plus such Applicable Defaulting Lender’s Swingline Exposure and LC Exposure with respect to such Borrower Group does not exceed the lesser of the total of all non-Defaulting Lenders’ Revolving Commitments to such Borrower Group and the U.S. Borrowing Base or Canadian Borrowing Base, as applicable, and (y) the conditions set forth in Section 4.02 are satisfied at such time; and
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrowers within the applicable Borrower Group shall within three (3) Business Days following notice by the Agent (x) first, prepay the Swingline Exposure of such Applicable Defaulting Lender with respect to such Borrower Group and (y) second, cash collateralize such Applicable Defaulting Lender’s LC Exposure with respect to such Borrower Group (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrowers within a Borrower Group cash collateralize any portion of such Applicable Defaulting Lender’s LC Exposure with respect to such Borrower Group pursuant to this Section 2.28(c), the Borrowers within such Borrower Group shall not be required to pay any fees to such Applicable Defaulting Lender pursuant to Section 2.12(b) with respect to such Applicable Defaulting Lender’s LC Exposure to such Borrowers during the period to the extent such Applicable Defaulting Lender’s LC Exposure is cash collateralized;
(iv) if the LC Exposure of the Applicable Defaulting Lender with respect to the Borrowers within a Borrower Group is reallocated pursuant to this Section 2.28(c), then the fees payable to the non-Applicable Defaulting Lenders pursuant to Section 2.12(a) and Section 2.12(b) shall be adjusted in accordance with such non-Applicable Defaulting Lenders’ Applicable Percentages (excluding, for purposes of calculating the Applicable Percentages, the Commitments and Loans of the Applicable Defaulting Lender); or
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(v) if any Applicable Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated pursuant to this Section 2.28(c), then, without prejudice to any rights or remedies of the Applicable Issuing Bank or any Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Applicable Defaulting Lender’s LC Exposure shall be payable to the Applicable Issuing Bank until such LC Exposure is cash collateralized and/or reallocated;
(d) so long as any Applicable Lender is a Defaulting Lender, the Applicable Swingline Lender shall not be required to fund any Swingline Loan and the Applicable Issuing Banks shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Borrower Group Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrowers within such Borrower Group in accordance with Section 2.28(c), and participating interests in any such newly issued or increased Letter of Credit or newly made Swingline Loan shall be allocated among non-Defaulting Lenders to such Borrower Group in a manner consistent with Section 2.28(c)(i) (and Defaulting Lenders shall not participate therein); and
(e) in the event and on the date that each of the Agent, the Borrower Agent, the Applicable Issuing Banks and the Applicable Swingline Lender agrees that a Defaulting Lender has adequately remedied all matters that caused such Applicable Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the other Applicable Lenders shall be readjusted to reflect the inclusion of the Revolving Commitment of the Applicable Lender that previously was a Defaulting Lender and on such date such Applicable Lender shall purchase at par such of the Loans of the other Applicable Lenders (other than Swingline Loans) as the Agent shall determine may be necessary in order for such Applicable Lender to hold such Loans in accordance with its Applicable Percentage.
SECTION 2.29 Currency Matters. Dollars are the currency of account and payment for each and every sum at any time due from the Loan Parties hereunder, provided that, unless otherwise provided in this Agreement or any other Loan Document or otherwise agreed to by the Agent:
(a) Each repayment of a Loan or a reimbursement of a draw on a Letter of Credit, as applicable, or a part thereof shall be made in the currency in which such Loan or Letter of Credit is denominated at the time of such repayment;
(b) Each payment of interest shall be made in the currency in which such principal or other sum in respect of which such interest has accrued is denominated;
(c) Each payment of fees by a U.S. Borrower shall be in Dollars;
(d) Each payment of fees by a Canadian Borrower shall be in Canadian Dollars;
(e) Each payment in respect of costs, expenses and indemnities shall be made in the currency in which the same were incurred by the party to whom payment is to be made (unless such currency is not Dollars or Canadian Dollars, in which case such payment shall be made in Dollars); and
(f) Any amount expressed to be payable in Canadian Dollars shall be paid in Canadian Dollars.
No payment to any Secured Party (whether under any judgment or court order or otherwise) shall discharge the obligation or liability of the Loan Party in respect of which it was made unless and until such Secured Party shall have received payment in full in the currency in which such obligation or liability was incurred or is outstanding (unless such currency is not Dollars or Canadian Dollars, in which
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case such payment shall be made in Dollars). To the extent that the amount of any such payment shall, on actual conversion into such currency, fall short of such obligation or liability, whether actual or contingent (other than contingent indemnification obligations for which no claim has been made or asserted), expressed in such currency, such Loan Party (together with the other Loan Parties within its Borrower Group) agrees to indemnify and hold harmless such Secured Party, with respect to the amount of such shortfall, with such indemnity surviving termination of this Agreement and any legal proceeding, judgment or court order pursuant to which the original payment was made which resulted in the shortfall. To the extent that the amount of any such payment to a Secured Party shall, upon an actual conversion into such currency, exceed such obligation or liability, whether actual or contingent (other than contingent indemnification obligations for which no claim has been made or asserted), expressed in that currency, such Secured Party shall return such excess to the members of the applicable Borrower Group.
SECTION 2.30 Currency Fluctuations.
(a) On the last Business Day of each calendar month or, in the event that the Exchange Rate fluctuates in excess of ten percent (10%) during such calendar month, any other Business Day in the reasonable discretion of the Agent (the “Calculation Date”), the Agent shall determine the Exchange Rate as of such date. The Exchange Rate so determined shall become effective on the first Business Day immediately following such determination (a “Reset Date”) and shall remain effective until the next succeeding Reset Date. Nothing contained in this Section 2.30 shall be construed to require the Agent to calculate compliance under this Section 2.30 more frequently than once each month.
(b) On each Reset Date, the Agent shall determine the Dollar Equivalent Amount of the Canadian Revolving Exposure.
(c) If, on any Reset Date, the Canadian Revolving Exposure or the Dollar Equivalent Amount of the Canadian Obligations exceeds the lesser of the Canadian Revolving Commitments and the Canadian Borrowing Base on such date (the amount of any such excess referred to herein as the “Excess Amount”) then (i) the Agent shall give notice thereof to the Borrowers within the applicable Borrower Group and the Applicable Lenders and (ii) within one (1) Business Day thereafter, such Borrowers shall cause such excess to be eliminated, either by repayment of Revolving Loans to such Borrowers or depositing of Cash Collateral with the Agent with respect to outstanding Letters of Credit issued for the account of such Borrowers, and until such Excess Amount is repaid or so cash collateralized, the Applicable Lenders shall not have any obligation to make any Loans.
SECTION 2.31 Obligations of the Canadian Loan Parties. Notwithstanding anything in this Agreement or any other Loan Document to the contrary, no Canadian Loan Party shall be liable or in any manner responsible for, or be deemed to have guaranteed, directly or indirectly, whether as a primary obligor, guarantor, indemnitor, or otherwise, and none of their assets shall secure, directly or indirectly, any of the U.S. Loan Parties’ U.S. Obligations (including, without limitation, principal, interest, fees, penalties, premiums, expenses, charges, reimbursements, indemnities or any other U.S. Obligations) under this Agreement or any other Loan Document.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Lenders that:
SECTION 3.01 Organization; Powers. Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to own its property and assets and to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
SECTION 3.02 Authorization; Enforceability . The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Loans and the other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder are, to the extent applicable, within each applicable Loan Party’s organizational powers and have been duly authorized by all necessary organizational and, if required, equityholder action of such Loan Party. Each Loan Document to which each Loan Party is a party has been duly executed and delivered by such Loan Party and is a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally and to general principles of equity.
SECTION 3.03 Governmental Approvals; No Conflicts. The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Loans and the other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder (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, and (ii) for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents and the Senior Secured Notes Security Documents; except, in each case other than with respect to the creation of Liens, to the extent that any such violation, default or right, or any failure to obtain such consent or approval or to take any such action, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.04 Financial Condition; No Material Adverse Change. (a) The unaudited pro forma consolidated balance sheet of Holdings and its consolidated Subsidiaries as of September 30, 2012 (including any notes thereto) (the “Pro Forma Balance Sheet” and such date, the “Pro Forma Balance Sheet Date”), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to the consummation of the Transactions. The Pro Forma Balance Sheet has been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof, and presents fairly on a pro forma basis the estimated financial position of Holdings and its consolidated Subsidiaries as at the Pro Forma Balance Sheet Date, assuming that the events specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of Holdings and its consolidated Subsidiaries as of January 2, 2010, January 1, 2011, and December 31, 2011, and the related consolidated statements of income and of cash flows of Holdings and its consolidated Subsidiaries for the fiscal years ended on such dates, reported on by PricewaterhouseCoopers LLP, independent public accountants, present fairly in all material respects the consolidated financial position of Holdings and its consolidated Subsidiaries as of such dates and the consolidated results of operations and consolidated cash flows of Holdings and its consolidated Subsidiaries for the respective fiscal years ended as of such dates. The unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries as of October 27,
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2012, and the related unaudited consolidated statements of income and cash flows of Holdings and its consolidated Subsidiaries for the fiscal month period ended on such date, and the corresponding statements of income and cash flows of Holdings and its consolidated Subsidiaries for the corresponding period of the prior fiscal year, present fairly in all material respects the consolidated financial condition of Holdings and its consolidated Subsidiaries as of such dates (subject to the absence of footnotes and normal year-end adjustments) and the consolidated results of operations and consolidated cash flows of Holdings and its consolidated Subsidiaries for the fiscal-month period ended as of such dates (subject to the absence of footnotes and normal year-end adjustments). All such financial statements have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). No U.S. Loan Party has any material liabilities or material obligations of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and whether due or to become due, other than liabilities or obligations provided for in the financial statements referred to in this paragraph, liabilities or obligations arising in the ordinary course of business consistent with past practice or liabilities which would not be required to be disclosed in an audited balance sheet (or in the notes thereto) that is prepared in accordance with GAAP.
(c) No event, change or condition has occurred that has had, or would reasonably be expected to have, a Material Adverse Effect, since the Effective Date.
SECTION 3.05 Properties. Each Loan Party and each of its Subsidiaries has good and insurable fee simple title to, or valid leasehold interests in, or easements or other limited property interests in, all its real properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Liens (i) permitted by Section 6.02 or (ii) arising by operation of law (which Liens, in the case of this clause (ii) do not materially interfere with the ability of any Loan Party or any of its Subsidiaries to carry on its business as now conducted or to utilize the affected properties or assets for their intended purposes).
SECTION 3.06 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Documents.
(b) Except for matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect (i) no Loan Party nor any of its Subsidiaries has received written notice of any claim with respect to any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.
SECTION 3.07 Compliance with Laws, No Default. Each Loan Party is in compliance with all Requirements of Law applicable to it or its property, except where the failure to be so in compliance, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
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SECTION 3.08 Investment Company Status. No Loan Party is an “investment company” as defined in, or is required to be registered under, the Investment Company Act of 1940.
SECTION 3.09 Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10 ERISA; Canadian Pension Plans. (a) (a) No ERISA Event has occurred in the five year period prior to the date on which this representation is made or deemed made and is continuing or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect, the present value of all accumulated benefit obligations under all Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plans, in the aggregate.
(b) Canadian Loan Parties are in compliance in all material respects with the requirements of the PBA and of any binding requirements of general application of a Governmental Authority with respect to each Canadian Pension Plan and are in compliance with any directive or order of a Governmental Authority directed specifically at a Canadian Pension Plan. No fact or situation that may reasonably be expected to result in a Material Adverse Effect exists in connection with any Canadian Pension Plan. No Canadian Loan Party or an Affiliate thereof maintains, contributes or has any liability with respect to a Canadian Pension Plan which provides benefits on a defined benefit basis other than a Canadian MEPP. No Pension Event has occurred that when taken together with all other Pension Events and ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. All contributions required to be made by any Canadian Loan Party or its Subsidiary to any Canadian Pension Plan have been made in a timely fashion in accordance with the terms of such Canadian Pension Plan and the PBA. No Lien has arisen, choate or inchoate, in respect of any Canadian Loan Party or their property in connection with any Canadian Pension Plan (save for contribution amounts not yet due).
SECTION 3.11 Disclosure. (a) All written information (other than the Projections, the pro forma financial statements and estimates and information of a general economic or general industry nature) concerning the Company, the Transactions and any other transactions contemplated hereby prepared by or on behalf of the foregoing or their representatives and made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the “Information”), when taken as a whole, as of the date such Information was furnished to the Lenders and as of the Effective Date, did not contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were made (giving effect to all supplements and updates).
(b) The Projections, pro forma financial statements and estimates prepared by or on behalf of the Company or any of its representatives and that have been made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the “Other Information”) (i) have been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof (it being recognized that such Other Information is as to future events and is not to be viewed as a
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fact, the Other Information is subject to significant uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, that no assurance can be given that any particular projections will be realized and that actual results during the period or periods covered by any such Other Information may differ from the projected results and such differences may be material), and (ii) as of the Effective Date, have not been modified in any material respect by the Loan Parties.
SECTION 3.12 Solvency. As of the Effective Date, and immediately after giving effect to the Canadian Acquisition and the consummation of the other Transactions to occur on the Effective Date, (i) the fair value of the assets of the Company and its Subsidiaries, on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Company and its Subsidiaries, on a consolidated basis; (ii) the present fair saleable value of the property of the Company and its Subsidiaries, on a consolidated basis, will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis, on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Company and its Subsidiaries, on a consolidated basis, will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company and its Subsidiaries, on a consolidated basis, will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Effective Date.
SECTION 3.13 Insurance. All insurance required by Section 5.10 is in full force and effect and all premiums in respect of such insurance have been duly paid. The Company believes that the insurance maintained by or on behalf of the Company and the Subsidiaries is adequate and is in accordance with normal industry practice.
SECTION 3.14 Capitalization and Subsidiaries. As of the date hereof, Schedule 3.14 sets forth (a) a correct and complete list of the name and relationship to the Company of each and all of the Company’s Subsidiaries, (b) a true and complete listing of each class of the Company’s and each Subsidiary’s authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.14, and (c) the type of entity of the Company and each of its Subsidiaries. All of the issued and outstanding Equity Interests of the Subsidiaries owned by any Loan Party have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable free and clear of all Liens (other than Liens permitted pursuant to Section 6.02). As of the Effective Date, there are no outstanding purchase options, warrants, subscription rights, agreements to issue or sell, convertible interests or powers of attorney granted by the Company or a Subsidiary of the Company relating to Equity Interests of the Company or any Subsidiary.
SECTION 3.15 Security Interest in Collateral. The provisions of the Collateral Documents are effective to create legal and valid Liens (a) on the applicable U.S. Collateral described in each therein in favor of the Agent, for the benefit of the Agent, the Lenders and the other Secured Parties and (b) on the applicable Canadian Collateral described in each therein in favor of the Agent, for the benefit of the Agent, the Canadian Lenders and the other applicable Secured Parties (in each case, to the extent such matter is governed by the laws of the United States, Canada or any respective jurisdiction therein); and upon the taking of all actions described in the Loan Documents (but subject to the limitations set forth therein), including, without limitation, the filing of UCC financing statements covering the appropriate Collateral in the state of organization of each applicable U.S. Loan Party, the filing of PPSA and UCC financing statements covering the appropriate Collateral in the places of the registered office or domicile, the chief executive office and principal place of business and locations of Collateral of each Canadian Loan Party and the filings of short form agreements or other applicable
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documents or notices in respect of registered and applied for United States and Canadian federal intellectual property owned by each Loan Party, such Liens will constitute perfected Liens on the Collateral, securing the applicable Secured Obligations, enforceable against the applicable Loan Party, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances and other Liens permitted under Section 6.02, to the extent any such Permitted Encumbrances or such Liens would have priority over the Liens in favor of the Agent pursuant to any applicable law or otherwise, (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Agent has not obtained or does not maintain possession of such Collateral and (c) subject to and as provided for under the terms of the Intercreditor Agreement, the Liens granted to the Noteholder Collateral Agent on the U.S. Collateral under the Senior Secured Notes Security Documents.
SECTION 3.16 Labor Disputes. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes, lockouts or slowdowns against any Loan Party pending or, to the knowledge of the Company, threatened, (b) the hours worked by and payments made to employees of the Loan Parties and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, provincial, local or foreign law dealing with such matters and (c) all payments due from any Loan Party or any Subsidiary, 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 the Loan Party or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries (or any predecessor) is a party or by which any Loan Party or any of its Subsidiaries (or any predecessor) is bound.
SECTION 3.17 Federal Reserve Regulations. (a) On the Effective Date, none of the Collateral is Margin Stock.
(b) No Loan Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.
(c) 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, or that is inconsistent with, the provisions of Regulation T, U or X.
SECTION 3.18 Senior Indebtedness. The obligations of the Loan Parties under the Loan Documents (a) for principal (including reimbursement obligations with respect to Letters of Credit whether or not drawn), interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable agreement), premium (if any), fees, indemnifications, reimbursements, expenses, damages and other liabilities payable under the Loan Documents constitute “Senior Indebtedness” under and as defined in the Senior Subordinated Note Documents, and (b) for unpaid principal (including reimbursement obligations with respect to drawn Letters of Credit) and accrued interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable agreement) constitute “Designated Senior Indebtedness” under and as defined in the Senior Subordinated Note Documents. The U.S. Obligations constitute “ABL Debt Obligations” under and as defined in the Intercreditor Agreement. The Senior Secured Notes are not secured by any of the Canadian Collateral and the Lien priorities established pursuant to the Intercreditor Agreement do not apply to the Canadian Collateral.
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SECTION 3.19 Intellectual Property. Each Loan Party owns or has the lawful right to use all material intellectual property used in the conduct of its business, without conflict with any intellectual property rights of others, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, there is no pending or, to any Borrower’s knowledge, threatened claim that any Loan Party’s ownership, use, marketing, sale or distribution of any Inventory or other product violates another Person’s intellectual property rights.
SECTION 3.20 Use of Proceeds. The proceeds of the Revolving Loans, Swingline Loans and the Letters of Credit shall be used (a) to pay a portion of the Canadian Acquisition Funds, and (b) for capital expenditures, working capital needs of the Borrowers and their Subsidiaries and for general corporate purposes.
SECTION 3.21 Anti-Terrorism Laws. Each Loan Party is in compliance in all material respects with all Anti-Terrorism Laws applicable to it or its property.
ARTICLE IV.
CONDITIONS
SECTION 4.01 Effective Date. This Agreement shall become effective on the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):
(a) Credit Agreement and Loan Documents. The Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence reasonably satisfactory to the Agent (which may include facsimile or email transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement, and (ii) duly executed copies of the other Loan Documents.
(b) Legal Opinions. The Agent shall have received, on behalf of itself and the Lenders on the Effective Date, a favorable (i) written opinion of Simpson Thacher & Bartlett LLP, U.S. counsel for Holdings and its Subsidiaries, and of Osler, Hoskin & Harcourt LLP, Canadian counsel for Holdings and its Subsidiaries, each in form and substance reasonably satisfactory to the Agent and (ii) reporting letters of local or other counsel reasonably satisfactory to the Agent as specified on Schedule 4.01(b), in each case (A) dated the Effective Date, (B) addressed to the Agent and the Lenders and (C) in form and substance reasonably satisfactory to the Agent and covering such other matters relating to the Loan Documents as the Agent shall reasonably request.
(c) Financial Statements and Projections. The Agent shall have received (i) the Pro Forma Balance Sheet, (ii) the financial statements referred to in Section 3.04(b) and (iii) pro forma forecasts prepared by management of Holdings, giving effect to the Transactions, of balance sheets, income statements, and cash flow statements on a quarterly basis through the 2013 fiscal year and on an annual basis commencing with the 2014 fiscal year through the end of the 2016 fiscal year.
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(d) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates. The Agent shall have received (i) a certificate of each Loan Party, dated the Effective Date and executed by its Secretary or Assistant Secretary or other Responsible Officer, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party (in the case of the U.S. Loan Parties, certified by the relevant authority of the jurisdiction of organization of such Loan Party), and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a good standing certificate for each Loan Party from its jurisdiction of organization.
(e) Fees. The Lenders, the Joint Lead Arrangers, and the Agent shall have received all fees required to be paid on the Effective Date, and all reasonable out-of-pocket expenses required to be paid on the Effective Date and for which invoices have been presented to the Company at least two Business Days prior to the Effective Date (including the reasonable documented fees and expenses of legal counsel), on or before the Effective Date.
(f) Lien and Judgment Searches. The Agent shall have received the results of recent Lien and judgment searches in each of the jurisdictions contemplated by the Perfection Certificate, and such search shall reveal no material judgments and no Liens on any of the assets of the Loan Parties except for the Agent’s Liens, Liens permitted by Section 6.02 or Liens discharged on or prior to the Effective Date pursuant to documentation reasonably satisfactory to the Agent.
(g) Funding Account. The Agent shall have received a notice setting forth the deposit account of the Borrower Agent (with respect to the Borrower Group that includes the U.S. Borrowers) and the deposit account of a Canadian Borrower (with respect to the Borrower Group that includes the Canadian Borrowers) (each a “Funding Account”) to which the Agent is authorized by the Borrowers within the applicable Borrower Group to transfer the proceeds of any Borrowings requested or authorized pursuant to this Agreement.
(h) Solvency. The Agent shall have received a customary certificate from the chief financial officer of the Company certifying that the Company and its Subsidiaries, on a consolidated basis after giving effect to the Transactions to occur on the Effective Date, are solvent (within the meaning of Section 3.12).
(i) Borrowing Base Certificate. The Agent shall have received prior to the Effective Date a Borrowing Base Certificate which calculates each Borrowing Base as of the last Business Day of the most recent fiscal month ended at least ten (10) Business Days prior to the Effective Date.
(j) Opening Availability. The amount of Excess Availability, with all the U.S. Loan Parties’ and the Canadian Loan Parties’ obligations current in accordance with historical practices and after giving effect to the making of the initial Revolving Loans hereunder and the issuance of any Letters of Credit and the payment of all fees hereunder and all other Transaction Expenses attributable to the U.S. Borrowers and the Canadian Loan Parties, is not less than $150,000,000.
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(k) Pledged Stock; Stock Powers; Pledged Notes. The Agent (or its bailee) shall have received (i) the certificates representing the shares of Equity Interests required to be pledged pursuant to the applicable Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) required to be pledged to the Agent (or its bailee) pursuant to the applicable Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.
(l) Perfection Certificate; Filings, Registrations and Recordings. The Agent shall have received a completed Perfection Certificate dated the Effective Date and signed by a Responsible Officer of the Company, together with all attachments contemplated thereby. Each document (including any UCC and PPSA financing statement) required by the Collateral Documents or under law or reasonably requested by the Agent to be filed, registered or recorded in order to create in favor of the Agent and other applicable Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration, or recordation.
(m) Material Adverse Effect. Since the date of the latest audited financial statements of Holdings and its Subsidiaries, no Material Adverse Effect has occurred.
(n) Transactions. (i) The Canadian Acquisition shall have been consummated, or substantially simultaneously with the Effective Date, shall be consummated, in accordance with the terms of the Canadian Acquisition Agreement, without giving effect to any modifications, amendments, consents or waivers that are material and adverse to the Lenders or the Agent as reasonably determined by the Agent, without the prior consent of the Agent (such consent not to be unreasonably withheld, delayed or conditioned), and (ii) concurrently with the consummation of the Canadian Acquisition, the Refinancing shall have been consummated.
(o) Insurance. The Agent shall have received liability and property insurance certificates and endorsements naming the Agent (together with the Trustee, as applicable) as an additional insured or loss payee, as applicable, (subject to the terms of the Intercreditor Agreement with respect to the U.S. Collateral).
(p) PATRIOT Act. The Agent shall have received on or prior to the Effective Date, all documentation and other information about the Borrowers and the other Loan Parties as had been reasonably requested in writing at least 7 days prior to the Effective Date by the Agent that it reasonably determines is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the PATRIOT Act.
(q) Litigation. To the knowledge of the Canadian Borrowers, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against any Canadian Borrower or any Canadian Guarantor, as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
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(r) Canadian Agreements. The Agent shall have received a complete and correct copy of the Canadian Acquisition Agreement as well as the schedule of material agreements provided by the Seller in connection with the Canadian Acquisition Agreement.
The Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding.
SECTION 4.02 Each Credit Event. The obligation of each Applicable Lender to make a Revolving Loan on the occasion of any Revolving Borrowing to the Borrowers within a Borrower Group, and of any Applicable Issuing Bank to issue, amend, renew or extend any Letter of Credit for the account of any Borrower within a Borrower Group, is subject to the satisfaction of the following conditions:
(a) The Agent shall have received, in the case of a Revolving Loan, a Borrowing Request as required by Section 2.03 (or a Borrowing Request shall have been deemed given in accordance with the last paragraph of Section 2.03) or, in the case of the issuance of a Letter of Credit, the Applicable Issuing Bank and the Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.06(b) or, in the case of a Swingline Loan, the Applicable Swingline Lender and the Agent shall have received a Swingline Borrowing Request as required by Section 2.05(a).
(b) The representations and warranties of the Loan Parties set forth in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, 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 (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) as of such earlier date).
(c) After the Effective Date, at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, no Event of Default or Default shall have occurred and be continuing.
(d) After giving effect to the proposed Borrowing or issuance, amendment, renewal or extension of such Letter of Credit, (i) the aggregate U.S. Revolving Exposures would not exceed the lesser of the U.S. Revolving Commitments and the U.S. Borrowing Base, and (ii) the aggregate Canadian Revolving Exposures would not exceed the lesser of the Canadian Revolving Commitments and the Canadian Borrowing Base.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (b), (c) and (d).
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ARTICLE V.
AFFIRMATIVE COVENANTS
Until the Termination Date, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:
SECTION 5.01 Financial Statements; Borrowing Base and Other Information . The Company will furnish to the Agent (which will promptly furnish such information to the Lenders):
(a) within ninety (90) days after the end of each fiscal year of the Company, its audited consolidated balance sheet and related statements of earnings, shareholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (whose opinion shall not be qualified as to scope of audit or as to the status of the Company and its consolidated Subsidiaries as a going concern) to the effect that such consolidated financial statements present fairly, in all material respects, the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Company, its consolidated balance sheet and related statements of earnings, shareholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly, in all material respects, the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(c) within thirty (30) days after the end of each of the first two fiscal months of each fiscal quarter of the Company, its consolidated balance sheet and related statements of earnings and cash flows as of the end of and for such fiscal month and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under clause (a), (b) or (c) above, a certificate of a Financial Officer of the Company in substantially the form of Exhibit C (i) certifying that no Event of Default or Default has occurred and, if an Event of Default or Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth, in the case of the financial statements delivered under clause (a) or (b), reasonably detailed calculations of the Fixed Charge Coverage Ratio (whether or not a Trigger Event then exists) as of the end of the period to which such financial statements relate, (iii) describing in reasonable detail such information with respect to Permitted Acquisitions consummated during the preceding fiscal quarter as the Agent may reasonably require, to the extent such information has not previously been supplied to the Agent hereunder, (iv) certifying as to the calculations and basis, in reasonable detail, of any cost savings added back to EBITDA pursuant to the provisions of clause (a)(xii) of the definition thereof), and
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(v) certifying, in the case of the financial statements delivered under clause (a), a list of names of all Immaterial Subsidiaries (if any) and Unrestricted Subsidiaries (if any), that each Subsidiary set forth on such list individually qualifies as an Immaterial Subsidiary or Unrestricted Subsidiary, as applicable, and that all Domestic Subsidiaries and Canadian Subsidiaries listed as Immaterial Subsidiaries in the aggregate comprise less than 10% of Total Assets of the Company and the Subsidiaries at the end of the period to which such financial statements relate and represented (on a contribution basis) less than 10% of EBITDA for the period to which such financial statements relate;
(e) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Event of Default under Section 6.12 (which certificate may be limited to the extent required by accounting rules or guidelines);
(f) concurrently with any delivery of consolidated financial statements under clause (a) or (b) above, the related unaudited consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements;
(g) within ninety (90) days after the beginning of each fiscal year, a detailed consolidated budget of the Company and its Subsidiaries by month for such fiscal year (including a projected consolidated balance sheet and the related consolidated statements of projected cash flows and projected income of the Company and its consolidated Subsidiaries for each quarter of such fiscal year);
(h) as soon as available but in any event on or prior to the 20th day of each fiscal month, a Borrowing Base Certificate as of the close of business on the last day of the immediately preceding fiscal month, together with such supporting information in connection therewith as the Agent may reasonably request, and which may include, without limitation, Inventory reports for each Borrower Group by category and location, together with a reconciliation to the corresponding Borrowing Base Certificate, deliver to the Agent a reasonably detailed calculation of Eligible Tire Inventory, Eligible Non-Tire Inventory, Eligible Receivables and the Value of Inventory for each Borrower Group; provided that upon the occurrence and during the continuance of a Liquidity Event, the Company shall deliver a Borrowing Base Certificate and such supporting information 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 (or, at any time that an Event of Default exists, more frequently as may be requested by the Agent); provided, further, that immediately prior to any acquisition by any Loan Party of any Person or assets permitted hereunder, all or a portion of the purchase price of which is to be funded by a Revolving Borrowing (including after giving effect to any Revolving Commitment Increase effected in connection therewith), the Company may furnish to the Agent an updated Borrowing Base Certificate that includes the assets to be acquired (including by acquisition of any Person) of any Person that is, or will upon such acquisition become, a Borrower, measured as of the date of the most recent Borrowing Base Certificate previously delivered hereunder, subject, in each case, to the requirements of the last paragraph in Section 6.04.
(i) at the Agent’s request, concurrently with the delivery of the Borrowing Base Certificate, deliver to the Agent a schedule of Inventory for each Borrower Group as of the last Business Day of the immediately preceding month or week, as applicable, of the Borrowers, itemizing and describing the kind, type and quantity of Inventory, the applicable Borrower’s Cost thereof and the location thereof.
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(j) at the Agent’s request, concurrently with the delivery of the Borrowing Base Certificate, thereafter deliver to the Agent a schedule of Receivables for each Borrower Group which (i) shall be as of the last Business Day of the immediately preceding month or week, as applicable, (ii) shall be reconciled to the Borrowing Base Certificate as of such last Business Day, and (iii) shall set forth a detailed aged trial balance of all of the then existing Receivables of the Borrowers and Canadian Guarantors within each Borrower Group, specifying the names, balance due and, if an Event of Default then exists, the addresses, for each Account Debtor obligated on any Receivable so listed.
(k) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials publicly filed by any Loan Party or any Subsidiary with the SEC, or with any national securities exchange, or, after an initial public offering of shares of capital stock of Holdings or the Company, distributed by Holdings or the Company to its shareholders generally, as the case may be;
(l) not later than any date on which financial statements are delivered with respect to any period in which a Pro Forma Adjustment is made, a certificate of a Responsible Officer of the Company setting forth the amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis therefor;
(m) promptly following the Agent’s request therefor, all documentation and other information that the Agent reasonably requests on its behalf or on behalf of any Lender in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including the PATRIOT Act; and
(n) as promptly as reasonably practicable from time to time following the Agent’s request therefor, such other information regarding the operations, business affairs and financial condition of any Loan Party or any Subsidiary, or compliance with the terms of any Loan Document, as the Agent (on behalf of any Lender) may reasonably request.
Notwithstanding the foregoing, the obligations in clauses (a) and (b) of this Section 5.01 may be satisfied with respect to financial information of the Company and its Subsidiaries by furnishing (A) the applicable financial statements of Holdings (or any direct or indirect parent of Holdings) or (B) the Company’s or Holdings’ (or any direct or indirect parent thereof), as applicable, Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to Holdings (or a parent thereof), such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to Holdings (or such parent), on the one hand, and the information relating to the Company and its Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under clause (a) of this Section 5.01, such materials are accompanied by a report and opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be qualified as to the scope of audit or as to the status of Holdings (or such parent) and its consolidated subsidiaries as a going concern.
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Documents required to be delivered pursuant to clauses (a), (b) or (j) of this Section 5.01 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Company posts such documents, or provides a link thereto on the Company’s website on the Internet at the website address provided to the Agent from time to time in writing; or (ii) on which such documents are posted on the Company’s behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that: (i) upon written request by the Agent, the Company shall deliver paper copies of such documents to the Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Agent and (ii) the Company shall notify (which may be by facsimile or electronic mail) the Agent of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Company shall be required to provide paper copies of the compliance certificates required by clause (d) of this Section 5.01 to the Agent.
SECTION 5.02 Notices of Material Events. The Company will furnish to the Agent written notice of the following promptly after any Responsible Officer of the Company obtains knowledge thereof:
(a) the occurrence of any Event of Default or Default;
(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against any Loan Party or any of its Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;
(c) any loss, damage or destruction to the Collateral in the amount of $20,000,000 or more, whether or not covered by insurance;
(d) any default notice received by a Responsible Officer of the Company or any of its Material Subsidiaries with respect to any leased location or public warehouse that contains Inventory in the amount of $25,000,000 or more; or
(e) the occurrence of any ERISA Event or Pension Event that, together with all other ERISA Events or Pension Events that have occurred and are continuing, would reasonably be expected to result in a Material Adverse Effect.
Each notice delivered under this Section 5.02 shall be accompanied by a statement of a Responsible Officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03 Existence; Conduct of Business. Each Loan Party will, and will cause each Subsidiary to, do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits (except as such would otherwise reasonably expire, be abandoned, disposed or permitted to lapse in the ordinary course of business), necessary or desirable in the normal conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except (i) other than with respect to Holdings’ or the Company’s existence, to the extent such failure to do so would not reasonably be expected to have a Material Adverse Effect or (ii) pursuant to a transaction permitted by Section 6.03.
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SECTION 5.04 Payment of Obligations. Each Loan Party will, and will cause each Subsidiary to, pay or discharge all material Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings and where such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05 Maintenance of Properties. Each Loan Party will, and will cause each Subsidiary to (a) at all times maintain and preserve all material property necessary to the normal conduct of its business in good repair, working order and condition, ordinary wear and tear excepted and casualty or condemnation excepted and (b) make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto as necessary in accordance with prudent industry practice in order that the business carried on in connection therewith, if any, may be properly conducted at all times, except, in each case, where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06 Books and Records; Inspection Rights; Appraisals; Field Examinations. (a) Each Loan Party will, and will cause each Subsidiary to, (i) keep proper books of record and account in accordance with GAAP in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (ii) permit any representatives designated by the Agent (including employees of the Agent or any consultants, accountants, lawyers and appraisers retained by the Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including non-privileged environmental assessment reports and Phase I or Phase II studies in the possession and control of any Loan Party or any Subsidiary, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and with representatives of the Company present, but not more than two per fiscal year (or, during the occurrence and continuation of an Event of Default, as often as reasonably requested).
(b) At reasonable times during normal business hours and upon reasonable prior notice (except when an Event of Default exists) that the Agent requests, independently of or in connection with the visits and inspections provided for in clause (a) above, (i) the Borrowers will grant access to the Agent (including employees of the Agent or any consultants, accountants, lawyers and appraisers retained by the Agent) to such Person’s books, records, accounts and Inventory so that the Agent or an appraiser retained by the Agent may conduct an Inventory appraisal and (ii) the Agent may conduct (or engage third parties to conduct) such field examinations, verifications and evaluations as the Agent may deem necessary or appropriate; provided that (i) the Agent may conduct no more than one such appraisal and one such field examination for each Borrower Group in any period of 12 consecutive months following the date upon which Excess Availability is equal to or greater than 50% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, (ii) the Agent may conduct no more than two such appraisals and two such field examinations for each Borrower Group in any period of 12 consecutive months following the date upon which Excess Availability is for five (5) consecutive Business Days equal to or greater than 15%, but less than 50% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, (iii) the Agent may conduct up to three (3) such appraisals and three such field examinations for each Borrower Group in any period of 12 consecutive months following any date upon which Excess Availability is for five (5) consecutive Business Days less than 15% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, and (iv) the Agent may conduct as many appraisals and field examinations for each Borrower Group as it may request during the existence and continuance of an Event of Default. All such appraisals, field examinations and other verifications and evaluations shall be at the sole expense of the Borrowers; provided that the Agent shall provide the Company with a reasonably detailed accounting of all such expenses.
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(c) The Loan Parties acknowledge that the Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain Reports pertaining to the Loan Parties’ assets for internal use by the Agent and the Lenders, subject to the provisions of Section 9.12 hereof.
SECTION 5.07 Reserved.
SECTION 5.08 Compliance with Laws. Each Loan Party will, and will cause each Subsidiary to, comply in all material respects with (a) all Anti-Terrorism Laws and (b) all other Requirements of Law applicable to it or its property, except in the case of Requirements of Law described in clause (b) where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.09 Use of Proceeds. The proceeds of the Revolving Loans will be used to pay a portion of the Canadian Acquisition Funds, and for capital expenditures, and for working capital needs and general corporate purposes. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that would entail a violation of Regulations T, U or X.
SECTION 5.10 Insurance. Each Loan Party will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts and against such risks, as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations (after giving effect to any self-insurance reasonable and customary for similarly situated companies) and (b) all insurance required pursuant to the Collateral Documents (and shall cause (i) the Agent to be listed as a loss payee (together with any other loss payee in accordance with the Intercreditor Agreement with respect to the U.S. Collateral) on property and casualty policies covering loss or damage to Collateral and (ii) the Agent and the other Secured Parties to be listed as additional insureds on liability policies). The Company will furnish to the Agent, upon request, information in reasonable detail as to the insurance so maintained.
SECTION 5.11 Additional Loan Parties; Additional Collateral; Further Assurances. (a) Subject to applicable law and any exceptions set forth in any applicable Security Agreement, each Borrower and each Subsidiary that is a Loan Party shall cause (i) each of its Domestic Subsidiaries and Canadian Subsidiaries (other than any Excluded Subsidiary) formed or acquired after the date of this Agreement in accordance with the terms of this Agreement and (ii) any Domestic Subsidiary or Canadian Subsidiary that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary, to become a Loan Party as promptly thereafter as reasonably practicable by executing a Joinder Agreement in substantially the form set forth as Exhibit D hereto (the “Joinder Agreement”). Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Party and, except as provided in the last sentence of this Section 5.11(a) if such Person is joined as a Borrower or a Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will simultaneously therewith or as soon as practicable thereafter grant Liens to the Agent, for the benefit of the Agent, the Applicable Lenders and the other applicable Secured Parties in any property (subject to the limitations with respect to Equity Interests set forth in paragraph (b) of this Section 5.11, the limitations with respect to real property set forth in paragraph (f) of this Section 5.11, applicable law and any other limitations set forth in each Applicable Security Agreement, and excluding property with respect to which the Agent and the Borrower Agent have reasonably determined that the cost of granting Loans in such property is excessive in relation to the value of the security to be afforded by such property) of such Loan Party which constitutes Collateral, on such terms as may be required pursuant to the terms of the Collateral Documents and in such priority as may be required pursuant to the terms of the Intercreditor Agreement with respect to the U.S. Collateral. Subject to the approval of the Agent, any Domestic Subsidiary or Canadian Subsidiary that is a Loan Party may be a Borrower hereunder, subject to (A) execution of a Joinder Agreement pursuant to which such Loan Party agrees to be bound as a Borrower hereunder and such other agreements, documents or instruments as the Agent may reasonably request and (B) with respect to any Canadian Subsidiary, the completion of a field examination and appraisal with results satisfactory to the Agent.
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(b) (i) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, each Borrower and each Subsidiary that is a Loan Party will cause the issued and outstanding Equity Interests (other than Excluded Equity Interests) of each Subsidiary directly owned by any Borrower or any Subsidiary that is a Loan Party to be subject at all times to a first priority (subject to the Intercreditor Agreement with respect to the U.S. Collateral and to other Liens permitted by Section 6.02), perfected Lien in favor of the Agent pursuant to the terms and conditions of the Loan Documents.
(ii) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in any applicable Security Agreement, Holdings, each Borrower and each Subsidiary that is a Loan Party will cause, except with respect to intercompany Indebtedness, all evidences of Indebtedness for borrowed money in a principal amount in excess of $2,500,000 (individually) that is owing to Holdings, a Borrower or any Subsidiary that is a Loan Party to be evidenced by a duly executed promissory note and pledged and delivered to the Agent (or its non-fiduciary agent or designee) under the applicable Security Agreement to which such Loan Party is a party and accompanied by instruments of transfer with respect thereto endorsed in blank.
(iii) Each of Holdings, each Borrower and each Subsidiary that is a Loan Party agrees that all Indebtedness of Holdings, the Company and each of its Subsidiaries that is owing to any Loan Party shall be evidenced by the Intercompany Note, which promissory note shall be required to be pledged and delivered to the Agent (or its non-fiduciary agent or designee) under the applicable Security Agreement and accompanied by instruments of transfer with respect thereto endorsed in blank; provided that the intercompany bridge loan (the “Triwest Loan”) owing by Triwest to the Initial Canadian Borrower, shall not be required to be pledged and delivered hereunder until the day, if any, that such intercompany bridge loan remains outstanding after the fifth Business Day following January 1, 2013.
(c) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, and without limiting the foregoing, each Loan Party will, and will cause each Subsidiary that is a Loan Party to, execute and deliver, or cause to be executed and delivered, to the Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable (including the delivery of the Real Property Collateral Requirements), which may be required by law or which the Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties, provided, however, that no U.S. Borrower and no other U.S. Loan Party shall be required to grant any security interest or take any action to perfect any security interest under the law of any jurisdiction outside the United States of America and no Canadian Loan Party shall be required to maintain any Collateral outside of Canada or grant any security interest or take any action to perfect any security interest under the laws of any jurisdiction outside Canada.
