UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the quarterly period ended September 28, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 333-171547
Colt Defense LLC
Colt Finance Corp.
(Exact name of Registrant as specified in its charter)
Delaware |
|
32-0031950 |
Delaware |
|
27-1237687 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
incorporation or organization) |
|
Identification No.) |
547 New Park Avenue, West Hartford, CT |
|
06110 |
(Address of principal executive offices) |
|
(Zip Code) |
(860) 232-4489
(Registrants telephone number, including area code)
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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the Registrant had 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 during the preceding 12 months (or for shorter period that the Registrant was required to submit and post such files). Yes x No o
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o |
|
Accelerated filer o |
|
Non-accelerated filer x |
|
Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x
The number of shares outstanding of the Registrants common stock as of November 25, 2014 was none.
COLT DEFENSE LLC AND SUBSIDIARIES
INDEX
Colt Defense LLC and Subsidiaries
(In thousands of dollars)
(Unaudited)
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
|
|
|
|
(As Restated) |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
3,963 |
|
$ |
12,594 |
|
Restricted cash |
|
771 |
|
771 |
| ||
Accounts receivable, net |
|
14,670 |
|
22,482 |
| ||
Inventories |
|
76,553 |
|
66,674 |
| ||
Deferred tax assets |
|
166 |
|
954 |
| ||
Other current assets |
|
3,013 |
|
5,962 |
| ||
Total current assets |
|
99,136 |
|
109,437 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
27,754 |
|
30,733 |
| ||
Goodwill |
|
50,749 |
|
51,225 |
| ||
Trademarks |
|
50,100 |
|
50,100 |
| ||
Intangible assets with finite lives, net |
|
10,798 |
|
13,415 |
| ||
Deferred financing costs |
|
5,954 |
|
7,742 |
| ||
Long-term restricted cash |
|
572 |
|
572 |
| ||
Other assets |
|
1,464 |
|
1,510 |
| ||
Total assets |
|
$ |
246,527 |
|
$ |
264,734 |
|
LIABILITIES AND DEFICIT |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Line of credit |
|
$ |
13,000 |
|
$ |
7,083 |
|
Accounts payable |
|
18,018 |
|
14,038 |
| ||
Accrued expenses (Note 11) |
|
26,078 |
|
22,158 |
| ||
Pension and retirement liabilities - current portion |
|
1,085 |
|
1,085 |
| ||
Customer advances and deferred income |
|
13,968 |
|
19,467 |
| ||
Long-term debt - current portion (Note 1 and 10) |
|
294,458 |
|
5,000 |
| ||
Accrued distributions to members |
|
|
|
670 |
| ||
Total current liabilities |
|
366,607 |
|
69,501 |
| ||
Long-term debt |
|
|
|
289,817 |
| ||
Pension and retirement liabilities |
|
22,881 |
|
21,670 |
| ||
Long-term deferred tax liability |
|
19,105 |
|
18,715 |
| ||
Long-term distribution payable to members |
|
2,277 |
|
2,277 |
| ||
Other long-term liabilities |
|
5,949 |
|
2,230 |
| ||
Total long-term liabilities |
|
50,212 |
|
334,709 |
| ||
Total liabilities |
|
416,819 |
|
404,210 |
| ||
Commitments and Contingencies (Note 17) |
|
|
|
|
| ||
Deficit: |
|
|
|
|
| ||
Accumulated deficit |
|
(158,412 |
) |
(130,136 |
) | ||
Accumulated other comprehensive loss |
|
(11,880 |
) |
(9,340 |
) | ||
Total deficit |
|
(170,292 |
) |
(139,476 |
) | ||
Total liabilities and deficit |
|
$ |
246,527 |
|
$ |
264,734 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Colt Defense LLC and Subsidiaries
Consolidated Statements of Operations
(In thousands of dollars)
(Unaudited)
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Net sales |
|
$ |
51,114 |
|
$ |
73,030 |
|
$ |
150,827 |
|
$ |
201,165 |
|
Cost of sales |
|
40,517 |
|
58,487 |
|
125,543 |
|
149,642 |
| ||||
Gross profit |
|
10,597 |
|
14,543 |
|
25,284 |
|
51,523 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Selling and commissions |
|
3,746 |
|
4,064 |
|
12,827 |
|
10,398 |
| ||||
Research and development |
|
1,250 |
|
1,714 |
|
3,885 |
|
4,015 |
| ||||
General and administrative |
|
4,088 |
|
3,896 |
|
11,798 |
|
10,641 |
| ||||
|
|
9,084 |
|
9,674 |
|
28,510 |
|
25,054 |
| ||||
Business development |
|
|
|
463 |
|
509 |
|
707 |
| ||||
Certain transaction cost (benefit) |
|
(12 |
) |
461 |
|
(12 |
) |
877 |
| ||||
Gain on effective settlement of contract (Note 3) |
|
|
|
(15,264 |
) |
|
|
(15,264 |
) | ||||
Restructuring cost (benefit) (Note 4) |
|
|
|
631 |
|
(76 |
) |
631 |
| ||||
Total operating expenses |
|
9,072 |
|
(4,035 |
) |
28,931 |
|
12,005 |
| ||||
Operating income |
|
1,525 |
|
18,578 |
|
(3,647 |
) |
39,518 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other expense (income): |
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
7,904 |
|
7,623 |
|
23,447 |
|
19,686 |
| ||||
Other (income)/expense, net |
|
(55 |
) |
306 |
|
(168 |
) |
(1,092 |
) | ||||
Total other expense, net |
|
7,849 |
|
7,929 |
|
23,279 |
|
18,594 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before provision for income taxes |
|
(6,324 |
) |
10,649 |
|
(26,926 |
) |
20,924 |
| ||||
Income tax expense (benefit) |
|
1,510 |
|
(208 |
) |
1,443 |
|
551 |
| ||||
Net (loss) income |
|
$ |
(7,834 |
) |
$ |
10,857 |
|
$ |
(28,369 |
) |
$ |
20,373 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Colt Defense LLC and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of dollars)
(Unaudited)
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Net (loss) income |
|
$ |
(7,834 |
) |
$ |
10,857 |
|
$ |
(28,369 |
) |
$ |
20,373 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation losses |
|
(975 |
) |
457 |
|
(1,115 |
) |
(1,140 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Pension and postretirement benefit liabilities: |
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income arising during the period |
|
(1 |
) |
|
|
(1,551 |
) |
|
| ||||
Reclassification adjustment for unrecognized prior service costs and unrecognized loss included in net income (loss) |
|
43 |
|
126 |
|
126 |
|
376 |
| ||||
|
|
42 |
|
126 |
|
(1,425 |
) |
376 |
| ||||
Comprehensive (loss) income |
|
$ |
(8,767 |
) |
$ |
11,440 |
|
$ |
(30,909 |
) |
$ |
19,609 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Colt Defense LLC and Subsidiaries
Consolidated Statements of Changes in Cash Flows
(In thousands of dollars)
(Unaudited)
|
|
For the Nine Months Ended |
| ||||
|
|
September 28, 2014 |
|
September 29, 2013 |
| ||
|
|
|
|
(As Revised) |
| ||
Operating Activities |
|
|
|
|
| ||
Net income (loss) |
|
$ |
(28,369 |
) |
$ |
20,373 |
|
Adjustments to reconcile net income (loss) to net cash (used in)/provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
|
7,086 |
|
4,294 |
| ||
Amortization of financing fees |
|
1,788 |
|
1,403 |
| ||
Amortization of debt discount |
|
947 |
|
486 |
| ||
Postretirement health plan curtailment |
|
(98 |
) |
|
| ||
Deferred income taxes |
|
1,239 |
|
(196 |
) | ||
Gain on sale/disposals of fixed assets |
|
|
|
(15,264 |
) | ||
Other non-cash items |
|
|
|
110 |
| ||
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
| ||
Accounts receivable |
|
7,464 |
|
2,954 |
| ||
Inventories |
|
(10,034 |
) |
(17,514 |
) | ||
Prepaid expenses and other current assets |
|
2,904 |
|
(243 |
) | ||
Accounts payable and accrued expenses |
|
7,812 |
|
16,014 |
| ||
Accrued pension and retirement liabilities |
|
(214 |
) |
(877 |
) | ||
Customer advances and deferred income |
|
(3,732 |
) |
(726 |
) | ||
Other |
|
2,462 |
|
531 |
| ||
Net cash (used in)/provided by operating activities |
|
10,745 |
|
11,345 |
| ||
Investing Activities |
|
|
|
|
| ||
Purchases of property and equipment |
|
(1,710 |
) |
(6,615 |
) | ||
Business acquisition, net of cash acquired and reinvested Merger consideration |
|
|
|
(59,488 |
) | ||
Change in restricted cash |
|
|
|
(355 |
) | ||
Net cash used in investing activities |
|
(1,710 |
) |
(66,458 |
) | ||
Financing Activities |
|
|
|
|
| ||
Debt issuance costs |
|
(56 |
) |
(1,961 |
) | ||
Repayments of long-term debt |
|
(1,250 |
) |
|
| ||
Term Loan Borrowings |
|
|
|
47,742 |
| ||
Line of credit advances |
|
13,500 |
|
(6 |
) | ||
Line of credit repayments |
|
(7,583 |
) |
|
| ||
Capital lease obligation repayment |
|
|
|
(393 |
) | ||
Proceeds from issuance of common units, net of reinvested consideration proceeds |
|
|
|
5,000 |
| ||
Purchase of common units |
|
|
|
(14,000 |
) | ||
Distributions paid to members |
|
(683 |
) |
(2,557 |
) | ||
Net cash provided by financing activities |
|
3,928 |
|
33,825 |
| ||
Effect of exchange rates on cash and cash equivalents |
|
(104 |
) |
(478 |
) | ||
Change in cash and cash equivalents |
|
(8,631 |
) |
(21,766 |
) | ||
Cash and cash equivalents, beginning of period |
|
12,594 |
|
42,373 |
| ||
Cash and cash equivalents, end of period |
|
$ |
3,963 |
|
$ |
20,607 |
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
| ||
Cash paid for interest |
|
$ |
14,031 |
|
$ |
11,503 |
|
Cash paid for income taxes |
|
726 |
|
1,354 |
| ||
Non-cash consideration for sale of equipment |
|
|
|
7 |
| ||
Accrued purchases of fixed assets |
|
156 |
|
9 |
| ||
Accrued distribution to members |
|
|
|
4,948 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements (unaudited)
(in thousands of dollars)
Note 1 Nature of Business
Colt Defense LLC (Colt Defense or the Company) is one of the worlds oldest and most renowned designers, developers and manufacturers of firearms for military, personal defense and recreational purposes. The Companys founder, Samuel Colt, patented the first commercially successful revolving cylinder firearm in 1836 and, in 1847, began supplying U.S. and international military customers with firearms that have set the standards of their era. Today, the Companys end customers encompass every segment of the worldwide firearms market, including U.S., Canadian and foreign military forces, global law enforcement and security agencies, consumers seeking personal protection, the hunting and sporting community and collectors.
Going Concern
During the third quarter of 2014, the Company faced increasing liquidity challenges as a result of several recent business trends impacting the Companys current and forecasted revenues and cash flows. These trends included the continued decline in market demand for the Companys commercial modern sporting rifle (MSR), recent declines in demand for the Companys commercial handguns and delays in anticipated timing of U.S. Government and certain international sales. As a result, the Company expects to report lower revenues and Adjusted EBITDA (see Note 18 Segment Information) for the year-ended December 31, 2014 than it had previously forecasted. These trends are expected to continue to put pressure on the Companys liquidity for the foreseeable future.
Managements plan to mitigate the business risk associated with the Companys increased liquidity challenges include: (i) seeking revenue growth across all sales channels, (ii) executing initiatives designed to optimize the Companys performance and reduce costs, (iii) managing inventory levels for positive cash flow by focusing the production schedule on the Companys backlog of firm commitments, (iv) working closely with U.S. Government regulators to obtain timely approval of international sales and (v) seeking ways to restructure the Companys unsecured debt to reduce overall debt service costs.
As announced in the Companys Form 12b-25 filed on November 12, 2014, there was uncertainty about whether the Company would have the cash necessary to pay its November 17, 2014 senior notes interest payment under the Companys senior notes issued on November 10, 2009 by Colt Defense LLC and Colt Finance Corp. (Senior Notes). On November 17, 2014, the Company entered into a $70,000 senior secured term loan facility with Wilmington Savings Fund Society, FSB, as agent and Morgan Stanley Senior Funding Inc., as lender, (the MS Term Loan) (see Note 22 Subsequent Events) which replaced the Companys existing Term Loan agreement (see Note 10 Notes Payable and Long-Term Debt Term Loan) and provided the Company a net amount of $4,101 of additional liquidity. The MS Term Loan also enabled the Company to make its November 17, 2014 Senior Notes interest payment of $10,938. In addition, the lenders, under the Companys existing Credit Agreement (see Note 10 Notes Payable and Long-Term Debt Credit Agreement), also agreed to amendments to the Credit Agreement which allowed the Company to enter into the MS Term Loan and provided for additional liquidity through a modification of excess availability thresholds.
After giving effect to the aforementioned market and business challenges as well as the sales opportunities that the Company believes exist, the Company has forecasted revenue and Adjusted EBITDA growth in 2015. There can be no assurance that the actual demand for the Companys commercial MSRs or commercial handguns will meet the Companys internal forecast. In addition, there can be no assurance that U.S. Government or international sales will occur as the Company has forecasted primarily due to a U.S. Government regulatory approval process which is difficult to predict. As a result of these factors, and notwithstanding the additional cash the Company obtained from the MS Term Loan, risk exists with respect to the Company achieving its internally forecasted results and projected cash flows for the remainder of 2014 and 2015. Absent the Company achieving its internal forecast for the remainder of 2014 and 2015 and the successful execution of Managements strategy, including addressing other long-term debt such as the Senior Notes, it is probable that the Company may not have sufficient cash and cash equivalents on-hand along with availability under its Credit Agreement, as amended, to be able to meet its obligations as they come due over the next 12 months, including the Companys May 15, 2015 Senior Notes interest payment of $10,938.
As it is probable that the Company may not have sufficient liquidity to be able to make its May 15, 2015 Senior Notes interest payment without meeting the Companys internal projections (including addressing the Companys Senior Notes), the Companys long-term debt has been classified as current on the consolidated balance sheet. Currently the Company does not have sufficient funds to repay the Senior Notes upon an actual acceleration of maturity. In the event of an accelerated maturity, the Companys lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact the Companys liquidity (see Note 9 Liquidity). These factors raise substantial doubt about the Companys ability to continue as a going concern.
As of January 1, 2014, Colt Defense effected a legal entity restructuring whereby Colt Defense and New Colt Holding Corp. (New Colt) (See Note 3, Acquisition and Note 12, Income Taxes) contributed their assets and operations to Colts Manufacturing Company LLC (Colts Manufacturing), a limited liability corporation. The contribution created a combined operating entity for the Companys U.S. based operations.
As of December 31, 2013, Colt Defense owned 100% of Colt Finance Corp. (Colt Finance), New Colt and Colt Defense Technical Services LLC (CDTS), New Colt owned 100% of Colts Manufacturing and Colt Defense and CDTS collectively owned 100% of Colt International which owned 100% of Colt Canada Corporation (Colt Canada). Effective January 1, 2014, Colt Defense, a limited liability corporation, owned 100% of Colt Finance, New Colt, a C corporation, and CDTS, a limited liability corporation. Colt Defense and New Colt collectively own 100% of Colts Manufacturing as a result of the legal entity restructuring and Colt Defense and CDTS collectively own 100% of Colt International Coöperatief U.A. (Colt International), a Dutch coöperatief, which owns 100% of Colt Canada a Canadian C corporation.