(d) Subject to the limitations set forth or referred to in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, if any material assets (including any real property or improvements thereto or any interest therein) are acquired by any Borrower or any Subsidiary that is a Loan Party after the Effective Date (other than assets constituting Collateral under a
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Security Agreement that become subject to the perfected Lien in favor of the Agent upon acquisition thereof), the Company will, as soon as reasonably practicable, notify the Agent thereof, and, if requested by the Agent, the Company will cause such assets to be subjected to a perfected Lien securing the Secured Obligations and will take, and cause the Loan Parties that are Subsidiaries to take, such actions as shall be necessary or reasonably requested by the Agent to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Loan Parties.
(e) If, at any time and from time to time after the Effective Date, Subsidiaries that are not Loan Parties because they are Immaterial Subsidiaries comprise in the aggregate more than 10% of Total Assets as of the end of the most recently ended fiscal quarter of the Company or more than 10% of EBITDA for the period of four consecutive fiscal quarters as of the end of the most recently ended fiscal quarter of the Company, then the Company shall, not later than 45 days after the date by which financial statements for such quarter are required to be delivered pursuant to this Agreement, cause one or more such Subsidiaries to become additional Loan Parties (notwithstanding that such Subsidiaries are, individually, Immaterial Subsidiaries) such that the foregoing condition ceases to be true.
(f) Notwithstanding anything to the contrary contained in this Agreement, real property required to be mortgaged under the Loan Documents shall (i) exclude the Miami, Florida and Simi Valley, California real estate and (ii) shall be limited to real property located in the U.S. that is owned in fee by a U.S. Loan Party or Canada that is owned in fee by a Canadian Loan Party, the cost or book value of which (whichever is greater) at the time of the acquisition thereof (or, in the case of real property owned on the Effective Date), the cost or book value of which (whichever is greater) on the Effective Date of $2,500,000 or more (provided that the cost of perfecting such Lien is not unreasonable in relation to the benefits to the Lenders of the security afforded thereby in the reasonable determination of the Borrower Agent and the Agent).
(g) Notwithstanding anything to the contrary contained herein, the Loan Parties within each Borrower Group shall not be required to include as Collateral any Excluded Assets (as defined in any Security Agreement to which the members of such Borrower Group are parties), but for the avoidance of doubt, in no event shall the Canadian assets constitute Excluded Assets for purposes of the Canadian Collateral solely because such assets are owned by a Foreign Subsidiary that is a Canadian Loan Party.
SECTION 5.12 Designation of Subsidiaries. The board of directors of the Company may at any time after the Effective Date, in accordance with the definition of Unrestricted Subsidiary, designate any Subsidiary (other than a Canadian Borrower) as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Subsidiary; provided that (i) immediately before and after such designation, no Default or Event of Default shall have occurred and be continuing, (ii) no Subsidiary may be designated as an Unrestricted Subsidiary if it is a “Restricted Subsidiary” for the purpose of the Senior Secured Notes or Senior Subordinated Notes and (iii) no Unrestricted Subsidiary that is designated as a Subsidiary may be redesignated as an Unrestricted Subsidiary at any time after being so designated as a Subsidiary. The designation of any Subsidiary as an Unrestricted Subsidiary shall constitute an investment by the Company therein at the date of designation in an amount equal to the net book value of the Company’s investment therein. The designation of any Unrestricted Subsidiary as a Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness or Liens of such Subsidiary existing at such time.
SECTION 5.13 Post-Closing Covenant Regarding Amalgamation of Initial Canadian Borrower and Triwest. On or before the fifth Business Day following January 1, 2013 (or such later date as may be consented to by the Agent in writing), the Company shall deliver to the Agent evidence (which evidence shall be in form and substance satisfactory to the Agent) of the amalgamation
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of the Initial Canadian Borrower and Triwest, and the Company shall, and shall cause the Amalgamated Company and the other Loan Parties to, execute and deliver, or cause to be executed and delivered, to the Agent such documents, agreements, instruments, and legal opinions of counsel to the Amalgamated Company, and will take or cause to be taken such further actions (including the filing, registration, and recording of PPSA financing statements and other documents and such other actions or deliveries, as applicable), which may be required by law to reaffirm and to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure the continuing perfection and priority of the Agent’s Liens created or intended to be created by the Collateral Documents, including the Agent’s Liens upon the assets of the Amalgamated Company, all at the expense of the Loan Parties.
ARTICLE VI.
NEGATIVE COVENANTS
Until the Termination Date, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:
SECTION 6.01 Indebtedness. No Loan Party will, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) Indebtedness created under the Loan Documents;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01;
(c) Indebtedness of the Company to Holdings or any Subsidiary, Indebtedness of any Subsidiary to the Company, Holdings or any other Subsidiary and Indebtedness of Holdings to the Company or any Subsidiary; provided that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Company, Holdings or any Subsidiary that is a Loan Party shall only be permitted to the extent permitted as an investment under Section 6.04, (ii) Indebtedness owing by any Canadian Loan Party to any U.S. Loan Party shall only be permitted to the extent permitted as an investment under Section 6.04, and (iii) Indebtedness of the Company or Holdings to any Subsidiary that is not a Loan Party and Indebtedness of any Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party shall (x) be evidenced by the Intercompany Note or (y) otherwise be outstanding on the Effective Date so long as such Indebtedness is evidenced by an intercompany note substantially in the form of Exhibit J or otherwise subject to subordination terms substantially identical to the subordination terms set forth in Exhibit J within 60 days of the Effective Date or such later date as the Agent shall reasonably agree, in each case, to the extent permitted by applicable law and not giving rise to material adverse tax consequences;
(d) Guarantees (i) by Holdings and the Subsidiaries that are U.S. Loan Parties of the Indebtedness of the Company described in clause (m) hereof, so long as the Guarantee of the Senior Subordinated Notes is subordinated substantially on terms as set forth in the Senior Subordinated Note Documents, (ii) by Holdings, the Company or any Subsidiary that is a U.S. Loan Party of any Indebtedness of Holdings, the Company or any Subsidiary that is a U.S. Loan Party expressly permitted to be incurred under this Agreement, (iii) by any Canadian Loan Party of Indebtedness of a Loan Party that is expressly permitted to be incurred hereunder, (iv) by Holdings, the Company or any Subsidiary that is a Loan Party of Indebtedness otherwise expressly permitted hereunder of any Subsidiary that is not a Loan Party to the extent such Guarantees are permitted as an investment under Section 6.04 (the foregoing shall also apply to Guarantees of Indebtedness of any Canadian Loan Party to any U.S. Loan Party); provided that Guarantees by Holdings, the Company or any Subsidiary that is a Loan Party under this clause (d) of any other Indebtedness of a Person that is subordinated to other Indebtedness of such Person
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shall be expressly subordinated to the Obligations on terms at least as favorable to the Lenders as the Guarantee of the Senior Subordinated Notes is under the Senior Subordinated Note Documents or as set forth in the Intercompany Note (the foregoing shall also apply to any Guarantees of Indebtedness of a U.S. Loan Party to a Canadian Loan Party), and (v) by Holdings, the Company or any Subsidiary that is a Loan Party of any real property lease obligations of the Company or any Subsidiary that is a Loan Party;
(e) Indebtedness (including Capital Lease Obligations) the proceeds of which are incurred exclusively to finance the acquisition, lease, construction, repair, renovations, replacement, expansion or improvement of any fixed or capital assets or otherwise incurred in respect of Capital Expenditures, whether through the direct purchase of assets or the Equity Interests of any Person owning such assets in an aggregate principal amount, together with all other Indebtedness issued or incurred and outstanding under this clause (e), not to exceed the greater of (i) $45,000,000, and (ii) 2.5% of the Total Assets (in each case determined at the date of incurrence);
(f) Capital Lease Obligations incurred by the Company or any Subsidiary in respect of any Sale and Lease-Back Transaction that is permitted under Section 6.06;
(g) Indebtedness which represents an extension, refinancing, refunding, replacement or renewal of any of the Indebtedness described in clauses (b), (e), (f), (g), (j), (k), (m), (n), (v), (x) and (y) of this Section 6.01; provided that, (i) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, refunded, replaced or renewed, except by an amount equal to unpaid accrued interest and premium (including applicable prepayment penalties) thereon plus fees and expenses reasonably incurred in connection therewith, (ii) any Liens securing such Indebtedness are not extended to any additional property of any Loan Party, (iii) no Loan Party that is not originally obligated with respect to repayment of such Indebtedness is required to become obligated with respect thereto, (iv) such extension, refinancing, refunding, replacement or renewal does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced, refunded, replaced or renewed, (v) if the Indebtedness that is extended, refinanced, refunded, replaced or renewed was subordinated in right of payment to the Secured Obligations, then the terms and conditions of the extension, refinancing, refunding, replacement or renewal Indebtedness must include subordination terms and conditions that are at least as favorable to the Lenders as those that were applicable to the extended, refinanced, refunded, replaced or renewed Indebtedness and (vi) with respect to any such extension, refinancing, refunding, replacement or renewal of the Senior Secured Notes, such refinancing Indebtedness, if secured, is secured only by assets of the Loan Parties that constitute Collateral for the Obligations pursuant to a security agreement subject to the Intercreditor Agreement or another intercreditor agreement in form and substance reasonably satisfactory to the Agent and in any event that is no less favorable to the Secured Parties than the Intercreditor Agreement;
(h) Indebtedness incurred by the Company or any of its Subsidiaries constituting reimbursement obligations with respect to letters of credit, bank guarantees, banker’s acceptances, warehouse receipts, or similar instruments issued or created in the ordinary course of business, including letters of credit in respect of workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence;
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(i) Indebtedness of the Company or any Subsidiary in respect of self-insurance and in respect of performance bonds, bid bonds, appeal bonds, surety bonds, performance and completion guarantees and similar obligations, or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case provided in the ordinary course of business;
(j) Indebtedness of a Person that becomes a Subsidiary (or is a Subsidiary that survives a merger with such Person or any of its Subsidiaries or continues after an amalgamation with such Person or any of its Subsidiaries) after the Effective Date and Indebtedness acquired or assumed in connection with Permitted Acquisitions; provided that
(i) such Indebtedness exists at the time such Person becomes a Subsidiary or at the time of such Permitted Acquisition and is not created in contemplation of or in connection therewith, and
(ii) such Indebtedness is not guaranteed in any respect by any Loan Party or any Subsidiary (other than any such Person that so becomes a Subsidiary or is the survivor of a merger with such Person or any of its Subsidiaries or continues after an amalgamation with such Person or any of its Subsidiaries).
(k) Indebtedness of the Company or any Subsidiary issued or incurred to finance a Permitted Acquisition; provided that
(w) (A) the terms of such Indebtedness do not provide for any scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 91 days after the latest Maturity Date, other than customary offers to purchase upon a change of control, asset sale or casualty or condemnation event and customary acceleration rights upon an event of default, (B) such Indebtedness is unsecured and, if the primary obligor of such Indebtedness is not a Loan Party, such Indebtedness shall not be guaranteed in any respect by Holdings, the Company or any other Loan Party except to the extent permitted under Section 6.04 and (C) the covenants, events of default, subsidiary guarantees and other terms for such Indebtedness (provided that such Indebtedness shall have interest rates, fees, funding discounts and redemption or prepayment premiums determined by the Company to be market rates and premiums at the time of issuance of such Indebtedness), taken as a whole, are determined by the Company to be market terms on the date of issuance and in any event are not more restrictive on Holdings, the Company or any other Loan Party and their Subsidiaries than the terms of this Agreement (as in effect on the Effective Date) and do not require the maintenance or achievement of any financial performance standards other than as a condition to taking specified actions; provided that a certificate of an Responsible Officer of the Company delivered to the Agent at least five (5) Business Days prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Company has determined in good faith that such terms and conditions satisfy the foregoing requirements shall be conclusive evidence that such terms and conditions satisfy the foregoing requirements unless the Agent notifies the Company within such five (5) Business Day period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees);
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(x) (A) the Company or such other relevant Loan Party pledges the Equity Interests of any Person acquired in such Permitted Acquisition (the “acquired Person”) to the Agent to the extent required under Section 5.11 and (B) such acquired Person executes a Joinder Agreement to the extent required under Section 5.11;
(y) before and after giving effect to such issuance or incurrence of Indebtedness, no Event of Default shall have occurred or be continuing; and
(z) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to the issuance or incurrence of such Indebtedness and the consummation of such acquisition, calculated on a Pro Forma Basis, after giving effect to such incurrence or issuance, to such acquisition and to any related Pro Forma Adjustment, as if such incurrence or issuance and acquisition had occurred on the first day of such Test Period, shall be equal to or greater than 1.00 to 1.00.
(l) unsecured Indebtedness in respect of obligations of the Company or any Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; provided that (i) such obligations are incurred in connection with open accounts extended by suppliers on customary trade terms in the ordinary course of business and not in connection with the borrowing of money and (ii) unsecured Indebtedness in respect of intercompany obligations of the Company or any Subsidiary in respect of accounts payable incurred in connection with goods sold or services rendered in the ordinary course of business and not in connection with the borrowing of money;
(m) Indebtedness of the Company pursuant to and any Guarantees of (i) the Senior Secured Notes (and any exchange notes and related exchange guarantees to be issued in exchange for such Senior Secured Notes) in an aggregate principal amount that is not in excess of $250,000,000 and (ii) the Senior Subordinated Notes in an aggregate principal amount that is not in excess of $200,000,000;
(n) other Indebtedness not otherwise permitted under this Section 6.01 in an aggregate principal amount not exceeding the greater of (A) $50,000,000 and (B) 3.5% of Total Assets at any one time outstanding;
(o) Swap Obligations pursuant to Swap Agreements incurred in the ordinary course of business and not for speculative purposes;
(p) Indebtedness consisting of promissory notes issued by any Loan Party to future, current or former officers, directors, employees, managers and consultants thereof or their respective Controlled Investment Affiliates or Immediate Family Members, in each case to finance the purchase or redemption of Equity Interests of Holdings (or any direct or indirect parent thereof) or of the Company (following a Qualified Public Offering of the Company) permitted by Section 6.08;
(q) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price, earnouts or similar obligations, in each case, incurred in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiaries for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of the Company or any of its Subsidiaries prepared in accordance with GAAP (contingent obligations referred to in a footnote to financial statements and not
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otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum aggregate liability in respect of all such Indebtedness shall not exceed the gross proceeds, including the fair market value of non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time such proceeds are received and without giving effect to any subsequent changes in value), actually received by the Holdings, the Company or any of its Subsidiaries in connection with such disposition;
(r) Indebtedness consisting of obligations of Holdings, the Company or any Subsidiary under deferred compensation or other similar arrangements incurred by such Person in connection with the Transactions and Permitted Acquisitions or any other investment expressly permitted hereunder;
(s) Indebtedness (i) arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of its incurrence, (ii) customer deposits and advance payments received in the ordinary course of business from customers for goods purchased in the ordinary course of business, and (iii) Indebtedness in respect of Banking Services provided by banks or other financial institutions to Holdings, the Company and its Subsidiaries in the ordinary course of business, in each case incurred or undertaken in the ordinary course of business on arm’s length commercial terms on a recourse basis;
(t) Indebtedness consisting of (x) the financing of insurance premiums or (y) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(u) Indebtedness incurred by the Company or any Subsidiary in respect of letters of credit, bank guarantees, bankers’ acceptances or similar instruments issued or created in the ordinary course of business;
(v) (i) the incurrence of Indebtedness of Foreign Subsidiaries of the Company in an amount not to exceed at any one time outstanding, 5.0% of the Foreign Subsidiary Total Assets and (ii) the incurrence of Indebtedness of any Foreign Subsidiary or Subsidiaries of the Company in an amount not to exceed at any one time outstanding the Foreign Subsidiary Borrowing Base of such Foreign Subsidiary or Subsidiaries; provided that any Indebtedness incurred under this clause (v)(ii) shall only be permitted to be used for working capital purposes of such Foreign Subsidiary or Subsidiaries;
(w) Indebtedness supported by a Letter of Credit, in a principal amount not to exceed the face amount of such Letter of Credit;
(x) unsecured Subordinated Indebtedness of the Company and its Subsidiaries or other unsecured Indebtedness of the Company and its Subsidiaries, so long as, in each case, (i) at the time of the incurrence of such Indebtedness and after giving effect thereto, each of the Payment Conditions is satisfied, (ii) the maturity date of such Indebtedness is more than ninety (90) days after the Maturity Date, and (iii) such Indebtedness has a weighted average life to maturity that is no shorter than any other class of Indebtedness of any Loan Party;
(y) unsecured Vendor Debt, advances and similar financings in an aggregate principal amount not exceeding $50,000,000; and
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(z) Indebtedness owing by Triwest to the Initial Canadian Borrower under the Triwest Loan, which shall be extinguished upon their amalgamation by operation of law.
The accrual of interest and the accretion or amortization of original issue discount on Indebtedness and the payment of interest in the form of additional Indebtedness originally incurred in accordance with this Section 6.01 will not constitute an incurrence of Indebtedness.
SECTION 6.02 Liens. No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a) Liens created pursuant to any Loan Document;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of any Loan Party or any Subsidiary existing on the date hereof and set forth in Schedule 6.02 and any replacements, renewals, refinancings, refundings or extensions thereof; provided that (i) such Lien does not extend to any other property or asset of Holdings, the Company or any Subsidiary other than after acquired property that is (A) affixed or incorporated into the property covered by such Lien or financed by Indebtedness permitted by Section 6.01 and, in each case the proceeds and products thereof, and (ii) such Lien shall secure only those obligations that it secures on the Effective Date and extensions, renewals, refinancings, refundings and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g));
(d) Liens securing Indebtedness permitted under Section 6.01(e) or (f); provided that (i) such Liens attach concurrently with or within 180 days after the acquisition, repair, replacement, construction, renovation, expansion or improvement (as applicable) of the property subject to such Liens, (ii) such Liens do not at any time encumber any property except for accessions to such property other than the property financed by such Indebtedness and the proceeds and the products thereof and (iii) with respect to Capital Lease Obligations, such Liens do not at any time extend to or cover any assets (except for accessions to such assets) other than the assets subject to the applicable capitalized lease; provided that individual financings of property provided by one lender may be cross collateralized to other financings of property provided by such lender;
(e) Liens on the Equity Interests in, or other similar Liens resulting from standard joint venture agreements or stockholder agreements and other similar agreements applicable to joint ventures;
(f) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(g) Liens (i) on cash advances in favor of the seller of any property to be acquired in an investment permitted pursuant to Section 6.04 to be applied against the purchase price for such investment, and (ii) consisting of an agreement to transfer any property in a disposition permitted under Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j) which constitute Liens, which sales, transfers and dispositions constituting Liens are not otherwise permitted under Section 6.05), in each case, solely to the extent such investment or disposition, as the case may be, would have been permitted on the date of the creation of such Lien;
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(h) Liens on property (i) of any Subsidiary that is not a Loan Party and (ii) that does not constitute Collateral, which Liens secure Indebtedness of the applicable Subsidiary permitted under Section 6.01;
(i) Liens in favor of Holdings, the Company or a Subsidiary securing Indebtedness permitted under Section 6.01, including Liens granted by a Subsidiary that is not a Loan Party in favor of the Company or another Loan Party in respect of Indebtedness owed by such Subsidiary;
(j) any interest or title of a lessor under leases or secured by a lessor’s interests under leases entered into in the ordinary course of business;
(k) Liens arising by operation of law under Article 2 of the UCC (or similar provisions of other applicable law) in the ordinary course of business;
(l) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(m) Liens that are rights of set-off (i) relating to the establishment of depository relations with banks in the ordinary course of business and not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business or (iii) relating to purchase orders and other agreements entered into with customers in the ordinary course of business;
(n) Liens solely on any cash earnest money deposits made in connection with any letter of intent or purchase agreement permitted hereunder;
(o) Subordinated Vendor Liens;
(p) Liens in respect of the licensing of patents, copyrights, trademarks, trade names, other indications of origin, domain names and other forms of intellectual property in the ordinary course of business;
(q) Other Liens (other than Liens on Borrowing Base Assets) securing obligations or Indebtedness not in excess of the greater of (i) the Dollar Equivalent Amount of $20,000,000 and (ii) 1.25% of Total Assets, determined at the time of incurrence;
(r) any Lien existing on any property or asset prior to the acquisition thereof by Holdings, the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Liens attach at all times only to the specific assets that such Liens secure on the date of such acquisition or the date such Person becomes a Loan Party or the date of such merger, amalgamation or consolidation, as the case may be, and not to any Borrowing Base Assets of Borrowers (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness
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require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof) and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party or the date of such merger, amalgamation or consolidation, as the case may be, and extensions, refinancing, refunding, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g));
(s) Liens (i) of a collecting bank arising in the ordinary course of business under Section 4-208 and Section 4-210 of the UCC (or similar provisions of other applicable law) in effect in the relevant jurisdiction covering only the items being collected upon, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, and (iii) in favor of banking institutions arising as a matter of law or under general terms and conditions encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(t) Liens (other than Liens on Borrowing Base Assets) arising out of Sale and Lease-Back transactions permitted by Section 6.06 and any extensions, refinancing, refunding, replacements and renewals thereof;
(u) Liens on goods or inventory the purchase, shipment or storage price of which is financed by a documentary letter of credit or bankers’ acceptance issued or created for the account of the Company or any of its Subsidiaries; provided that such Lien secures only the obligations of the Company or such Subsidiaries in respect of such letter of credit to the extent permitted under Section 6.01; and provided, further, that any such goods or inventory and the proceeds thereof, up to the Value of the Lien, shall not be Eligible Inventory or Eligible Receivables under this Agreement;
(v) Liens arising from precautionary UCC or PPSA financing statements or similar filings made in respect of operating leases;
(w) Liens granted under the Senior Secured Notes Security Documents (or, in the case of other Indebtedness incurred pursuant to Section 6.01(n) or 6.01(m)(ii), a separate security agreement or agreements substantially similar in all material respects to the Senior Secured Notes Security Documents) and any extensions, refinancing, renewals, refundings and replacements thereof; provided that (i) such Liens secure only the obligations referred to in the Senior Secured Notes Security Documents or such separate security agreements (and extensions, refinancing, refundings, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g) or Section 6.01(m)(ii))), (ii) such Liens do not apply to any asset other than U.S. Collateral that is subject to a Lien granted under a Collateral Document to secure the Secured Obligations and (iii) all such Liens shall be subject to the terms of, and have the priorities with respect to the U.S. Collateral as set forth in, the Intercreditor Agreement (or, in the case of other secured Indebtedness incurred pursuant to Section 6.01(n), another intercreditor agreement in form and substance reasonably acceptable to the Agent that is no less favorable to the Secured Parties than the Intercreditor Agreement);
(x) Liens deemed to exist in connection with investments in repurchase agreements under Section 6.04; provided that such Liens do not extend to any assets other than those assets that are the subject of such repurchase agreements;
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(y) ground leases in respect of real property on which facilities owned or leased by the Company or any of its Subsidiaries are located;
(z) pledges, deposits or security by such Person under workmen’s compensation laws, unemployment insurance, employers’ health tax, and other social security laws or similar legislation or other insurance related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;
(aa) Liens in favor of issuers of performance, surety, bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit or bankers acceptances issued, and completion guarantees provided for, in each case, issued pursuant to the request of and for the account of such Person in the ordinary course of its business or consistent with past practice prior to the Effective Date and so long as the Lien of such Person does not attach to any ABL First Lien Collateral or Canadian Collateral or if such Lien attaches to any ABL First Lien Collateral or Canadian Collateral, such Person has entered into a subordination agreement with the Agent in form and satisfactory to the Agent;
(bb) minor survey exceptions, minor encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights-of-way, servitudes, sewers, electric lines, drains, telegraph, telephone and cable television lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects and irregularities in title and similar encumbrances including the reservations, limitations, provisos, and conditions, if any, expressed in any original grant from the Crown of any real property or any interest therein) as to the use of real properties or Liens incidental, to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially impair their use in the operation of the business of such Person;
(cc) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(v);
(dd) (x) Liens securing Secured Swap Obligations and (y) Liens on cash and Permitted Investments securing other Swap Agreements if the aggregate amount of all cash and Permitted Investments subject to Liens permitted by this clause (dd) at no time exceeds $15,000,000;
(ee) leases, sub-leases, licenses or sub-licenses granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of Holdings, the Company or any of its Subsidiaries and do not secure any Indebtedness;
(ff) Liens arising from UCC or the PPSA (or equivalent statute) financing statement filings regarding consignments entered into by the Company and its Subsidiaries in the ordinary course of business;
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(gg) Liens solely on any cash earnest money deposits made by Holdings, the Company or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted;
(hh) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto and deposits made or other security provided in the ordinary course of business to secure liability to insurance carriers;
(ii) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(jj) Deposits securing obligations owed by Holdings, the Company or any Subsidiary in respect of any overdraft and related liabilities arising from Banking Services, including treasury, depository and cash management services or any ACH transfers of funds; and
(kk) additional Liens securing Indebtedness permitted to be incurred under Section 6.01; provided that, (i) on a Pro Forma Basis, at the time of, and after giving effect to, the incurrence of such Indebtedness, the Senior Secured Leverage Ratio would be no greater than 3.50 to 1.00 and (ii) to the extent that such Liens are contemplated to be on assets that are Collateral, the holders of such Indebtedness (or a representative thereof of behalf of such holders) shall have entered into the Intercreditor Agreement or a similar agreement providing that the Liens securing such Indebtedness shall rank junior to the Liens of the Agent (or with the same priority as the Senior Secured Notes) with respect to U.S. Collateral and junior to Liens of the Agent in the Canadian Collateral.
Notwithstanding the foregoing, for so long as Tire Pros Francorp is not a Loan Party, Tire Pros Francorp shall not be permitted to incur Liens on its assets under clauses (h), (g), (w), (cc) and (kk) of this Section 6.02.
SECTION 6.03 Fundamental Changes. (a) No Loan Party will, nor will it permit any Subsidiary to, merge into, consolidate with or amalgamate with any other Person, or permit any other Person to merge into, consolidate with or amalgamate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing:
(i) any Person (including the Company and Holdings) may merge, consolidate or amalgamate with or into the Company or Holdings, as applicable, in a transaction in which the surviving or continuing entity is the Company or Holdings, as applicable, or another Person organized or existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person (if not the Company or Holdings, as applicable) expressly assumes, in writing, all the obligations of the Company or Holdings, as applicable, under the Loan Documents, in which event such Person will succeed to, and be substituted for, the Company or the Holdings, as applicable;
(ii) any Person may merge, consolidate or amalgamate with or into any Subsidiary in a transaction in which the surviving or continuing entity is a Subsidiary and, if any party to such merger, consolidation or amalgamation is a Subsidiary that is a Loan Party, is or becomes a Subsidiary that is a Loan Party concurrently with such merger, consolidation or amalgamation; provided, that in the case of any merger, consolidation or amalgamation with a Canadian Borrower, such Canadian Borrower shall be the surviving or continuing Person or such Person (if not such Canadian Borrower) shall expressly assume, in writing, all the obligations of such Canadian Borrower under the Loan Documents, in which event such Person will succeed to, and be substituted for, such Canadian Borrower;
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(iii) any Subsidiary (other than a Canadian Borrower) may liquidate or dissolve if the Company determines in good faith that such liquidation or dissolution is in the best interests of the Company, is not materially disadvantageous to the Lenders and such liquidation or dissolution is accompanied by a disposition of the assets of such Subsidiary to the Holdings, the Company or any other Subsidiary;
(iv) any Subsidiary may merge, consolidate or amalgamate with any Person who is not a Loan Party or Subsidiary to effect an investment permitted under Section 6.04 (other than Section 6.04(m)); provided, however, if such Subsidiary is a Loan Party, the surviving or continuing Person of such merger, consolidation or amalgamation shall be a Loan Party;
(v) so long as the same does not result in the liquidation, dissolution or cessation of existence of the Company, a Canadian Borrower or Holdings, any merger, amalgamation, winding up, dissolution or liquidation may be effected for the purposes of effecting a transaction permitted by Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j)) that constitute a merger, dissolution or liquidation which is not otherwise permitted under Section 6.05); and
(vi) the Transactions may be consummated.
(b) The Company and each Subsidiary that is a Loan Party will not, and will not permit any of its Subsidiaries to (i) carry on and conduct its business in all material respects other than in substantially the same manner as it is presently conducted or in a manner reasonably related or ancillary thereto or (ii) engage to any material extent in any business other than businesses of the type conducted by the Company and its Subsidiaries] taken as a whole, on the date of hereof and businesses reasonably related or ancillary thereto.
(c) Holdings will not engage in any business or operations other than (i) the ownership, direct or indirect, of all the outstanding shares of capital stock of the Company, (ii) performance of its obligations under and in connection with the Loan Documents, the Senior Subordinated Note Documents, the Senior Secured Note Documents and the other agreements contemplated hereby and thereby, (iii) actions incidental to the consummation of the Transactions, (iv) actions required by law to maintain its existence, (v) any public offering of its common stock, any other issuance of its Equity Interests and performance of its obligations under any agreements related thereto, (vi) any transaction Holdings is permitted to enter into in this Article VI and (vii) activities incidental to the foregoing.
SECTION 6.04 Investments, Loans, Advances, Guarantees and Acquisitions. No Loan Party will, nor will it permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger, consolidation, or amalgamation with any Person that was not a Loan Party and a wholly owned Subsidiary prior to such merger, consolidation, or amalgamation) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the property and assets or business of another Person or assets of any other Person constituting a business unit (whether through purchase of assets, merger, consolidation, amalgamation or otherwise), except:
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(a) Permitted Investments, Investment Grade Securities and loans and advances in connection with the sale, transfer or disposition of assets other than Collateral;
(b) investments in existence or contemplated on the date of this Agreement and described in Schedule 6.04; and any modification, replacement, renewal, reinvestment or extension thereof (provided that the amount of the original investment is not increased except as otherwise permitted by this Section 6.04), and any investments, loans and advances existing on the date hereof by Holdings, the Company or any Subsidiary in or to Holdings, the Company or any other subsidiary of the Company;
(c) (i) loans and advances to employees, directors, officers, managers, distributors and consultants for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices or (ii) to fund such Person’s purchase of Equity Interests of Holdings, the Company or any direct or indirect parent company of Holdings (provided that the amount of such loans and advances shall be contributed to the Company in cash as common equity) or (iii) advances to, or guarantees of Indebtedness of, employees not in excess of $5,000,000 outstanding at any one time, in the aggregate;
(d) investments (i) in Holdings, the Company or any other Loan Party, (ii) by any Subsidiary that is not a Loan Party in Holdings, the Company or any other Loan Party, and (iii) by Holdings, the Company or any other Loan Party in any Subsidiary that is not a Loan Party in an aggregate amount for all such investments under this clause (iii) not to exceed the sum of $5,000,000 and an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the fair market value of such Investment at the time such Investment was made); provided that, investments by any U.S. Loan Party in any Canadian Loan Party shall be subject to clause (iii) above and not clauses (i) or (ii);
(e) investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors and other credits to suppliers in the ordinary course of business and investments as a result of the foreclosure on any secured investment or other transfer of title with respect to any secured investment in default;
(f) investments made to repurchase or retire Equity Interests of Holdings (or any direct or indirect parent thereof) or the Company owned by any employee stock ownership plan or key employee stock ownership plan of Holdings (or any direct or indirect parent thereof) or the Company;
(g) investments in the form of Swap Agreements permitted by Section 6.01;
(h) investments of any Person existing at the time such Person becomes a Subsidiary of the Company or consolidates, amalgamates, or merges with Holdings, the Company or any of the Subsidiaries (including in connection with a Permitted Acquisition) so long as such investments were not made in contemplation of such Person becoming a Subsidiary or of such amalgamation or merger;
(i) investments and other assets received in connection with the dispositions of assets permitted by Section 6.05;
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(j) investments constituting deposits described in Section 6.02;
(k) accounts receivable or notes receivable arising and trade credit granted in the ordinary course of business and other credits to suppliers or vendors in the ordinary course of business;
(l) Permitted Acquisitions;
(m) Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments permitted under Sections 6.01, 6.02, 6.03 (except to the extent constituting the acquisition of a Person that becomes a Subsidiary or the acquisition by Holdings, the Company or any Subsidiary of all or substantially all the assets or businesses of a Person or of assets constituting a business unit, line of business or division of such Person), 6.05, 6.06 and 6.08, respectively, solely to the extent constituting Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments which are permitted under the foregoing Sections 6.01, 6.02, 6.03, 6.05, 6.06 and 6.08, respectively, which Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments are not otherwise permitted by this Section 6.04;
(n) the Transactions;
(o) investments in the ordinary course of business consisting of UCC Article 3 (or equivalent statutes) endorsements for collection or deposit and UCC Article 4 (or equivalent statutes) customary trade arrangements with customers consistent with past practices;
(p) in exchange for any other investment or investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement or delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or received upon the foreclosure with respect to any secured investment or other transfer of title with respect to any secured investment and investments in satisfaction of judgments against such other Person;
(q) loans and advances to Holdings (or any direct or indirect parent thereof) in lieu of, and not in excess of the amount of (after giving effect to any other loans, advances or Restricted Payments in respect thereof), Restricted Payments to the extent permitted to be made to Holdings in accordance with Section 6.08(a);
(r) advances of payroll payments in the ordinary course of business to satisfy ordinary course payroll and other obligations of such company;
(s) (i) Investments, purchases and other acquisitions of assets to the extent that payment for such Investments, purchases and other acquisitions of assets is made solely with Qualified Equity Interests of Holdings (or of any direct or indirect parent thereof) or the Company or (ii) Investments, purchases and other acquisitions of assets to the extent the payment for such Investment, purchases and other acquisitions of assets is made with the cash proceeds from the issuance by Holdings (or any direct or indirect parent thereof) or the Company of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings or the Company;
(t) extensions or advances of trade credit, asset purchases (including purchases of Inventory, supplies and materials), the lease of any asset and the licensing or contribution of intellectual property pursuant to joint marketing or other arrangements with other Persons, in each case in the ordinary course of business;
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(u) guarantees by Holdings, the Company or any Subsidiary of leases (other than capitalized leases) for which another Loan Party is the lessee or of other obligations of another Loan Party that do not constitute Indebtedness, in each case entered into in the ordinary course of business;
(v) other investments, loans and advances; provided that, at the time such investment, loan or advance is made and after giving effect thereto, each of the Payment Conditions is satisfied;
(w) other investments, loans and advances which, together with any Restricted Payments made pursuant to Section 6.08(a)(xii) and Restricted Debt Payments made pursuant to Section 6.08(b)(vii), do not exceed $25,000,000 in the aggregate; provided that, at the time such investment, loan or advance is made and after giving effect thereto, no Event of Default or Liquidity Event exists or has occurred and is continuing;
(x) any investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business;
(y) investments consisting of purchases and acquisitions of assets or services in the ordinary course of business;
(z) investments made in the ordinary course of business in connection with obtaining, maintaining or renewing client contacts and loans or advances made to distributors in the ordinary course of business;
(aa) investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business; and
(bb) the Triwest Loan.
For purposes of covenant compliance, the amount of any investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value thereof.
In connection with any merger, consolidation or amalgamation (or other acquisition of the assets) of a Subsidiary that is not a Borrower or Canadian Loan Party, as applicable with and into (or to) a Borrower, or Canadian Loan Party, as applicable or any Permitted Acquisition or other acquisition of assets permitted hereunder, whether by purchase of stock, merger, consolidation, amalgamation or purchase of assets and whether in a single transaction or series of related transactions, the Inventory or Receivables so acquired shall not be included in the applicable Borrowing Base (subject to the provisions of the definitions “Borrowing Base,” “Eligible Tire Inventory,” “Eligible Non-Tire Inventory” and “Eligible Receivables” until such time as the Agent shall have completed its diligence in respect of such Inventory and Receivables in their Permitted Discretion), provided that the Inventory and Receivables of Triwest acquired in connection with the Canadian Acquisition shall be included in the Canadian Borrowing Base as and to the extent provided in the definition thereof and in the definition of “Canadian Initial Borrowing Base Period” notwithstanding the amalgamation of the Initial Canadian Borrower with Triwest. In connection with such diligence, the Agent may obtain, at the expense of the Borrowers within the applicable Borrowing Group, an appraisal and commercial finance exam with respect to such Receivables and Inventory as it may reasonably deem desirable in its Permitted Discretion and such appraisal and exam shall be paid for by the Borrowers within the applicable Borrower Group and shall not be limited by or included in the number of appraisals and field exams reimbursable under the terms of Section 5.06(b).
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SECTION 6.05 Asset Sales. No Loan Party will, nor will it permit any Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, except:
(a) sales, transfers and dispositions of (i) Inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus equipment or property in the ordinary course of business, or of property no longer used or useful in the conduct of the business of the Company and its Subsidiaries;
(b) sales, leases, transfers and dispositions to the Company or any Subsidiary, provided that any such sales, transfers or dispositions to a Subsidiary that is not a Loan Party shall be made in compliance with Section 6.09;
(c) sales, leases, transfers and dispositions of accounts receivable in connection with the compromise, settlement or collection thereof;
(d) sales, transfers and dispositions of (i) investments permitted by clauses (a), (h), (i), (j) and (p) of Section 6.04, (ii) investments permitted by clause (b) of Section 6.04 by a Loan Party to another Loan Party and by a Subsidiary that is not a Loan Party to a Loan Party or any Subsidiary and (iii) other investments to the extent required by or made pursuant to customary buy/sell arrangements made in the ordinary course of business between the parties to agreements related thereto;
(e) Sale and Lease-Back transactions permitted by Section 6.06;
(f) dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Company or any Subsidiary (a “Recovery Event”);
(g) Reserved.
(h) sales, transfers and other dispositions of assets that are not otherwise permitted by any other paragraph of this Section; provided that (i) with respect to any such sale, transfer or disposition for a purchase price in excess of $10,000,000, the Company or a Subsidiary shall receive not less than 75% of such consideration in the form of cash or Permitted Investments; provided that, for purposes of determining what constitutes cash under this clause (i), (A) any liabilities (as shown on the Company’s or such Subsidiary’s most recent balance sheet provided hereunder or in the footnotes thereto) of the Company or such Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that are assumed by the transferee with respect to the applicable sale, transfer or disposition and for which the Company and all of the Subsidiaries shall have been validly released by all applicable creditors in writing and (B) any securities received by the Company or such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of the applicable sale, transfer or disposition, (ii) after giving effect to any such sale, transfer or disposition, no Event of Default shall have occurred and be continuing, and (iii) to the extent applicable, the Net Cash Proceeds thereof are used to prepay the Revolving Loans as required by Section 2.11(c);
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(i) sales, leases, transfers and dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such disposition are promptly applied to the purchase price of such replacement property;
(j) sales, leases, transfers and dispositions permitted by Sections 6.03 and 6.08 and Liens permitted by Section 6.02;
(k) leases, subleases, space leases, licenses or sublicenses, in each case in the ordinary course of business and which do not materially interfere with the business of Holdings, the Company and its Subsidiaries;
(l) sales, leases, transfers and dispositions listed on Schedule 6.05; and
(m) sales, transfers and other dispositions of assets not constituting Collateral; provided that (i) after giving effect to any such sale, transfer or disposition, no Event of Default shall have occurred and be continuing and (ii) the Net Cash Proceeds of such sale, transfer or disposition are concurrently reinvested by the Company and its Subsidiaries in their business for general working capital purposes.
SECTION 6.06 Sale and Lease-Back Transactions. No Loan Party will, nor will it permit any Subsidiary to, enter into any arrangement, directly or indirectly, 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 that it intends to use for substantially the same purpose or purposes as the property sold or transferred (a “Sale and Lease-Back Transaction”); provided that a Sale and Lease-Back Transaction shall be permitted so long as (a) such Sale and Lease-Back Transaction (i) is made for cash consideration in an amount not less than the fair value of such property, (ii) is pursuant to a lease on market terms and (b) the aggregate amount of Attributable Debt for all Sale and Lease-Back Transactions does not exceed $50,000,000 at any time outstanding.
SECTION 6.07 Accounting Changes. The Company will not make any change in its method of determining its fiscal year and fiscal quarter end dates; provided, that the Company may, upon written notice to the Agent, change the financial reporting convention specified above to any other financial reporting convention reasonably acceptable to the Agent, in which case the Company and the Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary in order to reflect such change in financial reporting.
SECTION 6.08 Restricted Payments; Certain Payments of Indebtedness.
(a) Neither Holdings nor the Company will declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except:
(i) Holdings may make (A) Restricted Payments payable solely in Qualified Equity Interests of Holdings, (B) Restricted Payments from the Net Cash Proceeds of the issuance by Holdings of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings and (C) Restricted Payments from the proceeds of Restricted Payments permitted under this Section 6.08 that are received from the Company;
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(ii) the Company may make Restricted Payments payable solely in Qualified Equity Interests of the Company and may make Restricted Payments from the Net Cash Proceeds of the issuance by the Company of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of the Company;
(iii) the Company may make Restricted Payments to Holdings (and Holdings may make Restricted Payments to any direct or indirect parent thereof) the proceeds of which are used to purchase, repurchase, retire, redeem or otherwise acquire the Equity Interests of Holdings (or of any such direct or indirect parent of Holdings) or of the Company (following a Qualified Public Offering of the Company) (including related stock appreciation rights or similar securities) held by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of Holdings, the Company, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any stock subscription or shareholder agreement (including, for the avoidance of doubt, any principal and interest payable on any notes issued by the Holdings, the Company or any direct or indirect parent company of Holdings in connection with such purchase, repurchase, retirement, redemption or other acquisition), including any Equity Interest rolled over by management of the Holdings, the Company or any direct or indirect parent company of Holdings in connection with the Transactions (as defined in the Existing Credit Agreement); provided that the aggregate amount of Restricted Payments made under this clause does not exceed $5,000,000 for any fiscal year (which amount shall be increased to $10,000,000 on and after the date of a Qualified Public Offering); provided, further, that each of the amounts in any fiscal year under this clause may be increased by an amount not to exceed:
(A) the cash proceeds from the sale of Equity Interests (other than Disqualified Equity Interests) of the Company and, to the extent contributed to the Company, the cash proceeds from the sale of Equity Interests of Holdings or any direct or indirect parent company of Holdings, in each case to any future, present or former employees, directors, officers, managers, or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of Holdings, the Company, any of its Subsidiaries or any of its direct or indirect parent companies that occurs after the Effective Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (i) or (ii) of this Section 6.08(a); plus
(B) the cash proceeds of key man life insurance policies received by Holdings, the Company or its Subsidiaries after the Effective Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (A) and (B) of this clause (iii);
and provided, further, that cancellation of Indebtedness owing to the Company from any future, present or former employees, directors, officers, managers, or consultants of the Company (or their respective Controlled Investment Affiliates or Immediate Family Members), any direct or indirect parent company of the Company or any of the Company’s Subsidiaries in connection with a repurchase of Equity Interests of the Company or any of its direct or indirect parent companies will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of this Agreement;
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(iv) non-cash repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;
(v) the Company may make Restricted Payments to Holdings (together with loans or advances made pursuant to Section 6.04(q)) in amounts required for Holdings or any direct or indirect parent company of Holdings to pay, in each case, without duplication,
(A) franchise and excise taxes and other fees, taxes and expenses required to maintain their corporate existence;
(B) foreign, federal, state, provincial, municipal and local income and similar taxes, to the extent such income taxes are attributable to the income of the Company and its Subsidiaries and, to the extent of the amount actually received from its Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments in any fiscal year does not exceed the amount that the Company and its Subsidiaries would be required to pay in respect of foreign, federal, state, provincial, municipal and local taxes for such fiscal year were the Company, its Restricted Subsidiaries and its Unrestricted Subsidiaries (to the extent described above) to pay such taxes separately from any such parent company;
(C) customary salary, bonus and other benefits payable to employees, directors, officers and managers of Holdings or any direct or indirect parent company of Holdings to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Company and its Subsidiaries, including the Company’s proportionate share of such amounts relating to such parent entity being a public company;
(D) general corporate operating and overhead costs and expenses of Holdings or any direct or indirect parent company of Holdings not in excess of $2,000,000 in any fiscal year, to the extent such costs and expenses are attributable to the ownership or operation of the Company and its Subsidiaries, including the Company’s proportionate share of such amounts relating to such parent entity being a public company;
(E) fees and expenses other than to Affiliates of the Company related to any unsuccessful equity or debt offering of such parent company;
(F) amounts payable pursuant to the Management Services Agreements, (including any amendment thereto so long as any such amendment is not materially disadvantageous in the good faith judgment of the board of directors of the Company to the Lenders when taken as a whole, as compared to the Management Services Agreement as in effect on the Effective Date), solely to the extent such amounts are not paid directly by the Company or its Subsidiaries; and
(G) cash payments in lieu of issuing fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of Holdings, the Company or any direct or indirect parent company of Holdings.
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(vi) to the extent constituting Restricted Payments, Holdings and the Company may enter into and consummate the Transactions;
(vii) to the extent constituting Restricted Payments, Holdings and the Company may enter into and consummate transactions expressly permitted by any provision of Section 6.03 or 6.09 (other than Section 6.09(e));
(viii) the Company may make Restricted Payments to Holdings to finance any investment permitted to be made pursuant to Section 6.04 (other than Section 6.04(m)); provided that (A) such Restricted Payment shall be made substantially concurrently with the closing of such investment and (B) Holdings shall, immediately following the closing thereof, cause (i) all property acquired (whether assets or Equity Interests) to be contributed to the Company or its Subsidiaries or (ii) the merger or amalgamation (to the extent permitted in Section 6.03) of the Person formed or acquired into the Company or its Subsidiaries in order to consummate such investment;
(ix) Holdings may make Restricted Payments with the proceeds of the issuance of Indebtedness of Holdings permitted by Section 6.01 (other than (x) Section 6.01(c) and (y) any such Indebtedness Guaranteed by or secured directly or indirectly by the assets of the Company or any of its Subsidiaries);
(x) in addition to the foregoing Restricted Payments, Holdings and the Company may make additional Restricted Payments; provided that each of the Payment Conditions is satisfied;
(xi) the distribution, as a dividend or otherwise (and the declaration of such dividend), of shares of capital stock of, or Indebtedness owed to the Company or a Subsidiary by, any Unrestricted Subsidiary;
(xii) other Restricted Payments by Holdings and the Company which, together with investments, loans and advances made pursuant to Section 6.04(w) and Restricted Debt Payments made pursuant to Section 6.08(b)(vii), do not exceed $25,000,000 in the aggregate; provided that, at the time such Restricted Payments are made and after giving effect thereto, no Liquidity Event or Event of Default exists or has occurred and is continuing; and
(xiii) to the extent constituting Restricted Payments, Holdings and the Company may make any non-compete, bonus or “earn-out” payments payable to former stockholders of Holdings (or any direct or indirect parent thereof) or the Company pursuant to agreements in effect on the Effective Date; and
(xiv) Holdings and the Company may make Restricted Payments in respect of any payments made or expected to be made by Holdings, the Company or any Subsidiary or any direct or indirect parent company of Holdings in respect of withholding or similar taxes payable upon exercise of Equity Interests by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) and any repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants or required withholding or similar taxes.
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(b) No Loan Party will, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal on the Senior Secured Notes, the Senior Subordinated Notes, any other Subordinated Indebtedness or any Indebtedness that refinances, extends, refunds, replaces or renews any such Indebtedness (collectively, “Restricted Indebtedness”), or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Restricted Indebtedness (collectively, “Restricted Debt Payments”), except:
(i) extensions, refinancings, refundings, replacements and renewals of any such Restricted Indebtedness to the extent permitted by Section 6.01;
(ii) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness (other than Borrowing Base Assets) so long as such sale is permitted by Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j));
(iii) payment of Restricted Indebtedness in exchange for or with proceeds of any substantially contemporaneous issuance of Qualified Equity Interests or substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings or the Company;
(iv) payment of Restricted Indebtedness under the Senior Secured Notes (or any extensions, renewals, refinancing, refundings or replacements thereof permitted under Section 6.01(g) and Section 6.02(w)), with the Net Cash Proceeds of any sale, transfer or other disposition of any Noteholder First Lien Collateral, or, in the case of any such extensions, refinancings, refundings, renewals or replacements, any property or assets in respect of which the security interest of the holders thereunder has priority over the security interest of the Agent, for the benefit of the Secured Parties, in such property or assets, pursuant to the Intercreditor Agreement or another intercreditor agreement in form and substance reasonably satisfactory to the Agent that is no less favorable to the Secured Parties than the Intercreditor Agreement;
(v) payment of Restricted Indebtedness with the Net Cash Proceeds of Qualified Equity Interests of Holdings or the Company;
(vi) other Restricted Debt Payments; provided that each of the Payment Conditions is satisfied (it being understood and agreed that, if an irrevocable notice or contractual obligation is given in, made or arises in respect of any Restricted Debt Payment, the foregoing conditions only need to be satisfied at the time of the giving of such irrevocable notice or entering into (or effectiveness of) any such contractual obligation); and
(vii) other Restricted Debt Payments which, together with any investments, loans or advances made pursuant to Section 6.04(w) and Restricted Payments made pursuant to Section 6.08(a)(xii), do not exceed $25,000,000 in the aggregate; provided that, at the time such Restricted Debt Payments are made and after giving effect thereto, no Liquidity Event or Event of Default exists or has occurred and is continuing.
SECTION 6.09 Transactions with Affiliates. No Loan Party will, nor will it permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are on terms and conditions substantially as favorable to such Loan Party as would be obtainable by such Loan Party at the time in a comparable arm’s-length
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transaction from unrelated third parties that are not Affiliates, (b) transactions between or among Holdings, the Company and any Subsidiary (other than an Unrestricted Subsidiary) not involving any other Affiliate (but if a Default exists, such transactions shall be on an arms-length basis and any sale of goods between such parties shall be at least at cost), (c) any investment permitted by Section 6.04, (d) any Indebtedness permitted under Section 6.01 or Lien permitted under Section 6.02, (e) any Restricted Payment or Restricted Debt Payment permitted by Section 6.08, (f) the payment of reasonable fees and out-of-pocket costs to directors of Holdings (or any direct or indirect parent thereof), the Company or any Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of Holdings (or any direct or indirect parent thereof), the Company or its Subsidiaries in the ordinary course of business, (g) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by Holdings’ (or its direct or indirect parent company’s) or the Company’s board of directors, (h) the payment of (A) management or monitoring or similar fees to the Sponsor and Sponsor termination fees and related indemnities and reasonable expenses, and (B) transaction advisory services fees with respect to transactions in respect of which the Sponsor provides any transaction, advisory or other similar services, in each case pursuant to, and in accordance with, the Management Services Agreements as such agreements are in effect as of the Effective Date; provided that, other than in the case of the payment of indemnities and expenses, no Event of Default has occurred and is continuing or would result after giving effect to such payment (and during the existence of any such Event of Default, such fees may accrue but may not be paid), (i) any contribution to the capital of Holdings (or any direct or indirect parent company thereof) by the Sponsor or any Affiliate thereof or any purchase of Equity Interests of Holdings (or any direct or indirect parent company thereof) by the Sponsor or any Affiliate thereof, (j) the Transactions, (k) payments by Holdings (and any direct or indirect parent thereof), the Company and its Subsidiaries pursuant to the tax sharing agreements among Holdings (and any such parent thereof), the Company and the Subsidiaries on customary terms to the extent attributable to the ownership or operation of the Company and its Subsidiaries, (l) transactions pursuant to permitted agreements in existence on the Effective Date and set forth on Schedule 6.09 or any amendment thereto to the extent such an amendment is not adverse to the Lenders in any material respect and (m) payments by the Company or any Subsidiary to any of the Sponsor for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by a majority of the disinterested members of the Board of Directors of Holdings (or such parent) or the Company in good faith.
SECTION 6.10 Restrictive Agreements. No Loan Party will, nor will it permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other contractual arrangement to which it is a party or by which its property is bound that prohibits, restricts or imposes any condition upon the ability of such Loan Party or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets for the benefit of the Secured Parties under the Loan Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law, by any Loan Document, by the Senior Secured Note Documents, by the Senior Subordinated Note Documents or by any Vendor Debt, (ii) the foregoing shall not apply to restrictions and conditions (A) existing on the date hereof identified on Schedule 6.10 and (B) to the extent any such restrictions or conditions permitted by clause (A) is set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any permitted renewal, extension, refunding, replacement or refinancing of such Indebtedness so long as such renewal, extension, refunding, replacement or refinancing does not expand the scope of any such restriction or condition, (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale; provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to any agreement or other instrument of a Person acquired in a Permitted Acquisition or other investment permitted by Section 6.04 in existence at the time
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of such Permitted Acquisition (but not created in connection therewith or in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person so acquired; (v) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (vi) the foregoing shall not apply to (A) customary restrictions and provisions in joint venture agreements and other similar agreements applicable to joint ventures to the extent such joint ventures are permitted hereunder, (B) customary provisions restricting subletting or assignment of any lease governing a leasehold interest or (C) customary provisions restricting assignment of any agreement entered into in the ordinary course of business and (vii) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to Indebtedness of a Subsidiary that is not a Loan Party that is permitted by Section 6.01 or to any cash or other deposits permitted by Section 6.02.
SECTION 6.11 Amendment of Material Documents. No Loan Party will, nor will it permit any Subsidiary to, amend, modify or waive any of its rights under (a) the Senior Secured Note Documents (or any instrument or agreement governing any refinancing Indebtedness in respect thereof permitted under Section 6.01), (b) the Senior Subordinated Note Documents or any other agreement relating to any Subordinated Indebtedness, to the extent, in the case of each of the foregoing clauses (a) and (b), any such amendment, modification or waiver would be adverse to the Lenders in any material respect, or (c) the Management Services Agreement, to the extent that any such amendment, modification or waiver would increase the amount of any management fees payable thereunder from the amounts set forth in the Management Services Agreement as in effect on the Effective Date.
SECTION 6.12 Fixed Charge Coverage Ratio. The Company will not permit its Fixed Charge Coverage Ratio as of the last day of any Test Period to be lower than 1.00 to 1.00; provided that such Fixed Charge Coverage Ratio will only be tested as of the last day of the Test Period ending immediately prior to the date on which a Trigger Event shall have occurred and shall continue to be tested as of the last day of each Test Period thereafter until such Trigger Event is no longer continuing.
SECTION 6.13 Canadian Pension Plans. No Canadian Loan Party or Affiliate shall become liable under or contribute to, any Canadian Pension Plan that provides benefits on a defined benefit basis, other than a Canadian MEPP.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur:
(a) any Borrower shall fail to pay (i) any principal of any Loan or any reimbursement obligation in respect of 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, or (ii) any interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document within five (5) Business Days after it shall become due and payable;
(b) any representation or warranty made or deemed made by or on behalf of any Loan Party herein or in any other Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, Borrowing Base Certificate or other certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document, shall prove to have been materially incorrect when made or deemed made;
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(c) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained (i) in Section 2.21 (solely with respect to post-closing collateral perfection obligations of the Loan Parties and the application of amounts during the continuance of a Liquidity Event), 5.06(b), and 5.09, or in Article VI (subject to the Cure Right in Section 7.02 in connection with any Default under Section 6.12), (ii) in Section 5.01(h) (after a two (2) Business Day grace period), or (iii) in Section 5.02(a) or 5.03 (but only with respect to Holdings’ or the Company’s existence) (provided that if (A) any such Default described in this clause (iii) is of a type that can be cured within five (5) Business Days and (B) such Default could not materially adversely impact the Agent’s Liens on the Collateral, such Default shall not constitute an Event of Default for five (5) Business Days after the occurrence of such Default so long as the Loan Parties are diligently pursuing the cure of such Default);
(d) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clauses (a) and (c) above) and such default shall continue unremedied for a period of 30 days after notice thereof to the Borrower Agent from the Agent or the Required Lenders;
(e) (i) any Loan Party shall fail to make any payment beyond the applicable grace period (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Material Indebtedness, or (ii) any event or condition occurs (other than with respect to Material Indebtedness constituting Derivative Transactions, termination events or equivalent events pursuant to the terms of the related Swap Agreements in accordance with the terms thereof and not as a result of any default thereunder by any Loan Party) that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with the giving of notice, if required) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this paragraph (e) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;
(f) a Change in Control shall occur;
(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization, arrangement, consolidation, readjustment, a proposal or other relief in respect of a Loan Party or any Subsidiary of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, interim receiver, monitor, trustee, custodian, sequestrator, liquidator, conservator or similar official for any Loan Party or any Subsidiary of any Loan Party or for a substantial part of its assets, and, in any such case of clause (i) or (ii), such proceeding or petition shall continue undismissed and unstayed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;
(h) any Loan Party or any Subsidiary of any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization, arrangement, consolidation, readjustment, a proposal or other relief under any federal, state, provincial or foreign bankruptcy, insolvency, receivership, arrangement, winding up or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or
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consent to the appointment of a receiver, interim receiver, monitor, trustee, custodian, sequestrator, liquidator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (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;
(i) any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts in excess of the threshold amount that constitutes Material Indebtedness as they become due;
(j) one or more final judgments for the payment of money in an aggregate amount in excess of $25,000,000 (in each case to the extent not covered by third-party insurance as to which the insurer has been notified of such judgment and does not deny coverage), shall be rendered against any Loan Party or any combination of Loan Parties and the same shall remain undischarged for a period of sixty (60) consecutive days during which execution shall not be effectively stayed, satisfied or bonded, or any writ or warrant of attachment or execution or similar process is issued against all or any material part of the property of any Loan Party and is not released, vacated, stayed or bonded within sixty (60) days after its issue;
(k) an ERISA Event or Pension Event shall have occurred that, when taken together with all other ERISA Events and Pension Events that have occurred and are continuing, would reasonably be expected to result in a Material Adverse Effect;
(l) the Loan Guaranty at any time after its execution and delivery and for any reason, other than as expressly permitted hereunder or thereunder, shall fail to remain in full force or effect, or any action shall be taken by any Loan Party to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor shall deny or disaffirm in writing that it has any further liability under the Loan Guaranty to which it is a party;
(m) (i) any Collateral Document after delivery thereof pursuant to the terms of the Loan Documents shall for any reason, other than pursuant to the terms hereunder or thereunder (including as a result of a transaction permitted under Section 6.03 or 6.05), fail to create a valid and perfected security interest with the priority required by the Collateral Documents (subject to the Intercreditor Agreement) in any Collateral purported to be covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Documents or to file UCC or PPSA continuation statements and except as to Collateral consisting of real property to the extent that such losses are covered by a lender’s title insurance policy and such insurer has been notified and has not denied coverage, or (ii) any Collateral Document shall fail to remain in full force or effect or any action shall be taken by any Loan Party to discontinue or to assert the invalidity or unenforceability of any Collateral Document;
(n) any material provision of any Loan Document at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder (including as a result of a transaction permitted under Section 6.03 or 6.05) or as a result of the occurrence of the Termination Date, ceases to be in full force and effect, or any Loan Party shall challenge in writing the validity or enforceability of any Loan Document or any Loan Party shall deny in writing that it has any further liability or obligation under any Loan Document (other than as a result of the occurrence of the Termination Date) or purports in writing to revoke or rescind any Loan Document; or
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(o) the Obligations referred to in Section 3.18(a) shall cease to constitute senior indebtedness under the subordination provisions of any document or instrument evidencing any permitted Subordinated Indebtedness (including the Indebtedness under the Senior Subordinated Notes as evidenced by the Senior Subordinated Note Documents) or such subordination provision shall be invalidated or otherwise cease, for any reason, to be valid, binding and enforceable obligations of the parties thereto;
then, and in every such event (other than an event with respect to any Loan Party described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Agent may, and at the request of the Required Lenders shall, by notice to the Borrower Agent, take any of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Loan Party, and (iii) require that the Borrowers deposit in the LC Collateral Account an amount in cash equal to 103% of the then outstanding LC Exposure; provided that upon the occurrence of an event with respect to any Loan Party described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Loan Party, and the obligation of the Borrowers to cash collateralize the outstanding Letters of Credit as aforesaid shall automatically become effective, in each case without further act of the Agent or any Lender.
SECTION 7.02 Cure Right. (a) Notwithstanding anything to the contrary contained in this Article VII, in the event that the Company fails to comply with the requirements of Section 6.12, until the expiration of the 10th day subsequent to the date the certificate calculating the Fixed Charge Coverage Ratio is required to be delivered pursuant to Section 5.01(d), Holdings (or any direct or indirect parent thereof) shall have the right to issue Permitted Cure Securities for cash or otherwise receive cash contributions to (or in the case of any direct or indirect parent of Holdings receive equity interests in Holdings for its cash contributions to) the capital of Holdings (collectively, the “Cure Right”), and upon contribution by Holdings of such cash in return for common Equity Interests or for existing Equity Interests to the Company (the “Cure Amount”) pursuant to the exercise by the Company of such Cure Right, the Fixed Charge Coverage Ratio under Section 6.12 shall be recalculated giving effect to the following pro forma adjustments:
(i) EBITDA shall be increased with respect to such applicable fiscal quarter and any Test Period that contains such fiscal quarter, solely for the purpose of measuring the Fixed Charge Coverage Ratio under Section 6.12 and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; and
(ii) if, after giving effect to the foregoing pro forma adjustments, the Company shall then be in compliance with Section 6.12, the Company shall be deemed to have satisfied the requirements of Section 6.12 as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of Section 6.12 that had occurred shall be deemed cured for purposes of this Agreement.
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(b) Notwithstanding anything herein to the contrary, (i) in each four fiscal-quarter period there shall be at least two fiscal quarters during which the Cure Right is not exercised, (ii) the Cure Amount shall be no greater than the amount required for purposes of complying with Section 6.12 and (iii) all Cure Amounts shall be disregarded for purposes of determining any baskets or ratios with respect to the other covenants contained in the Loan Documents.
SECTION 7.03 Exclusion of Immaterial Subsidiaries. Solely for the purposes of determining whether an Event of Default has occurred under clause (g) or (h) of Section 7.01, any reference in any such paragraph to any Subsidiary shall be deemed not to include any Immaterial Subsidiary affected by any event or circumstance referred to in any such paragraph; provided that if it is necessary to exclude more than one Subsidiary from paragraph (g) or (h) of Section 7.01 pursuant to this Section 7.03 in order to avoid an Event of Default thereunder, all excluded Subsidiaries shall be considered to be a single consolidated Subsidiary for purposes of determining whether the condition specified above is satisfied.
ARTICLE VIII.
THE AGENT
Each of the Lenders and the Issuing Banks hereby irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, the Agent shall have the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with the Loan Documents, including, with respect to the Canadian Loan Parties, the Agent acting through its Canada branch; (b) execute and deliver as Agent each Loan Document, including any intercreditor or subordination agreement, and accept delivery of each Loan Document from any Loan Party or other Person; (c) act as collateral agent for Secured Parties for purposes of perfecting and administering Liens under the Loan Documents, and for all other purposes stated therein; (d) manage, supervise or otherwise deal with Collateral; and (e) take any enforcement action or otherwise exercise any rights or remedies with respect to any Collateral under the Loan Documents, applicable law or otherwise. The Agent alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible Receivables or Eligible Inventory, or whether to impose or release any Reserve, which determinations and judgments, if exercised in good faith, shall exonerate the Agent from liability to any Lender or other Person for any error in judgment.
Any bank serving as the Agent 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 Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any subsidiary of a Loan Party or other Affiliate thereof as if it were not the Agent hereunder.
The Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agent 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 Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its subsidiaries that is communicated to or obtained by the bank serving as the Agent or any of its Affiliates in any capacity. The Agent shall not be liable for any action taken or not taken by it with the consent or at
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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 9.02) or in the absence of, or for any losses not directly and solely caused by, its own gross negligence or willful misconduct. The Agent shall not be deemed to have knowledge of any Default unless and until written notice thereof is given to the Agent by the Borrower Agent or a Lender, and the Agent 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 hereunder or in connection with any Loan Document, (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, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) 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 Agent.
If any Lender acquires knowledge of a Default or Event of Default, it shall promptly notify the Agent and the other Lenders thereof in writing. Each Lender agrees that, except as otherwise provided in any Loan Documents or with the written consent of the Agent and the Required Lenders, it will not take any enforcement action, accelerate the Obligations under any Loan Documents, or exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure sales, UCC sales or other similar dispositions of Collateral. Notwithstanding the foregoing, however, a Lender may take action to preserve or enforce its rights against a Loan Party where a deadline or limitation period is applicable that would, absent such action, bar enforcement of the Obligations held by such Lender, including the filing of proofs of claim in a Bankruptcy Proceeding.
The Agent 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 to be genuine and to have been signed or sent by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Agent may consult with legal counsel (who may be counsel for any Borrower), independent accountants and other experts selected by it, 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.
The Agent may perform any and all its duties and exercise its rights and powers by or through any one or more agents, co-agents or sub-agents appointed by the Agent. The Agent and any such agents, co-agents or sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The Lenders shall execute and deliver such documents as the Agent deems appropriate to vest any rights or remedies in such agents, co-agents or sub-agent. The exculpatory provisions of the preceding paragraphs shall apply to any such agents, co-agents or sub-agent and to the Related Parties of the Agent and any agents, co-agents or 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 as the Agent.
Subject to the appointment and acceptance of a successor to the Agent as provided in this paragraph, the Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower Agent. Upon any such resignation, the Required Lenders shall have the right, with the consent (not to be unreasonably withheld or delayed) of the Company, to appoint a successor; provided that, during the existence and continuation of an Event of Default, no consent of the Company shall be required. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Agent which shall be a
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commercial bank or an Affiliate of any such commercial bank reasonably acceptable to the Company. Upon the acceptance of its appointment as the Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Agent’s resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents, branches and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as the Agent. Any successor to BANA by merger or acquisition of stock or this loan shall continue to be the Agent hereunder without further act on the part of the parties hereto, unless such successor resigns as provided above.
Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on 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 Agent 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.
Each Lender hereby agrees that (a) it has requested a copy of each Report prepared by or on behalf of the Agent; (b) the Agent (i) does not make any representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report or (ii) shall not be liable for any information contained in any Report; (c) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties’ books and records, as well as on representations of the Loan Parties’ personnel and that the Agent undertakes no obligation to update, correct or supplement the Reports; (d) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, it will pay and protect, and indemnify, defend, and hold the Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys’ fees) incurred by the Agent or such other Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender and any action such Lender may take as a result of or any conclusion it may draw from any such Report.
For the purposes of creating a solidarité active in accordance with Article 1541 of the Civil Code of Quebec between each Secured Party, taken individually, on the one hand, and the Agent, on the other hand, each Loan Party and each such Secured Party acknowledge and agree with the Agent that such Secured Party and the Agent are hereby conferred the legal status of solidary creditors of each such Loan Party in respect of all Obligations owed by each such Loan Party to the Agent and such Secured Party hereunder and under the other Loan Documents (collectively, the “Solidary Claim”) and that, accordingly, but subject (for the avoidance of doubt) to Article 1542 of the Civil Code of Quebec, each such Loan Party is irrevocably bound towards the Agent and each Secured Party in respect of the entire Solidary Claim of the Agent and such Secured Party. As a result of the foregoing, the parties hereto acknowledge that the Agent and each Secured Party shall at all times have a valid and effective right of action for the entire Solidary Claim of the Agent and such Secured Party and the right to give full acquittance for it. Accordingly, and without limiting the generality of the foregoing, the Agent, as solidary creditor with each Secured Party, shall at all times have a valid and effective right of action in
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respect of the Solidary Claim and the right to give a full acquittance for same. By its execution of the Loan Documents to which it is a party, each such Loan Party not a party hereto shall also be deemed to have accepted the stipulations hereinabove provided. The parties further agree and acknowledge that such Liens (hypothecs) under the Collateral Documents and the other Loan Documents shall be granted to the Agent, for its own benefit and for the benefit of the applicable Secured Parties, as solidary creditor as hereinabove set forth.
In addition, and without limiting any of the foregoing, for the purposes of holding any hypothec granted to the Attorney (as defined below) pursuant to the laws of the Province of Quebec to secure payment of any debenture issued by any Loan Party, each of the Secured Parties (as defined below) hereby irrevocably appoints and authorizes the Agent and, to the extent necessary, ratifies the appointment and authorization of the Agent, to act as the person holding the power of attorney (i.e. “fondé de pouvoir”) (in such capacity, the “Attorney”) of the creditors as contemplated under Article 2692 of the Civil Code of Quebec, and to enter into, to take and to hold on their behalf, and for their benefit, any hypothec, and to exercise such powers and duties that are conferred upon the Attorney under any related deed of hypothec. Moreover, without prejudice to such appointment and authorization to act as the person holding the power of attorney as aforesaid, each of the Secured Parties hereby irrevocably appoints and authorizes the Agent (in such capacity, the “Quebec Custodian”) to act as agent and custodian for and on behalf of the Secured Parties to hold and be the sole registered holder of any debenture which may be issued under any such deed of hypothec, the whole notwithstanding Section 32 of An Act respecting the special powers of legal persons (Quebec) or any other applicable law, and to execute all related documents. Each of the Attorney and the Quebec Custodian shall: (a) have the sole and exclusive right and authority to exercise, except as may be otherwise specifically restricted by the terms hereof, all rights and remedies given to the Attorney and the Quebec Custodian (as applicable) pursuant to any such deed of hypothec, debenture, debenture pledge agreement, applicable laws or otherwise, (b) benefit from and be subject to all provisions hereof with respect to the Agent mutatis mutandis, including, without limitation, all such provisions with respect to the liability or responsibility to and indemnification by the Secured Parties, and (c) be entitled to delegate from time to time any of its powers or duties under any deed of hypothec, debenture, or debenture pledge agreement on such terms and conditions as it may determine from time to time. Any person who becomes a Secured Party shall, by its execution of an Assignment and Assumption, be deemed to have consented to and confirmed: (i) the Attorney as the person holding the power of attorney as aforesaid and to have ratified, as of the date it becomes a Secured Party, all actions taken by the Attorney in such capacity, and (ii) the Quebec Custodian as the agent and custodian as aforesaid and to have ratified, as of the date it becomes a Secured Party, all actions taken by the Quebec Custodian in such capacity. The substitution of the Agent pursuant to the provisions of this Section 9 also constitute the substitution of the Attorney and the Quebec Custodian. For the purposes of this paragraph, “Secured Parties” means collectively (a) the Lenders, (b) the Agent, (c) each Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan Party the obligations under which constitute Secured Swap Obligations, (e) each Swingline Lender, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document, (g) each Person providing Banking Services which constitute Banking Services Obligations and (h) the successors and permitted assigns of each of the foregoing.
The co-arrangers, joint bookrunners and syndication agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:
if to any Loan Party, to the Borrower Agent at:
American Tire Distributors, Inc.
12200 Herbert Wayne Court, Suite 150
Huntersville, North Carolina 28078
Attention: Jason Yaudes
Facsimile No.: (704) 992-1451
if to Bank of America, N.A., as the Agent, an Applicable Issuing Bank or an Applicable Swingline Lender, at: Bank of America, N.A.
300 Galleria Parkway, Suite 800
Atlanta, Georgia 30339
Attention: American Tire Loan Administration Manager
Facsimile No.: 404-607-3277
if to any other Lender, to it at its address or facsimile number set forth in its Administrative Questionnaire.
All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile shall be deemed to have been given when sent and when receipt has been confirmed by telephone, provided that if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient.
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the Agent and the applicable Lender. The Agent or the Borrower Agent (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.
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(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
SECTION 9.02 Waivers; Amendments. (a) No failure or delay by the Agent, an Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent, the Issuing Banks and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, to the extent permitted by law, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Agent, any Lender or an Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or (ii) in the case of any other Loan Document (other than any such amendment to effectuate any modification thereto expressly contemplated by the terms of such other Loan Documents), pursuant to an agreement or agreements in writing entered into by the Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall (A) increase the Commitment of any Lender (including any Defaulting Lender) without the written consent of such Lender; it being understood that a waiver of any condition precedent set forth in Article IV or the waiver of any Default, mandatory prepayment or mandatory reduction of any Revolving Commitments, or the making of any Protective Advance, so long as in compliance with the provisions of Section 2.04, shall not constitute an increase of any Revolving Commitment of any Revolving Lender; provided that any change to the second and third provisos to the second sentence of Section 2.04(a) shall require the written consent of each Revolving Lender, (B) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender directly affected thereby (including any Defaulting Lender), (C) postpone any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby; provided that only the consent of the Required Lenders shall be necessary to amend the provisions of Section 2.13(f) providing for the default rate of interest, or to waive any obligations of the Borrowers to pay interest at such default rate, (D) increase the advance rates set forth in the definition of Canadian Borrowing Base or U.S. Borrowing Base without the written consent of the Super Majority Lenders, (E) change any of the provisions of this Section or the definition of “Required Lenders”, “Super Majority Lenders” or any other provision of any Loan Document specifying the number or percentage of Revolving Lenders (or Revolving Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Revolving Lender, (F) release all or substantially all of the Loan Guarantors from their obligations under the Loan Guaranty (except as otherwise permitted herein or in the other Loan Documents, including pursuant to Section 6.03, 6.05 or 10.11 hereof), without the written consent of each Lender, (G) except as provided in clause (c) or (d) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Lender or (H) make any change to the definition of “Aggregate Borrowing Base,” “Borrowing Base”, “Canadian Borrowing Base”, “Eligible Tire Inventory”, “Eligible Non-Tire Inventory”, “Eligible
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Receivable” or “Net Orderly Liquidation Value”, “U.S. Borrowing Base”, or “Value” or add any new categories of eligible assets, in each case, that would have the effect of increasing the amount of the U.S. Borrowing Base or the Canadian Borrowing Base, without the written consent of the Super Majority Lenders; and provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Agent, any Applicable Issuing Bank or any Applicable Swingline Lender hereunder without the prior written consent of the Agent, such Applicable Issuing Bank or such Applicable Swingline Lender, as the case may be. The Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased without the consent of such Lender (it being understood that any Commitment or Loan held or deemed held by any Defaulting Lender shall be excluded from a vote of the Lenders hereunder requiring any consent of the Lenders).
(c) The Lenders hereby irrevocably agree that the Liens granted to the Agent by the Loan Parties on any Collateral shall be automatically released (i) upon the Termination Date, (ii) upon the sale or other disposition of the property constituting such Collateral (including as part of or in connection with any other sale or other disposition permitted hereunder) to any Person other than another Loan Party, to the extent such sale or other disposition is made in compliance with the terms of this Agreement (and the Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iii) to the extent such Collateral is comprised of property leased to a Loan Party, upon termination or expiration of such lease, (iv) subject to paragraph (b) of this Section 9.02, if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders, (v) to the extent the property constituting such Collateral is owned by any Loan Guarantor, upon the release of such Guarantor from its obligations under its Loan Guaranty in accordance with the provisions of this Agreement, (vi) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Agent and the Lenders pursuant to the Collateral Documents, and (vii) as required pursuant to the terms of the Intercreditor Agreement; provided that the Agent may, in its discretion, release the Lien on Collateral valued in the aggregate not in excess of $5,000,000 during each fiscal year without the consent of any Lender. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral to the extent required under the provisions of the Loan Documents.
(d) Notwithstanding anything to the contrary contained in Section 9.02, guarantees, collateral security documents and related documents executed by Subsidiaries in connection with this Agreement may be in a form reasonably determined by the Agent and may be amended and waived with the consent of the Agent at the request of the Borrower Agent without the need to obtain the consent of any other Lenders if such amendment or waiver is delivered in order (i) to comply with local law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause such guarantee, collateral security document or other document to be consistent with this Agreement and the other Loan Documents.
(e) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Revolving Lender”, “each Lender”, “each Revolving Lender directly affected thereby” or “each Lender directly affected thereby”, the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Company may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Company and the Agent shall agree, as of such date, to purchase for cash at par the Loans and other Obligations due to the
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Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, (ii) the replacement Lender shall pay the processing and recordation fee referred to in Section 9.04(b)(iii)(C), if applicable in accordance with the terms of such Section, (iii) the replacement Lender shall grant its consent with respect to the applicable proposed amendment, waiver or consent and (iv) the Borrowers within the applicable Borrower Group shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrowers within such Borrower Group hereunder to and including the date of termination, including, without limitation, payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.
SECTION 9.03 Expenses; Indemnity; Damage Waiver. (a) The Company shall pay (i) all reasonable documented out-of-pocket expenses incurred by the Agent, each of the Joint Lead Arrangers and their respective Affiliates, including the reasonable fees, charges and disbursements of Parker, Hudson, Rainer & Dobbs LLP and Norton Rose Canada LLP, counsel for the Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation of the Loan Documents and related documentation, (ii) all reasonable documented out-of-pocket expenses incurred by the Agent and its Affiliates, including the reasonable fees, charges and disbursements of one firm of outside U.S. legal counsel and one firm of outside Canadian local counsel (to the extent relevant) to the Agent, in connection with any amendments, modifications or waivers of the provisions of any Loan Documents (whether or not the transactions contemplated thereby shall be consummated), (iii) all reasonable documented out-of-pocket expenses incurred by the Agent, Issuing Banks or the Lenders, including the reasonable documented fees, charges and disbursements of any counsel for the Agent and for one law firm retained by the Lenders, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable documented out-of-pocket expenses incurred during any workout, restructuring or related negotiations in respect of such Loans of Letters of Credit, and (iv) subject to any other provisions of this Agreement and the Loan Documents, all reasonable documented out-of-pocket expenses incurred by the Agent in the administration of the Loan Documents. Expenses reimbursable by the Company under this Section include, without limiting the generality of the foregoing, subject to any other applicable provision of any Loan Document, reasonable documented out-of-pocket costs and expenses incurred in connection with:
(i) appraisals;
(ii) field examinations and the preparation of Reports based on the fees charged by a third party retained by the Agent or (notwithstanding any reference to “out-of-pocket” above in this Section 9.03) the internally allocated fees for each Person employed by the Agent with respect to each field examination;
(iii) lien and title searches, title insurance and endorsements to Title Insurance Policies;
(iv) taxes, fees and other charges for recording any Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Agent’s Liens; and
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(v) forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.
Other than to the extent required to be paid on the Effective Date, all amounts due under this paragraph (a) shall be payable by the Company within ten (10) Business Days of receipt of an invoice relating thereto and setting forth such expenses in reasonable detail.
(b) Each Borrower shall indemnify the Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related reasonable and documented out-of-pocket fees, expenses (including the reasonable fees, disbursements and other charges of one counsel for all Indemnitees and, if necessary, of a single separate firm of local counsel in each appropriate jurisdiction (which may include a single special counsel acting in multiple jurisdictions) for all Indemnitees (and, in the case of an actual or perceived conflict of interest (as reasonably determined by the Indemnitee affected by such conflict) where such Indemnitee informs the Company of such conflict and thereafter retains its own counsel, of another firm of counsel for such affected Indemnitee) incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any Environmental Liability related in any way to any Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto (and regardless of whether such matter is initiated by a third party or by any Borrower, any other Loan Party or any of their respective Affiliates); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses or fees (i) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee, its Affiliates or any of its Related Parties, (ii) result from a material breach of the obligations of any such Indemnitee or one of its Related Parties under the Loan Documents or (iii) disputes brought by and between and among Indemnitees (not involving an act or omission of the Borrowers, the other Loan Parties or their Affiliates as determined by a court of competent jurisdiction in a final and non-appealable decision); provided that the Agent, Issuing Banks and Swingline Lenders shall remain indemnified in respect of such disputes to the extent otherwise entitled to be so indemnified.
(c) To the extent that any Borrower fails to pay any amount required to be paid by it to the Agent, an Issuing Bank or a Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Agent, such Issuing Bank or Swingline Lender, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Agent, any Issuing Bank or any Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, no party to this Agreement shall assert, and each hereby waives, any claim against any other party hereto or any Related Party thereof, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
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(e) All amounts due under this Section shall be paid, unless otherwise specified, promptly after written demand therefor.
SECTION 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that (i) other than as a matter of law following an event that is permitted in accordance with Section 6.03 of this Agreement, no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Loan Party without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section (any attempted assignment or transfer not complying with the terms of this Section shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Company; provided that no consent of the Company shall be required if an Event of Default specified in paragraphs (a), (g) or (h) of Section 7.01 has occurred and is continuing;
(B) the Agent; and
(C) each Applicable Issuing Bank.
(ii) Notwithstanding the foregoing or anything to the contrary set forth herein, any assignment of any Loans or Commitments to any Purchasing Debt Affiliate shall also be subject to the requirements of Section 9.04(f).
(iii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to another Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitment or Loans of any Class, the amount of the Commitment or the principal amount of Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent and determined on an aggregate basis in the event of concurrent assignments to Related Funds (as defined below)) shall not be less than $1,000,000 unless each of the Company and the Agent otherwise consent, provided that no such consent of the Company shall be required if an Event of Default specified in paragraphs (a), (g) or (h) of Section 7.01 has occurred and is continuing;
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(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500;
(D) the assignee shall execute and deliver to the Agent an agreement to be a party and subject to, and accept the terms of, the allocation and exchange mechanism agreement among the Agent and the Lenders; and
(E) the assignee, if it shall not be a Lender, shall deliver on or prior to the effective date of such assignment, (1) to the Agent an Administrative Questionnaire and (2) to the Borrower Agent (with a copy to the Agent) the tax forms required by Sections 2.17(e) and (f).
The term “Related Funds” shall mean with respect to any Lender that is an Approved Fund, any other Approved Fund that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
(iv) Subject to acceptance and recording thereof pursuant to paragraph (b)(v) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03 with respect to facts and circumstances occurring on or prior to the effective date of such assignment). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(v) The Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Borrowers, the Agent, the Issuing Banks and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower Agent, the Issuing Banks and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(vi) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee’s completed Administrative Questionnaire and tax forms required by Section 9.04(b)(iii)(D)(2) (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Agent shall
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accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(c) or 9.03(c), the Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(vii) By executing and delivering an Assignment and Assumption, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Assumption, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of any Borrower or any Subsidiary or the performance or observance by any Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is an Eligible Assignee, legally authorized to enter into such Assignment and Assumption; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.04(a) or delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (v) such assignee will independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.
(c) (i) Any Lender may, without the consent of any Borrower, the Borrower Agent, the Agent, any Issuing Bank or any Swingline Lender, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrowers, the Agent, the Issuing Banks, the Swingline Lenders and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Company agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by
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assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. Each Lender that sells a participation, acting solely as a non-fiduciary agent (solely for tax purposes) of the Borrower, shall maintain a register for the recordation of the names and addresses of the Participants and principal amount (and stated interest) of each Participant’s interest in the Loans or other obligations under this Agreement (the “Participant Register”). The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender, each Loan Party and the Agent shall treat each Person whose name is recorded in the Participant Register pursuant to the terms hereof as the owner of such participation for all purposes of this Agreement, notwithstanding notice to the contrary.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company’s prior written consent. No Participant shall be entitled to the benefits of Section 2.17 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.17(e) or (f), as applicable, as though it were a Lender.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) Notwithstanding anything to the contrary contained herein, any Lender (a “Granting Lender”) may grant to a special purpose funding vehicle (an “SPC”), identified as such in writing from time to time by the Granting Lender to the Agent and the Borrower Agent, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrowers under this Agreement (including its obligations under Section 2.15, 2.16 or 2.17), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender) and (iii) the Granting Lender shall for all purposes including approval of any amendment, waiver or other modification of any provision of the Loan Documents, remain the Lender of record hereunder. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrowers, the Borrower Agent and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC.
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(f) Notwithstanding anything else to the contrary contained in this Agreement, any Lender may assign all or a portion of its Commitments and/or Loans to any Purchasing Debt Affiliate in accordance with Section 9.04(f); provided that:
(i) no Default or Event of Default has occurred or is continuing or would result therefrom; and
(ii) no Loan or Commitment may be assigned to a Purchasing Debt Affiliate pursuant to this Section 9.04(f), if after giving effect to such assignment, Purchasing Debt Affiliates in the aggregate would own in excess of 10% of all Commitments then outstanding.