The company operates on a monthly 4-4-5 week calendar with the end of each month on a Sunday, except for the month of December which ends on the 31st. The first two months of each quarter, with the exception of January, have four weeks and the third month of each quarter, with the exception of December, has five weeks. The 4-4-5 calendar ensures that the end date of the period is always the same day of the week, which is utilized by the Company for shift and manufacturing planning, and it also ensures that every period is the same length.
On March 31, 2014, Colt Defense through its domestic operating subsidiary Colts Manufacturing reached an agreement with UAW Local 376 for a new five year contract covering approximately 529 employees. The new contract will be in effect from April 1, 2014 through March 31, 2019.
The following items, which are discussed in further detail in the notes to the consolidated financial statements for the third quarter of 2014 had an impact on the Companys results as included in the Form 10-Q:
The Company restated its Annual Report on Form 10-K/A for the year ended December 31, 2013 and revised the unaudited interim financial statements for the first three quarters in the fiscal year ended December 31, 2013 (see Note 2, Summary of Significant Accounting Policies Restatement of Previously Issued Consolidated Financial Statements).
On August 6, 2014, the Company entered into Amendment No. 1 to the Term Loan (the Term Loan Amendment). Absent an amendment to the Term Loan, the Company would have been in violation of certain of its financial covenants as of June 29, 2014 and September 28, 2014. The Term Loan Amendment eliminated and modified certain covenants and provided for an extension of the time period for delivery of certain financial information to its lenders. Also, on August 6, 2014, the Company obtained an amendment to its credit agreement (Credit Agreement) that provided an extension of the time period for delivery of certain financial information to its lenders, (See Note 10, Notes Payable and Long-Term Debt).
In response to, among other factors, the decrease in demand for commercial rifles, the Company initiated actions which resulted in a workforce reduction of 33 salaried and 64 hourly employees in the second and third quarters of 2014 (see Note 17, Commitments and Contingencies). In conjunction with the workforce reduction, the Company recognized a curtailment of its postretirement health plan during the second quarter of 2014 (see Note 13, Pension and Postretirement Benefits).
During the third quarter of 2014, based upon new, additional information, the Company reassessed the M240 machine gun program (the M240 Program) accruals and determined an incremental contract obligation expense of $1,722 was required. The incremental contract obligation expense related to additional inventory reserves for defective parts. In addition, during the third quarter of 2014 the Company recorded a $200 increase in sales and a corresponding increase in cost of sales related to a contract modification signed in the fourth quarter of this year with the U.S. Government. The Company continues to evaluate its M240 Program and believes sales of M240 machine guns will commence in the first quarter of 2015. (See Note 17, Commitments and Contingencies)
Note 2 Summary of Significant Accounting Policies
Restatement of Previously Issued Consolidated Financial Statements
In the Companys 2013 Annual Report on Form 10-K/A, it restated its previously issued consolidated financial statements and the related disclosures for the year ended December 31, 2013 (the Restated Period). The Company also revised the unaudited interim financial statements for the first three quarters in the fiscal year ended December 31, 2013 and the fourth quarter in the fiscal year ended December 31, 2012 (the Revised Periods).
The restatement is the result of the Companys correction of a financial statement error attributable to the lack of recognition of the impact of a contract modification related to the M240 Program for the U.S. Government in the Companys fourth quarter 2013 results. There was no impact to the Companys net sales or cost of sales in the three and nine month periods ended September 29, 2013 related to the M240 Program error. In conjunction with the correction of the M240 Program error, other previously recorded, immaterial out-of-period adjustments were also adjusted to be reflected in the proper period, along with the reclassification of business development expenses from other expense (income) to operating income. Correction of these previously recorded, immaterial out-of-period adjustments had the combined effect on the consolidated statements of operations for the three and nine month periods ended September 29, 2013 of decreasing net income by $288 and $0, respectively.
The impacts of correcting the previously recorded, immaterial out-of-period adjustments and the reclassification of business development expenses for the three and nine month periods ended September 29, 2013 were as follows:
|
|
Adjustments to |
| |||
|
|
Previously Reported Income |
| |||
|
|
Statement - Income / (Expense) |
| |||
|
|
Three Months Ended |
|
Nine Months Ended |
| |
For the years ended |
|
September 29, 2013 |
|
September 29, 2013 |
| |
Net sales |
|
$ |
(208 |
) |
(231 |
) |
Cost of sales |
|
(168 |
) |
(89 |
) | |
Gross profit |
|
(40 |
) |
(142 |
) | |
Selling and commissions (A) |
|
221 |
|
12 |
| |
Research and development |
|
4 |
|
6 |
| |
General and administrative (B) |
|
10 |
|
(207 |
) | |
Business development (C) |
|
463 |
|
707 |
| |
Operating income |
|
(738 |
) |
(660 |
) | |
Other (income) / expense (C) |
|
(440 |
) |
(707 |
) | |
Income tax expense |
|
(10 |
) |
47 |
| |
Net income (loss) (B) |
|
(288 |
) |
|
| |
(A) Primarily relates to the reclassification of $214 of armorers training expenses from selling and commissions to cost of sales.
(B) Primarily relates to the timing of recognition of certain professional fees.
(C) Primarily relates to the reclassification of transaction costs incurred in connection with contemplated merger and acquisition activities from other expense/(income) to business development.
This Quarterly Report on Form 10-Q for the quarter ended September 28, 2014 includes the impact of adjustments to the Restated Period and Revised Periods on the applicable unaudited quarterly financial information for the quarter ended September 29, 2013. In addition, the Companys future Quarterly Reports on Form 10-Q for subsequent quarterly periods during 2014 will also include the impact of adjustments to the Restated Period and Revised Periods on applicable 2013 comparable prior quarter and year to date periods. The effect of the revision on previously issued quarterly information as of and for the three and nine months ended September 29, 2013, is set forth in this footnote.
Comparison of revised financial statements to financial statements as previously reported
The following tables compare the Companys previously reported Consolidated Statements of Operations, Comprehensive Income (Loss) and Changes in Cash Flows for the quarter ended September 29, 2013 to the corresponding financial statements for the quarterly period as revised.
Colt Defense LLC and Subsidiaries
Consolidated Statement of Operations
(In thousands of dollars)
(Unaudited)
|
|
Three months ended September 29, 2013 |
|
Nine months ended September 29, 2013 |
| ||||||||||||||
|
|
|
|
|
|
As Revised |
|
|
|
|
|
As Revised |
| ||||||
|
|
As |
|
|
|
in this Quarterly |
|
As |
|
|
|
in this Quarterly |
| ||||||
|
|
Previously |
|
|
|
Report on |
|
Previously |
|
|
|
Report on |
| ||||||
|
|
Reported |
|
Adjustments |
|
Form 10-Q |
|
Reported |
|
Adjustments |
|
Form 10-Q |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net sales |
|
$ |
73,238 |
|
$ |
(208 |
) |
$ |
73,030 |
|
$ |
201,396 |
|
$ |
(231 |
) |
$ |
201,165 |
|
Cost of sales |
|
58,655 |
|
(168 |
) |
58,487 |
|
149,731 |
|
(89 |
) |
149,642 |
| ||||||
Gross Profit |
|
14,583 |
|
(40 |
) |
14,543 |
|
51,665 |
|
(142 |
) |
51,523 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Selling and commissions |
|
3,843 |
|
221 |
|
4,064 |
|
10,386 |
|
12 |
|
10,398 |
| ||||||
Research and development |
|
1,710 |
|
4 |
|
1,714 |
|
4,009 |
|
6 |
|
4,015 |
| ||||||
General and administrative |
|
3,886 |
|
10 |
|
3,896 |
|
10,848 |
|
(207 |
) |
10,641 |
| ||||||
|
|
9,439 |
|
235 |
|
9,674 |
|
25,243 |
|
(189 |
) |
25,054 |
| ||||||
Business development |
|
|
|
463 |
|
463 |
|
|
|
707 |
|
707 |
| ||||||
Certain transaction costs |
|
461 |
|
|
|
461 |
|
877 |
|
|
|
877 |
| ||||||
Gain on effective settlement of contract (Note 3) |
|
(15,264 |
) |
|
|
(15,264 |
) |
(15,264 |
) |
|
|
(15,264 |
) | ||||||
Restructuring costs (Note 4) |
|
631 |
|
|
|
631 |
|
631 |
|
|
|
631 |
| ||||||
Total operating expenses |
|
(4,733 |
) |
698 |
|
(4,035 |
) |
11,487 |
|
518 |
|
12,005 |
| ||||||
Operating income |
|
19,316 |
|
(738 |
) |
18,578 |
|
40,178 |
|
(660 |
) |
39,518 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Other expense/(income): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
|
7,623 |
|
|
|
7,623 |
|
19,686 |
|
|
|
19,686 |
| ||||||
Other (income)/expense, net |
|
746 |
|
(440 |
) |
306 |
|
(385 |
) |
(707 |
) |
(1,092 |
) | ||||||
Total other expenses, net |
|
8,369 |
|
(440 |
) |
7,929 |
|
19,301 |
|
(707 |
) |
18,594 |
| ||||||
Income (loss) before provision for income taxes |
|
10,947 |
|
(298 |
) |
10,649 |
|
20,877 |
|
47 |
|
20,924 |
| ||||||
Income tax expense |
|
(198 |
) |
(10 |
) |
(208 |
) |
504 |
|
47 |
|
551 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income (loss) |
|
$ |
11,145 |
|
$ |
(288 |
) |
$ |
10,857 |
|
$ |
20,373 |
|
$ |
|
|
$ |
20,373 |
|
Colt Defense LLC and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of dollars)
(Unaudited)
|
|
For the Three Months Ended September 29, 2013 |
| |||||||
|
|
|
|
|
|
As Revised |
| |||
|
|
As |
|
|
|
in this Quarterly |
| |||
|
|
Previously |
|
|
|
Report on |
| |||
|
|
Reported |
|
Adjustments |
|
Form 10-Q |
| |||
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
$ |
11,145 |
|
$ |
(288 |
) |
$ |
10,857 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
| |||
Foreign currency translation adjustment: |
|
|
|
|
|
|
| |||
Foreign currency translation gains (losses) |
|
465 |
|
(8 |
) |
457 |
| |||
Pension and postretirement benefit liabilities: |
|
|
|
|
|
|
| |||
Other comprehensive income (loss) arising during the period |
|
|
|
|
|
|
| |||
Reclassification adjustment for unrecognized prior service costs and unrecognized loss included in net income (loss) |
|
126 |
|
|
|
126 |
| |||
|
|
126 |
|
|
|
126 |
| |||
Comprehensive income (loss) |
|
$ |
11,736 |
|
$ |
(296 |
) |
$ |
11,440 |
|
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of dollars)
(Unaudited)
|
|
For the Nine Months Ended September 29, 2013 |
| |||||||
|
|
|
|
|
|
As Revised |
| |||
|
|
As |
|
|
|
in this Quarterly |
| |||
|
|
Previously |
|
|
|
Report on |
| |||
|
|
Reported |
|
Adjustments |
|
Form 10-Q |
| |||
|
|
|
|
|
|
|
| |||
Net income (loss) |
|
$ |
20,373 |
|
$ |
|
|
$ |
20,373 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
| |||
Foreign currency translation adjustment: |
|
|
|
|
|
|
| |||
Foreign currency translation gains (losses) |
|
(1,132 |
) |
(8 |
) |
(1,140 |
) | |||
Pension and postretirement benefit liabilities: |
|
|
|
|
|
|
| |||
Other comprehensive income (loss) arising during the period |
|
|
|
|
|
|
| |||
Reclassification adjustment for unrecognized prior service costs and unrecognized loss included in net income (loss) |
|
376 |
|
|
|
376 |
| |||
|
|
376 |
|
|
|
376 |
| |||
Comprehensive income (loss) |
|
$ |
19,617 |
|
$ |
(8 |
) |
$ |
19,609 |
|
Colt Defense LLC and Subsidiaries
Consolidated Statement of Changes in Cash Flows
(In thousands of dollars)
(Unaudited)
|
|
For the Nine Months Ended September 29, 2013 |
| |||||||
|
|
|
|
|
|
As Revised |
| |||
|
|
As |
|
|
|
in this Quarterly |
| |||
|
|
Previously |
|
|
|
Report on |
| |||
|
|
Reported |
|
Adjustments |
|
Form 10-Q |
| |||
Operating Activities |
|
|
|
|
|
|
| |||
Net income |
|
$ |
20,373 |
|
$ |
|
|
$ |
20,373 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
4,294 |
|
|
|
4,294 |
| |||
Amortization of financing fees |
|
1,403 |
|
|
|
1,403 |
| |||
Amortization of debt discount |
|
486 |
|
|
|
486 |
| |||
Deferred income taxes |
|
(195 |
) |
(1 |
) |
(196 |
) | |||
Gain on sale/disposals of fixed assets |
|
(15,264 |
) |
|
|
(15,264 |
) | |||
Other non-cash items |
|
110 |
|
|
|
110 |
| |||
Changes in operating assets and liabilites, net of acquisition: |
|
|
|
|
|
|
| |||
Accounts receivable |
|
2,713 |
|
241 |
|
2,954 |
| |||
Inventories |
|
(17,644 |
) |
130 |
|
(17,514 |
) | |||
Prepaid expense and other current assets |
|
46 |
|
(289 |
) |
(243 |
) | |||
Accounts payable and accrued expense |
|
16,299 |
|
(285 |
) |
16,014 |
| |||
Accrued pension and retirement liabilities |
|
(1,089 |
) |
212 |
|
(877 |
) | |||
Customer advances and deferred income |
|
(726 |
) |
|
|
(726 |
) | |||
Other |
|
531 |
|
|
|
531 |
| |||
Net cash provided by operating activities |
|
11,337 |
|
8 |
|
11,345 |
| |||
Investing Activities |
|
|
|
|
|
|
| |||
Purchase of property and equipment |
|
(6,615 |
) |
|
|
(6,615 |
) | |||
Business acquisition, net of cash acquired and reinvested Merger consideration |
|
(63,488 |
) |
4,000 |
|
(59,488 |
) | |||
Change in restricted cash |
|
(355 |
) |
|
|
(355 |
) | |||
Net cash used in investing activities |
|
(70,458 |
) |
4,000 |
|
(66,458 |
) | |||
Financing Activities |
|
|
|
|
|
|
| |||
Debt issuance costs |
|
(1,961 |
) |
|
|
(1,961 |
) | |||
Term Loan Borrowings |
|
47,742 |
|
|
|
47,742 |
| |||
Line of credit advances |
|
(6 |
) |
|
|
(6 |
) | |||
Capital lease obligation repayment |
|
(393 |
) |
|
|
(393 |
) | |||
Proceeds from issuance of common units, net of reinvested consideration proceeds |
|
9,000 |
|
(4,000 |
) |
5,000 |
| |||
Purchase of common units |
|
(14,000 |
) |
|
|
(14,000 |
) | |||
Distributions paid to members |
|
(2,557 |
) |
|
|
(2,557 |
) | |||
Net cash provided by financing activities |
|
37,825 |
|
(4,000 |
) |
33,825 |
| |||
Effect of exchange rates on cash and cash equivalents |
|
(470 |
) |
(8 |
) |
(478 |
) | |||
Change in cash and cash equivalents |
|
(21,766 |
) |
|
|
(21,766 |
) | |||
Cash and cash equivalents, beginning of period |
|
42,373 |
|
|
|
42,373 |
| |||
Cash and cash equivalents, end of period |
|
$ |
20,607 |
|
$ |
|
|
$ |
20,607 |
|
Basis of Accounting and Consolidation
The accompanying unaudited consolidated financial statements of Colt Defense and Colt Finance (collectively, the Company, or Colt) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all significant adjustments (consisting of normal recurring accruals) considered necessary for a fair statement of the financial position, results of operations and cash flows for the three and nine months ended September 28, 2014 and September 29, 2013, as revised, have been included. The financial information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes in the Companys Annual Report on Form 10-K/A for the fiscal year ended December 31, 2013, as restated. The consolidated balance sheet dated December 31, 2013, as restated, included in this quarterly report on Form 10-Q has been derived from the audited consolidated financial statements at that time, but does not include all disclosures required by GAAP. Operating results for the three and nine months ended September 28, 2014 are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2014.
During the third quarter of 2014, the Company faced increasing liquidity challenges as a result of several recent business trends impacting the Companys current and forecasted revenues and cash flows. These trends included the continued decline in market demand for the Companys commercial MSR, recent declines in demand for the Companys commercial handguns, and delays in anticipated timing of U.S. Government and certain international sales. As a result, the Company expects to report significantly lower revenues and Adjusted EBITDA (see Note 18 Segment Information) for the year-ended December 31, 2014 than it had previously forecasted. These trends are expected to continue to put significant pressure on the Companys liquidity for the foreseeable future.
Absent the Company achieving its internal forecast for the remainder of 2014 and 2015 and the successful execution of Managements plans, including restructuring of the unsecured debt, it is probable that the Company may not have sufficient cash and cash equivalents on-hand along with availability under its Credit Agreement, as amended, to be able to meet its obligations as they come due over the next 12 months, including the Companys May 15, 2015 Senior Notes interest payment of $10,938. As it is probable that the Company may not have sufficient liquidity to be able to make its May 15, 2015 Senior Notes interest payment, the Companys long-term debt has been classified as current in the consolidated balance sheet. Currently the Company does not have sufficient funds to repay the debt upon an actual acceleration of maturity. In the event of an accelerated maturity, the Companys lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact the Companys liquidity (see Note 9 Liquidity). These factors raise substantial doubt about the Companys ability to continue as a going concern.
The Companys financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. The consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded asset amounts or classification of liabilities should the Company be unable to continue as a going concern.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
On July 12, 2013 (the Merger Date), the Company acquired 100% ownership (the Merger) of New Colt. The results of New Colt have been included in the unaudited consolidated financial statements from the Merger Date.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Companys significant estimates include estimates used to determine the fair value of assets acquired and liabilities assumed related to the acquisition of New Colt (see Note 3, Acquisition) and accruals for the Companys M240 Program (see Note 17, Commitments and Contingencies), excess and obsolete inventory, income tax expense, deferred tax asset valuation, medical claims payable, and workers compensation expense. Actual results could differ materially from those estimates.
Self-Funded Medical Plan
As of September 28, 2014, the Company maintained two employee group medical plans, one of which covers the Companys Canadian subsidiary and one of which cover the Companys domestic operations and is self-funded. The Companys domestic medical plan liabilities are limited by individual and aggregate stop loss insurance coverage. Included in accrued expense in the accompanying consolidated balance sheets is a liability for reported claims outstanding, as well as an estimate of incurred but unreported claims, based on the Companys best estimate of the ultimate cost not covered by stop loss insurance. The individual stop loss limit for the Companys domestic self-funded medical plan is $175 as of September 28, 2014. The aggregate stop loss limit for the Companys self-funded medical plan is $14,547 as of September 28, 2014. The actual amount of the claims could differ from the total consolidated estimated liability recorded of $416 and $823 at September 28, 2014 and December 31, 2013, respectively.
Self-Funded Workers Compensation
As of December 31, 2013, the Company insured its domestic workers compensation with a $250 per event deductible program, that incorporates individual, accident and aggregate stop loss limits of $2,000. The Companys liability for estimated premiums and incurred losses under the Companys deductible policies that have been actuarially determined and accrued for as of September 28, 2014 and December 31, 2013 were $958 and $214, respectively. The Company revised its disclosure with respect to the Companys liability for estimated premiums and incurred losses under the Companys deductible policies as of December 31, 2013. The Company does not consider the revision of this disclosure material.
Cash and Cash Equivalents
Cash and cash equivalents consists of cash and short-term, highly liquid investments with original maturities of three months or less at the date of purchase.
Restricted Cash
Restricted cash at September 28, 2014 and December 31, 2013, consists of funds deposited to secure standby letters of credit primarily for performance guarantees related to the Companys international business.
Revenue
The Company recognizes revenue when evidence of an arrangement exists, delivery of the product or service has occurred and title and risk of loss have passed to the customer, the sales price is fixed or determinable, and collectability of the resulting receivable is reasonably assured.
The Company accounts for revenues and earnings under two long-term government contracts/programs with interrelated multiple elements (procurement of parts, manufacturing and refurbishment services) using concepts of proportionate performance. These contracts effect reported results for all periods presented. The Company estimates the total profit on each contract as the difference between the total estimated revenue and total estimated cost of the contract and recognizes that profit over the remaining life of the contract using an output measure (the ratio of units completed to the total number of units to be refurbished under the contract). The Company computes an earnings rate for each contract, including general and administrative expense, to determine operating earnings. The Company reviews the earnings rate quarterly to assess revisions in contract values and estimated costs at completion. Any changes in earnings rates and recognized contract to date earnings resulting from these assessments are made in the period the revisions are identified. Contract costs include production costs, related overhead and allocated general and administrative costs. Amounts billed and collected on these contracts in excess of revenue recorded are reflected as customer advances and deferred revenue in the Companys consolidated balance sheets.
Anticipated contract losses are charged to operations as soon as they are identified. Anticipated losses cover all costs allocable to the contracts, including certain general and administrative expenses. If a contract is cancelled by the government for its convenience, the Company can make a claim against the customer for fair compensation for worked performed plus costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on costs incurred. When the Company has a customer claim, revenue arising from the claims process is either recognized as revenue or as an offset against a potential loss only when the amount of the claim can be estimated reliably and its realization is probable. The Company had no claims recorded at any period-end presented.
Prior to the Merger, Colt Defense generated an immaterial amount of royalty income, which it included in other income in its consolidated statements of operations. As a result of the Merger, the Company now generates a higher amount of royalty income on a quarterly basis and has therefore determined that royalty income should now be recorded as net sales in the Consolidated Statements of Operations.
The Company recognizes trademark licensing revenue for individual licensees based on historical experience and expected cash receipts from licensees. Licensing revenue consists of minimum royalties and/or a percentage of a licensees sales on licensed products. Under most of the Companys current licensing agreements, royalties are payable in arrears on a calendar quarter basis.
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized. The Company recognizes the benefit of an uncertain tax position that has been taken or it expects to take on income tax returns if such tax position is more likely than not to be sustained.
The Company follows the authoritative guidance regarding accounting for uncertainty in income taxes, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These unrecognized tax benefits relate primarily to issues common among multinational corporations in its industry. The Company applies a variety of methodologies in making these estimates, which include studies performed by independent economists, advice from industry and subject experts, evaluation of public actions taken by the Internal Revenue Service and other taxing authorities, as well as its own industry experience. The Company provides estimates for unrecognized tax benefits which may be subject to material adjustments until matters are resolved with taxing authorities or statutes expire. If its estimates are not representative of actual outcomes, its results of operations could be materially impacted.
The Company continues to maintain a valuation allowance against certain deferred tax assets where realization is not certain. The Company periodically evaluates the likelihood of the realization of deferred tax assets and reduces the carrying amount of these deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income, carryforward periods available to it for tax reporting purposes, various income tax strategies and other relevant factors. Significant judgment is required in making this assessment and, to the extent future expectations change; the Company would assess the recoverability of its deferred tax assets at that time. If the Company determines that the deferred tax assets are not realizable in a future period, the Company would record material adjustments to income tax expense in that period.
Recent Accounting Pronouncements
Revenue from Contracts with Customers - In May 2014, the FASB issued ASU No. 2014-09, that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists - In July 2013, the FASB issued ASU 2013-11 to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013 with earlier adoption permitted. ASU 2013-11 should be applied prospectively with retroactive application permitted. The Company has adopted ASU 2013-11 in the first quarter of 2014.
Note 3 Acquisition
On the Merger Date, the Company consummated the Merger with New Colt, a privately-held company, which is a world leader in the design, development and manufacture of pistols and revolvers. As a result of the Merger, the two manufacturers of Colt-branded firearms were consolidated into a single enterprise providing Colt Defense direct access to the commercial market for Colt Defenses rifles and carbines, ownership of the Colt brand name and other related trademarks, and the technology and production facilities for the full line of Colt handguns.
Prior to determining the purchase price allocation of the Merger consideration, Colt Defense recorded the effective settlement of a pre-existing relationship with New Colt related to Colt Defenses license agreement (the License) with New Colt for the use of certain Colt trademarks. As a result of the effective settlement of the pre-existing relationship, Colt Defense recorded a gain in the third quarter of 2013 of $15,264 (Settlement Gain), which equals the calculated gain of $16,320 reduced by the write-off of Colt Defenses prepaid license balance of $1,056. A third-party valuation firm assisted managements calculation of the gain by comparing the value of the royalty rate in the License to the current market rate for such a license.
The Company acquired New Colt for an aggregate purchase price of $82,543, which included the Settlement Gain of $15,264. The cash portion of the purchase price was funded by the proceeds from a new $50,000 senior secured term loan (Term Loan), cash on hand and $9,000 of consideration from the issuance and sale of the Companys common units, of which $5,000 was paid in cash and $4,000 was related to Merger consideration reinvested by certain New Colt investors into Colt Defense.
The following table summarizes the fair values of the assets acquired and the liabilities assumed at the Merger Date:
Cash and cash equivalents |
|
$ |
3,791 |
|
Accounts receivable |
|
3,318 |
| |
Inventories |
|
7,585 |
| |
Property and equipment |
|
5,182 |
| |
Other assets |
|
3,090 |
| |
Intangible assets with finite lives |
|
9,340 |
| |
Trademarks |
|
50,100 |
| |
Goodwill |
|
36,974 |
| |
Total assets acquired |
|
119,380 |
| |
|
|
|
| |
Accounts payable and accrued expenses |
|
8,808 |
| |
Customer advances and deferred revenue |
|
1,832 |
| |
Capital lease obligations |
|
393 |
| |
Pension and retirement liabilities |
|
9,357 |
| |
Deferred tax liabilities |
|
16,447 |
| |
Total liabilities assumed |
|
36,837 |
| |
Net assets acquired |
|
$ |
82,543 |
|
The Company, with the assistance of a third party valuation firm, valued the Colt brand and related trademarks by comparing the value of the royalty rate inherent in the prepaid license fee to the current market rate for such a license based upon both the value of the Colt brand and related trademarks in both the defense and commercial marketplace utilizing a relief from royalty methodology.
The Company, with the assistance of a third party valuation firm, determined the fair value of the finite-lived intangible assets which includes $5,240 of existing license agreements, valued based on a discounted cash flow approach, which represents the estimated fair value of New Colt license agreements for licensing the Colt trade marks to various third parties, $2,970 of developed technology, valued based on a relief from royalty method, which represents the estimated fair value of designs, trade secrets, materials, specifications and other proprietary intellectual property included in the technical data packages and related manufacturing processes and know-how and $1,130 of backlog, valued based on an excess earnings method, which represents the estimated fair value of unfilled contractual orders from customers. The weighted average useful lives of the acquired existing license agreements, developed technology and backlog were 6 years, 20 years, and 3 years respectively. In addition, the Company, with the assistance of a third party valuation firm, valued the Colt brand and related trade marks by comparing the value of the royalty rate inherent in the license (see Note 8,Goodwill, Trademarks and Other Intangible Assets) to the current market rate for such a license based upon both the value of the Colt brand and related trade marks in both the defense and the commercial marketplace utilizing a relief from royalty methodology.
Deferred income taxes arise from temporary differences between tax and financial statement recognition of revenue and expense. In evaluating the Companys ability to recover the deferred tax assets acquired through the acquisition of New Colt, the Company considered all available positive and negative evidence, including scheduled reversals of deferred tax assets and liabilities, projected future taxable income, tax-planning strategies and results of recent operations. In projecting future taxable income for New Colt, the Company began with historical results adjusted to include the $50,000 Term Loan (see Note 10, Notes Payable and Long-Term Debt) and related interest expense, incorporated assumptions including the amount of future state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax-planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates the Company is using to manage the underlying business. Based on the analysis performed, the Company believes, as of the acquisition date, that it is more likely than not that the benefit from New Colts deferred tax assets will not be realized. In recognition of this risk, the Company provided a valuation allowance against New Colts deferred tax assets as part of the Companys purchase accounting adjustments.
Goodwill is the excess of the purchase price of an acquired business over the fair value of net assets acquired. Goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if indicators of impairment arise. The $36,974 of goodwill is not deductible for federal income tax purposes.
The following table reflects the unaudited pro forma operating results of the Company for three and nine months ended September 29, 2013, which gives effect to the Merger with New Colt as if it had occurred on January 1, 2012. The pro forma results are based on assumptions that the Company believes are reasonable under the circumstances. The pro forma results are not necessarily indicative of the operating results that would have occurred had the Merger been effective January 1, 2012, nor are they intended to be indicative of results that may occur in the future. The underlying pro forma information includes historical financial results of the Company and New Colt adjusted for certain items including depreciation and amortization expense associated with the assets acquired, the Companys expense related to financing arrangements and the elimination of intercompany transactions. The pro forma information does not include the effects of any synergies or cost reduction initiatives related to the Merger.
|
|
Unaudited Pro Forma |
|
Unaudited Pro Forma |
| ||
|
|
Three Months Ended |
|
Nine Months Ended |
| ||
|
|
September 29, 2013 |
|
September 29, 2013 |
| ||
|
|
(As Revised) |
|
(As Revised) |
| ||
Net sales |
|
$ |
73,246 |
|
$ |
240,171 |
|
Net income (loss) |
|
8,647 |
|
19,189 |
| ||
Pro forma net income for the three and nine months ended September 29, 2013 were adjusted to include $194 and $3,402 respectively, of additional interest expense related to the Companys $50,000 Term Loan and to include $80 and $1,408, respectively, of additional expense related to the amortization of finite-lived intangible assets.
Note 4 Restructuring Costs
During the third and fourth quarters of the year ended December 31, 2013, as restated, the Company recorded restructuring costs of $1,118 for restructuring actions that were initiated as a result of the Merger with New Colt. Of these costs, $336 is being reimbursed from an escrow established at the time of the Merger and $782 was recorded as operating expenses. The costs consist of severance, continuation of benefits and other compensation-related expenses. These actions, which have been completed, resulted in a workforce reduction of 10 salaried employees. Restructuring accruals are included in accounts payable, accrued expenses and other long-term liabilities on the Consolidated Balance Sheets.
The following table summarizes the Companys restructuring activity for the nine months ended September 28, 2014:
Restructuring accruals at December 31, 2013 |
|
$ |
706 |
|
Accrual reversal |
|
(76 |
) | |
Utilization |
|
(491 |
) | |
Balance at September 28, 2014 |
|
$ |
139 |
|
During the third quarter of 2014, the Company received the remaining $268 for the reimbursement of restructuring costs from an escrow established at the time of the Merger.