Notwithstanding anything to the contrary in this Agreement, no Purchasing Debt Affiliate shall have any right to (A) attend (including by telephone) any meeting or discussions (or portion thereof) among the Agent or any Lender to which representatives of the Loan Parties are not invited, and (B) receive any information or material prepared by the Agent or any Lender or any communication by or among the Agent and/or one or more Lenders, except to the extent such information or materials have been made available to any Loan Party or its representatives (and in any case, other than the right to receive notices of prepayments and other administrative notices in respect of its Commitments and Loans required to be delivered to Lenders pursuant to Article II), or (C) make or bring (or participate in, other than as a passive participant in or recipient of its pro rata benefits of) any claim, in its capacity as a Lender, against the Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of such Agent or any other such Lender under the Loan Documents.
(g) Notwithstanding anything in Section 9.04 or the definitions of “Required Lenders” or “Super Majority Lenders” to the contrary, for purposes of determining whether the Required Lenders, the Super Majority Lenders or any other requisite Class vote required by this Agreement have (i) consented (or not consented) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, (ii) otherwise acted on any matter related to any Loan Document, or (iii) directed or required the Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, all Commitments held by any Purchasing Debt Affiliate shall be deemed to be not outstanding for all purposes of calculating whether the Required Lenders, the Super Majority Lenders (or requisite vote of any Class of Lenders) have taken any actions.
SECTION 9.05 Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Agent, an Issuing Bank, a Swingline Lender or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
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SECTION 9.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreement with respect to fees payable to the Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07 Severability. To the extent permitted by law, any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Applicable Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Applicable Lender or Affiliate to or for the credit or the account of any Borrower within the applicable Borrower Group or any Applicable Guarantor of the Applicable Guaranteed Obligations with respect to such Borrower Group against any of and all the Secured Obligations held by such Applicable Lender with respect to such Borrower Group, irrespective of whether or not such Applicable Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The Applicable Lender shall notify the Borrower Agent and the Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Applicable Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Applicable Lender may have.
NOTWITHSTANDING THE FOREGOING, AT ANY TIME THAT ANY OF THE SECURED OBLIGATIONS SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, LENDER’S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY LOAN DOCUMENT UNLESS IT IS TAKEN WITH THE CONSENT OF THE LENDERS REQUIRED BY SECTION 9.02 OF THIS AGREEMENT, IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO AGENT PURSUANT TO THE COLLATERAL DOCUMENTS OR THE ENFORCEABILITY OF THE OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE PARTIES AS REQUIRED ABOVE, SHALL BE NULL AND VOID. THIS PARAGRAPH SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS.
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SECTION 9.09 Governing Law; Jurisdiction; Consent to Service of Process. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Each party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any U.S. federal or New York State court sitting in New York, New York, in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York 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.
(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which 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 or any other Loan Document in any court referred to in clause (b) of this Section. 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.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12 Confidentiality. Each of the Agent, each Issuing Bank and the each Lender (the “Subject Persons”) agrees (and each Lender agrees to cause its SPC, if any) to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) pursuant to the order of any court or administrative agency or in any pending legal, judicial or administrative proceeding, or otherwise as required by applicable law or compulsory legal process based on the advice of counsel (in which case each Subject Person agrees (except with respect to any audit or
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examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority), to the extent practicable and not prohibited by applicable law, to inform the Company promptly thereof prior to disclosure), (b) upon the request or demand of any regulatory authority having jurisdiction over such Subject Person or any of its Affiliates (in which case such Subject Person agrees (except with respect to any audit or examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority) to the extent practicable and not prohibited by applicable law, to inform the Company promptly thereof prior to disclosure), (c) to the extent that such information becomes publicly available other than by reason of improper disclosure by a Subject Person or any of its Affiliates or any Related Parties thereto in violation of this Agreement or any other confidentiality obligations owing to the Company or its Related Parties, (d) to the extent that such information is received by a Subject Person from a third party that is not, to such Subject Person’s knowledge, subject to contractual or fiduciary confidentiality obligations owing to the Company or any of its Related Parties, (e) to the extent that such information is independently developed by such Subject Person, (f) to the Subject Persons’ Affiliates and to its and their respective employees, legal counsel, independent auditors, professionals and other experts or agents who need to know such information in connection with this Agreement, the other Loan Documents and the Transactions (including in connection with protecting or enforcing the Subject Persons’ rights with respect to the Loan Documents) and who are informed of the confidential nature of such information and are or have been advised of their obligation to keep information of this type confidential, (g) to potential or prospective Lenders, Participants or Assignees and to any direct or indirect, actual or prospective, contractual counterparty to any Swap Agreement relating to the Company or any of its Subsidiaries, in each case who are instructed that they shall be bound by the terms of this paragraph (or language substantially similar to this paragraph), (h) to another Subject Person, (i) if the Company provides its prior written consent to the proposed disclosure, or (j) for purposes of establishing a “due diligence” defense; provided that the disclosure of any such information to any Lenders, Participants, Assignees or counterparties or to prospective Lenders, Participants, Assignees or counterparties referred to above shall be made subject to the acknowledgment and acceptance by such persons that such information is being disseminated on a confidential basis (on substantially the terms set forth in this paragraph or as is otherwise reasonably acceptable to the Company). For the purposes of this Section, “Information” means all information received from any Loan Party relating to the Loan Parties or their businesses, the Sponsor or the Transactions other than any such information that is available to the Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by any Loan Party. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
SECTION 9.13 Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any Margin Stock for the repayment of the Borrowings provided for herein and acknowledges that the Collateral shall not include any Margin Stock. Anything contained in this Agreement to the contrary notwithstanding, neither the Issuing Banks nor any Lender shall be obligated to extend credit to any Borrower in violation of any Requirement of Law.
SECTION 9.14 USA PATRIOT Act. Agent and Lenders hereby notify Loan Parties that pursuant to the requirements of the PATRIOT Act, Agent and Lenders are required to obtain, verify and record information that identifies each Loan Party, including its legal name, address, tax ID number and other information that will allow Agent and Lenders to identify it in accordance with the PATRIOT Act. Agent and Lenders will also require information regarding each personal guarantor, if any, and may require information regarding Loan Parties’ management and owners, such as legal name, address social security number and date of birth.
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SECTION 9.15 Disclosure. Each Loan Party and each Lender hereby acknowledges and agrees that the Agent and its Affiliates from time to time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates. In addition, each Loan Party and each Lender hereby acknowledges that an Affiliate of the Agent was an initial purchaser of the Senior Secured Notes.
SECTION 9.16 Appointment for Perfection. Each Applicable Lender hereby appoints each other Applicable Lender as its agent for the purpose of perfecting Liens, for the benefit of the Agent, the Applicable Lenders and the other applicable Secured Parties, in assets which, in accordance with Article 9 of the UCC, the PPSA, or any other applicable law can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agent’s request therefor shall deliver such Collateral to the Agent or otherwise deal with such Collateral in accordance with the Agent’s instructions.
SECTION 9.17 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, in each case, to the date of repayment, shall have been received by such Lender.
SECTION 9.18 Cumulative Effect; Conflict of Terms; Entire Agreement; Credit Inquiries; No Advisory or Fiduciary Responsibility. Each Loan Party hereby agrees and confirms that, notwithstanding the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement:
(a) The provisions of the Loan Documents are cumulative. The parties acknowledge that the Loan Documents may use several limitations, tests or measurements to regulate similar matters, and they agree that these are cumulative and that each must be performed as provided. Except as otherwise provided in another Loan Document (by specific reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in another Loan Document (other than the Intercreditor Agreement with respect to U.S. Collateral), the provision herein shall govern and control.
(b) Time is of the essence of the Loan Documents. The Loan Documents constitute the entire contract among the parties relating to the subject matter hereof, and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.
(c) Each Loan Party hereby authorizes the Agent and the Lenders (but they shall have no obligation) to respond to usual and customary credit inquiries from third parties concerning any Loan Party or Subsidiary.
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(d) In connection with all aspects of each transaction contemplated by any Loan Document, the Loan Parties acknowledge and agree that (a)(i) this credit facility and any related arranging or other services by the Agent, any Lender, any of their Affiliates or any arranger are arm’s-length commercial transactions between the Loan Parties and such Person; (ii) the Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) the Loan Parties are capable of evaluating and understanding, and do understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents; (b) each of the Agent, the Lenders, the Swingline Lenders, their Affiliates and any arranger is and has been acting solely as a principal in connection with this credit facility, is not the financial advisor, agent or fiduciary for the Loan Parties, any of their Affiliates or any other Person, and has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) the Agent, Lenders, the Swingline Lenders, their Affiliates and any arranger may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their Affiliates, and have no obligation to disclose any of such interests to the Loan Parties or their Affiliates.
SECTION 9.19 Confirmation, Ratification and Affirmation by Loan Parties. Each Loan Party hereby agrees and confirms that, notwithstanding the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement:
(a) The obligations of each Loan Guarantor contained in the Loan Guaranty shall remain in full force and effect and are hereby confirmed, renewed, affirmed and continued by this Agreement.
(b) All rights, benefits, interests, duties, liabilities and obligations of the parties to the Collateral Documents and the agreements, documents and instruments executed and delivered in connection therewith are hereby confirmed, renewed, affirmed and continued hereby. Without limitation of the foregoing, all security interests, pledges, assignments and other Liens previously granted by any Guarantor, as a grantor, pursuant to the Collateral Documents are hereby confirmed, renewed, affirmed and continued, and all such security interests, pledges, assignments and other Liens shall remain in full force and effect as security for all Secured Obligations with no change in the priority applicable thereto, in each case, subject only to Liens permitted under the Loan Documents, to the extent provided therein.
(c) This affirmation under this Section 9.19 does not extinguish the indebtedness or liabilities outstanding in connection with the Existing Credit Agreement, the Loan Guaranty or the Collateral Documents, nor does it constitute a novation with respect thereto; rather, such indebtedness and liabilities have been redenominated, as set forth herein.
(d) Each reference in the Loan Guaranty and each Collateral Document to the “Credit Agreement” shall mean and be a reference to this Agreement, and each reference to any other term defined in the Existing Credit Agreement shall be a reference to such term as amended by the execution and delivery of this Agreement.
(e) Each Loan Guarantor acknowledges and stipulates that the Loan Guaranty, the Collateral Documents and each other Loan Document (including, without limitation, in each reference herein to the Loan Documents), each Banking Services agreement and each Swap Agreement in respect of Secured Swap Obligations executed by such Loan Guarantor are legal, valid and binding obligations of such Loan Guarantor that are enforceable against such Loan Guarantor in accordance with the terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium, or other laws affecting
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creditors’ rights generally and by general principles of equity, as set forth in such Loan Documents, and the security interests and Liens granted under Collateral Documents and each other Loan Document by such Loan Guarantor in favor of the Agent, for the benefit of the applicable Secured Parties, are and continue to be, duly perfected, security interests and Liens (having the Lien priority set forth in the Intercreditor Agreement with respect to the U.S. Collateral), in each case, to the full extent provided by the terms of the Collateral Documents and each other Loan Document and subject only to Liens permitted under the Loan Documents, to the extent provided therein.
SECTION 9.20 INTERCREDITOR AGREEMENT. REFERENCE IS MADE TO THE INTERCREDITOR AGREEMENT. EACH LENDER HEREUNDER (A) CONSENTS TO THE SUBORDINATION OF LIENS PROVIDED FOR IN THE INTERCREDITOR AGREEMENT WITH RESPECT TO U.S. COLLATERAL THAT DOES NOT CONSTITUTE ABL FIRST LIEN COLLATERAL, (B) AGREES THAT IT WILL BE BOUND BY AND WILL TAKE NO ACTIONS CONTRARY TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND (C) AUTHORIZES AND INSTRUCTS THE AGENT TO ENTER INTO THE INTERCREDITOR AGREEMENT AS ABL AGENT AND ON BEHALF OF SUCH LENDER. THE FOREGOING PROVISIONS ARE INTENDED AS AN INDUCEMENT TO THE LENDERS UNDER THIS AGREEMENT TO EXTEND CREDIT TO BORROWERS AND SUCH LENDERS ARE INTENDED THIRD PARTY BENEFICIARIES OF SUCH PROVISIONS AND THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.
SECTION 9.21 Judgment Currency. If, for the purpose of obtaining a judgment in any court or obtaining an order enforcing a judgment, it becomes necessary to convert any amount due under this Agreement in Dollars or in any other currency (hereinafter in this Section 9.21 called the “first currency”) into any other currency (hereinafter in this Section 9.21 called the “second currency”), then the conversion shall be made at the prevailing Exchange Rate for buying the first currency with the second currency at the Agent’s close of business on the Business Day next preceding the day on which the judgment is given or (as the case may be) the order is made. Any payment made by a Borrower within a Borrower Group to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender pursuant to this Agreement in the second currency shall constitute a discharge of the obligations of the Borrowers within such Borrower Group only to the extent of the amount of the first currency which the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender is able, on the date of the receipt by it of such payment in any second currency, to purchase, in accordance with the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender’s normal banking procedures, with the amount of such second currency so received. If the amount of the first currency purchased pursuant to the preceding sentence falls short of the amount originally due to the Agent, such Applicable Lender, such Applicable Issuing Bank or such Swingline Lender in the first currency under this Agreement, the Borrowers within such Borrower Group agree that they will indemnify the Agent, each Applicable Lender, each Applicable Issuing Bank and each Applicable Swingline Lender against and hold the Agent, each Applicable Lender, each Applicable Issuing Bank and each Applicable Swingline Lender harmless from any shortfall so arising. This indemnity shall constitute an obligation of each such Borrower separate and independent from the other obligations contained in this Agreement, shall give rise to a separate and independent cause of action and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum or sums in respect of amounts due to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender under any Loan Documents or under any such judgment or order. Any such shortfall shall be deemed to constitute a loss suffered by the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender. If the amount of the first currency exceeds the amount originally due to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender in the first currency under this Agreement, the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender shall promptly remit such excess to the Borrowers within the applicable Borrower Group. The covenants contained in this Section 9.21 shall survive the payment in full of the Obligations and termination of the Commitments under this Agreement.
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SECTION 9.22 Canadian Anti-Money Laundering Legislation. If the Agent has ascertained the identity of any Canadian Loan Party or any authorized signatories of any Canadian Loan Party for the purposes of the Proceeds of Crime Act and other applicable anti-money laundering, anti-terrorist financing, economic or trade sanctions and “know your client” policies, regulations, laws or rules (the Proceeds of Crime Act and such other applicable policies, regulations, laws or rules, collectively, including any guidelines or orders thereunder, “AML Legislation”), then the Agent shall be deemed to have done so as an agent for each Canadian Lender, and this Agreement shall constitute a “written agreement” in such regard between each Canadian Lender and the Agent within the meaning of the applicable AML Legislation; and shall provide to each Canadian Lender copies of all information obtained in such regard without any representation or warranty as to its accuracy or completeness.
Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, each of the Canadian Lenders agrees that Agent has no obligation to ascertain the identity of the Canadian Loan Parties or any authorized signatories of the Canadian Loan Parties on behalf of any Canadian Lender, or to confirm the completeness or accuracy of any information it obtains from any Canadian Loan Party or any such authorized signatory in doing so.
ARTICLE X.
LOAN GUARANTY
SECTION 10.01 Guaranty. Each Canadian Obligations Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, and absolutely and unconditionally guarantees to the Agent, the Canadian Lenders and the other applicable Secured Parties the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Canadian Obligations (the “Canadian Guaranteed Obligations”) and each U.S. Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, and absolutely and unconditionally guarantees to the Agent, the Lenders and the other Secured Parties the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Canadian Guaranteed Obligations and the U.S. Obligations (collectively, the “U.S. Guaranteed Obligations”). Each Applicable Guarantor further agrees that the Applicable Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal.
SECTION 10.02 Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Applicable Guarantor waives any right to require the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender to sue any Borrower, any Applicable Guarantor, any other guarantor, or any other Person obligated for all or any part of the Applicable Guaranteed Obligations (with respect to any Applicable Guaranteed Obligations, each an “Applicable Obligated Party”), or otherwise to enforce its payment against any collateral securing all or any part of the Applicable Guaranteed Obligations and waives the benefits of division and discussion.
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SECTION 10.03 No Discharge or Diminishment of Loan Guaranty. (a) Except as otherwise provided for herein, the obligations of each Applicable Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than as expressly provided in Section 10.11), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Applicable Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of any Borrower within the applicable Borrower Group or any other guarantor of or other Person liable for any of the Applicable Guaranteed Obligations; (iii) any insolvency, bankruptcy, arrangement, winding up reorganization or other similar proceeding affecting any Applicable Obligated Party, or their assets or any resulting release or discharge of any obligation of any Applicable Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Applicable Guarantor may have at any time against any Applicable Obligated Party, the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender, any Applicable Lender, or any other Person, whether in connection herewith or in any unrelated transactions.
(b) The obligations of each Applicable Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Applicable Guaranteed Obligations or otherwise, or any provision of applicable law or Regulation purporting to prohibit payment by any Applicable Obligated Party, of the Applicable Guaranteed Obligations or any part thereof.
(c) Further, the obligations of any Applicable Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Applicable Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Applicable Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of each Borrower within the applicable Borrower Group for all or any part of the Applicable Guaranteed Obligations or any obligations of any other guarantor of or other Person liable for any of the Applicable Guaranteed Obligations; (iv) any action or failure to act by the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender with respect to any collateral securing any part of the Applicable Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Applicable Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Applicable Guarantor or that would otherwise operate as a discharge of any Applicable Guarantor as a matter of law or equity (other than as expressly provided in Section 10.11).
SECTION 10.04 Defenses Waived. To the fullest extent permitted by applicable law, each Applicable Guarantor hereby waives any defense based on or arising out of any defense of any Borrower within the applicable Borrower Group or any Applicable Guarantor or the unenforceability of all or any part of the Applicable Guaranteed Obligations from any cause, or the cessation from any cause of the liability of any Borrower within the applicable Borrower Group or any Applicable Guarantor, other than the termination of an Applicable Guarantor’s obligations hereunder as expressly provided in Section 10.11. Without limiting the generality of the foregoing, each Applicable Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Applicable Obligated Party, or any other Person. The Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Applicable Guaranteed Obligations, compromise or adjust any part of the Applicable Guaranteed Obligations, make any other accommodation with any Applicable Obligated Party or exercise any other right or remedy available to it against any Applicable Obligated Party, without affecting or impairing in any way the liability of such Applicable Guarantor under this Loan Guaranty except to the extent the Applicable Guaranteed Obligations have been fully and indefeasibly paid in cash.
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To the fullest extent permitted by applicable law, each Applicable Guarantor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Applicable Guarantor against any Applicable Obligated Party or any security.
SECTION 10.05 Rights of Subrogation. No Applicable Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Applicable Obligated Party, or any collateral, until the Loan Parties, the Canadian Obligations Guarantors and the U.S. Guarantors have fully performed all their obligations to the Agent, the Issuing Banks, the Swingline Lenders and the Lenders, including without limitation payment in full of all of the Obligations and termination of the Commitments.
SECTION 10.06 Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Applicable Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, arrangement or reorganization of any Borrower within the applicable Borrower Group or otherwise, each Applicable Guarantor’s obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made. If acceleration of the time for payment of any of the Applicable Guaranteed Obligations is stayed upon the insolvency, bankruptcy, arrangement or reorganization of any Borrower within the applicable Borrower Group, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Applicable Guaranteed Obligations shall nonetheless be payable by the Applicable Guarantors forthwith on demand by the Agent, the Applicable Lender or the other applicable Secured Party.
SECTION 10.07 Information. Each Applicable Guarantor assumes all responsibility for being and keeping itself informed of each Borrower’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Applicable Guarantor assumes and incurs under this Loan Guaranty, and agrees that none of the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender shall have any duty to advise any Applicable Guarantor of information known to it regarding those circumstances or risks.
SECTION 10.08 Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state, Canadian federal or provincial corporate law, or any state, provincial, federal or foreign bankruptcy, insolvency, arrangement, reorganization or other law affecting the rights of creditors generally, if the obligations of any Applicable Guarantor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Applicable Guarantor’s liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Applicable Guarantors or the applicable Secured Parties, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Applicable Guarantor’s “Maximum Liability”). This Section 10.08 with respect to the Maximum Liability of each Applicable Guarantor is intended solely to preserve the rights of the applicable Secured Parties to the maximum extent not subject to avoidance under applicable law, and no Applicable Guarantor nor any other Person or entity shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Applicable Guarantor hereunder shall not be rendered voidable under applicable law. Each Applicable Guarantor agrees that the Applicable Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Applicable Guarantor without impairing this Loan Guaranty or affecting the rights and remedies of the applicable Secured Parties hereunder, provided that nothing in this sentence shall be construed to
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increase any Applicable Guarantor’s obligations hereunder beyond its Maximum Liability. Notwithstanding the foregoing, nothing contained in this Agreement (including any provisions of this Article X to the contrary) shall limit the liability of the Borrowers within each Borrower Group in respect of all of the Obligations of such Borrowers under the Loan Documents.
SECTION 10.09 Contribution.
(a) In the event any Canadian Obligations Guarantor (a “Canadian Obligations Paying Guarantor”) shall make any payment or payments under this Loan Guaranty in respect of the Canadian Obligations or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other Canadian Obligations Guarantor (each a “Canadian Obligations Non-Paying Guarantor”) shall contribute to such Canadian Obligations Paying Guarantor an amount equal to such Canadian Obligations Non-Paying Guarantor’s “Canadian Obligations Guarantor Percentage” of such payment or payments made, or losses suffered, by such Canadian Obligations Paying Guarantor. For purposes of this Article X, each Canadian Obligations Non-Paying Guarantor’s “Canadian Obligations Guarantor Percentage” with respect to any such payment or loss by a Canadian Obligations Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Canadian Obligations Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Canadian Obligations Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such Canadian Obligations Non-Paying Guarantor from a Canadian Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Canadian Obligations Guarantors hereunder (including such Canadian Obligations Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Canadian Obligations Guarantor, the aggregate amount of all monies received by such Canadian Obligations Guarantors from a Canadian Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Canadian Obligations Guarantor’s several liability for the entire amount of the Canadian Guaranteed Obligations (up to such Canadian Obligations Guarantor’s Maximum Liability). Each of the Canadian Obligations Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Canadian Obligations Non-Paying Guarantor shall be subordinate and junior in right of payment to the termination of a Canadian Obligations Guarantor’s obligations hereunder as expressly provided in Section 10.11. This provision is for the benefit of all of the Agent, the Canadian Issuing Banks, the Canadian Swingline Lenders, the Canadian Lenders, the Borrowers and the other Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
(b) In the event any U.S. Guarantor (a “U.S. Paying Guarantor”) shall make any payment or payments under this Loan Guaranty in respect of the U.S. Obligations or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other U.S. Guarantor (each a “U.S. Non-Paying Guarantor”) shall contribute to such U.S. Paying Guarantor an amount equal to such U.S. Non-Paying Guarantor’s “U.S. Guarantor Percentage” of such payment or payments made, or losses suffered, by such U.S. Paying Guarantor. For purposes of this Article X, each U.S. Non-Paying Guarantor’s “U.S. Guarantor Percentage” with respect to any such payment or loss by a U.S. Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such U.S. Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such U.S. Non-Paying Guarantor’s Maximum Liability has not been determined, the aggregate amount of all monies received by such U.S. Non-Paying Guarantor from any U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all U.S. Guarantors hereunder (including such U.S. Paying Guarantor) as of such date (without giving
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effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any U.S. Guarantor, the aggregate amount of all monies received by such U.S. Guarantors from any U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any U.S. Guarantor’s several liability for the entire amount of the U.S. Guaranteed Obligations (up to such U.S. Guarantor’s Maximum Liability). Each of the U.S. Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a U.S. Non-Paying Guarantor shall be subordinate and junior in right of payment to the termination of a U.S. Guarantor’s obligations hereunder as expressly provided in Section 10.11. This provision is for the benefit of all of the Agent, the Issuing Banks, the Swingline Lenders, the Lenders, the Borrowers and the other Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
SECTION 10.10 Liability Cumulative. The liability of each applicable Loan Party as an Applicable Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each such Loan Party to the Agent, the Issuing Banks, the Swingline Lenders and the Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
SECTION 10.11 Termination; Release of Guarantors and Borrowers. The Loan Guaranty of all Applicable Guarantors shall terminate on the Termination Date. Notwithstanding anything in Section 9.02(b) to the contrary (i) an Applicable Guarantor or a Borrower that is a Subsidiary shall automatically be released from its obligations hereunder and its Loan Guaranty and obligations as a Borrower shall be automatically released upon the consummation of any transaction permitted hereunder as a result of which such Guarantor or Borrower ceases to be a Subsidiary of the Company and (ii) so long as no Event of Default has occurred and is continuing, (A) if an Applicable Guarantor or Borrower is or becomes an Excluded Subsidiary, then such Applicable Guarantor shall be automatically released from its obligations hereunder and its Loan Guaranty and obligations as a Borrower shall be automatically released upon notification thereof from the Borrower Agent to the Agent. In connection with any such release, the Agent shall execute and deliver to any Applicable Guarantor or Borrower that is a Subsidiary, at such Applicable Guarantor’s or Borrower’s expense, all documents that such Applicable Guarantor or Borrower shall reasonably request to evidence termination or release. Any execution and delivery of documents pursuant to the preceding sentence of this Section 10.11 shall be without recourse to or warranty by the Agent.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
| BORROWERS: | ||
| AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation, as a U.S. Borrower | ||
| By | /s/ William E. Berry | |
| Name: William E. Berry | ||
| Title: President & CEO | ||
| AM-PAC TIRE DIST. INC., a California corporation, as a U.S. Borrower | ||
| By | /s/ William E. Berry | |
| Name: William E. Berry | ||
| Title: President & CEO | ||
| ATD ACQUISITION CO. V INC., a corporation organized under the laws of Canada, as the Canadian Borrower | ||
| By | /s/ William E. Berry | |
| Name: William E. Berry | ||
| Title: President & CEO | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| GUARANTORS: | ||
| AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., as Holdings and a U.S. Guarantor | ||
| By | /s/ William E. Berry | |
|
| ||
| Name: William E. Berry | ||
| Title: President & CEO | ||
| ATD ACQUISITION CO. IV, a Delaware corporation, as a U.S. Guarantor | ||
| By | /s/ William E. Berry | |
|
| ||
| Name: William E. Berry | ||
| Title: President & CEO | ||
| FIRESTONE OF DENHAM SPRINGS, INC., a Louisiana corporation, as a U.S. Guarantor | ||
| By | /s/ William E. Berry | |
|
| ||
| Name: William E. Berry | ||
| Title: President & CEO | ||
| TIRE WHOLESALERS, INC., a Washington corporation and a U.S. Guarantor | ||
| By | /s/ William E. Berry | |
|
| ||
| Name: William E. Berry | ||
| Title: President & CEO | ||
| TRIWEST TRADING (CANADA) LTD., a corporation incorporated under the laws of Canada, as a Canadian Guarantor | ||
| By | /s/ William E. Berry | |
|
| ||
| Name: William E. Berry | ||
| Title: President & CEO | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| BANK OF AMERICA, N.A., individually and as Agent, an Issuing Bank, a U.S. Revolving Lender and the U.S. Swingline Lender | ||
| By | /s/ Seth Benefield | |
| Name: Seth Benefield | ||
| Title: Senior Vice President | ||
| BANK OF AMERICA, N.A., (acting through its Canada branch), as an Issuing Bank, a Canadian Revolving Lender, and the Canadian Swingline Lender | ||
| By | /s/ Medina Sales De Andrade | |
| Name: Medina Sales De Andrade | ||
| Title: Vice President | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| WELLS FARGO CAPITAL FINANCE, LLC, as a U.S. Revolving Lender | ||
| By | /s/ Reza Sabani | |
|
| ||
| Name: Reza Sabani | ||
| Title: Authorized Signatory | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Canadian Revolving Lender | ||
| By | /s/ Domenic Cosentino | |
|
| ||
| Name: Domenic Cosentino | ||
| Title: Authorized Signatory | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| BARCLAYS BANK PLC, as a U.S. Revolving Lender and a Canadian Revolving Lender | ||
| By | /s/ Diane Relfe | |
|
| ||
| Name: Diane Relfe | ||
| Title: Director | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| ROYAL BANK OF CANADA, as a U.S. Revolving Lender | ||
| By |
/s/ Michael Petersen | |
| Name: Michael Petersen | ||
| Title: Attorney in Fact | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| ROYAL BANK OF CANADA, as a Canadian Revolving Lender | ||
| By |
/s/ James Parisi | |
| Name: James Parisi | ||
| Title: Authorized Signatory | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| UBS LOAN FINANCE LLC, as a U.S. Revolving Lender and a Canadian Revolving Lender | ||
| By | /s/ Irja R. Otsa | |
| Name: Irja R. Otsa | ||
| Title: Associate Director | ||
| By | /s/ Joselin Fernandes | |
| Name: Joselin Fernandes | ||
| Title: Associate Director | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| RBS BUSINESS CAPITAL, a division of RBS Asset Finance, Inc., as a U.S. Revolving Lender | ||
| By | /s/ Don Cmar | |
| Name: Don Cmar | ||
| Title: Vice President | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| SUNTRUST BANK, as Syndication Agent, a U.S. Revolving Lender, and a Canadian Revolving Lender | ||
| By | /s/ Mark Fidati | |
| Name: Mark Fidati | ||
| Title: Senior Vice President | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| TD BANK, N.A., as a U.S. Revolving Lender | ||
| By | /s/ Andrew Loughlin | |
| Name: Andrew Loughlin | ||
| Title: Vice President | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| THE TORONTO-DOMINION BANK, as a Canadian Revolving Lender | ||
| By | /s/ Dan Flaro /s/ Kyle Weage | |
| Name: Dan Flaro Kyle Weage | ||
| Title: VP Analyst | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| U.S. BANK NATIONAL ASSOCIATION, as a U.S. Revolving Lender | ||
| By | /s/ Scot Turner | |
| Name: Scot Turner | ||
| Title: Senior Vice President | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| U.S. BANK NATIONAL ASSOCIATION, Canada branch, as a Canadian Revolving Lender | ||
| By | /s/ Joseph Rauhala | |
| Name: Joseph Rauhala | ||
| Title: Principal Officer | ||
[Signatures continue on following page.]
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
| REGIONS BANK, as a U.S. Revolving Lender | ||
| By | /s/ Amanda Watkins | |
| Name: Amanda Watkins | ||
| Title: Vice President | ||
[Signature Page to ATD—Sixth Amended and Restated Credit Agreement]
COMMITMENT SCHEDULE
| LENDER |
U.S.
REVOLVING COMMITMENTS |
CANADIAN REVOLVING COMMITMENTS |
||||||
| Bank of America, N.A. |
$ | 278,142,856.93 | $ | 0 | ||||
| Bank of America, N.A. (acting through its Canada branch) |
$ | 0 | $ | 21,857,143.07 | ||||
| Wells Fargo Capital Finance, LLC |
$ | 190,000,000.00 | $ | 0 | ||||
| Wells Fargo Capital Finance Corporation Canada |
$ | 0 | $ | 15,000,000.00 | ||||
| SunTrust Bank |
$ | 120,109,890.00 | $ | 9,890,110.00 | ||||
| UBS Loan Finance LLC |
$ | 60,054,945.00 | $ | 4,945,055.00 | ||||
| Regions Bank |
$ | 50,000,000.00 | $ | 0 | ||||
| U.S. Bank National Association |
$ | 37,362,637.36 | $ | 0 | ||||
| U.S. Bank National Association, Canada branch |
$ | 0 | $ | 2,637,362.64 | ||||
| RBS Business Capital |
$ | 35,000,000.00 | $ | 0 | ||||
| TD Bank, N.A. |
$ | 32,692,307.69 | $ | 0 | ||||
| The Toronto-Dominion Bank |
$ | 0 | $ | 2,307,692.31 | ||||
| Barclays Bank PLC |
$ | 28,021,978.02 | $ | 1,978,021.98 | ||||
| Royal Bank of Canada |
$ | 18,615,385.00 | $ | 0 | ||||
| Royal Bank of Canada |
$ | 0 | $ | 1,384,615.00 | ||||
|
|
|
|
|
|||||
| TOTAL |
$ | 850,000,000.00 | $ | 60,000,000.00 | ||||
Exhibit 10.3
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
Dated as of November 30, 2012
from
AMERICAN TIRE DISTRIBUTORS, INC.,
AM-PAC TIRE DIST. INC.,
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.,
TIRE WHOLESALERS, INC.,
FIRESTONE OF DENHAM SPRINGS, INC., d/b/a Consolidated Tire and Oil, and
ATD ACQUISITION CO. IV
to
BANK OF AMERICA, N.A.,
as Administrative Agent and Collateral Agent
Table of Contents
| Page | ||||||
| ARTICLE I. DEFINITIONS | ||||||
| Section 1.1. |
Terms Defined in Credit Agreement | - 1 - | ||||
| Section 1.2. |
Terms Defined in UCC | - 1 - | ||||
| Section 1.3. |
Terms Generally | - 2 - | ||||
| Section 1.4. |
Definitions of Certain Terms Used Herein | - 2 - | ||||
| ARTICLE II. GRANT OF SECURITY INTEREST | ||||||
| ARTICLE III. REPRESENTATIONS AND WARRANTIES | ||||||
| Section 3.1. |
Title, Perfection and Priority | - 8 - | ||||
| Section 3.2. |
Type and Jurisdiction of Organization, Organizational and Identification Numbers | - 8 - | ||||
| Section 3.3. |
Principal Location | - 9 - | ||||
| Section 3.4. |
Collateral Locations | - 9 - | ||||
| Section 3.5. |
Bailees, Warehousemen, Etc | - 9 - | ||||
| Section 3.6. |
Exact Names | - 9 - | ||||
| Section 3.7. |
Letter-of-Credit Rights and Chattel Paper | - 9 - | ||||
| Section 3.8. |
Accounts and Chattel Paper. | - 9 - | ||||
| Section 3.9. |
Inventory | - 10 - | ||||
| Section 3.10. |
Intellectual Property | - 10 - | ||||
| Section 3.11. |
No Financing Statements or Security Agreements | - 10 - | ||||
| Section 3.12. |
Pledged Collateral. | - 10 - | ||||
| Section 3.13. |
Commercial Tort Claims | - 11 - | ||||
| Section 3.14. |
Perfection Certificate | - 11 - | ||||
i
| ARTICLE IV. COVENANTS | ||||||
| Section 4.1. |
General. | - 11 - | ||||
| Section 4.2. |
Electronic Chattel Paper | - 12 - | ||||
| Section 4.3. |
Reserved | - 13 - | ||||
| Section 4.4. |
Delivery of Pledged Collateral | - 13 - | ||||
| Section 4.5. |
Uncertificated Pledged Collateral | - 13 - | ||||
| Section 4.6. |
Pledged Collateral. | - 13 - | ||||
| Section 4.7. |
Intellectual Property | - 14 - | ||||
| Section 4.8. |
Commercial Tort Claims | - 15 - | ||||
| Section 4.9. |
Letter-of-Credit Rights | - 15 - | ||||
| Section 4.10. |
Insurance | - 16 - | ||||
| Section 4.11. |
Collateral Access Agreements | - 16 - | ||||
| ARTICLE V. REMEDIES | ||||||
| Section 5.1. |
Remedies | - 16 - | ||||
| Section 5.2. |
Grantors’ Obligations Upon Default | - 18 - | ||||
| Section 5.3. |
Grant of Intellectual Property License | - 18 - | ||||
| ARTICLE VI. ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY | ||||||
| Section 6.1. |
Account Verification | - 18 - | ||||
| Section 6.2. |
Authorization for Secured Party to Take Certain Action. | - 19 - | ||||
| Section 6.3. |
PROXY | - 19 - | ||||
| Section 6.4. |
NATURE OF APPOINTMENT; LIMITATION OF DUTY | - 20 - | ||||
| ARTICLE VII. GENERAL PROVISIONS | ||||||
| Section 7.1. |
Waivers | - 20 - | ||||
| Section 7.2. |
Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral | - 20 - | ||||
| Section 7.3. |
Compromises and Collection of Collateral | - 21 - | ||||
| Section 7.4. |
Secured Party Performance of Debtor Obligations | - 21 - | ||||
| Section 7.5. |
No Waiver; Amendments; Cumulative Remedies | - 22 - | ||||
ii
| Section 7.6. |
Limitation by Law; Severability of Provisions | - 22 - | ||||
| Section 7.7. |
Reinstatement | - 22 - | ||||
| Section 7.8. |
Benefit of Agreement | - 22 - | ||||
| Section 7.9. |
Survival of Representations | - 22 - | ||||
| Section 7.10. |
Taxes and Expenses | - 23 - | ||||
| Section 7.11. |
Additional Subsidiaries | - 23 - | ||||
| Section 7.12. |
Headings | - 23 - | ||||
| Section 7.13. |
Termination or Release. | - 23 - | ||||
| Section 7.14. |
Entire Agreement | - 24 - | ||||
| Section 7.15. |
CHOICE OF LAW | - 24 - | ||||
| Section 7.16. |
Consent to Jurisdiction | - 24 - | ||||
| Section 7.17. |
WAIVER OF JURY TRIAL | - 25 - | ||||
| Section 7.18. |
Indemnity | - 25 - | ||||
| Section 7.19. |
Counterparts | - 25 - | ||||
| Section 7.20. |
INTERCREDITOR AGREEMENT GOVERNS | - 25 - | ||||
| Section 7.21. |
Delivery of Collateral | - 26 - | ||||
| Section 7.22. |
Mortgages | - 26 - | ||||
| ARTICLE VIII. NOTICES | ||||||
| Section 8.1. |
Sending Notices | - 26 - | ||||
| Section 8.2. |
Change in Address for Notices | - 26 - | ||||
| ARTICLE IX. THE AGENT | ||||||
iii
EXHIBITS:
| Schedule 1 | Excluded Accounts | |
| Exhibit A | Location, Chief Executive Office, Type of Organization, Jurisdiction of Organization and Organizational Identification Number | |
| Exhibit B | Bailees, Warehousemen and Third Party Possessors of Collateral | |
| Exhibit C | Letter of Credit Rights and Chattel Paper | |
| Exhibit D | Intellectual Property | |
| Exhibit E | Commercial Tort Claims | |
| Exhibit F | Pledged Collateral | |
| Exhibit G | UCC Filing Offices | |
| Exhibit H | Form of Perfection Certificate | |
| Exhibit I | Form of Collateral Access Agreement | |
| Exhibit J | Form of Joinder | |
| Exhibit K | Form of Short Form Intellectual Property Security Agreement |
iv
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
This SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this “Security Agreement”) is entered into as of November 30, 2012, by and among AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., a Delaware corporation (“Holdings”); AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the “Company”) and successor by merger to ATD Acquisition Co. III, a Delaware corporation, and successor by merger to The Bowlus Service Company; the Subsidiary Parties from time to time party hereto; and BANK OF AMERICA, N.A., a national banking association, in its capacity as administrative agent for the lenders party to the Credit Agreement referred to below and in its capacity as collateral agent for the Secured Parties (in such capacities, together with its successors in such capacities, the “Agent”).
PRELIMINARY STATEMENTS
WHEREAS, the Company, certain of the other Loan Parties, certain of the Lenders, Bank of America, N.A., as administrative agent, and certain other Persons thereto are parties to that certain Fifth Amended and Restated Credit Agreement, dated as of May 28, 2010 (as amended, restated, modified or supplemented prior to the date hereto, the “Existing Credit Agreement”);
WHEREAS, the Company, certain of the other Loan Parties, and the Agent are parties to that certain Amended and Restated Pledge and Security Agreement, dated as of May 28, 2010 (as amended, restated, modified or supplemented prior to the date hereto, the “Existing Security Agreement”);
WHEREAS, the Loan Parties, the Agent, the Lenders and certain other parties are entering into that certain Sixth Amended and Restated Credit Agreement, dated as of the date hereof (as amended, restated, modified or supplemented after the date hereof, the “Credit Agreement”), which amends and restates in its entirety the Existing Credit Agreement; and
WHEREAS, the Grantors are entering into this Security Agreement for the purpose of amending and restating in its entirety the Existing Security Agreement and in order to induce the Lenders to amend and restate, and to extend credit to the Borrowers under, the Credit Agreement and to secure the Secured Obligations, including in the case of each Grantor that is a Loan Guarantor, its obligations under the Loan Guaranty.
ACCORDINGLY, the parties hereto hereby agree to amend and restate the Existing Security Agreement in its entirety as set forth herein, as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Terms Defined in Credit Agreement. All capitalized terms used herein (including terms used in the preamble and preliminary statements) and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Section 1.2. Terms Defined in UCC. Terms defined in the UCC that are not otherwise defined in this Security Agreement or the Credit Agreement are used herein as defined in the UCC (and if defined in more than one article of the UCC, the terms shall have the meaning specified in Article 9 thereof).
Section 1.3. Terms Generally. The rules of construction and other interpretive provisions specified in Section 1.03 of the Credit Agreement shall apply to this Security Agreement, including terms defined in the preamble and preliminary statements hereto.
Section 1.4. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in addition to the terms defined in the preamble and preliminary statements above, the following terms shall have the following meanings:
“Account” shall have the meaning set forth in Article 9 of the UCC.
“Acquisition IV” means ATD Acquisition Co. IV, a Delaware corporation.
“After-acquired Debt” shall have the meaning set forth in the definition of “Pledged Collateral”.
“After-acquired Shares” shall have the meaning set forth in the definition of “Pledged Collateral”.
“Am-Pac” means Am-Pac Tire Dist. Inc., a California corporation.
“Article” means a numbered article of this Security Agreement, unless another document is specifically referenced.
“Borrower” means each of the Company, Am-Pac and each other Domestic Subsidiary of the Company that becomes a Borrower pursuant to Section 5.11(a) of the Credit Agreement.
“Cash Collateral Account” means a special interest-bearing deposit account consisting of cash maintained by the Agent in the name of the Company, but under the sole dominion and control of the Agent, for the benefit of itself as Agent and for the benefit of the other Secured Parties.
“Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.
“Collateral” shall have the meaning set forth in Article II.
“Collateral Access Agreement” means a landlord waiver or other agreement, substantially in the form attached hereto as Exhibit I or such other form as shall be reasonably satisfactory to the Agent, entered into between the Agent and any third party (including any bailee, consignee, customs broker, or other similar Person) in possession of any Collateral or any landlord of any premises where any Collateral is located.
“Collateral Report” means any certificate (including any Borrowing Base Certificate), report or other document delivered by any Grantor to the Agent with respect to the Collateral pursuant to any Loan Document.
“Commercial Tort Claim” shall have the meaning set forth in Article 9 of the UCC.
“Control” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.
- 2 -
“Copyrights” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.
“Deposit Account” shall have the meaning set forth in Article 9 of the UCC.
“Document” shall have the meaning set forth in Article 9 of the UCC.
“Electronic Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.
“Equipment” shall have the meaning set forth in Article 9 of the UCC.
“Excluded Accounts” means all accounts set forth on Schedule 1 hereto.
“Excluded Assets” means
(a) (i) the distribution centers consisting of fee-owned real property and improvements located in Miami, Florida and Simi Valley, California; (ii) any interest in leased real property of any Grantor; and (iii) any interest in fee-owned real property of a Grantor if the greater of its cost and book value is less than $2,500,000;
(b) Equipment consisting of motor vehicles or other assets subject to certificates of title, the perfection of which is excluded from the UCC in the relevant jurisdiction;
(c) at any date, any Equipment or other assets or property of a Grantor which is subject to, or secured by, a Capital Lease Obligation or other debt obligation if and to the extent that (i) such Capital Lease Obligation or debt obligation was incurred pursuant to Section 6.01(e) or (f) of the Credit Agreement or is owed to a Person who is not a Grantor or a Restricted Subsidiary and the agreements or documents granting or governing such Capital Lease Obligation or debt obligation prohibit, or require any consent or establish any other conditions for, or would or could be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under such agreement or document, because of an assignment thereof, or a grant of a security interest therein, by a Grantor and (ii) such restriction described in clause (i) above relates only to the asset or assets acquired by such Grantor and attachments and accessions thereto, improvements thereof or substitutions therefor; provided that all proceeds paid or payable to any Grantor from any sale, transfer or assignment or other voluntary or involuntary disposition of such assets and all rights to receive such proceeds shall be included in the Collateral to the extent not otherwise required to be paid to the holder of any Capital Lease Obligations or debt obligations secured by such assets;
(d) pledges and security interests prohibited by, or requiring any consent of any Governmental Authority pursuant to, applicable law, rule or regulation;
(e) Excluded Equity Interests and Excluded Accounts;
(f) any rights or interest of a Grantor in any property or assets or under any agreement, contract, License, lease, Instrument, document or other General Intangible or, in the case of any Investment Property (other than with respect to Equity Interests which are not Excluded Equity
- 3 -
Interests), under any applicable equity holder or similar agreement (referred to solely for purposes of this clause (f) as a “Contract”) to the extent such Contract by the terms of a restriction in favor of a Person who is not a Grantor, or any requirement of law, rule or regulation, prohibits, or requires any consent or establishes any other condition for, or could or would be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under, because of an assignment thereof or a grant of a security interest therein by a Grantor; provided that (i) rights to payment under any such Contract otherwise constituting an Excluded Asset shall be included in the Collateral to the extent permitted thereby or by Section 9-406 or 9-408 of the UCC and (ii) all proceeds paid or payable to any Grantor from any sale, transfer or assignment of such Contract and all rights to receive such proceeds shall be included in the Collateral;
(g) any property or assets owned by any Foreign Subsidiary or any Unrestricted Subsidiary;
(h) any property as to which the Agent and Borrowers reasonably agree in writing that the cost or other consequences (including material adverse tax consequences as reasonably determined by the Borrowers) of obtaining a security interest or perfection thereof are excessive in relation to the benefit to the Secured Parties of the security to be afforded thereby;
(i) (x) any Intellectual Property, including any United States intent-to-use trademark applications, in relation to which any applicable law or regulation, or any agreement with a domain name registrar or any other person entered into by a Grantor in the ordinary course of business and existing on the date hereof, prohibits the creation of a security interest therein, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation, or would otherwise invalidate such Grantor’s right, title or interest therein and (y) any of the Borrowers’ rights under the trademarks and service marks known as “ATD ONLINE,” “AUTOEDGE,” “HEAFNET,” “TIREBUYER.COM,” “TIRE PROS,” “XPRESS PERFORMANCE” and “WHEEL WIZARD”; and
(j) any proceeds and products arising from the sale, lease, assignment or disposition of any of the foregoing Excluded Assets unless such proceeds or products would otherwise constitute Collateral.
“Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.
“Firestone” means Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil, a Louisiana corporation.
“Fixture” shall have the meaning set forth in Article 9 of the UCC.
“General Intangible” shall have the meaning set forth in Article 9 of the UCC.
“Goods” shall have the meaning set forth in Article 9 of the UCC.
“Grantors” means Holdings, the Company and the Subsidiary Parties.
“Instrument” shall have the meaning set forth in Article 9 of the UCC.
“Intellectual Property” means, with respect to any Grantor, all intellectual and similar property of every kind and nature now owned or hereafter acquired by such Grantor, including Patents, Copyrights, Trademarks and all related documentation and registrations and all additions, improvements or accessions to any of the foregoing.
- 4 -
“Inventory” shall have the meaning set forth in Article 9 of the UCC and shall include, without limitation, (a) all goods intended for sale or lease or for display or demonstration, (b) all work in process, and (c) all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, packing, shipping, advertising, selling, leasing or furnishing of goods or services or otherwise used or consumed in the conduct of business.
“Investment Property” shall have the meaning set forth in Article 9 of the UCC.
“Letter-of-Credit Right” shall have the meaning set forth in Article 9 of the UCC.
“Licenses” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to (a) any and all written licensing agreements or similar arrangements in and to its owned (1) Patents, (2) Copyrights, or (3) Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.
“Patents” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to: (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.
“Perfection Certificate” means a certificate substantially in the form of Exhibit H completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of the Company.
“Pledged Collateral” means collectively, (a) all of the Equity Interests described on Exhibit F issued by the entities named therein and all other Equity Interests required to be pledged under Section 5.11 of the Credit Agreement (the “After-acquired Shares”) and (b) the promissory notes, Chattel Paper and Instruments evidencing Indebtedness in excess of $2,500,000 owed to the Grantors (other than such promissory notes, Chattel Paper and Instruments that are Excluded Assets) described on Exhibit F and issued by the entities named and all other Indebtedness owed to any Grantor hereafter and required to be pledged pursuant to Section 5.11 of the Credit Agreement (the “After-acquired Debt”), in each case as such Exhibit may be amended pursuant to Section 5.11 of the Credit Agreement.
“Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments and any other rights or claims to receive money that are General Intangibles or that are otherwise included as Collateral.
“Section” means a numbered section of this Security Agreement, unless another document is specifically referenced.
“Secured Parties” means collectively (a) the Lenders, (b) the Agent, (c) each Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan Party the obligations under which constitute Secured Swap Obligations, (e) each Swingline Lender, (f) the beneficiaries of each
- 5 -
indemnification obligation undertaken by any Loan Party under any Loan Document, (g) each Person providing Banking Services which constitute Banking Services Obligations and (h) the successors and permitted assigns of each of the foregoing.
“Security” shall have the meaning set forth in Article 8 of the UCC.
“Stock Rights” means all dividends, instruments or other distributions and any other right or property which any Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Pledged Collateral, any right to receive an Equity Interest constituting Collateral and any right to receive earnings, in which such Grantor now has or hereafter acquires any right, issued by an issuer of such Equity Interest.
“Subsidiary Parties” means Am-Pac, Acquisition IV, Firestone, Wholesalers, and each Domestic Subsidiary of the Company that becomes a party to this Security Agreement as a Subsidiary Party after the date hereof in accordance with Section 7.11 herein and Section 5.11 of the Credit Agreement.
“Supporting Obligation” shall have the meaning set forth in Article 9 of the UCC.
“Tangible Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.
“Trademarks” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to the following: (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all Licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York.
“Wholesalers” means Tire Wholesalers, Inc., a Washington corporation.
ARTICLE II.
GRANT OF SECURITY INTEREST
Each Grantor hereby pledges, assigns and grants to the Agent, on behalf of and for the benefit of the Secured Parties, and to secure the prompt and complete payment and performance of all Secured Obligations, a security interest in all of its right, title and interest in, to and under all of the following personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of, such Grantor (including under any trade name or derivations thereof), and regardless of where located (all of which are collectively referred to as the “Collateral”):
(i) all Accounts;
- 6 -
(ii) all Chattel Paper (including Electronic Chattel Paper and Tangible Chattel Paper);
(iii) all Intellectual Property;
(iv) all Documents;
(v) all Equipment;
(vi) all Fixtures;
(vii) all General Intangibles;
(viii) all Goods;
(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property;
(xii) all letters of credit, Letter-of-Credit Rights and Supporting Obligations;
(xiii) all Deposit Accounts;
(xiv) all Commercial Tort Claims as specified from time to time in Exhibit E;
(xv) all cash or other property deposited with the Agent or any Lender or any Affiliate of the Agent or any Lender or which the Agent, for its benefit and for the benefit of the other Secured Parties, or any Lender or such Affiliate is entitled to retain or otherwise possess as collateral pursuant to the provisions of this Security Agreement or any of the Loan Documents or any agreement relating to any Letter of Credit, including amounts on deposit in the Cash Collateral Account;
(xvi) all books, records, files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the foregoing or any Account Debtor or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof; and
(xvii) any and all accessions to, substitutions for and replacements, products and cash and non-cash proceeds of the foregoing (including any claims to any items referred to in this definition and any claims against third parties for loss of, damage to or destruction of any or all of the Collateral or for proceeds payable under or unearned premiums with respect to policies of insurance) in whatever form, including cash, negotiable instruments and other instruments for the payment of money, Chattel Paper, security agreements and other documents.
Notwithstanding the foregoing or anything herein to the contrary, in no event shall the “Collateral” include or the security interest attach to any Excluded Asset.
- 7 -
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Grantors, jointly and severally, represent and warrant to the Agent, for the benefit of the Secured Parties, that:
Section 3.1. Title, Perfection and Priority. (a) Each Grantor has good and valid rights in, or the power to transfer, the Collateral which it has purported to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1(e), and has full power and authority to grant to the Agent the security interest in such Collateral pursuant hereto. This Security Agreement creates in favor of the Agent for the benefit of the Secured Parties a valid security interest in the Collateral granted by each Grantor. No consent or approval of, registration or filing with, or any other action by any Governmental Authority is required for the grant of the security interest pursuant to this Security Agreement, except (i) such as have been obtained or made and are in full force and effect and (ii) for filings necessary to perfect Liens created pursuant to the Loan Documents.
(b) Subject to the limitations set forth in clause (c) of this Section 3.1, the security interests granted pursuant to this Security Agreement (i) will constitute valid perfected security interests in the Collateral in favor of the Agent, on behalf of and for the benefit of the Secured Parties, to secure the prompt and complete payment and performance of all Secured Obligations, upon (A) in the case of Collateral in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code of any jurisdiction, the filing of financing statements naming each Grantor as “debtor” and the Agent as “secured party” and describing the Collateral in the applicable filing offices as set forth in Exhibit G hereto, (B) in the case of Instruments, Chattel Paper and certificated Securities, the earlier of the delivery thereof to the Agent (or its non-fiduciary agent or designee) and the filing of the financing statements referred to in clause (A), (C) in the case of Collateral constituting Intellectual Property, the earlier of the filing of the financing statements referred to in clause (A) (except in the case of Copyrights) and the completion of the filing, registration and recording of fully executed agreements substantially in the form of the Intellectual Property Security Agreement set forth in Exhibit K hereto (x) in the United States Patent and Trademark Office or (y) in the United States Copyright Office, as applicable, and/or (D) in the case of Deposit Accounts, upon the entering into Blocked Account Agreements and (ii) are prior to all other Liens on the Collateral other than Liens permitted under Section 4.1(e) having priority over the Agent’s Lien either by operation of law or otherwise, including pursuant to the Intercreditor Agreement.
(c) Notwithstanding anything to the contrary herein, no Grantor shall be required to perfect the security interests created hereby by any means other than (i) filings pursuant to the UCC, (ii) filings with United States’ governmental offices with respect to Intellectual Property, (iii) in the case of Collateral that constitutes Chattel Paper, Instruments or certificated Securities, in each case, to the extent included in the Collateral and required by Sections 4.2 and 4.4 herein, delivery to the Agent to be held in its possession in the United States, (iv) in the case of Deposit Accounts, executing Blocked Account Agreements, to the extent required by Section 2.21 of the Credit Agreement, (v) in the case of Collateral that consists of Commercial Tort Claims, taking the actions specified in Section 4.8, and (vi) in the case of Collateral that constitutes Letter of Credit Rights, taking the actions specified in Section 4.9. No Grantor shall be required to take any actions under any laws outside of the United States to grant, perfect or provide for the enforcement of any security interest.
Section 3.2. Type and Jurisdiction of Organization, Organizational and Identification Numbers. The type of entity of each Grantor, its jurisdiction of organization, the organizational number issued to it by its jurisdiction of organization and its federal employer identification number, in each case as of the date hereof, are set forth on Exhibit A.
- 8 -
Section 3.3. Principal Location. Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), in each case as of the date hereof, is disclosed on Exhibit A.
Section 3.4. Collateral Locations. Each location where Collateral is located as of the date hereof (except for Inventory in transit) is listed on Exhibit A. All of said locations are owned by a Grantor except for locations (i) that are leased by a Grantor as lessee and designated in Part III(b) of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part III(c) of Exhibit A.
Section 3.5. Bailees, Warehousemen, Etc. Exhibit B hereto sets forth a list, as of the date hereof, of each bailee, warehouseman and other third party in possession or control of any Inventory in excess of $2,500,000 of any Grantor (except for Inventory in transit) and specifies as to each bailee, warehouseman or other third party the value of the Inventory, at cost, possessed or controlled by such bailee, warehouseman or other third party.
Section 3.6. Exact Names. As of the date hereof, the name in which each Grantor has executed this Security Agreement is the exact name as it appears in such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization. No Grantor has, during the past five years prior to the date hereof, been known by or used any other corporate, trade or fictitious name, or been a party to any merger or consolidation, except as disclosed in the Perfection Certificate.
Section 3.7. Letter-of-Credit Rights and Chattel Paper. Exhibit C lists all Letter-of-Credit Rights and Chattel Paper with a stated amount in excess of $2,500,000 of each Grantor as of the date hereof.
Section 3.8. Accounts and Chattel Paper.
(a) The names of the obligors, amounts owing, due dates and other information with respect to each Grantor’s Accounts and Chattel Paper that are Collateral have been correctly stated in all material respects, at the time furnished, in the records of such Grantor relating thereto and in all invoices and each Collateral Report with respect thereto furnished to the Agent by such Grantor from time to time.
(b) With respect to Accounts of the Grantors, except as specifically disclosed on the most recent Collateral Report, (i) all such Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of the applicable Grantor’s business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) to the best of such Grantor’s knowledge, there are no offset rights, claims or disputes existing or asserted with respect thereto and no Grantor has made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by a Grantor in the ordinary course of its business for prompt payment and disclosed to the Agent; (iii) to the knowledge of such Grantor, there are no facts, events or occurrences that in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on such Grantor’s books and records and any invoices, statements and the most recent Collateral Report with respect thereto; (iv) no Grantor has received any notice of proceedings or actions that are threatened or pending against any Account Debtor that might result in any material adverse change in such Account Debtor’s financial condition; and (v) no Grantor has knowledge that any Account Debtor is unable generally to pay its debts as they become due.
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(c) In addition, with respect to all Accounts of the Grantors, except as specifically disclosed on the most recent Collateral Report, the amounts shown on all invoices, statements and the most recent Collateral Report with respect thereto are actually and absolutely owing to a Grantor as indicated thereon and are not in any way contingent.
Section 3.9. Inventory. With respect to any Inventory of the Grantors and that is scheduled or listed on the most recent Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of the Grantors’ locations set forth on Exhibit A, (b) the Grantors have good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to the Agent, for the benefit of the Secured Parties, and except for Liens permitted under Section 6.02 of the Credit Agreement, (c) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party that would, upon sale or other disposition of such Inventory by the Agent in accordance with the terms hereof, infringe the rights of such third-party, violate any contract with such third-party, or cause the Agent to incur any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the current licensing agreement related thereto, (d) to the best of such Grantor’s knowledge, such Inventory has been produced in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder and (e) to the best of such Grantor’s knowledge, the completion of manufacture, sale or other disposition of such Inventory by the Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such Inventory is subject.
Section 3.10. Intellectual Property. As of the date hereof, no Grantor has any interest in, or title to, any United States federal registered or applied for Patent, Trademark or Copyright except as set forth on Exhibit D.
Section 3.11. No Financing Statements or Security Agreements. As of the date hereof, no Grantor has filed or consented to the filing of any financing statement or security agreement naming a Grantor as debtor and describing all or any portion of the Collateral that has not lapsed or been terminated except (a) for financing statements or security agreements naming the Agent on behalf of the Secured Parties as the secured party and (b) as permitted by Sections 4.1(e) and 4.1(f).
Section 3.12. Pledged Collateral.
(a) Exhibit F sets forth a complete and accurate list, as of the date hereof, of all of the Pledged Collateral and, with respect to any Pledged Collateral constituting any Equity Interest, the percentage of the total issued and outstanding Equity Interests of the issuer represented thereby. As of the date hereof, each Grantor is the legal and beneficial owner of the Pledged Collateral listed on Exhibit F as being owned by it, free and clear of any Liens, except for the security interest granted to the Agent for the benefit of the Secured Parties hereunder and Liens permitted under Section 6.02 of the Credit Agreement. Each Grantor further represents and warrants that, as of the date hereof, (i) all Pledged Collateral constituting an Equity Interest has been (to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized and validly issued by the issuer thereof and are fully paid and non-assessable, (ii) with respect to any certificates delivered to the Agent (or its non-fiduciary agent or designee) representing an Equity Interest, such certificates are Securities as defined in Article 8 of the UCC as a result of actions by the issuer or otherwise, and (iii) to the best of its knowledge, any Pledged Collateral that represents Indebtedness owed to any Grantor has been duly authorized, authenticated or issued and delivered by the issuer of such Indebtedness, is the legal, valid and binding obligation of such issuer and such issuer is not in default thereunder.
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(b) As of the date hereof, (i) none of the Pledged Collateral has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject and (ii) none of the Pledged Collateral is subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder.
(c) Except as set forth on Exhibit F, as of the date hereof, and except for any Indebtedness represented by the Intercompany Note, none of the Pledged Collateral which represents Indebtedness owed to a Grantor is subordinated in right of payment to other Indebtedness or subject to the terms of an indenture.
Section 3.13. Commercial Tort Claims. As of the date hereof, no Grantor holds any Commercial Tort Claims having a value in excess of $2,500,000 for which such Grantor has filed a complaint in a court of competent jurisdiction, except as indicated on Exhibit E hereto.
Section 3.14. Perfection Certificate. The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects as of the date thereof.
ARTICLE IV.
COVENANTS
From the date hereof, and thereafter until the Termination Date, each Grantor agrees that:
Section 4.1. General.
(a) Collateral Records. Each Grantor will maintain complete and accurate books and records in accordance with the requirements of Section 5.06(a) of the Credit Agreement.
(b) Authorization to File Financing Statements; Ratification. Each Grantor hereby authorizes the Agent to file, and if requested will deliver to the Agent, all financing statements and other documents and take such other actions as may from time to time be requested by the Agent in order to maintain a perfected security interest in and, if applicable, Control of, the Collateral to the extent required by Section 3.1. Any financing statement filed by the Agent may be filed in any filing office in any applicable Uniform Commercial Code jurisdiction and may (i) describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner such as “all assets” or “all personal property, whether now owned or hereafter acquired” of such Grantor or words of similar effect as being of an equal or lesser scope or with greater detail, and (ii) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including (A) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor and (B) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates. Each Grantor also agrees to furnish any such information to the Agent promptly upon request. Each Grantor also ratifies its authorization for the Agent to have filed in any Uniform Commercial Code jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof.
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(c) Further Assurances. Each Grantor will, if reasonably requested by the Agent, (i) take or cause to be taken such further actions in accordance with Section 5.11 of the Credit Agreement, (ii) take such other actions as the Agent reasonably deems appropriate under applicable law or to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Security Agreement and (iii) defend the security interests created hereby and priority thereof against the claims and demands not expressly permitted by the Loan Documents, including the Intercreditor Agreement, of all Persons whomsoever.
(d) Disposition of Collateral. No Grantor will sell, lease, transfer or otherwise dispose of the Collateral except for sales, leases, transfers and other dispositions specifically permitted under Section 6.05 of the Credit Agreement.
(e) Liens. No Grantor will create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, and (ii) Liens permitted by Section 6.02 of the Credit Agreement.
(f) Other Financing Statements. No Grantor will authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except to cover security interests as permitted by Section 4.1(e).
(g) Change of Name, Etc. Each Grantor agrees to furnish to the Agent prompt written notice of any change in: (i) such Grantor’s legal name; (ii) the location of such Grantor’s chief executive office or its principal place of business; (iii) such Grantor’s organizational legal entity designation or jurisdiction of incorporation or formation; or (iv) such Grantor’s Federal Taxpayer Identification Number or organizational identification number assigned to it by its jurisdiction of incorporation or formation.
(h) Exercise of Duties. Anything herein to the contrary notwithstanding, (a) the exercise by the Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral and (b) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement or any other Loan Document, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
Section 4.2. Electronic Chattel Paper. If any Grantor at any time holds or acquires an interest in any Electronic Chattel Paper or any “transferable record”, as that term is defined in Section 201 of the Federal Electronic Signatures in Global and National Commerce Act, or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, in excess of $2,500,000 such Grantor shall promptly notify the Agent thereof and, at the request of the Agent, shall take such action as the Agent may reasonably request to vest in the Agent Control under UCC Section 9-105 of such Electronic Chattel Paper or control (to the extent the meaning of “control” has not been clearly established under such provisions, “control” in this paragraph (c) to have such meaning as the Agent shall in good faith specify in writing after consultation with the Company) under Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Agent agrees with such Grantor that the Agent will arrange, pursuant to procedures reasonably satisfactory to the Agent and so long as such procedures will not result in the Agent’s loss of Control or
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control, as applicable, for such Grantor to make alterations to the Electronic Chattel Paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in Control to allow without loss of Control or control, as applicable, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such Electronic Chattel Paper or transferable record.
Section 4.3. Reserved.
Section 4.4. Delivery of Pledged Collateral. Each Grantor will promptly deliver to the Agent (or its non-fiduciary agent or designee) upon execution of this Security Agreement all certificates or instruments, if any, representing or evidencing the Pledged Collateral, together with duly executed instruments of transfer or assignments in blank. Each delivery of Pledged Collateral (including any After-acquired Shares and After-acquired Debt) after the date hereof shall be accompanied by a schedule describing the securities theretofore and then being pledged hereunder, which shall be attached hereto as part of Exhibit F hereto and made a part hereof; provided, that the failure to attach any such schedule hereto shall not affect the validity of such pledge of such securities. Each schedule so delivered shall supplement any prior schedules so delivered.
Section 4.5. Uncertificated Pledged Collateral. Unless otherwise consented to by the Agent, Equity Interests required to be pledged hereunder in any Domestic Subsidiary that is organized as a limited liability company or limited partnership and pledged hereunder shall either (i) be represented by a certificate, and in the organizational documents of such entity, the applicable Grantor shall cause the issuer of such interests to elect to treat such interests as a “security” within the meaning of Article 8 of the Uniform Commercial Code of its jurisdiction of organization or formation, as applicable, by including in its organizational documents language substantially similar to the following and, accordingly, such interests shall be governed by Article 8 of the UCC:
“The [partnership/limited liability company] hereby irrevocably elects that all [partnership/membership] interests in the [partnership/limited liability company] shall be securities governed by Article 8 of the Uniform Commercial Code of [jurisdiction of organization or formation, as applicable]. Each certificate evidencing [partnership/membership] interests in the [partnership/limited liability company] shall bear the following legend: “This certificate evidences an interest in [name of [partnership/limited liability company]] and shall be a security for purposes of Article 8 of the Uniform Commercial Code.” No change to this provision shall be effective until all outstanding certificates have been surrendered for cancellation and any new certificates thereafter issued shall not bear the foregoing legend.”
or (ii) not have elected to be treated as a “security” within the meaning of Article 8 of the UCC and shall not be represented by a certificate.
Section 4.6. Pledged Collateral.
(a) Registration in Nominee Name; Denominations. Subject to the terms of the Intercreditor Agreement, the Agent (or its non-fiduciary agent or designee), on behalf of the Secured Parties, shall hold certificated Pledged Collateral in the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Agent. Following the occurrence and during the continuance of an Event of Default, each Grantor will promptly give to the Agent (or its non-fiduciary agent or designee) copies of any notices or other communications received by it with respect to Pledged Collateral registered in the name of such Grantor. Subject to the terms of the Intercreditor Agreement, following the
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occurrence and during the continuance of an Event of Default, the Agent (or its non-fiduciary agent or designee) shall at all times have the right to exchange the certificates representing Pledged Collateral for certificates of smaller or larger denominations for any purpose consistent with this Security Agreement.
(b) Exercise of Rights in Pledged Collateral. Subject, in each case, to the Intercreditor Agreement,
(i) Without in any way limiting the foregoing and subject to clause (ii) below, each Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral for all purposes not inconsistent with this Security Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote or other right shall be exercised or action taken which would reasonably be expected to have the effect of materially and adversely impairing the rights of the Agent in respect of the Pledged Collateral.
(ii) Each Grantor will permit the Agent (or its non-fiduciary agent or designee) at any time after the occurrence and during the continuance of an Event of Default, without written notice, to exercise all voting rights or other rights relating to Pledged Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interest or Investment Property constituting Pledged Collateral as if it were the absolute owner thereof.
(iii) Each Grantor shall be entitled to receive and retain any and all Stock Rights to the extent and only to the extent that such Stock Rights are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable law; provided, however, that any non-cash Stock Rights that would constitute Pledged Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Secured Parties and shall be forthwith delivered to the Agent (or its non-fiduciary agent or designee) in the same form as so received (with any necessary endorsement or instrument of assignment). The proviso to the first sentence of this clause (iii) shall not apply to dividends between or among the Company and the other Loan Parties only of property subject to a perfected security interest under this Security Agreement; provided that the Company notifies the Agent in writing, specifically referring to this Section 4.6, at the time of such dividend and takes any actions the Agent reasonably specifies to ensure the continuance of its perfected security interest in such property under this Security Agreement
Section 4.7. Intellectual Property. (a) Upon the occurrence and during the continuance of an Event of Default, each Grantor will use commercially reasonable efforts to obtain all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Agent of any License held by such Grantor in order to enforce the security interests granted hereunder.
(b) Each Grantor shall in its reasonable business judgment notify the Agent promptly if it knows or reasonably expects that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) included in the Collateral and material to the conduct of such Grantor’s business may become abandoned or dedicated, or of any material adverse determination or development (including the institution of, or any such determination or development in, any proceeding in
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the United States Patent and Trademark Office, the United States Copyright Office or any court) regarding such Grantor’s ownership of any such material registered or applied for Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.
(c) In the event that any Grantor, either directly or through any agent, employee, licensee or designee, files an application for the registration of any material Patent, Trademark or Copyright with the United States Patent and Trademark Office or the United States Copyright Office, such Grantor will, concurrently with any delivery of financial statements pursuant to Sections 5.01(a) and 5.01(b) of the Credit Agreement, provide the Agent written notice thereof, and, upon request of the Agent, such Grantor shall promptly execute and deliver any and all security agreements or other instruments as the Agent may reasonably request to evidence the Agent’s security interest in such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.
(d) Each Grantor shall take all actions necessary or reasonably requested by the Agent to maintain and pursue each material application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing) material to the conduct of such Grantor’s business, except in cases where, in the ordinary course of business consistent with past practice, such Grantor reasonably decides to abandon, allow to lapse or expire any Patent, Trademark or Copyright, including the filing of applications for renewal, affidavits of use, affidavits of non-contestability and, if consistent with good business judgment, to initiate opposition and interference and cancellation proceedings against third parties.
(e) Each Grantor shall, unless it shall reasonably determine that a Patent, Trademark or Copyright is not material to the conduct of its business, promptly notify the Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution of such material Patent, Trademark or Copyright and to recover any and all damages for such infringement, misappropriation or dilution, or shall take such other actions as are appropriate under the circumstances in its reasonable business judgment to protect such Patent, Trademark or Copyright.
(f) Nothing in this Security Agreement shall prevent any Grantor from disposing of, discontinuing the use or maintenance of, failing to pursue, or otherwise allowing to lapse, terminate or put into the public domain, any of its Collateral constituting Intellectual Property to the extent permitted by the Credit Agreement if such Grantor determines in its reasonable business judgment that such discontinuance is desirable in the conduct of its business.
Section 4.8. Commercial Tort Claims. Each Grantor shall promptly notify the Agent of any Commercial Tort Claims for which such Grantor has filed complaint(s) in court(s) of competent jurisdiction and, unless the Agent otherwise consents, such Grantor shall update Exhibit E to this Security Agreement, thereby granting to Agent a security interest in such Commercial Tort Claim(s) (subject to the terms of the Intercreditor Agreement). The requirement in the preceding sentence shall not apply to the extent that the amount of such Commercial Tort Claim does not exceed $2,500,000 held by each Grantor or to the extent such Grantor shall have previously notified the Agent with respect to any previously held or acquired Commercial Tort Claim.
Section 4.9. Letter-of-Credit Rights. Subject to the Intercreditor Agreement, if any Grantor is or becomes the beneficiary of a letter of credit having a face amount in excess of $2,500,000, which Letter-of-Credit Rights are not Supporting Obligations with respect to any Collateral in which the security interest is perfected, such Grantor shall promptly notify the Agent thereof and cause the issuer and/or confirmation bank to (i) consent to the assignment of any Letter-of-Credit Rights to the Agent and (ii) agree to direct all payments thereunder following the occurrence and during the continuance of an
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Event of Default or a Liquidity Event to an account as directed by the Agent for application to the Secured Obligations, in accordance with the provisions of the Credit Agreement, all in form and substance reasonably satisfactory to the Agent.
Section 4.10. Insurance. All insurance policies required under Section 5.10 of the Credit Agreement shall name the Agent (for the benefit of the Agent and the other Secured Parties) as lender’s loss payee or, upon request by Agent, as additional insured, as applicable, and shall contain lender’s loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Agent.
Section 4.11. Collateral Access Agreements. To the extent required by the Credit Agreement, each Grantor shall use commercially reasonable efforts to obtain a Collateral Access Agreement, from the lessor of each of its leased warehouse and distribution facilities, and the bailee, warehouseman or other third party with respect to any warehouse or other location, in each case where Collateral is stored or located.
ARTICLE V.
REMEDIES
Section 5.1. Remedies. Upon the occurrence and during the continuance of an Event of Default:
(a) the Agent may (and at the direction of the Required Lenders, shall) exercise any or all of the following rights and remedies:
(i) those rights and remedies provided in this Security Agreement, the Credit Agreement or any other Loan Document; provided that this Section 5.1(a) shall not be understood to limit any rights available to the Agent and the Secured Parties prior to an Event of Default;
(ii) those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ Lien) when a debtor is in default under a security agreement;
(iii) give notice of sole control or any other instruction under any Blocked Account Agreement, Collateral Access Agreement or any other control or similar agreement and take any action provided therein with respect to the applicable Collateral;
(iv) without notice (except as specifically provided in Section 7.1 or elsewhere herein), demand or advertisement of any kind to any Grantor or any other Person, enter the premises of any Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at such Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Agent may deem commercially reasonable; and
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(v) concurrently with written notice to the Grantors, transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all Stock Rights that any Grantor may be entitled to receive in connection therewith and to otherwise act with respect to the Pledged Collateral as though the Agent was the outright owner thereof.
(b) Each Grantor acknowledges and agrees that the compliance by the Agent, on behalf of the Secured Parties with any applicable state or federal law requirements in connection with a disposition of the Collateral will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(c) The Agent shall have the right upon any public sale or sales and, to the extent permitted by law, upon any private sale or sales, to purchase for the benefit of the Agent and the Secured Parties, the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption each Grantor hereby expressly releases.
(d) Until the Agent is able to effect a sale, lease, transfer or other disposition of Collateral, the Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or the value of the Collateral, or for any other purpose deemed appropriate by the Agent. The Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of Collateral and to enforce any of the Agent’s remedies (for the benefit of the Agent and Secured Parties) with respect to such appointment without prior notice or hearing as to such appointment.
(e) Notwithstanding the foregoing, neither the Agent nor the Secured Parties shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies against, the Grantors, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Secured Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Secured Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.
(f) Each Grantor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof. Each Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. The Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit any Grantor or the issuer of the Pledged Collateral to register such securities for public sale under the Securities Act of 1933, as amended, or under applicable state securities laws, even if any Grantor and the issuer would agree to do so (it being acknowledged and agreed that no Grantor shall have any obligation hereunder to do so).
(g) Notwithstanding the foregoing, any rights and remedies provided in this Section 5.1 shall be subject to the Intercreditor Agreement.
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Section 5.2. Grantors’ Obligations Upon Default. Upon the written request of the Agent after the occurrence and during the continuance of an Event of Default, each Grantor will:
(a) assemble and make available to the Agent the Collateral and all books and records relating thereto at any place or places reasonably specified by the Agent, whether at such Grantor’s premises or elsewhere; and
(b) permit the Agent, by the Agent’s representatives and agents, to enter, occupy and use any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay any Grantor for such use and occupancy.
Section 5.3. Grant of Intellectual Property License. For the purpose of enabling the Agent to exercise the rights and remedies under this Article V upon the occurrence and during the continuance of an Event of Default, at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby (a) grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any intellectual property rights now owned or hereafter acquired by such Grantor, wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof; provided, however that such licenses to be granted hereunder with respect to Trademarks shall be subject to the maintenance of quality standards with respect to the goods and services on which such Trademarks are used sufficient to preserve the validity of such Trademarks; and provided further that the Agent shall have no greater rights than those of any such Grantor under such license or sublicense; and (b) irrevocably agrees that, at any time and from time to time following the occurrence and during the continuance of an Event of Default, the Agent may sell any Grantor’s Inventory directly to any Person, including without limitation Persons who have previously purchased any Grantor’s Inventory from such Grantor and in connection with any such sale or other enforcement of the Agent’s rights under this Security Agreement, may (subject to any restrictions contained in applicable third party licenses entered into by a Grantor) sell Inventory which bears any Trademark owned by or licensed to any Grantor and any Inventory that is covered by any Copyright owned by or licensed to such Grantor and the Agent may finish any work in process and affix any relevant Trademark owned by or licensed to any Grantor and sell such Inventory as provided herein. The use of the license granted pursuant to clause (a) of the preceding sentence by the Agent may be exercised, at the option of the Agent, only upon the occurrence and during the continuance of an Event of Default; provided, however, that any permitted license, sublicense or other transaction entered into by the Agent in accordance herewith shall be binding upon each Grantor notwithstanding any subsequent cure of an Event of Default.
ARTICLE VI.
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY
Section 6.1. Account Verification. The Grantors acknowledge that (i) prior to an Event of Default, at the reasonable request of the Agent, the Grantors shall (either accompanied by the Agent or at the Agent’s direction), and (ii) after the occurrence and during the continuance of an Event of Default, the Agent may in its own name, or in the name of such Grantor, communicate with the Account Debtors of such Grantor to verify with such Persons the existence, amount, terms of, and any other matter reasonably relating to the Accounts owing by such Account Debtor to such Grantor (including any Instruments, Chattel Paper, payment intangibles and/or other Receivables that are Collateral relating to such Accounts).
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Section 6.2. Authorization for Secured Party to Take Certain Action.
(a) Each Grantor hereby (i) authorizes the Agent, at any time and from time to time in the sole discretion of the Agent (1) to execute on behalf of such Grantor as debtor and to file financing statements necessary or desirable in the Agent’s reasonable discretion to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, including, without limitation, to file financing statements permitted under Section 4.1(b) and (2) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement and to file any other financing statement or amendment of a financing statement (which would not add new collateral or add a debtor) in such offices as the Agent in its reasonable discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, including, without limitation, to file financing statements permitted under Section 4.1(b) and (ii) appoints, effective upon the occurrence and during the continuance of an Event of Default, subject to the Intercreditor Agreement, the Agent as its attorney in fact (1) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted by Section 6.02 of the Credit Agreement), (2) to endorse and collect any cash proceeds of the Collateral and to apply the proceeds of any Collateral received by the Agent to the Secured Obligations as provided herein or in the Credit Agreement or any other Loan Document, subject to the terms of the Intercreditor Agreement, (3) to demand payment or enforce payment of the Receivables in the name of the Agent or any Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (4) to sign any Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of such Grantor, assignments and verifications of Receivables, (5) to exercise all of any Grantor’s rights and remedies with respect to the collection of the Receivables and any other Collateral, (6) to settle, adjust, compromise, extend or renew the Receivables, (7) to settle, adjust or compromise any legal proceedings brought to collect Receivables, (8) to prepare, file and sign any Grantor’s name on a proof of claim in bankruptcy or similar document against any Account Debtor of such Grantor, (9) to prepare, file and sign any Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (10) to change the address for delivery of mail addressed to any Grantor to such address as the Agent may designate and to receive, open and dispose of all mail addressed to such Grantor, and (11) to use information contained in any data processing, electronic or information systems relating to Collateral; and each Grantor agrees to reimburse the Agent for any reasonable payment made or any reasonable documented expense incurred by the Agent in connection with any of the foregoing, in accordance with the provisions Section 9.03 of the Credit Agreement; provided that, this authorization shall not relieve any Grantor of any of its obligations under this Security Agreement or under the Credit Agreement.
(b) All acts of said attorney or designee are hereby ratified and approved by the Grantors. The powers conferred on the Agent, for the benefit of the Agent and Secured Parties, under this Section 6.2 are solely to protect the Agent’s interests in the Collateral and shall not impose any duty upon the Agent or any Secured Party to exercise any such powers.
Section 6.3. PROXY. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS, EFFECTIVE UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) WITH RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED
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COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT.
Section 6.4. NATURE OF APPOINTMENT; LIMITATION OF DUTY. THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 7.13. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER THE AGENT, NOR ANY SECURED PARTY, NOR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT TO THE EXTENT SUCH DAMAGES ARE ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.1. Waivers. Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to the Grantors, addressed as set forth in Article VIII, at least ten days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against the Agent or any Secured Party arising out of the repossession, retention or sale of the Collateral (after the occurrence of and during the continuance of an Event of Default), except such as arise solely out of the gross negligence or willful misconduct of the Agent or such Secured Party as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Agent or any Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral (after the occurrence of and during the continuance of an Event of Default), made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.
Section 7.2. Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral. The Agent shall have no obligation to clean-up or otherwise prepare the Collateral for sale.
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The Agent and each Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. Neither the Agent nor any Secured Party shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Agent or such Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Agent to exercise remedies, after the occurrence and during the continuance of an Event of Default, in a commercially reasonable manner, each Grantor acknowledges and agrees that it would be commercially reasonable for the Agent (i) to fail to incur expenses deemed significant by the Agent to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as a Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements at the Grantors’ cost to insure the Agent against risks of loss, collection or disposition of Collateral or to provide to the Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Agent in the collection or disposition of any of the Collateral. Each Grantor acknowledges that the purpose of this Section 7.2 is to provide non-exhaustive indications of what actions or omissions by the Agent would be commercially reasonable in the Agent’s exercise of remedies against the Collateral, after the occurrence and during the continuance of an Event of Default, and that other actions or omissions by the Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 7.2. Without limitation upon the foregoing, nothing contained in this Section 7.2 shall be construed to grant any rights to any Grantor or to impose any duties on the Agent that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 7.2.
Section 7.3. Compromises and Collection of Collateral. Each Grantor and the Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, each Grantor agrees that the Agent may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the Agent shall be commercially reasonable so long as the Agent acts in good faith based on information known to it at the time it takes any such action.
Section 7.4. Secured Party Performance of Debtor Obligations. Without having any obligation to do so, following the occurrence and during the continuance of an Event of Default, the Agent may perform or pay any obligation which any Grantor has agreed to perform or pay under this
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Security Agreement and such Grantor shall reimburse the Agent for any amounts paid by the Agent pursuant to this Section 7.4. Each Grantor’s obligation to reimburse the Agent pursuant to the preceding sentence shall be a Secured Obligation payable on demand.
Section 7.5. No Waiver; Amendments; Cumulative Remedies. No failure or delay by the Agent or any Secured Party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent and the Secured Parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Security Agreement or consent to any departure by any Secured Party therefrom shall in any event be effective unless in writing signed by the Agent with the concurrence or at the direction of the Lenders required under Section 9.02 of the Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.
Section 7.6. Limitation by Law; Severability of Provisions. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable or not entitled to be recorded or registered, in whole or in part. Any provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Security Agreement are declared to be severable.
Section 7.7. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of such Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
Section 7.8. Benefit of Agreement. The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of each Grantor, the Agent and the Secured Parties and their respective successors and permitted assigns (including all Persons who become bound as a debtor to this Security Agreement), except that no Grantor shall have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Agent. No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Agent, for the benefit of the Agent and the Secured Parties, hereunder.
Section 7.9. Survival of Representations. All representations and warranties of each Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.