Note 5 Accounts Receivable
Accounts receivable are net of an allowance for doubtful accounts of $68 and $78 at September 28, 2014 and December 31, 2013, respectively.
Note 6 Inventories
The following table sets forth a summary of inventories, net of reserves at the lower of cost or market:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
Raw materials |
|
$ |
43,251 |
|
$ |
43,469 |
|
Work in process |
|
20,627 |
|
9,476 |
| ||
Finished products |
|
12,675 |
|
13,729 |
| ||
|
|
$ |
76,553 |
|
$ |
66,674 |
|
Note 7 Property and Equipment
Property and equipment are recorded at cost. Depreciation of building and equipment (including assets recorded under capital leases) and amortization of leasehold improvements are computed using the straight-line method over the estimated useful life of the assets, or for leasehold improvements, over the remaining life of the lease term if shorter.
Expenditures that improve or extend the lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.
The fair value of the property and equipment acquired as a result of the Merger are allocated to machinery and equipment, furniture, fixtures and leasehold improvements and construction in process was $4,420, $30 and $732, respectively.
Property and equipment consist of the following as of:
|
|
|
|
|
|
Estimated |
| ||
|
|
September 28, 2014 |
|
December 31, 2013 |
|
Useful Life |
| ||
Land |
|
$ |
322 |
|
$ |
338 |
|
- |
|
Building |
|
2,528 |
|
2,653 |
|
33 |
| ||
Machinery and equipment |
|
51,812 |
|
47,476 |
|
7-10 |
| ||
Furniture, fixtures and leasehold improvements |
|
7,545 |
|
7,081 |
|
3-5 |
| ||
|
|
62,207 |
|
57,548 |
|
|
| ||
Less accumulated depreciation and amortization |
|
(36,387 |
) |
(32,152 |
) |
|
| ||
|
|
25,820 |
|
25,396 |
|
|
| ||
Construction in process |
|
1,934 |
|
5,337 |
|
|
| ||
Property and equipment, net |
|
$ |
27,754 |
|
$ |
30,733 |
|
|
|
Note 8 Goodwill, Trademarks and Other Intangible Assets
Goodwill
Goodwill is tested for impairment annually as of the beginning of the Companys fourth fiscal quarter, or when events or circumstances indicate that its value may have declined. Impairment exists when the carrying amount of goodwill exceeds its fair market value. Management estimates the fair value of each reporting unit primarily using the income approach. Specifically the discounted cash flow (DCF) model was utilized for the valuation of each reporting unit. Management develops cash flow forecasts based on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. The Company discounts the cash flow forecasts using the weighted average cost of capital method at the date of evaluation. The Company also calculates the fair value of its reporting units using the market approach in order to corroborate its DCF model results. These methodologies used in the current year are consistent with those used in the prior year.
The following table sets forth the changes in the carrying amount of goodwill for the Company as of and for the nine months ended September 28, 2014:
|
|
Total |
| |
Balance at December 31, 2013 |
|
$ |
51,225 |
|
Effect of foreign currency translation |
|
(476 |
) | |
Balance at September 28, 2014 |
|
$ |
50,749 |
|
As of September 28, 2014, the Company had $41.1 million and $9.6 million of goodwill assigned to its West Hartford and Colt Canada reporting units, respectively.
Trademarks
In connection with the Merger, the Company recorded an indefinite-lived intangible asset of $50,100 for the Colt brand and related trademarks. The Company, with the assistance of a third party valuation firm, valued the Colt brand and related trademarks by comparing the value of the royalty rate inherent in the prepaid license fee to the current market rate for such a license based upon both the value of the Colt brand and related trademarks in both the defense and the commercial marketplace utilizing a relief from royalty methodology.
Impairment Evaluation
During the first half of 2014, the Company has experienced a continued decrease in the demand for commercial rifles. The Company concluded that a triggering event had occurred and an interim impairment test for indefinite lived intangible assets, Goodwill and Trademarks, was required as of June 29, 2014. Management developed cash flow forecasts based on existing firm orders, expected future orders, contracts with suppliers, labor agreements and general market conditions. The Company, with the assistance of a third party valuation firm, discounted the cash flow forecasts using the weighted average cost of capital method as of June 29, 2014. The Company also calculated the fair value of its reporting units using the market approach in order to corroborate its DCF model results. Based on completion of Step 1 of the impairment analysis for indefinite lived intangible assets the fair value of the Companys indefinite lived intangible assets, both goodwill and trademarks, exceeds the book value and therefore the Company concluded no impairment existed as of June 29, 2014.
Subsequent to the filing of the Companys quarterly results for the three and six months ended June 29, 2014, the Company has seen a continued decrease in demand for MSRs, a decline in demand for the Companys commercial handguns, and delays in the anticipated timing of U.S. Government and certain international sales. The Company considered these adverse changes in the Companys business climate to be a triggering event as of September 28, 2014. Therefore, in addition to the impairment analysis performed as of June 29, 2014 the Company performed an impairment analysis as of September 28, 2014 to determine the impact that a material decrease in the Companys sales, resulting from the aforementioned factors would have on the Companys valuation. The Company, with assistance of a third party valuation firm, discounted the cash flow forecasts using the weighted average cost of capital method as of September 28, 2014. The Company also calculated the fair value of its reporting units using the market approach to corroborate its discounted cash flows model results. Based on completion of step one of the impairment analysis for indefinite lived intangible assets, the Company determined that the fair value of the Companys indefinite lived intangible assets, including goodwill and trademarks, exceeds the book value, and therefore, the Company has concluded no impairment existed as of September 28, 2014. The Company has two reporting units as of September 28, 2014, West Hartford, including all of the Companys domestic operations and Colt Canada. The estimated fair value as a percentage of the carrying value of the Companys West Hartford and Colt Canada reporting units approximated 110% and 133%, respectively, and as such the fair value of the Companys West Hartford reporting unit didnt significantly exceed its carrying value.
Net sales and operating income growth assumptions and the risk-adjusted discount rate, which represents the weighted average cost of capital, have the most significant influence on the estimation of the fair value of the Companys reportable segment. Under the income approach, specifically the discounted cash flow method, net sales and operating income growth rate assumptions were used to estimate cash flows in future periods. Growth rates were based on current levels of backlog, the retention of existing customers and the Companys ability to introduce new products. If gross margin assumptions for the Companys West Hartford reporting unit were to decline by approximately 1% per annum, the West Hartford reporting unit may not pass step one and step two could result in a non-cash goodwill impairment charge. The factors that affect the level of estimated cash flows within the West Hartford reporting unit include, but are not limited to: (1) declines in consumer demand for commercial rifles and handguns, (2) delays in anticipated timing of U.S. Government orders, (3) delays in the timing of international sales which require certain regulatory approvals and (4) the Companys ability to successfully launch new products. Management utilized a discount rate of 18% to estimate the present value of future cash flows. The discount rate was based upon a build-up of market data from similar companies and reflected uncertainty related to the Companys ability to achieve its forecasted results. Holding all other assumptions constant, an increase in the rate used to discount the expected future cash flows of approximately 175 basis points would reduce the fair value of the West Hartford reporting unit such that the reporting unit would not pass step one and step two cold result in a non-cash impairment charge.
Managements judgment and assumptions are required in performing the impairment tests for all reporting units with goodwill. While management expects future operating improvements to result from improving commercial rifle and handgun demand, the resumption of fulfilling certain U.S. Government orders and the introduction of new products there can be no assurance that such expectations will be met or that the fair value of the reporting units will continue to exceed their carrying value. If the fair value of either of the reporting units were to fall below its carrying value, a non-cash impairment charge to income from operations could result.
Intangible Assets
The Company reviews long-lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Impairment losses, where identified, are determined as the excess of the carrying value over the estimated fair value of the long-lived asset. The Company assesses the recoverability of the carrying value of assets held for use based on a review of projected, undiscounted cash flows. When long-lived assets are reclassified to held for sale, the Company compares the assets carrying amount to its estimated fair value less cost to sell to evaluate impairment. No long-lived assets have been reclassified to held for sale for any period presented.
In connection with the Merger, the Company recorded finite-lived intangible assets of $9,340 which includes $5,240 of existing license agreements which represents the estimated fair value of New Colt license agreements for licensing the Colt trademarks to various third parties, $2,970 of developed technology which represents the estimated fair value of designs, trade secrets, materials, specifications and other proprietary intellectual property included in the technical data packages and related manufacturing processes and know-how and $1,130 of backlog which represents the estimated fair value of unfilled contractual orders from customers. The weighted average useful lives of the acquired existing license agreements, developed technology and backlog were 6 years, 20 years and 3 years, respectively.
The net carrying value of the Companys intangible assets with finite lives follows:
|
|
As of September 28, 2014 |
|
|
| |||||||
|
|
Gross |
|
|
|
|
|
Estimated |
| |||
|
|
Carrying |
|
Accumulated |
|
|
|
Useful |
| |||
|
|
Amount |
|
Amortization |
|
Net |
|
Life |
| |||
Customer relationship Canadian Government |
|
$ |
2,257 |
|
$ |
(702 |
) |
$ |
1,555 |
|
30 |
|
Customer relationships other |
|
5,869 |
|
(4,124 |
) |
1,745 |
|
20 |
| |||
License agreements |
|
5,240 |
|
(2,019 |
) |
3,221 |
|
6 |
| |||
Backlog |
|
1,694 |
|
(1,047 |
) |
647 |
|
3 |
| |||
Technology-based intangibles |
|
6,580 |
|
(2,950 |
) |
3,630 |
|
15-20 |
| |||
|
|
$ |
21,640 |
|
$ |
(10,842 |
) |
$ |
10,798 |
|
|
|
|
|
As of December 31, 2013 |
|
|
| |||||||
|
|
Gross |
|
|
|
|
|
Estimated |
| |||
|
|
Carrying |
|
Accumulated |
|
|
|
Useful |
| |||
|
|
Amount |
|
Amortization |
|
Net |
|
Life |
| |||
Customer relationship Canadian Government |
|
$ |
2,369 |
|
$ |
(678 |
) |
$ |
1,691 |
|
30 |
|
Customer relationships other |
|
6,160 |
|
(4,077 |
) |
2,083 |
|
20 |
| |||
License agreements |
|
5,240 |
|
(805 |
) |
4,435 |
|
6 |
| |||
Backlog |
|
1,722 |
|
(604 |
) |
1,118 |
|
3 |
| |||
Technology-based intangibles |
|
6,580 |
|
(2,492 |
) |
4,088 |
|
15 - 20 |
| |||
|
|
$ |
22,071 |
|
$ |
(8,656 |
) |
$ |
13,415 |
|
|
|
The Company expects to record annual amortization expense of $3,251, $2,766, $1,910, $1,171, and $859 for 2014, 2015, 2016, 2017 and 2018, respectively.
Note 9 Liquidity
During the third quarter of 2014, the Company faced increasing liquidity challenges as a result of several recent business trends impacting the Companys current and forecasted revenues and cash flows. These trends included the continued decline in market demand for the Companys commercial MSR, recent declines in demand for the Companys commercial handguns, and delays in anticipated timing of U.S. Government and certain international sales. As a result, the Company expects to report lower revenues and Adjusted EBITDA for the year-ended December 31, 2014 than it had previously forecasted. These trends are expected to continue to put pressure on the Companys liquidity for the foreseeable future.
Managements plan to mitigate the business risk associated with the Companys increased liquidity challenges include: (i) seeking revenue growth across all sales channels, (ii) executing initiatives designed to optimize the Companys performance and reduce costs, (iii) managing inventory levels for positive cash flow by focusing the production schedule on the Companys backlog of firm commitments, (iv) working closely with U.S. Government regulators to obtain timely approval of international sales, and (v) seeking ways to restructure the Companys unsecured debt to reduce overall debt service costs.
As announced in the Companys Form 12b-25 filed on November 12, 2014, there was uncertainty about whether the Company would have the cash necessary to pay its November 17, 2014 Senior Notes interest payment. On November 17, 2014 the Company entered into the MS Term Loan, a $70,000 senior secured term loan facility with Wilmington Savings Fund Society, FSB, as agent and Morgan Stanley Senior Funding Inc., as lender, which replaced the Companys existing Term Loan agreement and provided the Company $4,101 of additional liquidity. The MS Term Loan also enabled the Company to make its November 17, 2014 Senior Notes interest payment of $10,938. In addition, the lenders, under the Companys existing Credit Agreement (see Note 10 Notes Payable and Long-Term Debt Credit Agreement), also agreed to amendments to the Credit Agreement which allowed the Company to enter into the MS Term Loan and provided for additional liquidity through a modification of excess availability thresholds.
After giving effect to the aforementioned market and business challenges as well as the sales opportunities that the Company believes exist, the Company has forecasted revenue and Adjusted EBITDA growth in 2015. There can be no assurance that the actual demand for the Companys commercial MSRs or commercial handguns will meet the Companys internal forecast. In addition, there can be no assurance that U.S. Government or international sales will take place as the Company has forecasted primarily due to a U.S. Government regulatory approval process which is difficult to predict. As a result of these factors, and notwithstanding the additional cash the Company obtained from the MS Term Loan, risk exists with respect to the Company achieving its internally forecasted results and projected cash flows for the remainder of 2014 and 2015. Absent the Company achieving its internal forecast for the remainder of 2014 and 2015 and the successful execution of Managements strategy, addressing other long-term debt such as the Senior Notes, it is probable that the Company may not have sufficient cash and cash equivalents on-hand along with availability under its Credit Agreement, as amended, to be able to meet its obligations as they come due over the next 12 months, including the Companys May 15, 2015 Senior Notes interest payment of $10,938.
As it is probable that the Company may not have sufficient liquidity to be able to make its May 15, 2015 Senior Notes interest payment without meeting the Companys internal projections (including addressing the Companys Senior Notes), the Companys long-term debt has been classified as current in the consolidated balance sheet. Currently the Company does not have sufficient funds to repay the debt upon an actual acceleration of maturity. In the event of an accelerated maturity, the Companys lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact the Companys liquidity. These factors raise substantial doubt about the Companys ability to continue as a going concern.
The MS Term Loan and Credit Agreement contain a covenant requiring the Company to deliver audited financial statements within 90 days following each fiscal year, together with an audit opinion that does not contain a going concern explanatory paragraph. The Company will be re-filing under current date its 2013 Form 10-K/A sometime before December 31, 2014 in response to United States Security and Exchange Commission (SEC) comments on the 2013 10-K. The SEC comments primarily relate to the inclusion of certain certifications under Section 906 of Sarbanes-Oxley and do not require any changes to the financial statements for the year-ended December 31, 2013, as restated. In connection with the Companys response to these comments and the re-filing of the 2013 Form 10-K/A, management expects its independent registered public accounting firm will issue an audit report that contains a going concern explanatory paragraph. The Company is in discussions with, and expects to receive a waiver from, each of our lenders in connection with the re-filing of the 2013 Form 10-K/A.
As of September 28, 2014, the Company had $3,963 of cash and cash equivalents and $2,113 of availability under its Credit Agreement. As of November 20, 2014, the Company has $8,233 of cash and cash equivalents and $2,473 of availability under its Credit Agreement (see Note 10 Notes Payable and Long-Term Debt).