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Section 7.10. Taxes and Expenses. To the extent required by Section 9.03 of the Credit Agreement, each Grantor jointly and severally agrees to (i) pay any taxes payable or ruled payable by Federal or State authority in respect of this Security Agreement, together with interest and penalties, if any, and (ii) reimburse the Agent for any and all reasonable documented out-of-pocket expenses paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by any Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by such Grantor.
Section 7.11. Additional Subsidiaries. Pursuant to and in accordance with Section 5.11 of the Credit Agreement, each Grantor shall cause (i) each Domestic Subsidiary of the Company (other than any Excluded Subsidiary) formed or acquired after the date of this Security Agreement in accordance with the terms of the Credit Agreement and (ii) any Domestic Subsidiary of the Company that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary, to enter into this Security Agreement as a Subsidiary Party as promptly thereafter as reasonably practicable (but in no event to exceed ninety (90) days after such formation or acquisition or such longer period as may be agreed to by the Agent in writing. Upon execution and delivery by the Agent and such Subsidiary of an instrument in the form of Exhibit J hereto, such Subsidiary shall become a Subsidiary Party hereunder with the same force and effect as if originally named as a Subsidiary Party herein. The execution and delivery of any such instrument shall not require the consent of any other Loan Party hereunder. The rights and obligations of each Loan Party hereunder shall remain in full force and effect notwithstanding the addition of any new Loan Party as a party to this Security Agreement.
Section 7.12. Headings. The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.
Section 7.13. Termination or Release.
(a) This Security Agreement shall continue in effect until the Termination Date.
(b) A Subsidiary Party shall automatically be released from its obligations hereunder and the security interests created hereunder in the Collateral of such Subsidiary Party shall be automatically released upon the consummation of any transaction permitted pursuant to the Credit Agreement, as a result of which such Subsidiary Party ceases to be a Subsidiary.
(c) Upon any sale, lease, transfer or other disposition by any Grantor of any Collateral that is permitted under Section 4.1(d) to any Person that is not another Grantor or, upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.02 of the Credit Agreement, the security interest in such Collateral shall be automatically released.
(d) The security interests granted hereunder on any Collateral, to the extent such Collateral is comprised of property leased to a Loan Party, shall be automatically released upon termination or expiration of such lease, pursuant to Section 9.02 of the Credit Agreement.
(e) The security interests created hereunder in the Collateral shall be automatically released as required pursuant to the terms of the Intercreditor Agreement; provided that the Agent may, in its discretion, release the Lien on Collateral as provided in Section 9.02 of the Credit Agreement.
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(f) In the event that Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act is amended, modified or interpreted by the SEC or any other relevant Governmental Authority to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other Governmental Authority) of separate financial statements of any Subsidiary of the Company due to the fact that the Equity Interests of such Subsidiary are pledged under this Security Agreement, then the Equity Interests of such Subsidiary shall automatically be deemed not to be part of the Collateral to the extent necessary not to be subject to such requirement. Notwithstanding anything to the contrary in this Security Agreement, if Equity Interests of any Subsidiary are not required to be pledged under this Security Agreement because Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act would require the filing of separate financial statements of such Subsidiary if its Equity Interests were so pledged, in the event that Rule 3-10 or Rule 3-16 of Regulation S-X of the Exchange Act is amended, modified or interpreted by the SEC or any other relevant Governmental Authority to no longer require (or is replaced with another rule or regulation that would not require) the filing of separate financial statements of such Subsidiary if some or all of its Equity Interests are pledged under this Security Agreement, then such Equity Interests of such Subsidiary shall automatically be deemed part of the Collateral and pledged under this Security Agreement.
(g) In connection with any termination or release pursuant to paragraph (a), (b), (c), (d), (e), or (f) above, the Agent shall promptly execute and deliver to any Grantor, at such Grantor’s expense, all UCC termination statements and similar documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 7.13 shall be without recourse to or representation or warranty by the Agent or any Secured Party. Without limiting the provisions of Section 7.18, the Company shall reimburse the Agent upon demand for all reasonable and documented costs and out of pocket expenses, including the fees, charges and expenses of counsel, incurred by it in connection with any action contemplated by this Section 7.13.
Section 7.14. Entire Agreement. This Security Agreement, together with the other Loan Documents and the Intercreditor Agreement, embodies the entire agreement and understanding between each Grantor and the Agent relating to the Collateral and supersedes all prior agreements and understandings, oral or written, between any Grantor and the Agent relating to the Collateral.
Section 7.15. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 7.16. Consent to Jurisdiction.
(a) Each Grantor hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any U.S. federal or New York State court sitting in New York, New York, in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State or, to the extent permitted by law, in such federal court. Each Grantor 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.
(b) Each Grantor hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Security Agreement in any court referred to in clause (a) of this Section. 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.
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(c) Each Grantor irrevocably consents to service of process in the manner provided for notices in Section 8.1 herein. Nothing in this Security Agreement or in any other Loan Document will affect the right of the Agent or any Secured Party to serve process in any other manner permitted by law.
Section 7.17. WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH GRANTOR (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 7.18. Indemnity. Each Grantor hereby agrees to indemnify and hold the Agent, the other Secured Parties, and their respective Related Parties harmless from, any and all losses, claims, damages, penalties, liabilities, and related expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Secured Party is a party thereto) imposed on, incurred by or asserted against the Agent or the Secured Parties, or their respective Related Parties, in any way relating to or arising out of this Security Agreement, to the extent the Grantor would be required to do so pursuant to Section 9.03 of the Credit Agreement.
Section 7.19. Counterparts. This Security Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Security Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Security Agreement.
Section 7.20. INTERCREDITOR AGREEMENT GOVERNS. REFERENCE IS MADE TO THE LIEN SUBORDINATION AND INTERCREDITOR AGREEMENT, DATED AS OF MAY 28, 2010, AMONG BANK OF AMERICA, N.A., AS ABL AGENT AS DEFINED IN THE INTERCREDITOR AGREEMENT, FOR THE ABL SECURED PARTIES REFERRED TO THEREIN; THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., AS NOTEHOLDER COLLATERAL AGENT (AS DEFINED IN THE INTERCREDITOR AGREEMENT); AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.; AMERICAN TIRE DISTRIBUTORS, INC.; AM-PAC TIRE DIST. INC.; AND THE OTHER SUBSIDIARIES OF AMERICAN TIRE DISTRIBUTORS, INC. NAMED THEREIN (AS AT ANY TIME AMENDED, MODIFIED, RESTATED, OR SUPPLEMENTED, THE “INTERCREDITOR AGREEMENT”). EACH PERSON THAT IS SECURED HEREUNDER, BY ACCEPTING THE BENEFITS OF THE SECURITY PROVIDED HEREBY, (I) CONSENTS (OR IS DEEMED TO CONSENT), TO THE SUBORDINATION OF LIENS PROVIDED FOR IN THE INTERCREDITOR AGREEMENT, (II) AGREES (OR IS DEEMED TO AGREE) THAT IT WILL BE BOUND BY, AND WILL TAKE NO ACTIONS CONTRARY TO, THE PROVISIONS OF THE INTERCREDITOR AGREEMENT, (III) AUTHORIZES (OR IS DEEMED TO AUTHORIZE) THE AGENT ON BEHALF OF SUCH PERSON TO ENTER INTO, AND PERFORM UNDER, THE INTERCREDITOR AGREEMENT AND (IV) ACKNOWLEDGES (OR IS DEEMED
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TO ACKNOWLEDGE) THAT A COPY OF THE INTERCREDITOR AGREEMENT WAS DELIVERED, OR MADE AVAILABLE, TO SUCH PERSON. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AND NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN, THIS SECURITY AGREEMENT, THE LIENS CREATED HEREBY AND THE RIGHTS, REMEDIES, DUTIES AND OBLIGATIONS PROVIDED FOR HEREIN ARE SUBJECT IN ALL RESPECTS TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND, TO THE EXTENT PROVIDED THEREIN, THE APPLICABLE SECURITY DOCUMENTS (AS DEFINED IN THE INTERCREDITOR AGREEMENT). IN THE EVENT OF ANY CONFLICT OR INCONSISTENCY BETWEEN THE PROVISIONS OF THIS SECURITY AGREEMENT AND THE INTERCREDITOR AGREEMENT, THE PROVISIONS OF THE INTERCREDITOR AGREEMENT SHALL CONTROL.
Section 7.21. Delivery of Collateral. Notwithstanding anything herein to the contrary, with respect to the Noteholder First Lien Collateral (as defined in the Intercreditor Agreement), until the Noteholder Lien Obligations (as defined in the Intercreditor Agreement) are terminated as set forth in the Intercreditor Agreement, any obligation of the Company and any other Grantor hereunder or under any other Security Document (as defined in the Intercreditor Agreement) with respect to the delivery of any Noteholder First Lien Collateral (as defined in the Intercreditor Agreement) shall be deemed to be satisfied if the Company or such Grantor, as applicable, complies with the requirements of the similar provision of the applicable Noteholder Lien Security Documents (as defined in the Intercreditor Agreement). Until the Noteholder Lien Obligations (as defined in the Intercreditor Agreement) are terminated as set forth in the Intercreditor Agreement, the delivery of any Noteholder First Lien Collateral (as defined in the Intercreditor Agreement) to the Noteholder Collateral Agent (as defined in the Intercreditor Agreement) pursuant to the Noteholder Lien Security Documents (as defined in the Intercreditor Agreement) shall satisfy any delivery requirement hereunder or under any other Security Document.
Section 7.22. Mortgages. In the case of a conflict between this Security Agreement and the Mortgages with respect to Collateral that is real property (including Fixtures), the Mortgages shall govern. In all other conflicts between this Security Agreement and the Mortgages, this Security Agreement shall govern.
ARTICLE VIII.
NOTICES
Section 8.1. Sending Notices. All notices, requests and demands pursuant hereto shall be made in accordance with Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Grantor shall be given to it in care of the Borrower Agent at the Borrower Agent’s address set forth in Section 9.01 of the Credit Agreement.
Section 8.2. Change in Address for Notices. Each of the Grantors, the Agent and the Lenders may change the address or facsimile number for service of notice upon it by a notice in writing to the other parties.
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ARTICLE IX.
THE AGENT
Bank of America, N.A. has been appointed Agent for the Lenders hereunder pursuant to Article VIII of the Credit Agreement. It is expressly understood and agreed by the parties to this Security Agreement that any authority conferred upon the Agent hereunder is subject to the terms of the delegation of authority made by the Lenders to the Agent pursuant to the Credit Agreement, and that the Agent has agreed to act (and any successor Agent shall act) as such hereunder only on the express conditions contained in such Article VIII. Any successor Agent appointed pursuant to Article VIII of the Credit Agreement shall be entitled to all the rights, interests and benefits of the Agent hereunder.
[Remainder of page intentionally left blank; signatures begin on following page.]
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IN WITNESS WHEREOF, each Grantor and the Agent have executed this Security Agreement as of the date first above written.
| GRANTORS: | ||
| AMERICAN TIRE DISTRIBUTORS, INC. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| AM-PAC TIRE DIST. INC. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| TIRE WHOLESALERS, INC. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| FIRESTONE OF DENHAM SPRINGS, INC., d/b/a Consolidated Tire and Oil | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| ATD ACQUISITION CO. IV | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
[Signatures continue on following page.]
Second Amended and Restated Pledge and Security Agreement
| AGENT: | ||
| BANK OF AMERICA, N.A., as Agent | ||
| By: | /s/ Seth Benefield | |
| Name: | Seth Benefield | |
| Title: | Senior Vice President | |
Second Amended and Restated Pledge and Security Agreement
SCHEDULE 1
Excluded Accounts
[To Come]
EXHIBIT A
Type of Organization, Jurisdiction of Organization, Organizational Identification
Number, Federal Employer Identification Number, Chief Executive Office, Locations
I. The corporate name, jurisdiction of organization, organizational identification number and federal employer identification number of each Grantor is as follows:
| Grantor |
Jurisdiction of Organization |
Organizational Identification Number |
Federal Employer Identification Number | |||
| American Tire Distributors, Inc. | Delaware | |||||
| Am-Pac Tire Dist. Inc. | California | |||||
| American Tire Distributors Holdings, Inc. | Delaware | |||||
| Tire Wholesalers, Inc. | Washington | |||||
| Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil | Louisiana | |||||
| ATD Acquisition Co. IV | Delaware | |||||
II. Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is as follows:
III. (a) Each location that is owned by a Grantor where Collateral is located as of the date hereof (except for Inventory in transit) is as follows:
(b) Each location that is leased by a Grantor where Collateral is located as of the date hereof (except for Inventory in transit) is as follows:
(c) Each location where Collateral is held in a public warehouse or is otherwise held by a bailee or on consignment as of the date hereof (except for Inventory in transit) is as follows:
EXHIBIT B
Bailees, Warehousemen and Third Party Possessors of Collateral
The following bailees, warehouseman and other third parties are in possession or control of Inventory of a Grantor (except for Inventory in transit):
| Name and Address of Party |
Nature of Relationship |
Value of Inventory | Owner of Inventory | |||
EXHIBIT C
Letter-of-Credit Rights and Chattel Paper
EXHIBIT D
United States Federal Intellectual Property Registrations and Applications
| I. | Patents and Patent Applications: |
| Patent |
Owner |
Federal Registration No. | ||
| II. | Trademark Registrations and Applications |
| Trademark |
Owner |
Federal Registration No. | ||
| III. | Copyright Registrations |
| Copyright |
Owner |
Federal Registration No. | ||
EXHIBIT E
Commercial Tort Claims
EXHIBIT F
Pledged Collateral
| Name of Issuer |
Record Owner |
Percentage of Total Issued and Outstanding Equity Interests | ||
EXHIBIT G
UCC Filing Offices
EXHIBIT H
Form of Perfection Certificate
[See attached.]
EXHIBIT I
Form of Collateral Access Agreement
[See attached.]
EXHIBIT J
Form of Joinder
[See attached.]
EXHIBIT K
Form of Short Form Intellectual Property Security Agreement
[See attached.]
Exhibit 10.4
Execution Version
CANADIAN PLEDGE AND SECURITY AGREEMENT
Dated as of November 30, 2012
from
ATD ACQUISITION CO. V INC.
TRIWEST TRADING (CANADA) LTD.
to
BANK OF AMERICA, N.A.,
as Administrative Agent and Collateral Agent
Table of Contents
| Page | ||||||||
| ARTICLE I. DEFINITIONS | ||||||||
| Section 1.1. | Terms Defined in Credit Agreement | - 1 - | ||||||
| Section 1.2. | Terms Defined in the PPSA | - 2 - | ||||||
| Section 1.3. | Terms Generally | - 2 - | ||||||
| Section 1.4. | Definitions of Certain Terms Used Herein | - 2 - | ||||||
| ARTICLE II. GRANT OF SECURITY INTEREST | ||||||||
| ARTICLE III. REPRESENTATIONS AND WARRANTIES | ||||||||
| Section 3.1. | Title, Perfection and Priority | - 7 - | ||||||
| Section 3.2. | Type and Jurisdiction of Organization, Organizational and Identification Numbers | - 8 - | ||||||
| Section 3.3. | Principal Location | - 8 - | ||||||
| Section 3.4. | Collateral Locations | - 8 - | ||||||
| Section 3.5. | Bailees, Warehousemen, Etc | - 8 - | ||||||
| Section 3.6. | Exact Names | - 8 - | ||||||
| Section 3.7. | Chattel Paper | - 9 - | ||||||
| Section 3.8. | Accounts and Chattel Paper | - 9 - | ||||||
| Section 3.9. | Inventory | - 9 - | ||||||
| Section 3.10. | Intellectual Property | - 10 - | ||||||
| Section 3.11. | No Financing Statements or Security Agreements | - 10 - | ||||||
| Section 3.12. | Pledged Collateral | - 10 - | ||||||
| Section 3.13. | Perfection Certificate | - 10 - | ||||||
| ARTICLE IV. COVENANTS | ||||||||
| Section 4.1. | General | - 11 - | ||||||
i
| Section 4.2. | Delivery of Pledged Collateral | - 12 - | ||||||
| Section 4.3. | Uncertificated Securities | - 12 - | ||||||
| Section 4.4. | Securities Entitlements | - 12 - | ||||||
| Section 4.5. | Partnership of Limited Liability Company | - 12 - | ||||||
| Section 4.6. | Control | - 12 - | ||||||
| Section 4.7. | Pledged Collateral | - 13 - | ||||||
| Section 4.8. | Intellectual Property | - 13 - | ||||||
| Section 4.9. | Insurance | - 14 - | ||||||
| Section 4.10. | Collateral Access Agreements | - 14 - | ||||||
| ARTICLE V. REMEDIES | ||||||||
| Section 5.1. | Remedies | - 15 - | ||||||
| Section 5.2. | Grantors’ Obligations Upon Default | - 16 - | ||||||
| Section 5.3. | Grant of Intellectual Property License | - 16 - | ||||||
| Section 5.4. | Concerning a Receiver | - 17 - | ||||||
| ARTICLE VI. ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY | ||||||||
| Section 6.1. | Account Verification | - 18 - | ||||||
| Section 6.2. | Authorization for Secured Party to Take Certain Action | - 18 - | ||||||
| Section 6.3. | PROXY | - 19 - | ||||||
| Section 6.4. | NATURE OF APPOINTMENT; LIMITATION OF DUTY | - 19 - | ||||||
| ARTICLE VII. GENERAL PROVISIONS | ||||||||
| Section 7.1. | Waivers | - 19 - | ||||||
| Section 7.2. | Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral | - 20 - | ||||||
| Section 7.3. | Compromises and Collection of Collateral | - 21 - | ||||||
| Section 7.4. | Secured Party Performance of Debtor Obligations | - 21 - | ||||||
| Section 7.5. | No Waiver; Amendments; Cumulative Remedies | - 21 - | ||||||
ii
| Section 7.6. | Limitation by Law; Severability of Provisions | - 21 - | ||||||
| Section 7.7. | Reinstatement | - 21 - | ||||||
| Section 7.8. | Benefit of Agreement | - 22 - | ||||||
| Section 7.9. | Survival of Representations | - 22 - | ||||||
| Section 7.10. | Taxes and Expenses | - 22 - | ||||||
| Section 7.11. | Additional Subsidiaries | - 22 - | ||||||
| Section 7.12. | Headings | - 22 - | ||||||
| Section 7.13. | Termination or Release | - 22 - | ||||||
| Section 7.14. | Entire Agreement | - 23 - | ||||||
| Section 7.15. | CHOICE OF LAW | - 23 - | ||||||
| Section 7.16. | Consent to Jurisdiction | - 23 - | ||||||
| Section 7.17. | WAIVER OF JURY TRIAL | - 24 - | ||||||
| Section 7.18. | Indemnity | - 24 - | ||||||
| Section 7.19. | Counterparts | - 24 - | ||||||
| Section 7.20. | Gender and Number | - 24 - | ||||||
| Section 7.21. | Judgment Currency | - 24 - | ||||||
| Section 7.22. | Mortgages | - 24 - | ||||||
| ARTICLE VIII. NOTICES | ||||||||
| Section 8.1. | Sending Notices | - 24 - | ||||||
| Section 8.2. | Change in Address for Notices | - 25 - | ||||||
| ARTICLE IX. THE AGENT | ||||||||
iii
EXHIBITS:
| Schedule 1 | Excluded Accounts | |
| Exhibit A | Location, Chief Executive Office, Type of Organization, Jurisdiction of Organization and Organizational Identification Number | |
| Exhibit B | Bailees, Warehousemen and Third Party Possessors of Collateral | |
| Exhibit C | [Intentionally Deleted] | |
| Exhibit D | Intellectual Property | |
| Exhibit E | [Intentionally Deleted] | |
| Exhibit F | Pledged Collateral | |
| Exhibit G | PPSA Filing Offices | |
| Exhibit H | Form of Joinder | |
| Exhibit I | Form of Collateral Access Agreement |
iv
CANADIAN PLEDGE AND SECURITY AGREEMENT
This CANADIAN PLEDGE AND SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, this “Security Agreement”) is entered into as of November 30, 2012, by and among ATD ACQUISITION CO. V INC., a corporation incorporated under the laws of Canada (together with its successors and permitted assigns, the “Initial Canadian Borrower”); TRIWEST TRADING (CANADA) LTD., a corporation incorporated under the laws of Canada (together with its successors and permitted assigns, “Triwest”); the Subsidiary Parties from time to time party hereto (collectively with the Initial Canadian Borrower and Triwest, the “Grantors” and each a “Grantor”); and BANK OF AMERICA, N.A., a national banking association, in its capacity as administrative agent for the lenders party to the Credit Agreement referred to below and in its capacity as collateral agent for the Secured Parties (in such capacities, together with its successors in such capacities, the “Agent”).
PRELIMINARY STATEMENTS
WHEREAS, the Grantors are subsidiaries of AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the “Company”), and the Company, certain of the other Loan Parties, certain of the Lenders, Bank of America, N.A., as administrative agent, and certain other Persons thereto are parties to that certain Fifth Amended and Restated Credit Agreement, dated as of May 28, 2010 (as amended, restated, modified or supplemented prior to the date hereto, the “Existing Credit Agreement”);
WHEREAS, the Grantors, the Company, the other Loan Parties, the Agent, the Lenders and certain other parties are entering into that certain Sixth Amended and Restated Credit Agreement, dated as of the date hereof (as amended, restated, modified or supplemented after the date hereof, the “Credit Agreement”), which amends and restates in its entirety the Existing Credit Agreement;
WHEREAS, pursuant to the Canadian Transaction, it is contemplated that the Initial Canadian Borrower shall amalgamate, after the date hereof, with Triwest, with the continuing entity bearing the name of Triwest and becoming a Canadian Borrower under the Credit Agreement; and
WHEREAS, the Grantors are entering into this Security Agreement for the purpose of inducing the Lenders to amend and restate, and to extend credit to the Borrowers under, the Credit Agreement and to secure each Grantor’s Secured Obligations, including in the case of each Grantor that is a Loan Guarantor, its obligations under the Loan Guaranty.
ACCORDINGLY, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. Terms Defined in Credit Agreement . All capitalized terms used herein (including terms used in the preamble and preliminary statements) and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Section 1.2. Terms Defined in the PPSA. Terms defined in the PPSA that are not otherwise defined in this Security Agreement or the Credit Agreement are used herein as defined in the PPSA.
Section 1.3. Terms Generally. The rules of construction and other interpretive provisions specified in Section 1.03 of the Credit Agreement shall apply to this Security Agreement, including terms defined in the preamble and preliminary statements hereto.
Section 1.4. Definitions of Certain Terms Used Herein. As used in this Security Agreement, in addition to the terms defined in the preamble and preliminary statements above, the following terms shall have the following meanings:
“Account” shall have the meaning set forth in the PPSA.
“After-acquired Debt” shall have the meaning set forth in the definition of “Pledged Collateral”.
“After-acquired Shares” shall have the meaning set forth in the definition of “Pledged Collateral”.
“Am-Pac” means Am-Pac Tire Dist. Inc., a California corporation.
“Article” means a numbered article of this Security Agreement, unless another document is specifically referenced.
“Canadian Transaction” means, collectively, the acquisition by the Initial Canadian Borrower of all of the issued and outstanding shares of the share capital of Triwest and the subsequent amalgamation of the Initial Canadian Borrower with Triwest, with the continuing entity bearing the name of Triwest and becoming a Canadian Borrower under the Credit Agreement.
“Chattel Paper” shall have the meaning set forth in the PPSA.
“Collateral” shall have the meaning set forth in Article II.
“Collateral Access Agreement” means a landlord waiver or other agreement, substantially in the form attached hereto as Exhibit I or such other form as shall be reasonably satisfactory to the Agent, entered into between the Agent and any third party (including any bailee, consignee, customs broker, or other similar Person) in possession of any Collateral or any landlord of any premises where any Collateral is located.
“Collateral Report” means any certificate (including any Borrowing Base Certificate), report or other document delivered by any Grantor to the Agent with respect to the Collateral pursuant to any Loan Document.
“Control” shall mean “control” as such term is understood under the PPSA, the STA or any other similar law of any other jurisdiction.
“Copyrights” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the
- 2 -
foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.
“Deposit Account” shall mean any demand, time, savings, checking, passbook, deposit, collection, lock-box, or other similar account maintained with any financial institution but excludes investment property and any account evidenced by an instrument.
“Document” shall have the meaning ascribed to the term “document of title” in the PPSA.
“Equipment” shall have the meaning set forth in the PPSA.
“Excluded Accounts” means all accounts set forth on Schedule 1 hereto.
“Excluded Assets” means
(a) (i) any interest in leased real property of any Grantor and (ii) any interest in fee-owned real property of a Grantor if the greater of its cost and book value is less than $2,500,000;
(b) the last day of the term of any lease or sublease or any agreement for a lease or sublease, now held or hereafter acquired by any Grantor in respect of real property, but the applicable Grantor shall stand possessed of any such last day upon trust to assign and dispose of it as the Agent may direct;
(c) at any date, any Equipment or other assets or property of a Grantor which is subject to, or secured by, a Capital Lease Obligation or other debt obligation if and to the extent that (i) such Capital Lease Obligation or debt obligation was incurred pursuant to Section 6.01(e) or (f) of the Credit Agreement or is owed to a Person who is not a Grantor or a Restricted Subsidiary and the agreements or documents granting or governing such Capital Lease Obligation or debt obligation prohibit, or require any consent or establish any other conditions for, or would or could be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under such agreement or document, because of an assignment thereof, or a grant of a security interest therein, by a Grantor and (ii) such restriction described in clause (i) above relates only to the asset or assets acquired by such Grantor and attachments and accessions thereto, improvements thereof or substitutions therefor; provided that all proceeds paid or payable to any Grantor from any sale, transfer or assignment or other voluntary or involuntary disposition of such assets and all rights to receive such proceeds shall be included in the Collateral to the extent not otherwise required to be paid to the holder of any Capital Lease Obligations or debt obligations secured by such assets;
(d) pledges and security interests prohibited by, or requiring any consent of any Governmental Authority pursuant to, applicable law, rule or regulation;
(e) Excluded Equity Interests and Excluded Accounts;
(f) any rights or interest of a Grantor in any property or assets or under any agreement, contract, License, lease, Instrument, document or other General Intangible or, in the case of any Investment Property (other than with respect to Equity Interests which are not Excluded Equity Interests), under any applicable equity holder or similar agreement (referred to solely for purposes of this clause (f) as a “Contract”) to the extent such Contract by the terms of a restriction in favor of a Person who is not a Grantor, or any requirement of law, rule or regulation, prohibits, or requires any consent or
- 3 -
establishes any other condition for, or could or would be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under, because of an assignment thereof or a grant of a security interest therein by a Grantor; provided that (i) rights to payment under any such Contract otherwise constituting an Excluded Asset shall be included in the Collateral to the extent permitted thereby or by the PPSA and (ii) all proceeds paid or payable to any Grantor from any sale, transfer or assignment of such Contract and all rights to receive such proceeds shall be included in the Collateral;
(g) any property as to which the Agent and a Canadian Borrower reasonably agree in writing that the cost or other consequences (including material adverse tax consequences as reasonably determined by such Canadian Borrower) of obtaining a security interest or perfection thereof are excessive in relation to the benefit to the Secured Parties of the security to be afforded thereby;
(h) (x) any Intellectual Property, including any United States intent-to-use trademark applications, in relation to which any applicable law or regulation, or any agreement with a domain name registrar or any other person entered into by a Grantor in the ordinary course of business and existing on the date hereof, prohibits the creation of a security interest therein, or constitutes a breach or default under or results in the termination of or gives rise to any right of acceleration, modification or cancellation, or would otherwise invalidate such Grantor’s right, title or interest therein and (y) any of the Grantors’ rights under the trademarks and service marks known as “ATD ONLINE,” “AUTOEDGE,” “HEAFNET,” “TIREBUYER.COM,” “TIRE PROS,” “XPRESS PERFORMANCE” and “WHEEL WIZARD”;
(i) consumer goods; and
(j) any proceeds and products arising from the sale, lease, assignment or disposition of any of the foregoing Excluded Assets unless such proceeds or products would otherwise constitute Collateral.
“Exhibit” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.
“General Intangible” shall have the meaning ascribed to the term “intangible” in the PPSA.
“Goods” shall have the meaning set forth in the PPSA.
“Grantors” shall have the meaning set forth in the introductory paragraph hereto.
“Instrument” shall have the meaning set forth in the PPSA.
“Intellectual Property” means, with respect to any Grantor, all intellectual and similar property of every kind and nature now owned or hereafter acquired by such Grantor, including Patents, Copyrights, Trademarks and all related documentation and registrations and all additions, improvements or accessions to any of the foregoing.
“Inventory” shall have the meaning set forth in the PPSA and shall include, without limitation, (a) all goods intended for sale or lease or for display or demonstration, (b) all work in process, and (c) all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, packing, shipping, advertising, selling, leasing or furnishing of goods or services or otherwise used or consumed in the conduct of business.
“Investment Property” shall have the meaning set forth in the PPSA.
- 4 -
“Licenses” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to (a) any and all written licensing agreements or similar arrangements in and to its owned (1) Patents, (2) Copyrights, or (3) Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.
“Patents” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to: (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements thereof; and (f) all rights corresponding to any of the foregoing throughout the world.
“Perfection Certificate” means the perfection certificate dated as of the date hereof, completed and supplemented with the schedules and attachments contemplated thereby, and duly executed by a Responsible Officer of Triwest.
“Pledged Collateral” means collectively, (a) all of the Equity Interests described on Exhibit F issued by the entities named therein and all other Equity Interests required to be pledged under Section 5.11 of the Credit Agreement (the “After-acquired Shares”) and (b) the promissory notes, Chattel Paper and Instruments evidencing Indebtedness in excess of $2,500,000 owed to the Grantors (other than such promissory notes, Chattel Paper and Instruments that are Excluded Assets) described on Exhibit F and issued by the entities named and all other Indebtedness owed to any Grantor hereafter and required to be pledged pursuant to Section 5.11 of the Credit Agreement (the “After-acquired Debt”), in each case as such Exhibit may be amended pursuant to Section 5.11 of the Credit Agreement.
“PPSA” means the Personal Property Security Act (Ontario) and the regulations promulgated thereunder, as amended from time to time, provided if validity, perfection and effect of perfection and non-perfection of the Agent’s security interest in or Lien on any Collateral is governed by the personal property security laws of any jurisdiction other than Ontario, PPSA shall mean those personal property security laws (including the Civil Code of Quebec) in such other jurisdiction for the purposes of the provisions hereof relating to such validity, perfection, and effect of perfection and non-perfection and for the definitions related to such provisions, as from time to time in effect.
“Receivables” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments and any other rights or claims to receive money that are General Intangibles or that are otherwise included as Collateral.
“Section” means a numbered section of this Security Agreement, unless another document is specifically referenced.
“Secured Parties” means collectively (a) the Lenders, (b) the Agent, (c) each Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan Party the obligations under which constitute Secured Swap Obligations, (e) each Swingline Lender, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document, (g) each Person providing Banking Services which constitute Banking Services Obligations and (h) the successors and permitted assigns of each of the foregoing.
“Security” shall have the meaning set forth in the STA.
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“STA” means the Securities Transfer Act, 2006 (Ontario) or, to the extent applicable, similar legislation of any other jurisdiction, as amended from time to time.
“Stock Rights” means all dividends, instruments or other distributions and any other right or property which any Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any Pledged Collateral, any right to receive an Equity Interest constituting Collateral and any right to receive earnings, in which such Grantor now has or hereafter acquires any right, issued by an issuer of such Equity Interest.
“Subsidiary Parties” means each Canadian Subsidiary that becomes a party to this Security Agreement as a Subsidiary Party (including as an additional Canadian Borrower) after the date hereof in accordance with Section 7.11 herein and Section 5.11 of the Credit Agreement.
“Trademarks” means, with respect to any Grantor, all of such Grantor’s right, title, and interest in and to the following: (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all Licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.
ARTICLE II.
GRANT OF SECURITY INTEREST
Each Grantor hereby pledges, assigns and grants to the Agent, on behalf of and for the benefit of the Secured Parties, and to secure the prompt and complete payment and performance of all of such Grantor’s Secured Obligations, a security interest in all of its right, title and interest in, to and under all of the following personal property and other assets, whether now owned by or owing to, or hereafter acquired by or arising in favor of, such Grantor (including under any trade name or derivations thereof), and regardless of where located (all of which are collectively referred to as the “Collateral”):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Intellectual Property;
(iv) all Documents;
(v) all Equipment;
(vi) all fixtures;
(vii) all General Intangibles;
(viii) all Goods;
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(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property;
(xii) all Deposit Accounts;
(xiii) all cash or other property deposited with the Agent or any Lender or any Affiliate of the Agent or any Lender or which the Agent, for its benefit and for the benefit of the other Secured Parties, or any Lender or such Affiliate is entitled to retain or otherwise possess as collateral pursuant to the provisions of this Security Agreement or any of the Loan Documents or any agreement relating to any letter of credit;
(xiv) all books, records, files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the foregoing or any Account Debtor or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof; and
(xv) any and all accessions to, substitutions for and replacements, products and cash and non-cash proceeds of the foregoing (including any claims to any items referred to in this definition and any claims against third parties for loss of, damage to or destruction of any or all of the Collateral or for proceeds payable under or unearned premiums with respect to policies of insurance) in whatever form, including cash, negotiable instruments and other instruments for the payment of money, Chattel Paper, security agreements and other documents.
Notwithstanding the foregoing or anything herein to the contrary, in no event shall the “Collateral” include, or the security interest attach to, any Excluded Asset.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
The Grantors, jointly and severally, represent and warrant to the Agent, for the benefit of the Secured Parties, that:
Section 3.1. Title, Perfection and Priority. (a) Each Grantor has good and valid rights in, or the power to transfer, the Collateral which it has purported to grant a security interest hereunder, free and clear of all Liens except for Liens permitted under Section 4.1(e), and has full power and authority to grant to the Agent the security interest in such Collateral pursuant hereto. This Security Agreement creates in favor of the Agent for the benefit of the Secured Parties a valid security interest in the Collateral granted by each Grantor. No consent or approval of, registration or filing with, or any other action by any Governmental Authority is required for the grant of the security interest pursuant to this Security Agreement, except (i) such as have been obtained or made and are in full force and effect and (ii) for filings necessary to perfect Liens created pursuant to the Loan Documents.
(b) Subject to the limitations set forth in clause (c) of this Section 3.1, the security interests granted pursuant to this Security Agreement (i) will constitute valid perfected security interests
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in the Collateral in favor of the Agent, on behalf of and for the benefit of the Secured Parties, to secure the prompt and complete payment and performance of all of the Grantor’s Secured Obligations, upon (A) in the case of Collateral in which a security interest may be perfected by filing a financing statement under the PPSA (or similar legislation) of any jurisdiction, the filing of financing statements naming each Grantor as “debtor” and the Agent as “secured party” and describing the Collateral in the applicable filing offices as set forth in Exhibit G hereto, (B) in the case of Instruments, Chattel Paper and certificated Securities, the earlier of the delivery thereof to the Agent (or its non-fiduciary agent or designee) and the filing of the financing statements referred to in clause (A), (C) in the case of Collateral constituting Intellectual Property, the earlier of the filing of the financing statements referred to in clause (A) (except in the case of Copyrights) and the completion of the filing, registration and recording of a fully executed intellectual property security agreement in the Canadian Intellectual Property Office, and/or (D) in the case of Deposit Accounts, upon the entering into of Blocked Account Agreements and (ii) are prior to all other Liens on the Collateral other than Liens permitted under Section 4.1(e) having priority over the Agent’s Lien either by operation of law or otherwise.
(c) Notwithstanding anything to the contrary herein, no Grantor shall be required to perfect the security interests created hereby by any means other than (i) filings pursuant to the PPSA or similar legislation of any other jurisdiction in which the Collateral may be located from time to time, (ii) filings with the Canadian Intellectual Property Office with respect to Intellectual Property, (iii) in the case of Collateral that constitutes Chattel Paper, Instruments or certificated Securities, in each case, to the extent included in the Collateral and required by Sections 4.2 and 4.4 herein, delivery to the Agent to be held in its possession in the United States or Ontario, provided that if delivery is made to the Agent in the United States, such Grantor is, or shall become, party the U.S. Security Agreement and (iv) in the case of Deposit Accounts, executing Blocked Account Agreements, to the extent required by Section 2.21 of the Credit Agreement.
Section 3.2. Type and Jurisdiction of Organization, Organizational and Identification Numbers. The type of entity of each Grantor, its jurisdiction of organization, the organizational number issued to it by its jurisdiction of organization and its federal employer identification number, in each case as of the date hereof, are set forth on Exhibit A.
Section 3.3. Principal Location. Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), in each case as of the date hereof, is disclosed on Exhibit A.
Section 3.4. Collateral Locations. Each location where Collateral is located as of the date hereof (except for Inventory in transit) is listed on Exhibit A. All of said locations are owned by a Grantor except for locations (i) that are leased by a Grantor as lessee and designated in Part III(b) of Exhibit A and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment as designated in Part III(c) of Exhibit A.
Section 3.5. Bailees, Warehousemen, Etc. Exhibit B hereto sets forth a list, as of the date hereof, of each bailee, warehouseman and other third party in possession or control of any Inventory in excess of $2,500,000 of any Grantor (except for Inventory in transit) and specifies as to each bailee, warehouseman or other third party the value of the Inventory, at cost, possessed or controlled by such bailee, warehouseman or other third party.
Section 3.6. Exact Names. As of the date hereof, the name in which each Grantor has executed this Security Agreement is the exact name as it appears in such Grantor’s organizational documents, as amended, as filed with such Grantor’s jurisdiction of organization. No Grantor has, during the past five years prior to the date hereof, been known by or used any other corporate, trade or fictitious name, or been a party to any merger or consolidation, except as disclosed in the Perfection Certificate.
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Section 3.7. Chattel Paper. Exhibit C lists all Chattel Paper with a stated amount in excess of $2,500,000 of each Grantor as of the date hereof.
Section 3.8. Accounts and Chattel Paper.
(a) The names of the obligors, amounts owing, due dates and other information with respect to each Grantor’s Accounts and Chattel Paper that are Collateral have been correctly stated in all material respects, at the time furnished, in the records of such Grantor relating thereto and in all invoices and each Collateral Report with respect thereto furnished to the Agent by such Grantor from time to time.
(b) With respect to Accounts of the Grantors, except as specifically disclosed on the most recent Collateral Report, (i) all such Accounts represent bona fide sales of Inventory or rendering of services to Account Debtors in the ordinary course of the applicable Grantor’s business and are not evidenced by a judgment, Instrument or Chattel Paper; (ii) to the best of such Grantor’s knowledge, there are no offset rights, claims or disputes existing or asserted with respect thereto and no Grantor has made any agreement with any Account Debtor for any extension of time for the payment thereof, any compromise or settlement for less than the full amount thereof, any release of any Account Debtor from liability therefor, or any deduction therefrom except a discount or allowance allowed by a Grantor in the ordinary course of its business for prompt payment and disclosed to the Agent; (iii) to the knowledge of such Grantor, there are no facts, events or occurrences that in any way impair the validity or enforceability thereof or could reasonably be expected to reduce the amount payable thereunder as shown on such Grantor’s books and records and any invoices, statements and the most recent Collateral Report with respect thereto; (iv) no Grantor has received any notice of proceedings or actions that are threatened or pending against any Account Debtor that might result in any material adverse change in such Account Debtor’s financial condition; and (v) no Grantor has knowledge that any Account Debtor is unable generally to pay its debts as they become due.
(c) In addition, with respect to all Accounts of the Grantors, except as specifically disclosed on the most recent Collateral Report, the amounts shown on all invoices, statements and the most recent Collateral Report with respect thereto are actually and absolutely owing to a Grantor as indicated thereon and are not in any way contingent.
Section 3.9. Inventory. With respect to any Inventory of the Grantors and that is scheduled or listed on the most recent Collateral Report, (a) such Inventory (other than Inventory in transit) is located at one of the Grantors’ locations set forth on Exhibit A, (b) the Grantors have good, indefeasible and merchantable title to such Inventory and such Inventory is not subject to any Lien or security interest or document whatsoever except for the Lien granted to the Agent, for the benefit of the Secured Parties, and except for Liens permitted under Section 6.02 of the Credit Agreement, (c) such Inventory is not subject to any licensing, patent, royalty, trademark, trade name or copyright agreement with any third party that would, upon sale or other disposition of such Inventory by the Agent in accordance with the terms hereof, infringe the rights of such third-party, violate any contract with such third party, or cause the Agent to incur any liability with respect to payment of royalties other than royalties incurred pursuant to sale of such Inventory under the current licensing agreement related thereto, (d) to the best of such Grantor’s knowledge, such Inventory has been produced in accordance with applicable labour and employment laws and (e) to the best of such Grantor’s knowledge, the completion of manufacture, sale or other disposition of such Inventory by the Agent following an Event of Default shall not require the consent of any Person and shall not constitute a breach or default under any contract or agreement to which any Grantor is a party or to which such Inventory is subject.
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Section 3.10. Intellectual Property. As of the date hereof, no Grantor has any interest in, or title to, any United States or Canadian federal registered or applied for Patent, Trademark or Copyright except as set forth on Exhibit D.
Section 3.11. No Financing Statements or Security Agreements. As of the date hereof, no Grantor has filed or consented to the filing of any financing statement or security agreement naming a Grantor as debtor and describing all or any portion of the Collateral that has not lapsed or been terminated except (a) for financing statements or security agreements naming the Agent on behalf of the Secured Parties as the secured party and (b) as permitted by Sections 4.1(e) and 4.1(f).
Section 3.12. Pledged Collateral.