The Companys foreign and domestic cash and cash equivalents as of September 28, 2014 and December 31, 2013, respectively, are as follows:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
United States (1) |
|
$ |
2,029 |
|
$ |
8,363 |
|
Canada (2) |
|
1,911 |
|
4,213 |
| ||
Netherlands (3) |
|
23 |
|
18 |
| ||
Total cash and cash equivalents |
|
$ |
3,963 |
|
$ |
12,594 |
|
(1) United States includes the following legal entities: Colt Defense LLC, New Colt Holding Corp., Colts Manufacturing Company LLC and Colt Defense Technical Services LLC
(2) Canada includes the following legal entity: Colt Canada Corporation
(3) Netherlands includes the following legal entity: Colt International Coöperatief U.A.
Due to the Companys current liquidity situation, during the three months ended September 28, 2014 Colt International recorded a deferred tax liability of $1,369 on the undistributed earnings from Colt Canada because the Company no longer considers Colt Canadas earnings permanently reinvested (see Note 12 Income Taxes).
If the Company repatriated cash and cash equivalents, based on the Companys current legal entity structure as described in Note 1 Nature of Business, the Company would not be required to accrue and pay U.S. income taxes to repatriate these funds. The Companys cost of repatriation would be in the form of a 5% withholding tax which Colt Canada is required to withhold on dividends when declared and paid to Colt International under the terms of the treaty between Canada and the Netherlands. There is no further income or withholding tax on dividends when declared and paid to Colt Defense.
Note 10 Notes Payable and Long-Term Debt
Term Loan
On July 12, 2013, in connection with the Merger, the Company entered into the Term Loan agreement, which matures on November 15, 2016. The Term Loan bears interest at a variable rate of 9.75% plus the greater of the three month LIBOR rate or 1%. Interest is payable quarterly in arrears on the first day of the subsequent calendar quarter. Under the Term Loan, the Companys obligations are secured by a first priority security interest in the Companys intellectual property and a second priority security interest in substantially all other assets. The Term Loan was issued at a discount of $2,293, which represents the lenders fees and legal expenses. The Company also incurred $2,120 in financing fees. The discount and the financing fees are being amortized as additional interest expense over the life of the indebtedness.
On August 6, 2014, the Company entered into Amendment No. 1 to the Term Loan (the Term Loan Amendment). Absent an amendment to the Term Loan, the Company would have been in violation of certain of its financial covenants as of September 28, 2014. The Term Loan Amendment is discussed in more detail in the following paragraph.
The Term Loan Amendment provided that (i) the financial covenants were eliminated for the rolling four quarter periods ended June 29, 2014 and September 28, 2014 and modified for the rolling four quarter period ended December 31, 2014, (ii) the Company was granted the option to not pay principal installment payments of $1,875 due on September 30, 2014, December 31, 2014 and March 31, 2015, (iii) the applicable prepayment premium was increased from 2% to 6% of the outstanding principal balance of the Term Loan, (iv) the date of the applicable prepayment determination was extended to July 31, 2016 and (v) the Company was been granted a 30 day extension to deliver financial information to the Term Loan lenders to allow for completion of the restatement of the Companys 2013 10-K (see Note 2, Summary of Significant Accounting Policies). Additionally, the Company agreed to pay an amendment fee of $475 that will be capitalized and paid-in-kind by being added to the outstanding principal balance of the Term Loan.
The Term Loan Amendment fee of $475, along with Term Loan lenders legal fees to be paid by the Company in conjunction with the Term Loan Amendment, were recorded as additional debt discount in the third quarter of 2014 and amortized as interest expense over the remaining term of the Term Loan. The Company expensed costs incurred by the Company in conjunction with the Term Loan Amendment in the third quarter of 2014. The Company exercised its option not to pay the principal installment payment due on September 30, 2014.
As of September 28, 2014 and December 31, 2013, the Company was subject to four financial covenants as defined in the Term Loan agreement: (i) minimum EBITDA (Minimum EBITDA), (ii) fixed charge coverage ratio (FCCR), (iii) secured coverage ratio (Secured Coverage Ratio) and (iv) maximum allowed capital expenditures (Capital Expenditures). Prior to Amendment No. 1, the required Minimum EBITDA for the four quarters ended September 28, 2014 and December 31, 2013 was $40,000. Actual Minimum EBITDA for the four quarters ended September 28, 2014 and December 31, 2013 was $31,833 and $63,293, respectively. Amendment No. 1 eliminated the Minimum EBITDA covenant for the four quarters ended September 28, 2014. Prior to Amendment No. 1, the required FCCR for the four quarters ended September 28, 2014 and December 31, 2013 was a minimum of 0.90:1.00. The actual FCCR for the four quarters ended September 28, 2014 and December 31, 2013 was 0.75:1.00 and 1.21:1.00, respectively. Amendment No. 1 eliminated the FCCR covenant for the four quarters ended September 28, 2014. Prior to Amendment No. 1, the required Secured Coverage Ratio for the four quarters ended September 28, 2014 and December 31, 2013 was a ratio not greater than 1.20:1.00. The actual Secured Coverage Ratio for the four quarters ended September 28, 2014 and December 31, 2013 was 2.02:1.00 and 0.89:1.00, respectively. Amendment No. 1 eliminated the Secured Leverage Ratio covenant for the four quarters ended September 28, 2014. The maximum allowed Capital Expenditures for the four quarters ended September 28, 2014 and December 31, 2013 is $12,000. The actual Capital Expenditures for the four quarters ended September 28, 2014 and December 31, 2013 were $3,693 and $8,598, respectively. Amendment No. 1 did not modify the Capital Expenditure covenant.
The Term Loan agreement also contained non-financial covenants and other restrictions which limit the Companys ability to incur additional indebtedness, make investments or certain payments, pay dividends (other than member distributions to support the Companys member related taxes) enter into a merger and acquire or sell assets.
The Company was in compliance with its Term Loan covenants, as amended, as of September 28, 2014 (pursuant to the Term Loan Amendment the Company was not required to satisfy any particular financial covenant levels for the quarter ending September 28, 2014 other than with respect to the maximum allowed capital expenditures) and December 31, 2013.
On September 30, 2014, the Company made a Term Loan interest payment of $1,318.
On November 12, 2014, the Company entered into Amendment No. 2 to the Term Loan, whereby, the Term Loan lenders consented to extending the delivery date to November 21, 2014, for the Company to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
On November 17, 2014, the Company entered into a $70,000 senior secured term loan facility with Wilmington Savings Fund Society, FSB, as agent and Morgan Stanley Senior Funding Inc., as lender (see Note 22, Subsequent Events) which replaced the Companys Term Loan. The existing Term Loan agreement did not permit pre-payment at such time and thus, the Company agreed with the existing Term Loan lenders to pay a premium of $4,318 in addition to the outstanding principal and accrued interest balance. As a result of the Company entering into the MS Term Loan which replaced the Companys existing Term Loan, the Term Loan has been reflected as a current liability as of September 28, 2014 in the consolidated balance sheet. The MS Term Loan (i) does not contain financial covenants or amortization provisions similar to those provisions in the Companys existing Term Loan agreement; (ii) provides for the accrual of interest on an 8% cash and 2% payment-in-kind basis; and (iii) will mature no later than August 15, 2018 subject to the satisfaction of certain conditions.
Credit Agreement
On September 29, 2011, the Company entered into a Credit Agreement with Wells Fargo Capital Finance, LLC (WFCF). Under the terms of the Credit Agreement, senior secured revolving loans are available up to $50,000, inclusive of $20,000 available for letters of credit. Revolving loans are subject to, among other things, the borrowing base, which is calculated monthly based on specified percentages of eligible accounts receivable and inventory and specified values of fixed assets. Under the Credit Agreement, the Companys obligations are secured by a first-priority security interest in substantially all of its assets (other than intellectual property), including accounts receivable, inventory and certain other collateral, and a second-priority security interest in its intellectual property. The Credit Agreement matures on September 28, 2016.
Borrowings under the Credit Agreement bear interest at a variable rate based on the London Inter-Bank Offered Rate (LIBOR), the Canadian Bankers Acceptance Rate or the lenders prime rate, as defined in the Credit Agreement, plus a spread. The interest rate spread on borrowing varies based on both the rate option selected and Colts quarterly average excess availability under the Credit Agreement. There is an unused line fee of .50% per annum, payable quarterly on the unused portion under the facility and a $40 annual servicing fee.
The Credit Agreement limits the Companys ability to incur additional indebtedness, make investments or certain payments, pay dividends (other than for member distributions to support member LLC-related taxes) and merge, acquire or sell assets. In addition, certain covenants would be triggered if excess availability were to fall below a specified level. Excess availability is determined as the lesser of the Companys borrowing base or $50,000, reduced by outstanding obligations under the Credit Agreement and trade payables that are more than 60 days past due. The Credit Agreement has an excess availability threshold of $11,000. If excess availability is below $11,000, the Company would be required to be in compliance with a fixed charge coverage ratio, as defined in the Credit Agreement (WFCF FCCR). If the Company is not in compliance with the WFCF FCCR and below $11,000 in excess
availability, the Company would not be able to borrow additional amounts under the Credit Agreement and would be in default of the Credit Agreement. In addition, if excess availability falls below $11,000 or an event of default occurs, the Company would be required to provide WFCF with more frequent compliance reporting and WFCF may also assume certain other contractual privileges. The Companys available borrowing capacity as of September 28, 2014 was $2,113 which is the amount above the excess availability requirement. The Credit Agreement also contains customary events of default including, but not limited to, no material litigation or defaults under material contracts and no material adverse change. In connection with any borrowing requests, management must certify, among other things, to no default or event of default.
As of September 28, 2014, there were advances of $13,000 and $3,847 of letters of credit outstanding under the Credit Agreement. As of December 31, 2013, there was a $7,083 line advance and $3,486 of letters of credit outstanding under the Credit Agreement. As of November 20, 2014, there were advances of $16,000 and $3,815 of letters of credit outstanding under the Credit Agreement.
As of September 28, 2014 and December 31, 2013, the Company was in compliance with all of the Credit Agreement covenants and restrictions, as amended, and the Company monitors its future compliance based on current and anticipated financial results. The WFCF FCCR for four consecutive quarters may not be less than 1.00:1.00. As of September 28, 2014 and December 31, 2013 the Companys availability was in excess of $11,000 and therefore the WFCF FCCR was not in effect. If it had been in effect, the calculated WFCF FCCR for the four quarters ended September 28, 2014 and December 31, 2013 would have been 0.77:1.00 and 1.54:1.00, respectively.
On March 22, 2013, the Company entered into Amendment No. 2 to the Credit Agreement, whereby, among other things, WFCF consented to the transaction pursuant to the Unit Repurchase Agreement. For additional information about this transaction, see Note 13, Accumulated Deficit in this Form 10-Q.
On June 19, 2013, the Company entered into Amendment No. 3 to the Credit Agreement, whereby WFCF consented to the contribution of all the issued and outstanding equity interests issued by Colt Canada to Colt International so that Colt Canada would become a wholly-owned subsidiary of Colt International, and providing for Colt International to become a guarantor under the Credit Agreement.
On July 12, 2013, the Company entered into Amendment No. 4 to the Credit Agreement, which provided for New Colt to become a guarantor and Colts Manufacturing Company LLC (Colts Manufacturing) to become a borrower under the Credit Agreement in connection with the Merger.
On August 6, 2014, the Company entered into Amendment No. 5 to the Credit Agreement, whereby WFCF consented to, among other things, extending the delivery date to September 15, 2014 for the Company to deliver financial statements for the month and fiscal quarter ended June 29, 2014.
On November 12, 2014 the Company entered into Amendment No. 6 to the Credit Agreement, whereby WFCF consented to extending the delivery date to November 21, 2014, for the Company to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
On November 17, 2014, the Company entered into amendment No. 7 to the Credit Agreement, whereby WFCF consented to amendments to the Credit Agreement necessary for the Company to enter into the MS Term Loan. These amendments include, among other things, (i) reducing the Senior Secured revolving loan availability from $50,000 to $33,000 and (ii) incorporating a minimum $7,500 excess availability threshold for borrowings.
On November 21, 2014, the Company entered into Amendment No. 8 to the Credit Agreement, whereby WFCF consented to extending the delivery date to November 26, 2014, for the Company to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
Senior Notes
On November 10, 2009, Colt Defense LLC and Colt Finance Corp., the Companys 100%-owned subsidiary, jointly and severally co-issued $250,000 of unsecured Senior Notes under an indenture (Indenture). The Senior Notes bear interest at 8.75% and mature on November 15, 2017. Interest is payable semi-annually in arrears on May 15 and November 15. The Company issued the Senior Notes at a discount of $3,522 from par value. This discount is being amortized as additional interest expense over the life of the indebtedness. No principal repayments are required until maturity.
The Senior Notes do not contain financial covenants that require the Company to maintain compliance with any financial ratios or measurements on a periodic basis. The Senior Notes do contain non-financial covenants that, among other things, limit the Companys ability to incur additional indebtedness, enter into certain mergers or consolidations, incur certain liens and engage in certain transactions with its affiliates. In addition, the Indenture restricts the Companys ability to pay dividends or make other Restricted Payments (as defined in the Indenture) to its members, subject to certain exceptions. Such restrictions are not expected to affect the Companys ability to meet its cash obligations for the next twelve months. Additionally, the Senior Notes contain certain cross-default provisions with other indebtedness if such indebtedness in default aggregates to $20,000 or more.
On June 19, 2013, the Company entered into a supplement to the Indenture by which Colt International, Colt Canada and CDTS became new subsidiary guarantors to the Senior Notes. As such, each agreed to jointly and severally guarantee the obligations under the Indenture.
On July 12, 2013, the Company entered into a supplement to the Indenture, by which New Colt and Colts Manufacturing became parties to the Indenture and each agreed to jointly and severally guarantee the obligations under the Indenture.
Each of the debt agreements certain cross-default provisions, whereby a default under one agreement represents a default under the others.
The outstanding loan balances at September 28, 2014 and December 31, 2013 were as follows:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
Senior Notes |
|
$ |
248,319 |
|
$ |
247,984 |
|
Term Loan |
|
46,139 |
|
46,833 |
| ||
Credit Agreement |
|
13,000 |
|
7,083 |
| ||
Total debt |
|
307,458 |
|
301,900 |
| ||
Less: current portion |
|
(307,458 |
) |
(12,083 |
) | ||
Long-term debt |
|
$ |
|
|
$ |
289,817 |
|
As a result of the liquidity concerns (see, Note 1, Nature of Business Going Concern and Note 9, Liquidity), the Companys outstanding debt has been reflected as a current liability as of September 28, 2014 in the consolidated balance sheet.
The Companys debt was recorded net of unamortized original issue and debt discounts of $3,517 at September 28, 2014 and $3,932 at December 31, 2013.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
Amortization of discount |
|
$ |
334 |
|
$ |
280 |
|
$ |
947 |
|
$ |
486 |
|
Amortization of deferred financing costs |
|
577 |
|
575 |
|
1,788 |
|
1,403 |
| ||||
In accordance with Rule 3-10(f) of SEC Regulation S-X, the Company and Colt Finance Corp., co-issuers of the Senior Notes, are not presenting condensed consolidating guarantor financial statements as Colt Defense LLC and Colt Finance Corp. have no independent assets or operations. All of the Companys subsidiaries are 100% owned and have guaranteed the Companys Senior Notes; and all of the guarantees are full, unconditional, joint and several.
Note 11 Accrued Expenses
Accrued expenses consisted of:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
|
|
|
|
(As Restated) |
| ||
Accrued compensation and benefits |
|
$ |
4,243 |
|
7,154 |
| |
Accrued contract obligation expense |
|
2,365 |
|
1,194 |
| ||
Accrued federal, excise and other taxes |
|
2,643 |
|
4,902 |
| ||
Accrued interest |
|
9,508 |
|
2,879 |
| ||
Accrued commissions |
|
1,932 |
|
929 |
| ||
Other accrued expenses |
|
5,387 |
|
5,100 |
| ||
|
|
$ |
26,078 |
|
$ |
22,158 |
|
Note 12 Income Taxes
Colt Defense is a limited liability company organized under the laws of Delaware. Colt Defense is treated as a partnership for federal and state income tax purposes and is not subject to U.S. federal or state income taxes. Consequently, all taxable income (loss) of Colt Defense is reported to its members for inclusion in their respective income tax returns. The limited liability company agreement of Colt Defense requires distributions to the members in any year in which there is U.S. taxable income. The members distribution is equal to the product of the highest combined marginal federal, state, or local income tax rate applicable to any member and the highest taxable income allocated to any one unit, to the extent that the Governing Board determines that sufficient funds are available.
As a result of the Merger with New Colt effective July 12, 2013, Colt Defense owns 100% of New Colt, a C corporation organized under the laws of Delaware. New Colt is taxed as a corporation for U.S. federal and state income tax purposes. Through December 31, 2013, New Colt owned 100% of Colts Manufacturing, New Colts operating entity.
Effective January 1, 2014 (see Note 1, Nature of Business), Colt Defense and New Colt each contributed their assets and operations to Colts Manufacturing. As a result, Colt Defense and New Colt collectively own 100% of Colts Manufacturing, the combined domestic operating entity of the Company. The Company estimated the fair value of the Colt Defense and New Colt contributions to determine the respective ownership percentages of Colt Defense and New Colt. The allocation of the fair value of the contributions to the individual assets and liabilities contributed is preliminary and subject to change.
The combined operations of Colts Manufacturing are treated as a partnership for federal income tax purposes. Consequently, taxable income is computed at the partnership level to determine New Colts income tax expense and Colt Defenses member distribution payable. In conjunction with the transaction, New Colt acquired a preferred investment in Colts Manufacturing and a common equity interest in exchange for its contribution. Colt Defense acquired the remaining common equity interest in exchange for its contribution. Since each member contributed assets, the Company is allocating the built in gain (the difference between fair market value and tax basis) back to the contributing member in accordance with a permitted method under Section 704(c) of the Internal Revenue Code.
Colt Defense and CDTS, a wholly owned subsidiary, collectively own 100% of Colt International, a Dutch coöperatief. Colt International owns 100% of Colt Canada, a Canadian C corporation. The income (loss) of Colt Canada is subject to entity level Canadian federal and provincial taxes. On April 16, 2014, Colt Canada declared and paid a $2,000 dividend to Colt International. Under the terms of the treaty between Canada and The Netherlands, Colt Canada is required to withhold taxes on the dividends at a rate of 5%.
During the three months ended September 28, 2014 Colt International recorded a deferred tax liability of $1,369 on the undistributed earnings of Colt Canada due to the fact that the Company no longer considers Colt Canadas earnings permanently reinvested due to the Companys liquidity position (see Note 9 Liquidity).
The provision (benefit) for foreign income taxes is as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Current |
|
$ |
152 |
|
$ |
12 |
|
$ |
204 |
|
$ |
747 |
|
Deferred |
|
1,358 |
|
(220 |
) |
1,239 |
|
(196 |
) | ||||
Total |
|
$ |
1,510 |
|
$ |
(208 |
) |
$ |
1,443 |
|
$ |
551 |
|
New Colt has a partnership interest in Colts Manufacturing in which the book basis of New Colts assets and liabilities contributed exceeds the tax basis of those assets and liabilities. Therefore, New Colt recorded a deferred tax liability with respect to their partnership interest at January 1, 2014. The requirement that the partnership use carryover basis with respect to the contributed assets resulted in the partnerships basis in the assets being equal to New Colts investment in the partnership.
A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. A significant portion of the value of New Colts asset contribution was attributed to indefinite lived intangible assets. Consequently, the exclusion of the portion of the contribution related the indefinite lived intangible asset from the deferred tax liability associated with the partnership interest would put New Colt in a net deferred tax asset position. The Company has established that it is more likely than not that the full amount of New Colts deferred tax assets will not be recognized in future years. Consequently, New Colt continues to maintain a valuation allowance on its net deferred tax assets.
Note 13 Pension and Postretirement Benefits
As a result of the Merger in 2013, the Company had four noncontributory, domestic defined benefit pension plans (Plans) that covered substantially all eligible salaried and hourly U.S. employees. The bargaining unit Plans were combined on January 1, 2014 and the salaried Plans were combined on January 1, 2014.
Effective December 31, 2012, the pension benefits under the two hourly defined benefit plans were frozen. The benefits under the two salaried defined benefit plans have been frozen since December 31, 2008. Accordingly, participants retain the pension benefits that have already accrued. However, no additional benefits have accrued since the effective date of the freeze.
Pension expense for the New Colt plans is included in the amounts below from the Merger Date.
The components of income recognized in the Companys Consolidated Statements of Operations for pension plans are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Interest cost |
|
$ |
396 |
|
$ |
368 |
|
$ |
1,187 |
|
$ |
918 |
|
Expected return on assets |
|
(478 |
) |
(419 |
) |
(1,433 |
) |
(986 |
) | ||||
Amortization of unrecognized loss |
|
47 |
|
107 |
|
140 |
|
321 |
| ||||
Net periodic cost (income) |
|
$ |
(35 |
) |
$ |
56 |
|
$ |
(106 |
) |
$ |
253 |
|
The Company also provides certain postretirement health care coverage to retired U.S. employees who were subject to a collective bargaining agreement when they were employees. The cost of these postretirement benefits is determined actuarially and is recognized in the Companys consolidated financial statements during the employees active working career. In connection with the Companys collective bargaining agreement, it has capped certain retirees to approximately $250 (not in thousands) per employee per month.
As a result of the Merger in 2013, the Company had two postretirement health care plans that applied to employees covered by the collective bargaining agreement. The postretirement health care plans were combined on April 1, 2014. Expense for the New Colt plan is included in the amounts below from the Merger Date.
As a result of the workforce reduction in the second quarter of 2014 the Company recognized a $98 curtailment gain with respect to the Companys postretirement health care plans.
The components of cost recognized in the Companys Consolidated Statements of Operations for postretirement health care coverage are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
Service cost |
|
$ |
173 |
|
$ |
159 |
|
$ |
519 |
|
$ |
384 |
|
Interest cost |
|
233 |
|
201 |
|
700 |
|
446 |
| ||||
Curtailment of postretirement health plan |
|
|
|
|
|
(98 |
) |
|
| ||||
Amortization of unrecognized prior service costs |
|
(38 |
) |
(43 |
) |
(113 |
) |
(129 |
) | ||||
Amortization of unrecognized loss |
|
33 |
|
61 |
|
99 |
|
184 |
| ||||
Net periodic cost |
|
$ |
401 |
|
$ |
378 |
|
$ |
1,107 |
|
$ |
885 |
|
Note 14 Accumulated Deficit
Colt Defenses authorized capitalization consists of 1,000,000 common units, which include 18,878 nonvoting Class B common units, and 250,000 preferred units. Common units issued and outstanding as of both September 28, 2014 and December 31, 2013 were 132,174. No Class B common units or preferred units have been issued.
On March 22, 2013, Colt Defense purchased 31,165.589 common units (Unit Repurchase) from Blackstone Mezzanine Partners II-A L.P. and Blackstone Mezzanine Holdings II USS L.P. (collectively, Blackstone Funds) (representing 100% of the Colt Defense common membership units held by the Blackstone Funds) for an aggregate purchase price of $14,000 pursuant to an equity purchase agreement, dated as of March 22, 2013 (Unit Repurchase Agreement), by and among Colt Defense and the Blackstone Funds. In accordance with the Unit Repurchase Agreement, upon consummation of the Unit Repurchase, the Blackstone Funds delivered the certificates representing the common units held by the Blackstone Funds to Colt Defense for cancellation, and the rights of the Blackstone Funds under the Amended and Restated LLC Agreement, including appointment rights with respect to Colt Defenses Governing Board, were terminated. The Unit Repurchase Agreement provided customary releases and indemnities for Colt Defense and the Blackstone Funds.
On July 12, 2013, the Company issued and sold 31,165.589 of Colt Defense common units to certain new and existing holders for $9,000 of consideration, of which $5,000 was paid in cash and $4,000 was related to Merger consideration reinvested by certain New Colt investors into Colt Defense. The Company used the $9,000 of consideration, together with the proceeds from the Term Loan and cash on hand, to fund the Merger and pay related fees and expenses.
In the first quarter of 2014 and 2013, respectively, there were no tax distribution payments to members. During the second quarter of 2014, the Company made tax distribution payments to members of $683 along with State of Connecticut members withholding payments of $530, both of which were accrued for in 2013 based on the Companys 2013 taxable income. During the second quarter of 2013, the Company made tax distributions to members of $1,357 and no distributions to the State of Connecticut. During the third quarter of 2014 and 2013 the Company made tax distributions to members of $0 and $1,200, respectively.
Due to limitations on distributions to the Companys members associated with the Companys Term Loan, there was a $2,277 long term liability payable to members at September 28, 2014 and December 31, 2013, respectively.
Note 15 Common Unit Compensation
On March 1, 2012, the Governing Board approved the Colt Defense Long Term Incentive Plan (the Plan). The purpose of the Plan is to advance the interests of Colt Defense and its equity holders by providing a means to attract, retain and motivate key employees, advisors and members of the Governing Board. Awards under the Plan may consist of options, restricted units, restricted phantom units, performance units or other unit-based awards. A total of 18,878 nonvoting Class B common units have been reserved for issuance in connection with awards under the Plan.
Under the Plan, the exercise price of option awards is set at the grant date and may not be less than the fair market value per unit on that date. The term of each option is ten years from the grant date. The vesting periods, which vary by grant, may be time based, performance based or a combination thereof. Compensation expense equal to the grant date fair value of the option is generally recognized over the period during which the employee is required to provide service in exchange for the award or as the performance obligation is met. Fair value of the option was estimated on the date of grant using the Black-Scholes valuation method.
In 2013, options were granted for 5,300 common units at a weighted average exercise price of $288.78 (not in thousands). In the third quarter of 2014, options were granted for 3,000 common units at a weighted average exercise price of $288.78 (not in thousands). The Companys common unit compensation expense, which is included in general and administrative expense in the consolidated statements of operations, was $13 and $0 for the three months ended September 28, 2014 and September 29, 2013, respectively. Common unit compensation expense was $95 and $0 for the nine month periods ended September 28, 2014 and September 29, 2013, respectively.
Note 16 Transactions with Related Parties
In July 2007, Colt Defense entered into a financial advisory agreement with Sciens Management LLC (Sciens Management), which through its affiliates, may be deemed to beneficially own a substantial portion of Colt Defenses limited liability interests and whose managing member is also a member of Colt Defenses Governing Board. Under the terms of the agreement, the Company paid Sciens Management an aggregate annual retainer of $350. In July 2013, Colt Defense entered into a consulting services agreement (Consulting Agreement) with Sciens Institutional Services LLC (Sciens Institutional), an affiliate of Sciens Management. Affiliates of Sciens Institutional beneficially own a substantial portion of Colt Defenses limited liability interests and Sciens Institutionals managing member is a member of Colt Defenses Governing Board. Under the terms of the Consulting Agreement, Sciens Institutional provides consulting services to Colt Defense for an aggregate annual fee of $650, payable quarterly in advance.
The costs for the services provided and the related expenses under the agreements with Sciens Institutional and Sciens Management were recorded within general and administrative expenses in the consolidated statements of operations and were $250 and $220 for the three months ended September 28, 2014 and September 29, 2013, respectively. The Companys cost for these services were $750 and $436 for the nine months ended September 28, 2014 and September 29, 2013, respectively.
In July 2013, the Company entered into a services agreement (Archives Agreement) with Colt Archive Properties LLC (Archives Properties), one of the owners of which is a member of Colt Defenses Governing Board and affiliates of which beneficially own a substantial portion of Colt Defenses limited liability interests. Under the Archives Agreement, Colt agrees to provide designated employees to perform services for Archive Properties for an initial annual fee of $241, payable quarterly in arrears. The Company records revenue related to archive services as net sales and costs associated with providing archive services in cost of sales.
The Company leases its West Hartford facility from NPA Hartford LLC, which is beneficially owned by Sciens Management, for its corporate headquarters and primary manufacturing facility. The lease expires on October 25, 2015. For the three months ended September 28, 2014, and September 29, 2013, the rent expense under this lease was $210 and $210, respectively. Rent expense for the nine months ended September 28, 2014 and September 29, 2013 was $631 and $631 respectively.
In addition, Colt Defense LLC Profit Sharing Plan, a Colt Defense LLC unit holder, owns 100% of Colt Defense Employee Plan Holding Corp. which has a wholly owned subsidiary Colt Security LLC, which provides security guards for the Company.
Prior to the Merger, transactions with New Colt were as follows:
|
|
|
|
Nine Months |
| ||
|
|
Three Months Ended |
|
Ended |
| ||
|
|
September 29, 2013 |
|
September 29, 2013 |
| ||
Net sales to New Colt |
|
$ |
23,321 |
|
$ |
67,156 |
|
Purchases from New Colt |
|
8 |
|
1,894 |
| ||
Administration and services fees charged to New Colt |
|
442 |
|
1,325 |
| ||
Note 17 Commitments and Contingencies
Standby Letters of Credit
A summary of standby letters of credit issued principally in connection with performance and warranty bonds established for the benefit of certain international customers is as follows:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
|
|
|
|
|
| ||
Standby letters of credit secured by restricted cash |
|
$ |
1,172 |
|
$ |
1,185 |
|
Standby letters of credit under Credit Agreement |
|
3,854 |
|
3,486 |
| ||
Guarantees of standby letters of credit established by a sales agent on behalf of Colt |
|
74 |
|
74 |
| ||
Industrial Cooperation Agreements
The Company also had certain industrial cooperation agreements, which stipulate its commitments to provide offsetting business to certain countries that have purchased Colts products. Colt generally settles its offset purchase commitments under industrial cooperation agreements through offsetting business and/or cooperating with other contractors on their spending during the related period. Additionally, the Company identifies future purchases and other satisfaction plans for the remainder of the offset purchase commitment period. Should there be a projected net purchase commitment after such consideration; Colt accrues the estimated cost to settle the offset purchase commitment.
The Companys remaining gross offset purchase commitment is the total amount of offset purchase commitments reduced for claims submitted and approved by the governing agencies. At September 28, 2014 and December 31, 2013, remaining gross offset purchase commitments totaled $65,325 and $64,131, respectively. The Company has evaluated the settlement of its remaining gross offset purchase commitments through planned spending and other satisfaction plans to determine the net offset purchase commitment. The Company has accrued $1,998 and $1,639 as of September 28, 2014 and December 31, 2013, respectively, based on the estimated cost of settling the remaining net offset purchase commitment.
U.S. Government M240 and M249Programs
During the year ended December 31, 2013, as restated, the Company recorded a contract obligation expense of $3,381 and a M240 Program contract modification, reduction of net sales of $6,820, respectively, for an aggregate reduction in gross profit of $10,201 related to the Companys M240 Program with the U.S. Government. The M240 Program contract obligation expense and the M240 Program contract modification, relate to estimated costs (contract obligation expense) to retrofit products previously sold to the U.S. Government as well as the incorporation of changes into the Companys M240 Program product design and production processes and the reduced funding of (contract modification) the M240 Program.