(a) Exhibit F sets forth a complete and accurate list, as of the date hereof, of all of the Pledged Collateral and, with respect to any Pledged Collateral constituting any Equity Interest, the percentage of the total issued and outstanding Equity Interests of the issuer represented thereby. As of the date hereof, each Grantor is the legal and beneficial owner of the Pledged Collateral listed on Exhibit F as being owned by it, free and clear of any Liens, except for the security interest granted to the Agent for the benefit of the Secured Parties hereunder and Liens permitted under Section 6.02 of the Credit Agreement. Each Grantor further represents and warrants that, as of the date hereof, (i) all Pledged Collateral constituting an Equity Interest has been (to the extent such concepts are relevant with respect to such Pledged Collateral) duly authorized and validly issued by the issuer thereof and are fully paid and non-assessable, (ii) with respect to any certificates delivered to the Agent (or its non-fiduciary agent or designee) representing an Equity Interest, such certificates are Securities as defined in the STA as a result of actions by the issuer or otherwise, and (iii) to the best of its knowledge, any Pledged Collateral that represents Indebtedness owed to any Grantor has been duly authorized, authenticated or issued and delivered by the issuer of such Indebtedness, is the legal, valid and binding obligation of such issuer and such issuer is not in default thereunder.
(b) As of the date hereof, (i) none of the Pledged Collateral has been issued or transferred in violation of the securities registration, securities disclosure or similar laws of any jurisdiction to which such issuance or transfer may be subject and (ii) none of the Pledged Collateral is subject to any option, right of first refusal, shareholders agreement, charter or by-law provisions or contractual restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Collateral hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Agent of rights and remedies hereunder.
(c) Except as set forth on Exhibit F, as of the date hereof, and except for any Indebtedness represented by the Intercompany Note, none of the Pledged Collateral which represents Indebtedness owed to a Grantor is subordinated in right of payment to other Indebtedness or subject to the terms of an indenture.
Section 3.13. Perfection Certificate. The Perfection Certificate has been duly prepared, completed and executed and the information set forth therein is correct and complete in all material respects as of the date thereof.
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ARTICLE IV.
COVENANTS
From the date hereof, and thereafter until the Termination Date, each Grantor agrees that:
Section 4.1. General.
(a) Collateral Records. Each Grantor will maintain complete and accurate books and records in accordance with the requirements of Section 5.06(a) of the Credit Agreement.
(b) Authorization to File Financing Statements; Ratification. Each Grantor hereby authorizes the Agent to file, and if requested will deliver to the Agent, all financing statements, financing change statements, discharges and other documents and take such other actions as may from time to time be requested by the Agent in order to maintain a perfected security interest in and, if applicable, Control of, the Collateral to the extent required by Section 3.1. Any financing statement or financing change statement filed by the Agent may be filed in any filing office in any applicable Canadian jurisdiction and may (i) describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner such as “all assets” or “all personal property, whether now owned or hereafter acquired” of such Grantor or words of similar effect as being of an equal or lesser scope or with greater detail, and (ii) contain any other information required by the applicable PPSA for the sufficiency or filing office acceptance of any financing statement or financing change statement, including (A) whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor and (B) in the case of a financing statement filed as a fixture filing, a sufficient description of real property to which the Collateral relates. Each Grantor also agrees to furnish any such information to the Agent promptly upon request. Each Grantor also ratifies its authorization for the Agent to have filed in any Canadian jurisdiction any initial financing statements, financing changes statements, discharges or amendments thereto if filed prior to the date hereof.
(c) Further Assurances. Each Grantor will, if reasonably requested by the Agent, (i) take or cause to be taken such further actions in accordance with Section 5.11 of the Credit Agreement, (ii) take such other actions as the Agent reasonably deems appropriate under applicable law or to evidence or perfect its Lien on any Collateral, or otherwise to give effect to the intent of this Security Agreement and (iii) defend the security interests created hereby and priority thereof against the claims and demands not expressly permitted by the Loan Documents of all Persons whomsoever.
(d) Disposition of Collateral. No Grantor will sell, lease, transfer or otherwise dispose of the Collateral except for sales, leases, transfers and other dispositions specifically permitted under Section 6.05 of the Credit Agreement.
(e) Liens. No Grantor will create, incur, or suffer to exist any Lien on the Collateral except (i) the security interest created by this Security Agreement, and (ii) Liens permitted by Section 6.02 of the Credit Agreement.
(f) Other Financing Statements. No Grantor will authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral, except to cover security interests as permitted by Section 4.1(e).
(g) Change of Name, Etc. Each Grantor agrees to furnish to the Agent prompt written notice of any change in: (i) such Grantor’s legal name; (ii) the location of such Grantor’s chief executive office, registered office and its principal place of business; (iii) such Grantor’s organizational legal entity designation or jurisdiction of incorporation or formation; or (iv) such Grantor’s organizational identification number assigned to it by its jurisdiction of incorporation or formation.
(h) Exercise of Duties. Anything herein to the contrary notwithstanding, (a) the exercise by the Agent of any of the rights hereunder shall not release any Grantor from any of its duties or
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obligations under the contracts and agreements included in the Collateral and (b) no Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Security Agreement or any other Loan Document, nor shall any Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.
Section 4.2. Delivery of Pledged Collateral.
(a) Each Grantor will promptly deliver to the Agent (or its non-fiduciary agent or designee) upon execution of this Security Agreement, or immediately upon acquiring future Pledged Collateral, all certificates or instruments, if any, representing or evidencing the Pledged Collateral, together with duly executed instruments of transfer or assignments in blank. Each delivery of Pledged Collateral (including any After-acquired Shares and After-acquired Debt) after the date hereof shall be accompanied by a schedule describing the securities theretofore and then being pledged hereunder, which shall be attached hereto as part of Exhibit F hereto and made a part hereof; provided, that the failure to attach any such schedule hereto shall not affect the validity of such pledge of such securities. Each schedule so delivered shall supplement any prior schedules so delivered.
(b) Without limiting the foregoing, if any of the Collateral consists of certificated securities, the Grantors shall immediately deliver to the Agent any and all such documents, agreements (including securities pledge agreements) and any and all certificates representing such and other materials (including effective endorsements) as may be required from time to time in the opinion of the Agent, to provide the Agent with control over all certificated securities in the manner provided under section 23 of the STA, and at the request of the Agent, will cause all certificated securities to be registered in the name of the Agent or as the Agent may direct.
Section 4.3. Uncertificated Securities. If any Grantor has or hereafter acquires Collateral consisting of uncertificated securities, it shall deliver to the Agent any and all such documents, agreements and other materials as may be required from time to time in the opinion of the Agent, to provide the Agent with control over all such Collateral in the manner provided under section 24 of the STA.
Section 4.4. Securities Entitlements. If any Grantor has or hereafter acquires Collateral consisting of security entitlements or creates Collateral consisting of one or more securities accounts, it shall deliver to the Agent any and all such documents, agreements and other materials as may be required from time to time, in the opinion of the Agent, to provide the Agent with control over all such Collateral in the manner provided under sections 25 and 26 of the STA and section 1(2)(e) of the PPSA.
Section 4.5. Partnership of Limited Liability Company. If any Grantor has or hereafter acquires Collateral consisting of an interest in a partnership or limited liability company, it shall take all steps necessary, in the opinion of the Agent to ensure that such property is and remains a security for the purposes of the STA.
Section 4.6. Control. The Grantors shall not cause or permit any Person other than the Agent to have control of any Investment Property constituting part of the Collateral, other than control in favour of a depositary bank or securities intermediary which has subordinated its Lien to the Lien of the Agent pursuant to documentation in form and substance satisfactory to the Agent.
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Section 4.7. Pledged Collateral.
(a) Registration in Nominee Name; Denominations. The Agent (or its non-fiduciary agent or designee), on behalf of the Secured Parties, shall hold certificated Pledged Collateral in the name of the applicable Grantor, endorsed or assigned in blank or in favor of the Agent. Following the occurrence and during the continuance of an Event of Default, each Grantor will promptly give to the Agent (or its non-fiduciary agent or designee) copies of any notices or other communications received by it with respect to Pledged Collateral registered in the name of such Grantor. Following the occurrence and during the continuance of an Event of Default, the Agent (or its non-fiduciary agent or designee) shall at all times have the right to exchange the certificates representing Pledged Collateral for certificates of smaller or larger denominations for any purpose consistent with this Security Agreement.
(b) Exercise of Rights in Pledged Collateral.
(i) Without in any way limiting the foregoing and subject to clause (ii) below, each Grantor shall have the right to exercise all voting rights or other rights relating to the Pledged Collateral for all purposes not inconsistent with this Security Agreement, the Credit Agreement or any other Loan Document; provided, however, that no vote or other right shall be exercised or action taken which would reasonably be expected to have the effect of materially and adversely impairing the rights of the Agent in respect of the Pledged Collateral.
(ii) Each Grantor will permit the Agent (or its non-fiduciary agent or designee) at any time after the occurrence and during the continuance of an Event of Default, without written notice, to exercise all voting rights or other rights relating to Pledged Collateral, including, without limitation, exchange, subscription or any other rights, privileges, or options pertaining to any Equity Interest or Investment Property constituting Pledged Collateral as if it were the absolute owner thereof.
(iii) Each Grantor shall be entitled to receive and retain any and all Stock Rights to the extent and only to the extent that such Stock Rights are permitted by, and otherwise paid or distributed in accordance with, the terms and conditions of the Credit Agreement, the other Loan Documents and applicable law; provided, however, that any non-cash Stock Rights that would constitute Pledged Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding Equity Interests of the issuer of any Pledged Collateral or received in exchange for Pledged Collateral or any part thereof, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by any Grantor, shall not be commingled by such Grantor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Secured Parties and shall be forthwith delivered to the Agent (or its non-fiduciary agent or designee) in the same form as so received (with any necessary endorsement or instrument of assignment). The proviso to the first sentence of this clause (iii) shall not apply to dividends between or among the Company and the other Loan Parties only of property subject to a perfected security interest under this Security Agreement; provided that the Company notifies the Agent in writing, specifically referring to this Section 4.7, at the time of such dividend and takes any actions the Agent reasonably specifies to ensure the continuance of its perfected security interest in such property under this Security Agreement
Section 4.8. Intellectual Property. (a) Upon the occurrence and during the continuance of an Event of Default, each Grantor will use commercially reasonable efforts to obtain all consents and approvals necessary or appropriate for the assignment to or for the benefit of the Agent of any License held by such Grantor in order to enforce the security interests granted hereunder.
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(b) Each Grantor shall in its reasonable business judgment notify the Agent promptly if it knows or reasonably expects that any application or registration relating to any Patent, Trademark or Copyright (now or hereafter existing) included in the Collateral and material to the conduct of such Grantor’s business may become abandoned or dedicated, or of any material adverse determination or development (including the institution of, or any such determination or development in, any proceeding in the Canadian Intellectual Property Office or any court) regarding such Grantor’s ownership of any such material registered or applied for Patent, Trademark or Copyright, its right to register the same, or to keep and maintain the same.
(c) In the event that any Grantor, either directly or through any agent, employee, licensee or designee, files an application for the registration of any material Patent, Trademark or Copyright with the Canadian Intellectual Property Office, such Grantor will, concurrently with any delivery of financial statements pursuant to Sections 5.01(a) and 5.01(b) of the Credit Agreement, provide the Agent written notice thereof, and, upon request of the Agent, such Grantor shall promptly execute and deliver any and all security agreements or other instruments as the Agent may reasonably request to evidence the Agent’s security interest in such Patent, Trademark or Copyright, and the General Intangibles of such Grantor relating thereto or represented thereby.
(d) Each Grantor shall take all actions necessary or reasonably requested by the Agent to maintain and pursue each material application, to obtain the relevant registration and to maintain the registration of each of the Patents, Trademarks and Copyrights (now or hereafter existing) material to the conduct of such Grantor’s business, except in cases where, in the ordinary course of business consistent with past practice, such Grantor reasonably decides to abandon, allow to lapse or expire any Patent, Trademark or Copyright, including the filing of applications for renewal, affidavits of use, affidavits of non-contestability and, if consistent with good business judgment, to initiate opposition and interference and cancellation proceedings against third parties.
(e) Each Grantor shall, unless it shall reasonably determine that a Patent, Trademark or Copyright is not material to the conduct of its business, promptly notify the Agent and shall, if consistent with good business judgment, promptly sue for infringement, misappropriation or dilution of such material Patent, Trademark or Copyright and to recover any and all damages for such infringement, misappropriation or dilution, or shall take such other actions as are appropriate under the circumstances in its reasonable business judgment to protect such Patent, Trademark or Copyright.
(f) Nothing in this Security Agreement shall prevent any Grantor from disposing of, discontinuing the use or maintenance of, failing to pursue, or otherwise allowing to lapse, terminate or put into the public domain, any of its Collateral constituting Intellectual Property to the extent permitted by the Credit Agreement if such Grantor determines in its reasonable business judgment that such discontinuance is desirable in the conduct of its business.
Section 4.9. Insurance. All insurance policies required under Section 5.10 of the Credit Agreement shall name the Agent (for the benefit of the Agent and the other Secured Parties) as lender’s loss payee or, upon request by Agent, as additional insured, as applicable, and shall contain lender’s loss payable clauses or mortgagee clauses, through endorsements in form and substance satisfactory to the Agent.
Section 4.10. Collateral Access Agreements. To the extent required by the Credit Agreement, each Grantor shall use commercially reasonable efforts to obtain a Collateral Access Agreement, from the lessor of each of its leased warehouse and distribution facilities, and the bailee, warehouseman or other third party with respect to any warehouse or other location, in each case where Collateral is stored or located.
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ARTICLE V.
REMEDIES
Section 5.1. Remedies. Upon the occurrence and during the continuance of an Event of Default:
(a) the Agent may (and at the direction of the Required Lenders, shall) exercise any or all of the following rights and remedies:
(i) those rights and remedies provided in this Security Agreement, the Credit Agreement or any other Loan Document; provided that this Section 5.1(a) shall not be understood to limit any rights available to the Agent and the Secured Parties prior to an Event of Default;
(ii) those rights and remedies available to a secured party under the PPSA (whether or not the PPSA applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ Lien) when a debtor is in default under a security agreement;
(iii) give notice of sole control or any other instruction under any Blocked Account Agreement, Collateral Access Agreement or any other control or similar agreement and take any action provided therein with respect to the applicable Collateral;
(iv) without notice (except as specifically provided in Section 7.1 or elsewhere herein), demand or advertisement of any kind to any Grantor or any other Person, enter the premises of any Grantor where any Collateral is located (through self-help and without judicial process) to collect, receive, assemble, process, appropriate, sell, lease, assign, grant an option or options to purchase or otherwise dispose of, deliver, or realize upon, the Collateral or any part thereof in one or more parcels at public or private sale or sales (which sales may be adjourned or continued from time to time with or without notice and may take place at such Grantor’s premises or elsewhere), for cash, on credit or for future delivery without assumption of any credit risk, and upon such other terms as the Agent may deem commercially reasonable;
(v) appoint by instrument in writing a receiver (which term as used in this Security Agreement includes an interim receiver, and a receiver and manager) or agent of all or any part of the Collateral and removing or replacing from time to time any receiver or agent;
(vi) institute proceedings in any court of competent jurisdiction for the appointment of a receiver of all or any part of the Collateral; and
(vii) concurrently with written notice to the Grantors, transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exchange certificates or instruments representing or evidencing Pledged Collateral for certificates or instruments of smaller or larger denominations, to exercise the voting and all other rights as a holder with respect thereto, to collect and receive all Stock Rights that any Grantor may be entitled to receive in connection therewith and to otherwise act with respect to the Pledged Collateral as though the Agent was the outright owner thereof.
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(b) Each Grantor acknowledges and agrees that the compliance by the Agent, on behalf of the Secured Parties with any applicable state, provincial, territorial or federal law requirements in connection with a disposition of the Collateral will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(c) The Agent shall have the right upon any public sale or sales and, to the extent permitted by law, upon any private sale or sales, to purchase for the benefit of the Agent and the Secured Parties, the whole or any part of the Collateral so sold, free of any right of equity redemption, which equity redemption each Grantor hereby expressly releases.
(d) Until the Agent is able to effect a sale, lease, transfer or other disposition of Collateral, the Agent shall have the right to hold or use Collateral, or any part thereof, to the extent that it deems appropriate for the purpose of preserving Collateral or the value of the Collateral, or for any other purpose deemed appropriate by the Agent.
(e) Notwithstanding the foregoing, neither the Agent nor the Secured Parties shall be required to (i) make any demand upon, or pursue or exhaust any of their rights or remedies against, the Grantors, any other obligor, guarantor, pledgor or any other Person with respect to the payment of the Grantor’s Secured Obligations or to pursue or exhaust any of their rights or remedies with respect to any Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal the Collateral or any guarantee of the Grantor’s Secured Obligations or to resort to the Collateral or any such guarantee in any particular order, or (iii) effect a public sale of any Collateral.
(f) Each Grantor recognizes that the Agent may be unable to effect a public sale of any or all the Pledged Collateral and may be compelled to resort to one or more private sales thereof. Each Grantor also acknowledges that any private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely by virtue of such sale being private. The Agent shall be under no obligation to delay a sale of any of the Pledged Collateral for the period of time necessary to permit any Grantor or the issuer of the Pledged Collateral to register such securities for public sale under applicable state, provincial, territorial or federal securities laws, even if any Grantor and the issuer would agree to do so (it being acknowledged and agreed that no Grantor shall have any obligation hereunder to do so).
Section 5.2. Grantors’ Obligations Upon Default. Upon the written request of the Agent after the occurrence and during the continuance of an Event of Default, each Grantor will:
(a) assemble and make available to the Agent the Collateral and all books and records relating thereto at any place or places reasonably specified by the Agent, whether at such Grantor’s premises or elsewhere; and
(b) permit the Agent, by the Agent’s representatives and agents, to enter, occupy and use any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral or the books and records relating thereto, or both, to remove all or any part of the Collateral or the books and records relating thereto, or both, and to conduct sales of the Collateral, without any obligation to pay any Grantor for such use and occupancy.
Section 5.3. Grant of Intellectual Property License. For the purpose of enabling the Agent to exercise the rights and remedies under this Article V upon the occurrence and during the continuance of an Event of Default, at such time as the Agent shall be lawfully entitled to exercise such
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rights and remedies, each Grantor hereby (a) grants to the Agent, for the benefit of the Agent and the Secured Parties, an irrevocable nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sublicense any intellectual property rights now owned or hereafter acquired by such Grantor, wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof; provided, however that such licenses to be granted hereunder with respect to Trademarks shall be subject to the maintenance of quality standards with respect to the goods and services on which such Trademarks are used sufficient to preserve the validity of such Trademarks; and provided further that the Agent shall have no greater rights than those of any such Grantor under such license or sublicense; and (b) irrevocably agrees that, at any time and from time to time following the occurrence and during the continuance of an Event of Default, the Agent may sell any Grantor’s Inventory directly to any Person, including without limitation Persons who have previously purchased any Grantor’s Inventory from such Grantor and in connection with any such sale or other enforcement of the Agent’s rights under this Security Agreement, may (subject to any restrictions contained in applicable third party licenses entered into by a Grantor) sell Inventory which bears any Trademark owned by or licensed to any Grantor and any Inventory that is covered by any Copyright owned by or licensed to such Grantor and the Agent may finish any work in process and affix any relevant Trademark owned by or licensed to any Grantor and sell such Inventory as provided herein. The use of the license granted pursuant to clause (a) of the preceding sentence by the Agent may be exercised, at the option of the Agent, only upon the occurrence and during the continuance of an Event of Default; provided, however, that any permitted license, sublicense or other transaction entered into by the Agent in accordance herewith shall be binding upon each Grantor notwithstanding any subsequent cure of an Event of Default.
Section 5.4. Concerning a Receiver.
(a) Any receiver appointed by the Agent shall be vested with all rights and remedies which could have been exercised by the Agent in respect of the Grantors or the Collateral and such other powers and discretions as are granted in the instrument of appointment and any supplemental instruments. The choice of receiver and its remuneration are within the sole and unfettered discretion of the Agent.
(b) Any receiver appointed by the Agent shall act as agent for the Agent for the purposes of taking possession of the Collateral, but otherwise and for all other purposes (except as provided below), as agent for the Grantors. The receiver may sell, lease, or otherwise dispose of Collateral as agent for the Grantors or as agent for the Agent as the Agent may determine in its discretion, to the extent consistent with the rights of the Agent set out in this Security Agreement. The Grantors agree to ratify and confirm all actions of the receiver acting as agent for such Grantor, and to release and indemnify the receiver in respect of all such actions.
(c) The Agent, in appointing or refraining from appointing any receiver, shall not incur any liability to the receiver, the Grantors or otherwise and is not responsible for any misconduct or negligence of such receiver.
(d) All expenses, costs and charges incurred by or on behalf of the Agent in connection with the appointment of a receiver under this Security Agreement shall be borne by the Grantors, are payable on demand and shall be added to and form part of the Secured Obligations.
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ARTICLE VI.
ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY
Section 6.1. Account Verification. The Grantors acknowledge that (i) prior to an Event of Default, at the reasonable request of the Agent, the Grantors shall (either accompanied by the Agent or at the Agent’s direction), and (ii) after the occurrence and during the continuance of an Event of Default, the Agent may in its own name, or in the name of such Grantor, communicate with the Account Debtors of such Grantor to verify with such Persons the existence, amount, terms of, and any other matter reasonably relating to the Accounts owing by such Account Debtor to such Grantor (including any Instruments, Chattel Paper, payment intangibles and/or other Receivables that are Collateral relating to such Accounts).
Section 6.2. Authorization for Secured Party to Take Certain Action.
(a) Each Grantor hereby (i) authorizes the Agent, at any time and from time to time in the sole discretion of the Agent (1) to execute on behalf of such Grantor as debtor and to file financing statements or financing change statements necessary or desirable in the Agent’s reasonable discretion to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, including, without limitation, to file financing statements or financing change statements permitted under Section 4.1(b) and (2) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement or financing change statement with respect to the Collateral as a financing statement or financing change statement and to file any other financing statement, or financing change statement (which would not add new collateral or add a debtor) in such offices as the Agent in its reasonable discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Agent’s security interest in the Collateral, including, without limitation, to file financing statements or financing change statements permitted under Section 4.1(b) and (ii) appoints, effective upon the occurrence and during the continuance of an Event of Default, the Agent as its attorney in fact (1) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted by Section 6.02 of the Credit Agreement), (2) to endorse and collect any cash proceeds of the Collateral and to apply the proceeds of any Collateral received by the Agent to the Secured Obligations as provided herein or in the Credit Agreement or any other Loan Document, (3) to demand payment or enforce payment of the Receivables in the name of the Agent or any Grantor and to endorse any and all checks, drafts, and other instruments for the payment of money relating to the Receivables, (4) to sign any Grantor’s name on any invoice or bill of lading relating to the Receivables, drafts against any Account Debtor of such Grantor, assignments and verifications of Receivables, (5) to exercise all of any Grantor’s rights and remedies with respect to the collection of the Receivables and any other Collateral, (6) to settle, adjust, compromise, extend or renew the Receivables, (7) to settle, adjust or compromise any legal proceedings brought to collect Receivables, (8) to prepare, file and sign any Grantor’s name on a proof of claim in bankruptcy or similar document against any Account Debtor of such Grantor, (9) to prepare, file and sign any Grantor’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables, (10) to change the address for delivery of mail addressed to any Grantor to such address as the Agent may designate and to receive, open and dispose of all mail addressed to such Grantor, and (11) to use information contained in any data processing, electronic or information systems relating to Collateral; and each Grantor agrees to reimburse the Agent for any reasonable payment made or any reasonable documented expense incurred by the Agent in connection with any of the foregoing, in accordance with the provisions Section 9.03 of the Credit Agreement; provided that, this authorization shall not relieve any Grantor of any of its obligations under this Security Agreement or under the Credit Agreement.
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(b) All acts of said attorney or designee are hereby ratified and approved by the Grantors. The powers conferred on the Agent, for the benefit of the Agent and Secured Parties, under this Section 6.2 are solely to protect the Agent’s interests in the Collateral and shall not impose any duty upon the Agent or any Secured Party to exercise any such powers.
Section 6.3. PROXY. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS, EFFECTIVE UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE) WITH RESPECT TO THE PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR AGENT THEREOF), UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT.
Section 6.4. NATURE OF APPOINTMENT; LIMITATION OF DUTY. THE APPOINTMENT OF THE AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 7.13. NOTWITHSTANDING ANYTHING CONTAINED HEREIN, NEITHER THE AGENT, NOR ANY SECURED PARTY, NOR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT TO THE EXTENT SUCH DAMAGES ARE ATTRIBUTABLE TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
ARTICLE VII.
GENERAL PROVISIONS
Section 7.1. Waivers. Each Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable, unless applicable law requires otherwise, if sent to the Grantors, addressed as set forth in Article VIII, at least ten days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. To the maximum extent permitted by applicable law, each Grantor waives all claims, damages, and demands against the Agent or any Secured Party arising out of the repossession, retention or sale of the Collateral (after the occurrence
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of and during the continuance of an Event of Default), except such as arise solely out of the gross negligence or willful misconduct of the Agent or such Secured Party as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Agent or any Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral (after the occurrence of and during the continuance of an Event of Default), made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. Except as otherwise specifically provided herein, each Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.
Section 7.2. Limitation on Agent’s and Secured Party’s Duty with Respect to the Collateral. The Agent shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Agent and each Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. Neither the Agent nor any Secured Party shall have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Agent or such Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Agent to exercise remedies, after the occurrence and during the continuance of an Event of Default, in a commercially reasonable manner, each Grantor acknowledges and agrees that it would be commercially reasonable for the Agent (i) to fail to incur expenses deemed significant by the Agent to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Account Debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Account Debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as a Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements at the Grantors’ cost to insure the Agent against risks of loss, collection or disposition of Collateral or to provide to the Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Agent in the collection or disposition of any of the Collateral. Each Grantor acknowledges that the purpose of this Section 7.2 is to provide non-exhaustive indications of what actions or omissions by the Agent would be commercially reasonable in the Agent’s exercise of remedies against the Collateral, after the occurrence and during the continuance of an Event of Default, and that other actions or omissions by the Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 7.2. Without limitation upon the foregoing, nothing contained in this Section 7.2 shall be construed to grant any rights to any Grantor or to impose any duties on the Agent that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 7.2.
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Section 7.3. Compromises and Collection of Collateral. Each Grantor and the Agent recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, each Grantor agrees that the Agent may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Agent in its sole discretion shall determine or abandon any Receivable, and any such action by the Agent shall be commercially reasonable so long as the Agent acts in good faith based on information known to it at the time it takes any such action.
Section 7.4. Secured Party Performance of Debtor Obligations. Without having any obligation to do so, following the occurrence and during the continuance of an Event of Default, the Agent may perform or pay any obligation which any Grantor has agreed to perform or pay under this Security Agreement and such Grantor shall reimburse the Agent for any amounts paid by the Agent pursuant to this Section 7.4. Each Grantor’s obligation to reimburse the Agent pursuant to the preceding sentence shall be a Secured Obligation payable on demand.
Section 7.5. No Waiver; Amendments; Cumulative Remedies. No failure or delay by the Agent or any Secured Party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent and the Secured Parties hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Security Agreement or consent to any departure by any Secured Party therefrom shall in any event be effective unless in writing signed by the Agent with the concurrence or at the direction of the Lenders required under Section 9.02 of the Credit Agreement, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.
Section 7.6. Limitation by Law; Severability of Provisions. All rights, remedies and powers provided in this Security Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and all the provisions of this Security Agreement are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they shall not render this Security Agreement invalid, unenforceable or not entitled to be recorded or registered, in whole or in part. Any provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Security Agreement are declared to be severable.
Section 7.7. Reinstatement. This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Grantor for liquidation or reorganization, should any Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of such Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
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Section 7.8. Benefit of Agreement. The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of each Grantor, the Agent and the Secured Parties and their respective successors and permitted assigns (including all Persons who become bound as a debtor to this Security Agreement), except that no Grantor shall have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Agent. No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Agent, for the benefit of the Agent and the Secured Parties, hereunder.
Section 7.9. Survival of Representations. All representations and warranties of each Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.
Section 7.10. Taxes and Expenses. To the extent required by Section 9.03 of the Credit Agreement, each Grantor jointly and severally agrees to (i) pay any taxes payable or ruled payable by any provincial, territorial, state or federal authority in respect of this Security Agreement, together with interest and penalties, if any, and (ii) reimburse the Agent for any and all reasonable documented out-of-pocket expenses paid or incurred by the Agent in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by any Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by such Grantor.
Section 7.11. Additional Subsidiaries. Pursuant to and in accordance with Section 5.11 of the Credit Agreement, each Grantor shall cause (i) each Canadian Subsidiary (other than any Excluded Subsidiary) formed or acquired after the date of this Security Agreement in accordance with the terms of the Credit Agreement and (ii) any Canadian Subsidiary that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary, to enter into this Security Agreement as a Subsidiary Party as promptly thereafter as reasonably practicable (but in no event to exceed ninety (90) days after such formation or acquisition or such longer period as may be agreed to by the Agent in writing. Upon execution and delivery by the Agent and such Subsidiary of an instrument in the form of Exhibit H hereto, such Subsidiary shall become a Subsidiary Party hereunder with the same force and effect as if originally named as a Subsidiary Party herein. The execution and delivery of any such instrument shall not require the consent of any other Loan Party hereunder. The rights and obligations of each Loan Party hereunder shall remain in full force and effect notwithstanding the addition of any new Loan Party as a party to this Security Agreement.
Section 7.12. Headings. The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.
Section 7.13. Termination or Release.
(a) This Security Agreement shall continue in effect until the Termination Date.
(b) A Subsidiary Party shall automatically be released from its obligations hereunder and the security interests created hereunder in the Collateral of such Subsidiary Party shall be automatically released upon the consummation of any transaction permitted pursuant to the Credit Agreement, as a result of which such Subsidiary Party ceases to be a Subsidiary.
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(c) Upon any sale, lease, transfer or other disposition by any Grantor of any Collateral that is permitted under Section 4.1(d) to any Person that is not another Grantor or, upon the effectiveness of any written consent to the release of the security interest granted hereby in any Collateral pursuant to Section 9.02 of the Credit Agreement, the security interest in such Collateral shall be automatically released.
(d) The security interests granted hereunder on any Collateral, to the extent such Collateral is comprised of property leased to a Loan Party, shall be automatically released upon termination or expiration of such lease, pursuant to Section 9.02 of the Credit Agreement.
(e) The Agent may, in its discretion, release the Lien on Collateral as provided in Section 9.02 of the Credit Agreement.
(f) In connection with any termination or release pursuant to paragraph (a), (b), (c), (d), or (e) above, the Agent shall promptly execute and deliver to any Grantor, at such Grantor’s expense, all financing change statements and similar documents that such Grantor shall reasonably request to evidence such termination or release. Any execution and delivery of documents pursuant to this Section 7.13 shall be without recourse to or representation or warranty by the Agent or any Secured Party. Without limiting the provisions of Section 7.18, the Company shall reimburse the Agent upon demand for all reasonable and documented costs and out of pocket expenses, including the fees, charges and expenses of counsel, incurred by it in connection with any action contemplated by this Section 7.13.
Section 7.14. Entire Agreement. This Security Agreement, together with the other Loan Documents, embodies the entire agreement and understanding between each Grantor and the Agent relating to the Collateral and supersedes all prior agreements and understandings, oral or written, between any Grantor and the Agent relating to the Collateral.
Section 7.15. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN.
Section 7.16. Consent to Jurisdiction.
(a) Each Grantor hereby irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of the province of Ontario, in any action or proceeding arising out of or relating to this Security Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such province. Each Grantor 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.
(b) Each Grantor hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Security Agreement in any court referred to in clause (a) of this Section. 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.
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(c) Each Grantor irrevocably consents to service of process in the manner provided for notices in Section 8.1 herein. Nothing in this Security Agreement or in any other Loan Document will affect the right of the Agent or any Secured Party to serve process in any other manner permitted by law.
Section 7.17. WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH GRANTOR (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 7.18. Indemnity. Each Grantor hereby agrees to indemnify and hold the Agent, the other Secured Parties, and their respective Related Parties harmless from, any and all losses, claims, damages, penalties, liabilities, and related expenses (including, without limitation, all expenses of litigation or preparation therefor whether or not the Agent or any Secured Party is a party thereto) imposed on, incurred by or asserted against the Agent or the Secured Parties, or their respective Related Parties, in any way relating to or arising out of this Security Agreement, to the extent the Grantor would be required to do so pursuant to Section 9.03 of the Credit Agreement.
Section 7.19. Counterparts. This Security Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Security Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Security Agreement.
Section 7.20. Gender and Number. Any reference in this Security Agreement to gender includes all genders and words importing the singular include the plural and vice versa.
Section 7.21. Judgment Currency. If, for the purposes of obtaining or enforcing judgment in any court or for any other purpose hereunder or in connection herewith, it is necessary to convert a sum due hereunder in any currency into another currency, such conversion shall be carried out to the extent and in the manner provided in Section 9.21of the Credit Agreement.
Section 7.22. Mortgages. In the case of a conflict between this Security Agreement and the Mortgages with respect to Collateral that is real property (including fixtures), the Mortgages shall govern. In all other conflicts between this Security Agreement and the Mortgages, this Security Agreement shall govern.
ARTICLE VIII.
NOTICES
Section 8.1. Sending Notices. All notices, requests and demands pursuant hereto shall be made in accordance with Section 9.01 of the Credit Agreement. All communications and notices hereunder to any Grantor shall be given to it in care of the Borrower Agent at the Borrower Agent’s address set forth in Section 9.01 of the Credit Agreement.
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Section 8.2. Change in Address for Notices. Each of the Grantors, the Agent and the Lenders may change the address or facsimile number for service of notice upon it by a notice in writing to the other parties.
ARTICLE IX.
THE AGENT
Bank of America, N.A. has been appointed Agent for the Lenders hereunder pursuant to Article VIII of the Credit Agreement. It is expressly understood and agreed by the parties to this Security Agreement that any authority conferred upon the Agent hereunder is subject to the terms of the delegation of authority made by the Lenders to the Agent pursuant to the Credit Agreement, and that the Agent has agreed to act (and any successor Agent shall act) as such hereunder only on the express conditions contained in such Article VIII. Any successor Agent appointed pursuant to Article VIII of the Credit Agreement shall be entitled to all the rights, interests and benefits of the Agent hereunder.
[Remainder of page intentionally left blank; signatures begin on following page.]
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IN WITNESS WHEREOF, each Grantor and the Agent have executed this Security Agreement as of the date first above written.
| GRANTORS: | ||
| ATD ACQUISITION CO. V INC. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| TRIWEST TRADING (CANADA) LTD. | ||
| By: | /s/ William E. Berry | |
| Name: | William E. Berry | |
| Title: | President & CEO | |
| AGENT: | ||
| BANK OF AMERICA, N.A., as Agent | ||
| By: | /s/ Seth Benefield | |
| Name: | Seth Benefield | |
| Title: | Senior Vice President | |
Canadian Pledge and Security Agreement
SCHEDULE 1
Excluded Accounts
Nil.
EXHIBIT A
Type of Organization, Jurisdiction of Organization, Organizational Identification
Number, Federal Employer Identification Number, Chief Executive Office, Locations
I. The corporate name, jurisdiction of organization, organizational identification number and federal employer identification number of each Grantor is as follows:
| Grantor |
Jurisdiction of Organization |
Organizational Identification Number | ||
| ATD Acquisition Co. V Inc. |
Canada | Corporation No. 8351562 (Canada) | ||
| Triwest Trading (Canada) Ltd. |
Canada | Corporation No. 0705861-1-R (Canada) |
II. Each Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is as follows:
| ATD Acquisition Co. V Inc. |
c/o CSC North America, Inc. 45 O’Connor Street Suite 1600 Ottawa, ON K1P 1A4 | |
| Triwest Trading (Canada) Ltd. |
16408 - 121A Avenue Edmonton, AB T5V 1J9 | |
III. (a) Each location that is owned by a Grantor where Collateral is located as of the date hereof (except for Inventory in transit) is as follows:
Nil.
(b) Each location that is leased by a Grantor where Collateral is located as of the date hereof (except for Inventory in transit) is as follows:
| Address |
City |
Province/ State |
Zip/ Postal Code | |||
| Building A – Unit 109 26868 56th Avenue |
Langley | BC | V4W 1N9 | |||
| #102 5498 – 267 St. |
Langley | BC | V4W 3S8 |
| Address |
City |
Province/State |
Zip/ Postal Code | |||
| 256 2nd Avenue |
Prince George | BC | V2L 4V7 | |||
| 1644 1st Avenue |
Prince George | BC | V2L 2Y9 | |||
| 1021 Waddington Drive |
Vernon | BC | V1T 9E2 | |||
| 921 Waddington Drive |
Vernon | BC | V1T 9E2 | |||
| 16408 – 121A Avenue N.W. |
Edmonton | AB | T5V 1J9 | |||
| 11749 – 180 Street |
Edmonton | AB | T5S 2J2 | |||
| 5018 – 68th Avenue S.E. (Alternatively described as 4770, 5150, and 5160 – 68th Avenue S.E. or 4990, 5160 68th Avenue S.E.) |
Calgary | AB | T2C 4N8 | |||
| 5366 – 55th Street S.E. |
Calgary | AB | T2C 3G9 | |||
| 226 Edson Street |
Saskatoon | SK | S7J 0P9 | |||
| 310 6th Avenue |
Regina | SK | S4N 5A4 | |||
| 1450 Wall Street |
Winnipeg | MB | R3E 2S3 | |||
| 1425 Whyte Avenue |
Winnipeg | MB | R3E 1V7 | |||
| 1695 Meyerside Drive |
Mississauga | ON | L5T 1B9 | |||
| 1705 Meyerside Drive | |
Mississauga | ON | L5T 1B9 | |||
| 400 – 1100 Polytek Street |
Ottawa | ON | K1J 0B3 | |||
| 90 rue de Rotterdam |
Saint-Augustin-de-Desmaures | QC | G3A 1S9 | |||
| 150 rue Brossard |
Delson | QC | J5B 1X1 | |||
| Unit #1 – 755 Foley Avenue |
Bathurst | NB | E2A 4W7 | |||
| Unit 5 – 1940 Hall Court Bathurst Industrial Park |
Bathurst | NB | E2A 4W7 | |||
| 500 Main Street |
Bathurst | NB | E2A 1B4 | |||
| 175 Beaverbrook Street |
Moncton | NB | E1C 9S4 | |||
| 175b Beaverbrook Street |
Moncton | NB | E1C 9S4 | |||
| 21 McCurdy Avenue |
Dartmouth | NS | B3B 1C4 | |||
| 191 Joseph Zatzman Drive |
Dartmouth | NS | B3B 1M5 |
(c) Each location where Collateral is held in a public warehouse or is otherwise held by a bailee or on consignment as of the date hereof (except for Inventory in transit) is as follows:
Nil.
Canadian Pledge and Security Agreement
EXHIBIT B
Bailees, Warehousemen and Third Party Possessors of Collateral
The following bailees, warehouseman and other third parties are in possession or control of Inventory of a Grantor (except for Inventory in transit):
| Name and Address of Party |
Nature of Relationship |
Value of Inventory |
Owner of Inventory | |||
| Nil. |
||||||
EXHIBIT C
[Intentionally Deleted]
EXHIBIT D
Intellectual Property Registrations and Applications
| I. | Patents and Patent Applications |
| Patent |
Owner |
Federal Registration No. | ||
| Nil. |
||||
| II. | Trademark Registrations and Applications |
| Trademark |
Owner |
Federal Registration No. | ||
| Nil. |
||||
| III. | Copyright Registrations |
| Copyright |
Owner |
Federal Registration No. | ||
| Nil. |
||||
EXHIBIT E
[Intentionally Deleted]
EXHIBIT F
Pledged Collateral
Equity Interests:
| Name of Issuer |
Record Owner |
Percentage of Total Issued and Outstanding Equity Interests | ||
| Nil. |
Indebtedness Owing to Grantors:
ATD Acquisition Co. V Inc. loan to Triwest Trading (Canada) Ltd., bearing interest at 12% per annum, with no fixed terms of repayment, and unsecured. The shareholder has agreed to provide twelve months’ written notice prior to calling the loan balance. Principal balance (2011) of $19,448,580.
EXHIBIT G
PPSA Filing Offices
Alberta
British Columbia
Manitoba
New Brunswick
Nova Scotia
Ontario
Quebec
Saskatchewan
EXHIBIT H
Form of Joinder
FORM OF
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this “Supplement”), to the Canadian Pledge and Security Agreement dated as of , 2012 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Security Agreement”), among ATD ACQUISITION CO. V INC., a corporation incorporated under the laws of Canada (together with its successors and permitted assigns, the “Initial Canadian Borrower”); TRIWEST TRADING (CANADA) LTD., a corporation incorporated under the laws of Canada (together with its successors and permitted assigns, “Triwest”); the Subsidiary Parties from time to time party thereto (collectively with the Initial Canadian Borrower and Triwest, the “Grantors” and each a “Grantor”); and BANK OF AMERICA, N.A., a national banking association, in its capacity as administrative agent for the lenders party to the Credit Agreement referred to below and in its capacity as collateral agent for the Secured Parties (in such capacities, together with its successors in such capacities, the “Agent”).
Reference is made to the Sixth Amended and Restated Credit Agreement dated as , 2012 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among the Grantors, AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the “Company”), the other Loan Parties, each subsidiary of the Company from time to time party thereto, the Lenders from time to time parties thereto, and Bank of America, N.A., as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement and the Security Agreement, as applicable, as referred to therein.
The Grantors have entered into the Security Agreement for the purpose of inducing the Lenders to amend and restate, and to extend credit to the Borrowers under, the Credit Agreement and to secure each Grantor’s Secured Obligations, including in the case of each Grantor that is a Loan Guarantor, its obligations under the Loan Guaranty. Section 7.11 of the Security Agreement and Section 5.11 of the Credit Agreement provide that (i) additional Canadian Subsidiaries (other than Excluded Subsidiaries) and (ii) any Canadian Subsidiary that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary may become Subsidiary Parties under the Security Agreement by execution and delivery of an instrument in the form of this Supplement. The undersigned Subsidiary (the “New Subsidiary”) is executing this Supplement in accordance with the requirements of the Credit Agreement or at the request of the Company to become a Subsidiary Party under the Security Agreement.