During 2014, the Company, based on additional available information, continually assessed the M240 Program accruals and determined that an incremental $311, $4,779 and $1,722 of M240 Program contract obligation expense was required for the three months ended March 30, 2014, June 29, 2014 and September 28, 2014, respectively. The incremental M240 Program contract obligation expense related to the following:
|
|
|
|
|
|
|
|
For the Nine Months |
| ||||
|
|
For the Three Months Ended |
|
Ended |
| ||||||||
|
|
March 30, 2014 |
|
June 29, 2014 |
|
September 28, 2014 |
|
September 28, 2014 |
| ||||
Inventory Reserves |
|
$ |
311 |
|
$ |
1,997 |
|
$ |
810 |
|
$ |
3,118 |
|
Contract Obligation |
|
|
|
2,782 |
|
912 |
|
3,694 |
| ||||
Incremental Costs |
|
$ |
311 |
|
$ |
4,779 |
|
$ |
1,722 |
|
$ |
6,812 |
|
The incremental contract obligation expense recorded was based on the Companys best estimate of the costs to satisfy the M240 Program obligations given a range of possible outcomes. The Company believes the actual costs to satisfy the obligation may vary from the revised estimate.
As of September 28, 2014 and December 31, 2013, as restated, the Company had the following amounts included in the consolidated balance sheets related to the M240 Program:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
|
|
|
|
(as Restated) |
| ||
Inventory Reserves |
|
$ |
2,560 |
|
$ |
639 |
|
Current Accrued Contract Obligation |
|
$ |
2,365 |
|
$ |
1,194 |
|
Current Customer Advances and Deferred Income |
|
$ |
5,244 |
|
$ |
6,820 |
|
Other Long -Term Liabilities |
|
$ |
3,466 |
|
$ |
|
|
The Company revised its disclosure with respect to the Companys inventory reserves related to the M240 Program as of December 31, 2013. The Company does not consider the revision of this disclosure material.
The Company currently does not expect to deliver all of the new M240 units to the U.S. Government related to the contract modification and complete the retrofit of previously delivered units within the next twelve months, and accordingly, $1,376 of deferred revenue related to the delivery of new M240 units and $2,090 of accrued contract obligation related to the retrofit of previously delivered units is included in other long-term liabilities as of September 28, 2014.
During the second quarter of 2014, the Company agreed to a No-Cost Cancellation of the M249 contract with the U.S. Government. In connection with the cancellation, the Company recorded an expense of $480 which is included in cost of sales in the consolidated statements of operations. The $480 is comprised of a write-off of $344 of inventory and $136 of other expenses associated with the program.
Other Commitments and Contingencies
At September 28, 2014 and December 31, 2013, the Company had unconditional purchase obligations related to capital expenditures for machinery and equipment of $629 and $892, respectively.
During the second and third quarters of 2014, the Company initiated actions which resulted in a workforce reduction of 33 salaried employees and 64 hourly employees. The severance expenses for the employees affected by the workforce reduction along with severance associated with other departures was included in operating income during the three and nine months ended September 28, 2014 and amounted to $656 and $1,183, respectively.
The Company is involved in various legal claims and disputes in the ordinary course of business. The Company accrues for such liabilities when it is both (i) probable that a loss has occurred and (ii) the amount of the loss can be reasonably estimated in accordance with ASC 450, Contingencies. The Company evaluates, on a quarterly basis, developments affecting legal claims and disputes that could cause an increase or decrease in the amount of the liability that has been previously accrued. At this time, management does not anticipate any such loss would have a material adverse impact on the Companys consolidated financial position, results of operations or cash flows.
During the three and nine month periods ended September 28, 2014 and September 28, 2013, respectively, there were no material tax examinations.
In 2011, New Colt entered into a twelve year agreement with Osceola County in Florida to lease a 16 square foot facility in Kissimmee, Florida. This facility was renovated by the County at its cost and the building was made available for occupancy during 2012. There are no lease payments due during the initial five years of the lease and the annual cost of the lease will be $108 per year with the lease expiring on January 15, 2023. The lease expense is being accounted for on a straight-line basis, with an annual charge of $78 being incurred over the term of the lease. At September 28, 2014 and December 31, 2013, deferred lease expense was $95 and $36, respectively. In connection with the lease, the Company was required to hire a minimum number of employees commencing in 2013. As of September 28, 2014, the Company had not occupied the Florida facility and had not hired any employees. The Company has accrued a contractual penalty of $37 and $50 at September 28, 2014 and December 31, 2013, respectively, for not meeting the minimum hiring requirement. In addition, the State of Florida contributed $250 of funds to the Osceola County to assist with the cost of the renovations. As of September 28, 2014 the Company has repaid $50 of this contribution back to the State of Florida for not meeting the terms of the contract. In conjunction with the Florida lease, the Company entered into a quick action closing fund agreement, as amended, with the state of Florida which requires the Company to make a minimum capital investment of $2,500 by December 31, 2015, of which $181 had been made through both September 28, 2014 and December 31, 2013, respectively.
Note 18 Segment Information
As a result of the Merger (see Note 3, Acquisition), the two manufacturers of Colt firearms were consolidated into a single enterprise providing the Company with direct access to the commercial market for Colt rifles and carbines, ownership of the Colt brand name and other related trademarks and the technology and production facilities for the full line of Colt handguns. As of September 28, 2014 and December 31, 2013, the Companys operations are conducted through two segments, firearms and spares/other. These operating segments have similar characteristics and have been aggregated into the Companys only reportable segment. The firearms segment designs, develops, and manufactures firearms for domestic and international military and law enforcement markets as well as the domestic and international commercial markets. The spares and other segment primarily provides spare parts and kits and accessories for domestic and international military and law enforcement markets as well as domestic and international commercial markets. Other activities are de minimus and consist of product service, archive service, training and royalties from the license of the Colt brand and related trademarks.
Adjusted EBITDA consists of income (loss) before interest, income taxes, depreciation and amortization and other expenses as noted below. Management uses Adjusted EBITDA to evaluate the financial performance of the business and to make operating decisions. See the footnotes that follow the reconciliation tables below for additional information regarding the adjustments made to arrive at Adjusted EBITDA.
The following table represents a reconciliation of net income (loss) to Adjusted EBITDA:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
Statement of Operations Data: |
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Net income (loss) |
|
$ |
(7,834 |
) |
$ |
10,857 |
|
$ |
(28,369 |
) |
$ |
20,373 |
|
Income tax (benefit) expense |
|
1,510 |
|
(208 |
) |
1,443 |
|
551 |
| ||||
Depreciation and amortization (i) |
|
2,427 |
|
1,926 |
|
7,086 |
|
4,294 |
| ||||
Interest expense, net |
|
7,904 |
|
7,623 |
|
23,447 |
|
19,686 |
| ||||
Sciens fees and expenses (ii) |
|
250 |
|
220 |
|
750 |
|
436 |
| ||||
Transaction costs (iii) |
|
(12 |
) |
461 |
|
(12 |
) |
877 |
| ||||
Restructuring costs (iv) |
|
|
|
631 |
|
(76 |
) |
631 |
| ||||
Gain on effective settlement of contract (v) |
|
|
|
(15,264 |
) |
|
|
(15,264 |
) | ||||
Lease buyout expense (vi) |
|
|
|
287 |
|
|
|
287 |
| ||||
M240 Program contract obligation expense (vii) |
|
1,722 |
|
7,199 |
|
6,812 |
|
7,199 |
| ||||
Business development costs (viii) |
|
|
|
463 |
|
509 |
|
707 |
| ||||
Severance costs (ix) |
|
656 |
|
|
|
1,183 |
|
|
| ||||
Other income, net (x) |
|
(55 |
) |
215 |
|
(168 |
) |
(516 |
) | ||||
Adjusted EBITDA |
|
$ |
6,568 |
|
$ |
14,410 |
|
$ |
12,605 |
|
$ |
39,261 |
|
(i) Includes depreciation and amortization of intangible assets.
(ii) Includes fees and expenses pursuant to the Companys agreements with Sciens Management and Sciens Institutional.
(iii) Non-recurring costs associated with the July 12, 2013 acquisition of New Colt.
(iv) Includes costs related to the Merger, including severance, continuation of benefits, and other. See Note 4 Restructuring Costs.
(v) Gain from the settlement of the pre-existing License agreement between Colt Defense and New Colt.
(vi) Non-recurring costs associated with the pay-off of leases acquired as part of the Merger.
(vii) Expenses related to Companys M240 Program. See Note 17 Commitments and Contingencies.
(viii) Includes transaction costs incurred in connection with contemplated acquisition activities.
(ix) Includes non-recurring severance costs.
(x) Includes income and/or expenses such as foreign currency exchange gains or losses and other less significant charges not related to on-going operations.
Product Information
The following table shows net sales for the three and nine months ended September 28, 2014 and September 29, 2013, as revised, by product category. The table includes the results of New Colt from the Merger Date. After intercompany sales eliminations, the New Colt acquisition provided $16.7 and $53.1 million of incremental sales for the three months and nine months ended September 28, 2014, respectively.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
Long guns |
|
$ |
23,490 |
|
$ |
48,749 |
|
$ |
63,797 |
|
$ |
154,626 |
|
Handguns |
|
15,651 |
|
12,486 |
|
49,541 |
|
15,007 |
| ||||
Spares and other |
|
11,973 |
|
11,795 |
|
37,489 |
|
31,532 |
| ||||
Total |
|
$ |
51,114 |
|
$ |
73,030 |
|
$ |
150,827 |
|
$ |
201,165 |
|
Geographical Information
Geographic external revenues are attributed to the geographic regions based on the customers location of origin. Colts net sales in the United States include revenues that arise from sales to the U.S. Government under its Foreign Military Sales (FMS) program, which involves product that is resold by the U.S. Government to foreign governments and generally shipped directly to the foreign government by the Company.
The table below presents net sales for the three and nine months ended September 28, 2014 and September 29, 2013, as revised, for specific geographic regions:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
September 28, 2014 |
|
September 29, 2013 |
| ||||
|
|
|
|
(As Revised) |
|
|
|
(As Revised) |
| ||||
United States |
|
$ |
30,419 |
|
$ |
46,075 |
|
$ |
103,639 |
|
$ |
120,842 |
|
Canada |
|
2,745 |
|
5,253 |
|
11,062 |
|
20,206 |
| ||||
Latin America/Caribbean |
|
3,000 |
|
4,626 |
|
5,970 |
|
5,670 |
| ||||
Middle East/Africa |
|
9,393 |
|
48 |
|
12,726 |
|
618 |
| ||||
Europe |
|
5,199 |
|
1,521 |
|
10,932 |
|
6,124 |
| ||||
Asia/Pacific |
|
358 |
|
15,507 |
|
6,498 |
|
47,705 |
| ||||
|
|
$ |
51,114 |
|
$ |
73,030 |
|
$ |
150,827 |
|
$ |
201,165 |
|
Long-lived assets are net fixed assets attributed to specific geographic regions:
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
United States |
|
$ |
23,269 |
|
$ |
25,745 |
|
Canada |
|
4,485 |
|
4,988 |
| ||
|
|
$ |
27,754 |
|
$ |
30,733 |
|
Major Customer Information
For the three months ended September 28, 2014, one foreign customer and one domestic distributor accounted for 16% and 11%, respectively, of net sales. For the nine months ended September 28, 2014, no foreign customers or domestic customers accounted for more than 10% of net sales. For the three months ended September 29, 2013, one domestic distributor accounted for 24% of net sales, as revised, and one foreign direct customer accounted for 21% of net sales, as revised. For the nine months ended September 29, 2013, two foreign direct customers each accounted for 11% of net sales, as revised.
For the three and nine months ended September 29, 2013, sales to Colts Manufacturing, represented 0% and 22% of net sales, as revised, respectively.
For the three months and nine months ended September 28, 2014, sales to the U.S. Government accounted for 5% and 6% of net sales respectively. For the three and nine months ended September 29, 2013, sales to the U.S. Government accounted for 7.1% and 11% of net sales, as revised, respectively.
Note 19 Concentration of risk
Accounts Receivable
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of accounts receivable. At September 28, 2014, the three largest individual trade receivable balances accounted for 19%, 12% and 10% of total accounts receivable, respectively. At December 31, 2013, as restated, the two largest individual trade receivable balances accounted for 28% and 16% of total accounts receivable, respectively.
Labor
The United Automobile, Aerospace & Agricultural Implements Workers of America (the Union) represents the Companys West Hartford work force pursuant to a collective bargaining agreement will expire on March 31, 2019. At September 28, 2014, the Union represented approximately 74% of Colts U.S. workforce. On March 30, 2014, Colt Defense through its domestic operating subsidiary Colts Manufacturing, reached tentative agreement with the Union for a new five year contract covering approximately 515 employees, which was ratified by the union membership on March 31, 2014. The new contract is in effect from April 1, 2014 through March 31, 2019.
Note 20 Fair Value of Financial Instruments
The fair value of an asset or liability is the amount at which the instrument could be exchanged or settled in a current transaction between willing parties where neither is compelled to buy or sell. The carrying values for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current assets and liabilities approximate their fair value due to their short maturities. The carrying value of the Companys long-term debt of $294,458 and $294,817 at September 28, 2014 and December 31, 2013, respectively, was recorded at amortized cost. The estimated fair value of long-term debt was approximately $195,885 and $262,775 at September 28, 2014 and December 31, 2013, respectively. The fair value of the Senior Notes was based on quoted market prices, which are Level 1 inputs and the fair value of the Term Loan was based on Level 3 inputs.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value fall into the following hierarchy:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3: Unobservable inputs for the asset or liability.
As of September 28, 2014 and December 31, 2013, the Company did not have any financial assets and liabilities reported at fair value and measured on a recurring basis or any significant nonfinancial assets or nonfinancial liabilities. Therefore, Colt did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the nine months ended September 28, 2014.
Note 21 Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss were as follows:
|
|
Unrecognized |
|
|
|
Foreign |
|
|
| ||||
|
|
Prior Service |
|
Unrecognized |
|
Currency |
|
|
| ||||
|
|
Cost |
|
Loss |
|
Translation |
|
Total |
| ||||
Balance, December 31, 2012 |
|
$ |
825 |
|
$ |
(17,399 |
) |
$ |
2,733 |
|
$ |
(13,841 |
) |
Other comprehensive income before reclassifications |
|
|
|
|
|
|
|
|
| ||||
Amounts reclassified from accumulated other comprehensive income |
|
(129 |
) |
505 |
|
|
|
376 |
| ||||
Currency translation |
|
|
|
|
|
(1,140 |
) |
(1,140 |
) | ||||
Net current period other comprehensive income |
|
(129 |
) |
505 |
|
(1,140 |
) |
(764 |
) | ||||
Balance, September 29, 2013 (As Revised) |
|
$ |
696 |
|
$ |
(16,894 |
) |
$ |
1,593 |
|
$ |
(14,605 |
) |
|
|
|
|
|
|
|
|
|
| ||||
Balance, December 31, 2013 (As Restated) |
|
$ |
653 |
|
$ |
(10,836 |
) |
$ |
843 |
|
(9,340 |
) | |
Other comprehensive income before reclassifications |
|
(98 |
) |
(1,453 |
) |
|
|
(1,551 |
) | ||||
Amounts reclassified from accumulated other comprehensive income |
|
(113 |
) |
239 |
|
|
|
126 |
| ||||
Currency translation |
|
|
|
|
|
(1,115 |
) |
(1,115 |
) | ||||
Net current period other comprehensive income |
|
(211 |
) |
(1,214 |
) |
(1,115 |
) |
(2,540 |
) | ||||
Balance, September 28, 2014 |
|
$ |
442 |
|
$ |
(12,050 |
) |
$ |
(272 |
) |
$ |
(11,880 |
) |
Amounts are on a before-tax basis.