Accordingly, the Agent and the New Subsidiary hereby agree as follows:
SECTION 1. In accordance with Section 7.11 of the Security Agreement, the New Subsidiary by its signature below becomes a Subsidiary Party and Grantor under the Security Agreement with the same force and effect as if originally named therein as a Subsidiary
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Party and the New Subsidiary hereby (a) agrees to all the terms and provisions of the Security Agreement applicable to it as a Subsidiary Party and Grantor thereunder and (b) represents and warrants that the representations and warranties made by it as a Grantor thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, the New Subsidiary, as security for the payment and performance in full of such New Subsidiary’s Secured Obligations, does hereby create and grant to the Agent, its successors and assigns, for the benefit of the Secured Parties, their successors and assigns, a security interest in and Lien on all of the New Subsidiary’s right, title and interest in all of the following Collateral:
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Intellectual Property;
(iv) all Documents;
(v) all Equipment;
(vi) all fixtures;
(vii) all General Intangibles;
(viii) all Goods;
(ix) all Instruments;
(x) all Inventory;
(xi) all Investment Property;
(xii) all Deposit Accounts;
(xiii) all cash or other property deposited with the Agent or any Lender or any Affiliate of the Agent or any Lender or which the Agent, for its benefit and for the benefit of the other Secured Parties, or any Lender or such Affiliate is entitled to retain or otherwise possess as collateral pursuant to the provisions of this Security Agreement or any of the Loan Documents or any agreement relating to any letter of credit;
(xiv) all books, records, files, correspondence, computer programs, tapes, disks and related data processing software which contain information identifying or pertaining to any of the foregoing or any Account Debtor or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof; and
(xv) any and all accessions to, substitutions for and replacements, products and cash and non-cash proceeds of the foregoing (including any claims to any items
3
referred to in this definition and any claims against third parties for loss of, damage to or destruction of any or all of the Collateral or for proceeds payable under or unearned premiums with respect to policies of insurance) in whatever form, including cash, negotiable instruments and other instruments for the payment of money, Chattel Paper, security agreements and other documents.
Notwithstanding the foregoing or anything herein to the contrary, in no event shall the “Collateral” include, or the security interest attach to, any Excluded Asset.
Each reference to a “Grantor” in the Security Agreement shall be deemed to include and be a reference to the New Subsidiary.
SECTION 2. The New Subsidiary represents and warrants to the Agent and the other Secured Parties that this Supplement has been duly authorized, executed and delivered by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms.
SECTION 3. This Supplement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Supplement by facsimile or other electronic transmission shall be as effective as delivery of a manually executed counterpart of this Supplement.
SECTION 4. The New Subsidiary hereby represents and warrants that (a) set forth on Schedule I attached hereto is a true and correct schedule of the location of any and all Collateral of the New Subsidiary, (b) set forth on Schedule II attached hereto is a true and correct schedule of all the Pledged Collateral of the New Subsidiary, (c) set forth on Schedule III attached hereto is a true and correct schedule of all Patents, Trademarks and Copyrights of the New Subsidiary and (d) set forth under its signature hereto, is the true and correct legal name of the New Subsidiary, its jurisdiction of formation and the location of its chief executive office.
SECTION 5. Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.
SECTION 6. THIS SUPPLEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE FEDERAL LAWS OF CANADA APPLICABLE THEREIN.
SECTION 7. In case any one or more of the provisions contained in this Supplement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and in the Security Agreement shall not in any way be affected or impaired thereby (it being understood that the invalidity of a particular provision in a particular jurisdiction shall not in and of itself affect the validity of such provision in any other jurisdiction). The parties hereto shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
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SECTION 8. All communications and notices hereunder shall be in writing and given as provided in Section 8.1 of the Security Agreement.
SECTION 9. The New Subsidiary agrees to reimburse the Agent for its reasonable documented out-of-pocket expenses in connection with this Supplement, including, without limitation, the reasonable fees, other charges and disbursements of counsel for the Agent.
IN WITNESS WHEREOF, the New Subsidiary and the Agent have duly executed this Supplement to the Security Agreement as of the day and year first above written.
| [NAME OF NEW SUBSIDIARY] | ||
| By |
| |
| Name: | ||
| Title: | ||
| Legal Name: | ||
| Jurisdiction of Formation: | ||
| Location of Chief Executive office: | ||
| BANK OF AMERICA, N.A., as Agent | ||
| By |
| |
| Name: | ||
| Title: | ||
5
Schedule I
to the Joinder Agreement to the
Canadian Pledge and Security Agreement
LOCATION OF COLLATERAL
| Description |
Location |
Schedule II
to the Joinder Agreement to the
Canadian Pledge and Security Agreement
PLEDGED COLLATERAL
Schedule III
to the Joinder Agreement to the
Canadian Pledge and Security Agreement
INTELLECTUAL PROPERTY RIGHTS
PATENT AND PATENT APPLICATIONS
| Patent |
Owner |
Federal Registration No. | ||
TRADEMARK REGISTRATIONS AND APPLICATIONS
| Trademark |
Owner |
Federal Registration No. | ||
COPYRIGHT REGISTRATIONS
| Copyright |
Owner |
Federal Registration No. | ||
EXHIBIT I
Form of Collateral Access Agreement
FORM OF
COLLATERAL ACCESS AGREEMENT
THIS COLLATERAL ACCESS AGREEMENT (this “Access Agreement”) is made and entered into between Bank of America, N.A., together with any successor agent (the “Agent”), as agent for the lenders (collectively, the “Lenders”), and , a (hereinafter referred to as “Landlord”) and affects that real (immovable) property described on Exhibit A attached hereto and incorporated herein by this reference commonly known as (the “Premises”).
Landlord is the lessor of the Premises pursuant to the provisions of that certain Lease (the “Lease”), dated , between Landlord and , a corporation (the “Tenant”), as tenant.
The Agent, as agent for the Lenders, has, together with the Lenders, entered into that certain Sixth Amended and Restated Credit Agreement dated as of , 2012 (the same as it may be further amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) with, among others, the Tenant pursuant to which the Lenders have made or propose to make certain loans, extensions of credit or other financial accommodations to or for the benefit of the Tenant and under which the Tenant may incur obligations to the Lenders (all such loans and obligations now existing or hereafter arising together with interest thereon and other fees and charges in connection therewith being herein referred to as the “Secured Obligations”). The Secured Obligations are to be secured by, among other things, all inventory, accounts, general intangibles (incorporeals) and other personal (movable) property of the Tenant and the proceeds thereof (collectively, the “Collateral”).
The parties hereto agree as follows:
1. As between Agent and Landlord, neither Agent nor any Lender shall have any right, title or interest in or to (a) the security deposit, if any, and any rent which shall have been or which shall be paid by the Tenant to Landlord under and in accordance with the Lease (other than any portions thereof which shall be returned to Tenant in accordance with the Lease), or (b) the fixtures which are not readily removable trade fixtures (e.g., overhead doors and building systems, including HVAC, plumbing, electrical or sprinkler systems or related fixtures), and such items shall not constitute Collateral.
2. Landlord acknowledges and agrees that certain items constituting Collateral are or are to be located at, and may be affixed to, the Premises or improvements thereon.
3. The Collateral shall be and remain personal (movable) property notwithstanding the manner of their annexation to the Premises, their adaptability to the uses and purposes for which the Premises are used, or the intentions of the party making the annexation.
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4. Any rights which Landlord may claim to have in and to the Collateral, no matter how arising, shall be subject and subordinate to the rights, interests, hypothecs, and liens of Agent therein and Landlord hereby grants to Agent priority and preference and rank with respect thereto.
5. Landlord consents to the storage and installation of the Collateral on the Premises and grants to Agent a license, as set forth below, to enter on to the Premises to do any or all of the following with respect to the Collateral: assemble, have appraised, display, sever, remove, maintain, prepare for sale or lease, repair, lease, remove, transfer and/or sell (via one or more public auctions or private sales).
6. Upon the occurrence of any default, event of default, breach of any covenant or agreement in the Lease or other event or condition which would entitle Landlord and as a result of which Landlord intends to exercise any right, power or remedy thereunder (collectively, a “Lease Default”), and prior to the exercise of any right to terminate the Lease, or the exercise of any other remedies under the Lease, the Landlord will notify the Agent of such Lease Default pursuant to this notice provision at the address set forth below. The notice agreed to be given herein by the Landlord to the Agent will be in writing and sent by registered or certified mail, return receipt requested, to the address set forth below or at such other address as the Agent may specify by written notice to the Landlord at the address set forth below:
| If to Agent: | Bank of America, N.A. |
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| 300 Galleria Parkway, Suite 800 |
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| Atlanta, Georgia 30339 |
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| Attn: Portfolio Manager |
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| If to Landlord: |
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| Attn: |
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7. Agent shall have the right and license to occupy the Premises for the purposes described above, for a period not to exceed ninety (90) days (the length of such period being at Agent’s discretion), following Landlord’s placing Agent in possession of the Premises. Agent shall pay to Landlord, periodically, a daily license fee equivalent to one-thirtieth (1/30th) of the monthly rental provided for in the Lease between Landlord and Tenant without the Agent or any Lender incurring any other obligations as lessee under the Lease; provided, however, that the Agent shall pay the cost of utilities and its pro rata share of taxes during its occupation of the Premises. Any extensions of the foregoing 90-day period shall be with the written consent of Landlord and at the same rate.
8. All structural and cosmetic damage to the Premises caused by the removal of the Collateral shall be repaired to the reasonable satisfaction of Landlord by Agent at its expense. Agent shall indemnify and hold harmless Landlord for personal injury or property damage claims arising out of the Agent’s entry or its removal of Collateral arising from such entry.
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9. This Access Agreement shall continue until such time as all of Tenant’s obligations to Agent and the Lenders, and expenses (including, without limitation, reasonable attorneys fees) incurred in connection therewith, have been paid and all covenants and conditions as more specifically enumerated in the Credit Agreement have been fully performed.
10. This Access Agreement shall be governed and controlled by and interpreted under the laws of the Province of and shall inure to the benefit of and be binding upon the successors, heirs and assigns of the parties hereto, including, without limitation, any successor Agent.
Dated: , 20
| LANDLORD: |
, a | |||
| By |
| |||
| Title: |
| |||
| AGENT: |
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| Bank of America, N.A., as Agent for the Lenders | ||||
| By |
| |||
| Title: |
| |||
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EXHIBIT A
to the Form of Collateral Access Agreement
to the Canadian Pledge and Security Agreement
DESCRIPTION OF PROPERTY
Exhibit 12.1
American Tire Distributors Holdings, Inc.
Statement Regarding: Computation of Ratio of Earnings to Fixed Charges
(Amounts in thousands, except ratio amounts)
| Predecessor | Successor | |||||||||||||||||||||||||||||
| Twelve months Ended January 3, 2009 (unaudited) |
Twelve months Ended January 2, 2010 (unaudited) |
Five months Ended May 28, 2010 (unaudited) |
Seven months Ended January 1, 2011 (unaudited) |
Twelve months Ended December 31, 2011 (unaudited) |
Twelve months Ended December 29, 2012 (unaudited) |
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| Consolidated pretax income (loss) from operations |
$ | 21,044 | $ | 12,258 | $ | (51,303 | ) | $ | (59,607 | ) | $ | 4,474 | $ | (20,024 | ) | |||||||||||||||
| Interest |
59,169 | 54,415 | 32,669 | 37,391 | 67,580 | 72,918 | ||||||||||||||||||||||||
| Interest portion of rent expense |
12,390 | 15,822 | 6,599 | 9,738 | 19,499 | 24,652 | ||||||||||||||||||||||||
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| Earnings |
$ | 92,603 | $ | 82,495 | $ | (12,035 | ) | $ | (12,478 | ) | $ | 91,553 | $ | 77,546 | ||||||||||||||||
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| Interest |
$ | 59,169 | $ | 54,415 | $ | 32,669 | $ | 37,391 | $ | 67,580 | $ | 72,918 | ||||||||||||||||||
| Interest portion of rent expense |
12,390 | 15,822 | 6,599 | 9,738 | 19,499 | 24,652 | ||||||||||||||||||||||||
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| Fixed Charges |
$ | 71,559 | $ | 70,237 | $ | 39,268 | $ | 47,129 | $ | 87,079 | $ | 97,570 | ||||||||||||||||||
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| Ratio of Earnings to Fixed Charges |
1.29 | 1.17 | — | (a) | — | (b) | 1.05 | — | (c) | |||||||||||||||||||||
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| (a) | In the five months ended May 28, 2010, earnings were insufficient to cover fixed charges by $51.3 million |
| (b) | In the seven months ended January 1, 2011, earnings were insufficient to cover fixed charges by $59.6 million |
| (c) | In the twelve months ended December 29, 2012 earnings were insufficient to cover fixed charges by $20.0 million |
EXHIBIT 21.1
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
Chart of Subsidiaries
| Company | Place of Incorporation | |
| American Tire Distributors Holdings, Inc. |
Delaware | |
| American Tire Distributors, Inc. |
Delaware | |
| Am-Pac Tire Dist. Inc. |
California | |
| Tire Pros Francorp |
California | |
| Tire Wholesalers, Inc. |
Washington | |
| ATD Acquisition Co. IV |
Delaware | |
| Firestone of Denham Springs, Inc. |
Louisiana | |
| ATD Acquisition Co. V Inc. |
Canada | |
| Triwest Trading (Canada) Ltd. |
Canada | |
| TriCan Tire Distributors |
Canada |
EXHIBIT 31.1
CERTIFICATIONS
I, William E. Berry, certify that:
| 1. | I have reviewed this annual report on Form 10-K of American Tire Distributors Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 11, 2013
| /s/ WILLIAM E. BERRY |
| William E. Berry |
| President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATIONS
I, Jason T. Yaudes, certify that:
| 1. | I have reviewed this annual report on Form 10-K of American Tire Distributors Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 11, 2013
| /s/ JASON T. YAUDES |
| Jason T. Yaudes |
| Executive Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of American Tire Distributors Holdings, Inc., a Delaware corporation (the “Company”), hereby certifies that, to his best knowledge:
| (a) | the Annual Report on Form 10-K for the fiscal year ended December 29, 2012 (the “Report”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (b) | information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Dated: March 11, 2013 | By: | /s/ WILLIAM E. BERRY | ||
| Name: William E. Berry Title: President and Chief Executive Officer | ||||
| By: |
/s/ JASON T. YAUDES | |||
| Name: Jason T. Yaudes Title: Executive Vice President and Chief Financial Officer | ||||
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Income Taxes (Tables)
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Dec. 29, 2012
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| Income Tax Provision (Benefit) | The Company’s income tax provision (benefit) consisted of the following components:
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| Differences between Amount of Income Taxes Computed by Applying Applicable United States Statutory Federal Income Tax Rate and Pretax Income (Loss) | The provision (benefit) for income taxes differs from the amount of income taxes computed by applying the applicable U.S. statutory federal income tax rate of 35% to pretax income (loss), as a result of the following differences:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amounts Related to Deferred Income Taxes | As of December 29, 2012 and December 31, 2011, amounts related to deferred income taxes have been classified in the accompanying consolidated balance sheet as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax Effects of Significant Temporary Differences that Comprise Deferred Tax Assets and Liabilities | The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at December 29, 2012 and December 31, 2011 for the Successor are as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits | A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Changes in Carrying Amount of Goodwill (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | |
|---|---|---|
|
Dec. 29, 2012
|
Dec. 31, 2011
|
|
| Goodwill [Line Items] | ||
| Beginning balance | $ 446,787 | $ 431,065 |
| Purchase accounting adjustments | (11,312) | |
| Acquisitions | 36,457 | 27,034 |
| Currency translation | (101) | |
| Ending balance | $ 483,143 | $ 446,787 |
|
Intangible Assets Based on Estimated Fair Value (Detail) (USD $)
In Thousands, unless otherwise specified |
12 Months Ended | 1 Months Ended | |||
|---|---|---|---|---|---|
|
Dec. 29, 2012
Favorable Leases
|
Nov. 30, 2012
TriCan Tire Distributors
|
Nov. 30, 2012
TriCan Tire Distributors
Customer list
|
Nov. 30, 2012
TriCan Tire Distributors
Tradenames
|
Nov. 30, 2012
TriCan Tire Distributors
Favorable Leases
|
|
| Acquired Finite-Lived Intangible Assets [Line Items] | |||||
| Estimated Useful Life | 6 years | 17 years | 7 years | 6 years | |
| Intangible Assets, Estimated Fair Value | $ 44,621 | $ 4,958 | $ 361 | ||
| Intangible Assets, Estimated Fair Value | $ 49,940 | ||||
|
Changes in Options Outstanding under Two Thousand Five Plan (Detail) (Predecessor, 2005 Plan, USD $)
|
5 Months Ended |
|---|---|
|
May 28, 2010
|
|
|
Predecessor | 2005 Plan
|
|
| Options Outstanding | |
| Beginning balance | 149,015 |
| Forfeited | (4,296) |
| Termination | (144,719) |
| Options Outstanding, Weighted Average Exercise Price | |
| Beginning balance | $ 170.38 |
| Forfeited | $ 211.50 |
| Termination | $ 169.16 |
| Options Exercisable | |
| Beginning Balance | 67,468 |
| Termination | 108,785 |
| Options Exercisable, Weighted Average Exercise Price | |
| Beginning Balance | $ 117.65 |
| Termination | $ 155.17 |
|
Goodwill - Additional Information (Detail) (USD $)
|
Dec. 29, 2012
|
Dec. 31, 2011
|
Jan. 01, 2011
|
May 24, 2012
Consolidated Tire & Oil
|
Apr. 29, 2011
North Central Tire
|
May 28, 2010
Acquisition of Holdings
|
Nov. 30, 2012
TriCan Tire Distributors
|
|---|---|---|---|---|---|---|---|
| Goodwill [Line Items] | |||||||
| Goodwill, net | $ 483,143,000 | $ 446,787,000 | $ 431,065,000 | ||||
| Goodwill | 9,400,000 | 27,000,000 | 430,300,000 | 27,012,000 | |||
| Net goodwill, deductible for income tax purposes | $ 28,000,000 | ||||||
| Percentage of ownership interest acquired | 100.00% | 100.00% |
|
Income Tax Provision (Benefit) (Detail) (USD $)
In Thousands, unless otherwise specified |
7 Months Ended | 12 Months Ended | 5 Months Ended | |
|---|---|---|---|---|
|
Jan. 01, 2011
|
Dec. 29, 2012
|
Dec. 31, 2011
|
May 28, 2010
Predecessor
|
|
| Federal: | ||||
| Current provision (benefit) | $ 792 | $ 5,420 | $ 8,668 | $ 3,203 |
| Deferred provision (benefit) | (20,078) | (9,802) | (7,327) | (16,693) |
| Total | (19,286) | (4,382) | 1,341 | (13,490) |
| State: | ||||
| Current provision (benefit) | 960 | 1,884 | 3,278 | |
| Deferred provision (benefit) | (4,969) | (2,037) | (262) | (1,737) |
| Total | (4,009) | (153) | 3,016 | (1,737) |
| Foreign: | ||||
| Current provision (benefit) | 49 | |||
| Deferred provision (benefit) | (1,192) | |||
| Total | (1,143) | |||
| Total provision (benefit) | $ (23,295) | $ (5,678) | $ 4,357 | $ (15,227) |
|
Pro Forma Supplementary Data Related to Merger (Detail) (Acquisition of Holdings, USD $)
In Thousands, unless otherwise specified |
5 Months Ended |
|---|---|
|
May 28, 2010
|
|
|
Acquisition of Holdings
|
|
| Business Acquisition, Pro Forma Information [Line Items] | |
| Net sales | $ 934,925 |
| Net (loss) income | $ (17,835) |
|
Intangible Assets (Tables)
|
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 29, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Amount and Accumulated Amortization of Intangible Assets | The following table sets forth the gross amount and accumulated amortization of the Company’s intangible assets at December 29, 2012 and December 31, 2011 for the Successor:
|
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|
Assumptions Used to Determine Average Fair Value of Stock Options of Two Thousand Ten Plan (Detail) (2010 Plan)
|
7 Months Ended | 12 Months Ended | |
|---|---|---|---|
|
Jan. 01, 2011
|
Dec. 29, 2012
|
Dec. 31, 2011
|
|
|
2010 Plan
|
|||
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
| Risk-free interest rate | 1.97% | 1.48% | 2.41% |
| Dividend yield | |||
| Expected life | 6 years 6 months | 6 years 6 months | 6 years 4 months 24 days |
| Volatility | 39.45% | 42.81% | 40.75% |
|
Condensed Consolidating Statements of Comprehensive Income (Loss) (Detail) (USD $)
In Thousands, unless otherwise specified |
7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 5 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jan. 01, 2011
|
Dec. 29, 2012
|
Dec. 31, 2011
|
Jan. 01, 2011
Parent Company
|
Dec. 29, 2012
Parent Company
|
Dec. 31, 2011
Parent Company
|
Jan. 01, 2011
Subsidiary Issuer
|
Dec. 29, 2012
Subsidiary Issuer
|
Dec. 31, 2011
Subsidiary Issuer
|
Jan. 01, 2011
Subsidiary Guarantors
|
Dec. 29, 2012
Subsidiary Guarantors
|
Dec. 31, 2011
Subsidiary Guarantors
|
Jan. 01, 2011
Non-Guarantor Subsidiary
|
Dec. 29, 2012
Non-Guarantor Subsidiary
|
Dec. 31, 2011
Non-Guarantor Subsidiary
|
Jan. 01, 2011
Eliminations
|
Dec. 29, 2012
Eliminations
|
Dec. 31, 2011
Eliminations
|
May 28, 2010
Predecessor
|
May 28, 2010
Predecessor
Parent Company
|
May 28, 2010
Predecessor
Subsidiary Issuer
|
May 28, 2010
Predecessor
Subsidiary Guarantors
|
May 28, 2010
Predecessor
Non-Guarantor Subsidiary
|
May 28, 2010
Predecessor
Eliminations
|
|
| Condensed Financial Statements, Captions [Line Items] | ||||||||||||||||||||||||
| Net sales | $ 1,525,249 | $ 3,455,864 | $ 3,050,240 | $ 1,526,617 | $ 3,436,420 | $ 3,052,718 | $ 443 | $ 8,999 | $ 488 | $ (1,811) | $ 10,445 | $ (2,966) | $ 934,925 | $ 935,400 | $ 39 | $ (514) | ||||||||
| Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below | 1,316,679 | 2,887,421 | 2,535,020 | 1,316,286 | 2,866,048 | 2,534,697 | 387 | 7,528 | 282 | 6 | 13,845 | 41 | 775,678 | 775,671 | (2) | 9 | ||||||||
| Selling, general and administrative expenses | 228,513 | 506,408 | 437,110 | 223,901 | 491,761 | 430,095 | 1,014 | 3,131 | 906 | 3,598 | 11,516 | 6,109 | 135,146 | 5,892 | 123,483 | 3,230 | 2,541 | |||||||
| Transaction expenses | 1,315 | 5,246 | 3,946 | 1,315 | 4,863 | 3,946 | 383 | 42,608 | 42,608 | |||||||||||||||
| Operating income (loss) | (21,258) | 56,789 | 74,164 | (14,885) | 73,748 | 83,980 | (958) | (2,043) | (700) | (5,415) | (14,916) | (9,116) | (18,507) | (5,892) | (6,362) | (3,189) | (3,064) | |||||||
| Other (expense) income: | ||||||||||||||||||||||||
| Interest expense | (37,391) | (72,918) | (67,580) | (37,390) | (72,857) | (67,580) | (1) | (61) | (32,669) | (7,588) | (25,081) | |||||||||||||
| Other, net | (958) | (3,895) | (2,110) | (959) | (3,870) | (2,109) | (11) | 5 | (1) | 12 | (30) | (127) | (77) | (67) | 17 | |||||||||
| Equity earnings of subsidiaries | (36,312) | (14,346) | 117 | (3,882) | (12,021) | (255) | 40,194 | 26,367 | 138 | (26,597) | (4,432) | 31,029 | ||||||||||||
| Income (loss) from operations before income taxes | (59,607) | (20,024) | 4,474 | (36,312) | (14,346) | 117 | (57,116) | (15,000) | 14,036 | (970) | (2,038) | (701) | (5,403) | (15,007) | (9,116) | 40,194 | 26,367 | 138 | (51,303) | (40,077) | (35,952) | (3,256) | (3,047) | 31,029 |
| Income tax provision (benefit) | (23,295) | (5,678) | 4,357 | (20,804) | (654) | 13,919 | (379) | (626) | (683) | (2,112) | (4,398) | (8,879) | (15,227) | (4,001) | (9,355) | (966) | (905) | |||||||
| Net income (loss) | (36,312) | (14,346) | 117 | (36,312) | (14,346) | 117 | (36,312) | (14,346) | 117 | (591) | (1,412) | (18) | (3,291) | (10,609) | (237) | 40,194 | 26,367 | 138 | (36,076) | (36,076) | (26,597) | (2,290) | (2,142) | 31,029 |
| Comprehensive income (loss) | $ (36,091) | $ (14,552) | $ (41) | $ (36,091) | $ (14,552) | $ (41) | $ (36,091) | $ (14,552) | $ (41) | $ 36,091 | $ 14,552 | $ 41 | $ (34,090) | $ (34,090) | $ (34,090) | $ 34,090 | ||||||||
|
Commitments and Contingencies - Additional Information (Detail) (USD $)
|
1 Months Ended | 7 Months Ended | 12 Months Ended | 5 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|---|
|
Feb. 01, 2012
Facility
|
Mar. 31, 2002
Facility
|
Mar. 27, 2002
Facility
|
Jan. 01, 2011
|
Dec. 29, 2012
|
Dec. 31, 2011
|
May 28, 2010
Predecessor
|
Dec. 29, 2012
Minimum
|
Dec. 29, 2012
Maximum
|
|
| Commitments and Contingencies Disclosure [Line Items] | |||||||||
| Operating leases, expiration year | 2013 | 2026 | |||||||
| Operating lease, rent expense net of sublease income | $ 29,500,000 | $ 75,100,000 | $ 59,100,000 | $ 20,000,000 | |||||
| Number of facilities for sale and leaseback | 3 | 3 | |||||||
| Number of facility reacquired under sale-leaseback transaction | 1 | ||||||||
| Remaining lease payment term | 15 years | ||||||||
| Sale-leaseback transaction, renewal option period | 5 years | 10 years | |||||||
| Capital lease obligation | 12,469,000 | 14,118,000 | |||||||
| Total obligation as guarantor on lease | 2,800,000 | ||||||||
| Subleased rentals | $ 2,600,000 | ||||||||
| Guarantee obligation period | 6 years | ||||||||
|
Subsequent Event - Additional Information (Detail) (USD $)
|
12 Months Ended | 1 Months Ended | 1 Months Ended | |||||
|---|---|---|---|---|---|---|---|---|
|
Aug. 31, 2010
|
Dec. 29, 2012
Stock Options
Maximum
|
Dec. 29, 2012
Stock Options
Minimum
|
Feb. 15, 2013
Subsequent Event
|
Feb. 15, 2013
Subsequent Event
Maximum
|
Feb. 15, 2013
Subsequent Event
Before Amendment
|
Feb. 15, 2013
Subsequent Event
Stock Options
Maximum
|
Feb. 15, 2013
Subsequent Event
Stock Options
Minimum
|
|
| Subsequent Event [Line Items] | ||||||||
| Number of shares authorized for grant | 48,600,000 | 52,100,000 | 48,600,000 | |||||
| Number of shares of common stock approved to purchase for stock options | 3,500,000 | |||||||
| Stock options, exercise price of shares | $ 1.20 | |||||||
| Vesting period | 5 years | 3 years | 5 years | 3 years | ||||
|
Amounts Related to Deferred Income Taxes (Detail) (USD $)
In Thousands, unless otherwise specified |
Dec. 29, 2012
|
Dec. 31, 2011
|
|---|---|---|
| Deferred tax assets (liabilities): | ||
| Current | $ 16,458 | $ 15,042 |
| Noncurrent | (285,345) | (282,756) |
| Net deferred tax assets (liabilities) | $ (268,887) | $ (267,714) |
|
Subsidiary Guarantor Financial Information - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
May 28, 2010
|
|---|---|
|
Senior Notes
|
|
| Condensed Financial Statements, Captions [Line Items] | |
| Aggregate principal amount of senior notes issued | $ 250.0 |
|
Senior Notes | Predecessor
|
|
| Condensed Financial Statements, Captions [Line Items] | |
| Debt instrument, interest rate | 10.75% |
|
Senior Discount Notes | Predecessor
|
|
| Condensed Financial Statements, Captions [Line Items] | |
| Debt instrument, interest rate | 13.00% |
|
Senior Subordinated Notes
|
|
| Condensed Financial Statements, Captions [Line Items] | |
| Aggregate principal amount of senior notes issued | $ 200.0 |
|
Future Minimum Lease Commitments Net of Sublease Income (Detail) (USD $)
In Thousands, unless otherwise specified |
Dec. 29, 2012
|
|---|---|
| Operating Leased Assets [Line Items] | |
| 2013 | $ 75,271 |
| 2014 | 70,588 |
| 2015 | 60,715 |
| 2016 | 51,258 |
| 2017 | 46,013 |
| Thereafter | 158,610 |
| Total | $ 462,455 |
|
Assumptions Used to Determine Average Fair Value of Stock Options of Two Thousand Five Plan (Detail) (Predecessor, 2005 Plan)
|
1 Months Ended |
|---|---|
|
Mar. 31, 2010
|
|
|
Predecessor | 2005 Plan
|
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Risk-free interest rate | 1.26% |
| Dividend yield | |
| Expected remaining life | 2 years 3 months |
| Volatility | 44.00% |
|
Subsequent Event
|
12 Months Ended |
|---|---|
|
Dec. 29, 2012
|
|
| Subsequent Event | 17. Subsequent Event: On February 15, 2013, the board of directors of the Company’s indirect parent, Accelerate Parent Corp., amended the Management Equity Incentive Plan, or the 2010 Plan, to increase the maximum number of shares of common stock of the indirect parent company for which stock options may be granted under the 2010 Plan from 48.6 million to 52.1 million. In addition to the increase in the maximum number of shares, on February 15, 2013 the board of directors of Accelerate Parent Corp. approved the issuance of stock options to certain members of management. The approved options are for the purchase of up to 3.5 million shares of common stock, have an exercise price of $1.20 per share and vest over a three to five-year vesting period. |
|
Inventories - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 1 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
|
Oct. 02, 2010
Discontinue of selling certain products
|
May 28, 2010
Acquisition of Holdings
|
Dec. 29, 2012
TriCan Tire Distributors
|
Dec. 29, 2012
TriCan Tire Distributors
|
|
| Schedule of Inventory [Line Items] | ||||
| Inventory, estimated fair value adjustment | $ 58.8 | $ 6.3 | ||
| Inventory step-up amortization expense | 4.1 | 4.1 | ||
| Inventory, impairment charges | $ 1.0 | |||
| Percentage of net sales from goods | 1.70% | |||
|
Summary of Compensation Expense Recognized (Detail) (USD $)
In Thousands, unless otherwise specified |
7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 7 Months Ended | 12 Months Ended | 5 Months Ended | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jan. 01, 2011
|
Dec. 29, 2012
|
Dec. 31, 2011
|
Jan. 01, 2011
Stock Option
|
Dec. 29, 2012
Stock Option
|
Dec. 31, 2011
Stock Option
|
Jan. 01, 2011
Restricted Stock Units (RSUs)
|
Dec. 29, 2012
Restricted Stock Units (RSUs)
|
Dec. 31, 2011
Restricted Stock Units (RSUs)
|
May 28, 2010
Predecessor
|
May 28, 2010
Predecessor
Stock Option
|
|
| Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items] | |||||||||||
| Stock-based compensation expense | $ 3,706 | $ 4,349 | $ 4,114 | $ 3,687 | $ 4,118 | $ 3,999 | $ 19 | $ 231 | $ 115 | $ 5,892 | $ 5,892 |
|
Employee Benefits (Tables)
|
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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|
Dec. 29, 2012
|
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| Activity under Two Thousand Ten Restricted Stock Units Plan | The following table summarizes RSU activity under the 2010 RSU Plan:
|
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| Summary of Compensation Expense Recognized | The following table summarizes the compensation expense recognized:
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2005 Plan
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| Changes in Options Outstanding under Plan | Changes in options outstanding under the 2005 Plan are as follows:
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| Assumptions Used to Determine Weighted Average Fair Value of Stock Options | The average fair value of these stock options using the Black-Scholes option-pricing model was $363.34. The following assumptions were used:
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2010 Plan
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| Changes in Options Outstanding under Plan | Changes in options outstanding under the 2010 Plan are as follows:
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| Assumptions Used to Determine Weighted Average Fair Value of Stock Options | The weighted average fair value of the stock options granted during the fiscal years ended December 29, 2012 and December 31, 2011 and the seven months ended January 1, 2011 for the Successor was $0.50, $0.44 and $0.42, respectively, using the Black-Scholes option pricing model. The following weighted average assumptions were used:
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Major Classes of Property and Equipment (Detail) (USD $)
In Thousands, unless otherwise specified |
Dec. 29, 2012
|
Dec. 31, 2011
|
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 176,940 | $ 124,096 |
| Less-Accumulated depreciation | (47,058) | (24,166) |
| Property and equipment, net | 129,882 | 99,930 |
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Land
|
||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 2,108 | 3,578 |
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Building and leasehold improvements
|
||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 21,554 | 20,361 |
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Machinery and equipment
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||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 21,745 | 11,191 |
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Furniture and fixtures
|
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| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 39,863 | 31,692 |
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Internal use software
|
||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | 88,021 | 54,576 |
|
Vehicles and other
|
||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment, gross | $ 3,649 | $ 2,698 |
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Fair Value and Hierarchy Levels of Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (Fair Value, Measurements, Recurring, USD $)
In Thousands, unless otherwise specified |
Dec. 29, 2012
|
|---|---|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Benefit trust assets | $ 2,670 |
| Total | 2,670 |
| Derivative instruments liabilities | 2,213 |
| Total | 2,213 |
|
Level 1
|
|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Benefit trust assets | 2,670 |
| Total | 2,670 |
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Level 2
|
|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
| Derivative instruments liabilities | 2,213 |
| Total | $ 2,213 |
|
Derivative Instruments - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
1 Months Ended | 1 Months Ended | 1 Months Ended | 1 Months Ended | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Dec. 29, 2012
Interest Rate Swap
2Q 2009 Swap
|
May 28, 2010
Interest Rate Swap
2Q 2009 Swap
|
Jun. 04, 2009
Interest Rate Swap
2Q 2009 Swap
Predecessor
|
May 28, 2010
Interest Rate Swap
2Q 2009 Swap
Predecessor
|
May 28, 2010
Interest Rate Swap
4Q 2005 Swap
|
Oct. 11, 2005
Interest Rate Swap
4Q 2005 Swap
Predecessor
|
Dec. 29, 2012
Interest Rate Swap
3Q 2012 Swaps
|
Aug. 01, 2012
Interest Rate Swap
3Q 2012 Swaps
Derivative
|
Dec. 31, 2011
Interest Rate Swap
3Q 2012 Swaps
|
Dec. 29, 2012
Interest Rate Swap
3Q 2011 Swaps
|
Dec. 31, 2011
Interest Rate Swap
3Q 2011 Swaps
|
Sep. 23, 2011
Interest Rate Swap
3Q 2011 Swaps
Derivative
|
Feb. 24, 2011
Interest Rate Swap
1Q 2011 Swaps
Derivative
|
Aug. 01, 2012
Interest rate swap, fixed rate 0.655% and expire in June 2016 (one)
3Q 2012 Swaps
|
Aug. 01, 2012
Interest rate swap, fixed rate 0.655% and expire in June 2016 (two)
3Q 2012 Swaps
|
Sep. 23, 2011
Interest rate swap, fixed rate 0.74% and expire in September 2014
3Q 2011 Swaps
|
Sep. 23, 2011
Interest rate swap, fixed rate 1.0% and expire in September 2015
3Q 2011 Swaps
|
Feb. 24, 2011
Interest rate swap, fixed rate 0.585% and expired in February 2012
1Q 2011 Swaps
|
Dec. 29, 2012
Interest rate swap, fixed rate 0.585% and expired in February 2012
1Q 2011 Swaps
|
Dec. 31, 2011
Interest rate swap, fixed rate 0.585% and expired in February 2012
1Q 2011 Swaps
|
Feb. 24, 2011
Interest rate swap, fixed rate 1.105% and expire in February 2013
1Q 2011 Swaps
|
Dec. 29, 2012
Interest rate swap, fixed rate 1.105% and expire in February 2013
1Q 2011 Swaps
|
Dec. 31, 2011
Interest rate swap, fixed rate 1.105% and expire in February 2013
1Q 2011 Swaps
|
|
| Derivative [Line Items] | |||||||||||||||||||||||
| Notional amount of interest rate swap | $ 100.00 | $ 100.00 | $ 100.00 | $ 85.00 | $ 100.00 | $ 100.00 | $ 100.00 | $ 100.00 | $ 100.00 | $ 100.00 | $ 75.00 | $ 50.00 | $ 50.00 | $ 50.00 | $ 50.00 | $ 25.00 | $ 25.00 | $ 25.00 | $ 50.00 | $ 50.00 | $ 50.00 | ||
| Number of interest rate swap agreements | 2 | 2 | 2 | ||||||||||||||||||||
| Interest rate swap, applicable fixed interest rate | 1.45% | 4.79% | 0.655% | 0.655% | 0.74% | 1.00% | 0.585% | 1.105% | |||||||||||||||
| Interest rate swap, expiration date | 2016-06 | 2016-06 | 2014-09 | 2015-09 | 2012-02 | 2013-02 | |||||||||||||||||
| Interest rate swap, expiry date | Jun. 08, 2011 | Sep. 30, 2010 | |||||||||||||||||||||
| Derivative agreement terminated value | $ 0.9 | $ 1.9 | |||||||||||||||||||||
|
Preliminary Allocation of Purchase Price (Detail) (TriCan Tire Distributors, USD $)
In Thousands, unless otherwise specified |
Nov. 30, 2012
|
|---|---|
|
TriCan Tire Distributors
|
|
| Business Combination Allocation of Purchase Price [Line Items] | |
| Cash | $ 1,344 |
| Accounts receivable | 36,461 |
| Inventory | 45,445 |
| Other current assets | 495 |
| Property and equipment | 1,191 |
| Intangible assets | 49,940 |
| Other assets | 755 |
| Total assets acquired | 135,631 |
| Debt | |
| Accounts payable | 37,102 |
| Accrued and other liabilities | 14,609 |
| Deferred income taxes | 13,003 |
| Other liabilities | 475 |
| Total liabilities assumed | 65,189 |
| Net assets acquired | 70,442 |
| Goodwill | 27,012 |
| Purchase price | $ 97,454 |
|
Description of Company
|
12 Months Ended |
|---|---|
|
Dec. 29, 2012
|
|
| Description of Company | 1. Description of Company: American Tire Distributors Holdings, Inc. (also referred to herein as “Holdings”) is a Delaware corporation that owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. (“ATDI”), a Delaware corporation. Holdings has no significant assets or operations other than its ownership of ATDI. The operations of ATDI and its subsidiaries constitute the operations of Holdings presented under accounting principles generally accepted in the United States. Unless the context otherwise requires, “Company” herein refers to Holdings and its consolidated subsidiaries. The Company is primarily engaged in the wholesale distribution of tires, custom wheels and accessories, and related tire supplies and tools, representing 96.9%, 2.0% and 1.1%, respectively, of our net sales. Operating as one operating and reportable segment through a network of 121 distribution centers, including three redistribution centers in the United States, the Company offers access to an extensive breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs) to approximately 70,000 customers (approximately 62,000 in the U.S. and 8,000 in Canada). The Company’s customer base is comprised primarily of independent tire dealers with the remainder of other customers representing various national and corporate accounts. The Company serves a majority of the contiguous United States as well as Canada. The Company’s fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years will not be exactly comparable to the prior and subsequent 52-week fiscal years. The fiscal years ended December 29, 2012 and December 31, 2011 for the Successor each contain operating results for 52 weeks. The seven months ended January 1, 2011 for the Successor contains operating results for 31 weeks while the five months ended May 28, 2010 for the Predecessor contains operating results for 21 weeks. It should be noted that the Company and its recently acquired TriCan Tire Distributors (“TriCan”) subsidiary have different year-end reporting dates. TriCan has a calendar year-end reporting date of December 31. The impact from this difference on the consolidated financial statements is not material. |
|
Fair Values of Derivative Instruments Included within Consolidated Balance Sheets (Detail) (Derivatives not designated as hedges, Accrued expenses, USD $)
In Thousands, unless otherwise specified |
Dec. 29, 2012
|
Dec. 31, 2011
|
|---|---|---|
| Derivatives, Fair Value [Line Items] | ||
| Fair value of derivative instruments | $ 2,213 | $ 866 |
|
Interest rate swap, fixed rate 1.105% and expire in February 2013 | 1Q 2011 Swaps
|
||
| Derivatives, Fair Value [Line Items] | ||
| Fair value of derivative instruments | 149 | 303 |
|
Interest rate swap, fixed rate 0.585% and expired in February 2012 | 1Q 2011 Swaps
|
||
| Derivatives, Fair Value [Line Items] | ||
| Fair value of derivative instruments | 12 | |
|
Interest Rate Swap | 3Q 2011 Swaps
|
||
| Derivatives, Fair Value [Line Items] | ||
| Fair value of derivative instruments | 1,314 | 551 |
|
Interest Rate Swap | 3Q 2012 Swaps
|
||
| Derivatives, Fair Value [Line Items] | ||
| Fair value of derivative instruments | $ 750 |