Note 22 Subsequent Events
Senior Secured Debt
On November 17, 2014 the Company entered into a $70,000 senior secured term loan facility with Wilmington Savings Fund Society, FSB, as agent and Morgan Stanley Senior Funding Inc., as lender. Proceeds from the MS Term Loan were used to repay all amounts outstanding under the Companys existing Term Loan agreement, allow for the Company to make the its $10,938 interest payment on November 17, 2014 under the existing Senior Notes and to provide additional liquidity for the Company. The MS Term Loan (i) does not contain financial covenants or amortization provisions similar to those provisions in the Companys existing Term Loan agreement; (ii) provides for the accrual of interest on an 8% cash and 2% payment-in-kind basis; and (iii) will mature no later than August 15, 2018 subject to the satisfaction of certain conditions. The existing Term Loan agreement did not permit pre-payment at such time and thus, the Company agreed with the existing term Loan lenders to pay a premium of $4,318 in addition to the outstanding principal and accrued interest balances.
The lenders under the Companys existing Credit Agreement (see Note 10 Notes Payable and Long-Term Debt) have also agreed to amendments to the Credit Agreement necessary for the Company to enter into the MS Term Loan. These amendments include, among other things, (i) reducing the senior secured revolving loans available from $50,000 to $33,000, and (ii) incorporating a minimum $7,500 excess availability threshold for borrowings.
The $70,000 of proceeds from the MS Term Loan were disbursed as follows: $52,966 for the repayment of the existing Term Loan principal, interest and premium, $10,938 for the Companys Senior Notes interest payment paid on November 17, 2014, $1,995 for fees and expenses associated with the MS Term Loan and $4,101 of net proceeds remitted to Colt for additional liquidity.
As of November 20, 2014, the Company had cash and cash equivalents on-hand of $8,233 and availability under the Credit Agreement, above the $7,500 minimum excess availability threshold, of $2,473.
Employment Actions
Subsequent to September 28, 2014, the Companys Chief Operating Officer and two employees discontinued their employment with the Company. Combined severance expense was $696 and will be included in operating income in the fourth quarter of 2014. In addition, the Company hired a new Chief Operating Officer effective on or about November 10, 2014.
Governing Board
On November 15, 2014, the members of Colt Defense LLC (Colt) elected Alan B. Miller, to the Governing Board. Mr. Miller joins the Governing Board of Colt Defense LLC with over 50 years experience as an attorney specializing in business finance and corporate restructuring including time spent as special counsel and litigation trustee with Collins & Aikman Corporation and senior counsel, senior partner and partner with Weil, Gotshal and Manges LLP. Mr. Miller currently is a board member of Ceva Holdings LLC and Ceva Group PLC and Spanish Broadcasting System Inc. Mr. Miller attended Trinity College, where he earned a B.A. in 1959 and Boston College Law School, where he earned a J.D. in 1962.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q, including the documents that we incorporate by reference, contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to the safe harbor created by those sections. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or our future financial performance and/or operating performance are not statements of historical fact and reflect only our current expectations regarding these matters. These statements are often, but not always, made through the use of words such as may, will, expect, anticipate,believe, intend, predict, potential, estimate, plan or variations of these words or similar expressions. These statements inherently involve a wide range of known and unknown uncertainties. Our actual actions and results may differ materially from what is expressed or implied by these statements. Factors that could cause such a difference include, but are not limited to, those set forth as Risk Factors under Section 1A herein and in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2013, which was filed with the Securities and Exchange Commission on September 15, 2014. Given these factors, you should not rely on forward-looking statements, assume that past financial performance will be a reliable indicator of future performance nor use historical trends to anticipate results or trends in future periods. We expressly disclaim any obligation or intention to provide updates to the forward-looking statements and estimates and assumptions associated with them.
As used in this report, the terms we, us, our, Colt Defense, Colt and the Company mean Colt Defense LLC , Colt Finance Corp. and all of their subsidiaries that are consolidated under GAAP.
Certain monetary amounts, percentages and other figures included in this section have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be the arithmetic aggregation of the figures that precede them and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
Restatement of Previously Issued Consolidated Financial Statements
As discussed further in Note 2, Summary of Significant Accounting Policies - Restatement of Previously Issued Consolidated Financial Statements, in the Notes to Consolidated Financial Statements included in Part I, Item 1, Consolidated Financial Statements of this Quarterly Report on Form 10-Q, in our 2013 Annual Report on Form 10-K, we restated our previously issued consolidated financial statements and the related disclosures for the year ended December 31, 2013 (the Restated Period) and revised the unaudited interim financial statements for the first three quarters in the fiscal year ended December 31, 2013 (the Revised Periods).
The restatement is the result of our correction of a financial statement error attributable to the lack of recognition of the impact of a contract modification related to the M240 Program for the U.S. Government in our fourth quarter 2013 results. In conjunction with the correction of the M240 machine gun program (the M240 Program) error, other previously recorded immaterial out-of-period adjustments were also adjusted to be reflected in the proper period along with the reclassification of business development expenses from other expense/(income) to operating income.
All amounts in this Quarterly Report on Form 10-Q affected by the restatement or revision reflect such amounts as restated or as revised. The impact of the correction of these errors in the restatement on the applicable line items in the consolidated financial statements for the quarter ended September 28, 2014 resulting from the restatement is set forth in Note 2 to the Notes to Consolidated Financial Statements. Our Quarterly Reports on Form 10-Q for subsequent periods during 2014 will also include the impacts of the restatement on applicable 2013 comparable prior quarter and year to date periods. See Note 2 of the Notes to Consolidated Financial Statements for further detail.
Going Concern
During the third quarter of 2014 we faced increasing liquidity challenges as a result of several recent business trends impacting our current and forecasted revenues and cash flows. These trends included the continued decline in market demand for our commercial modern sporting rifle (MSR), recent declines in demand for our commercial handguns, and delays in anticipated timing of U.S. Government and certain international sales. As a result, we expect to report lower revenues and Adjusted EBITDA for the year-ended December 31, 2014 than we had previously forecasted. These trends are expected to continue to put pressure on our liquidity for the foreseeable future.
Managements plan to mitigate the business risk associated with our increased liquidity challenges include: (i) seeking revenue growth financials across all sales channels, (ii) executing initiatives designed to optimize our performance and reduce costs, (iii) managing inventory levels for positive cash flow by focusing the production schedule on our backlog of firm commitments, (iv) working closely with U.S. Government regulators to obtain timely approval of international sales, and (v) seeking ways to restructure our senior notes to reduce overall debt service costs.
As announced in our Form 12b-25 filed on November 12, 2014, there was uncertainty about whether we would have the cash necessary to pay our November 17, 2014 senior notes interest payment under our senior notes issued on November 10, 2009 by Colt Defense LLC and Colt Finance Corp. (Senior Notes). On November 17, 2014 we entered into a $70.0 million senior secured term loan facility with Wilmington Savings Fund Society, FSB as agent, and Morgan Stanley Senior Funding Inc., as lender (the MS Term Loan) which replaced our existing term loan agreement dated July 12, 2013 (Term Loan) and provided us $4.1 million of additional liquidity. The MS Term Loan also enabled us to make our November 17, 2014 Senior Notes interest payment of $10.9 million. In addition, the lenders, under the Companys existing Credit Agreement also agreed to amendments to the Credit Agreement which allowed us to enter into the MS Term Loan and provided for additional liquidity through a modification of excess availability thresholds.
After giving effect to the aforementioned market and business challenges as well as the sales opportunities that we believe exist, we have forecasted revenue and Adjusted EBITDA growth in 2015. There can be no assurance that the actual demand for our commercial MSRs or commercial handguns will meet our internal forecast. In addition, there can be no assurance that U.S. Government or international sales will take place as we have forecasted primarily due to a U.S. Government regulatory approval process which is difficult to predict. As a result of these factors, and notwithstanding the additional cash we obtained from the MS Term Loan, risk exists with respect to us achieving our internally forecasted results and projected cash flows for the remainder of 2014 and 2015. Absent achieving our internal forecast for the remainder of 2014 and 2015 and the successful execution of Managements strategy, including addressing other long-term debt such as the Senior Notes, it is probable that we may not have sufficient cash and cash equivalents on-hand along with availability under our Credit Agreement, as amended, to be able to meet our obligations as they come due over the next 12 months, including our May 15, 2015 Senior Notes interest payment of $10.9 million.
As it is probable that we may not have sufficient liquidity to be able to make our May 15, 2015 Senior Notes interest payment without meeting our internal projections (including addressing our Senior Notes), our long-term debt has been classified as current in the consolidated balance sheet. Currently we do not have sufficient funds to repay the debt upon an actual acceleration of maturity. In the event of an accelerated maturity, our lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact our liquidity. These factors raise substantial doubt about our ability to continue as a going concern.
Overview of Our Business
We are one of the worlds oldest and most renowned designers, developers and manufacturers of firearms for military, personal defense and recreational purposes. Our founder, Samuel Colt, patented the first commercially successful revolving cylinder firearm in 1836 and, in 1847, began supplying U.S. and international military customers with firearms that have set the standards of their era. On July 12, 2013 (the Merger Date), we acquired 100% ownership (the Merger) of New Colt Holding Corp. (New Colt), a privately-held company, which is a world leader in the design, development and manufacture of Colt pistols and revolvers. As a result of the Merger, the two manufacturers of Colt firearms were consolidated into a single enterprise providing us direct access to the commercial market for our rifles and carbines, ownership of the Colt brand name and other related trademarks and the technology and production facilities for the full line of Colt handguns. Today, our end customers encompass every segment of the worldwide firearms market, including U.S., Canadian and foreign military forces, global law enforcement and security agencies, consumers seeking personal protection, the hunting and sporting community and collectors.
From our inception and for over 175 years, we have distinguished our self by translating innovative military weapons into the most desired law enforcement, personal protection and recreational firearms. From the Model P Peacemaker revolver to the 1911 automatic pistol, the M16 rifle and the M4 carbine, Colt defines iconic firearms that first establish worldwide military standards and then become the guns every law enforcement officer and serious recreational shooter wants to own. That Colt tradition continues to this day. The Colt-designed M16 rifle and M4 carbine have served as the principal battle rifles of the U.S. Armed Forces for the last 50 years and are currently in military and law enforcement service in more than 80 countries around the world. These Colt rifles created the consumer MSR market in the United States. The Colt Close Quarter Battle Pistol, a 1911 derivative, was selected for acquisition by the U.S. Marine Corps in 2012, just following the 100th anniversary of the first government contract for the 1911 pistol, and is now a highly sought after handgun by commercial gun owners.
The Colt name and trademarks stand for quality, reliability, accuracy and the assurance of customer satisfaction. Our brand and global footprint position us for long-term growth in a world market that offers continued opportunities in all of our sales channels: military, law enforcement and commercial.
We operate from facilities located in West Hartford, Connecticut and Kitchener, Ontario, Canada.
Results of Operations
The following table sets forth our results of operations in dollars and as a percentage of total net sales for the periods presented (dollars in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||||||
|
|
September 28, 2014 |
|
% |
|
September 29, 2013 |
|
% |
|
September 28, 2014 |
|
% |
|
September 29, 2013 |
|
% |
| ||||
|
|
|
|
|
|
(As Revised) |
|
(As Revised) |
|
|
|
|
|
(As Revised) |
|
(As Revised) |
| ||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
$ |
51,114 |
|
100.0 |
% |
$ |
73,030 |
|
100.0 |
% |
$ |
150,827 |
|
100.0 |
% |
$ |
201,165 |
|
100.0 |
% |
Cost of sales |
|
40,517 |
|
79.3 |
% |
58,487 |
|
80.1 |
% |
125,543 |
|
83.2 |
% |
149,642 |
|
74.4 |
% | ||||
Gross profit |
|
10,597 |
|
20.7 |
% |
14,543 |
|
19.9 |
% |
25,284 |
|
16.8 |
% |
51,523 |
|
25.6 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling and commissions |
|
3,746 |
|
7.3 |
% |
4,064 |
|
5.6 |
% |
12,827 |
|
8.5 |
% |
10,398 |
|
5.2 |
% | ||||
Research and development |
|
1,250 |
|
2.4 |
% |
1,714 |
|
2.3 |
% |
3,885 |
|
2.6 |
% |
4,015 |
|
2.0 |
% | ||||
General and administrative |
|
4,088 |
|
8.0 |
% |
3,896 |
|
5.3 |
% |
11,798 |
|
7.8 |
% |
10,641 |
|
5.3 |
% | ||||
Business development |
|
|
|
0.0 |
% |
463 |
|
0.6 |
% |
509 |
|
0.3 |
% |
707 |
|
0.4 |
% | ||||
Certain transaction costs |
|
(12 |
) |
0.0 |
% |
461 |
|
0.6 |
% |
(12 |
) |
0.0 |
% |
877 |
|
0.4 |
% | ||||
Gain on effective settlement of contract |
|
|
|
0.0 |
% |
(15,264 |
) |
-20.9 |
% |
|
|
0.0 |
% |
(15,264 |
) |
-7.6 |
% | ||||
Restructuring costs |
|
|
|
0.0 |
% |
631 |
|
0.9 |
% |
(76 |
) |
-0.1 |
% |
631 |
|
0.3 |
% | ||||
Total operating expenses |
|
9,072 |
|
17.7 |
% |
(4,035 |
) |
-5.5 |
% |
28,931 |
|
19.2 |
% |
12,005 |
|
6.0 |
% | ||||
Operating income |
|
1,525 |
|
3.0 |
% |
18,578 |
|
25.4 |
% |
(3,647 |
) |
-2.4 |
% |
39,518 |
|
19.6 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
7,904 |
|
15.5 |
% |
7,623 |
|
10.4 |
% |
23,447 |
|
15.5 |
% |
19,686 |
|
9.8 |
% | ||||
Other expense (income), net |
|
(55 |
) |
-0.1 |
% |
306 |
|
0.4 |
% |
(168 |
) |
-0.1 |
% |
(1,092 |
) |
-0.5 |
% | ||||
Non operating expenses |
|
7,849 |
|
15.4 |
% |
7,929 |
|
10.9 |
% |
23,279 |
|
15.4 |
% |
18,594 |
|
9.2 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income (loss) before provision for income taxes |
|
(6,324 |
) |
-12.4 |
% |
10,649 |
|
14.6 |
% |
(26,926 |
) |
-17.9 |
% |
20,924 |
|
10.4 |
% | ||||
Income tax expense (benefit) |
|
1,510 |
|
3.0 |
% |
(208 |
) |
-0.3 |
% |
1,443 |
|
1.0 |
% |
551 |
|
0.3 |
% | ||||
Net income (loss) |
|
$ |
(7,834 |
) |
-15.3 |
% |
$ |
10,857 |
|
14.9 |
% |
$ |
(28,369 |
) |
-18.8 |
% |
$ |
20,373 |
|
10.1 |
% |
Three and Nine Months Ended September 28, 2014 Compared to the Three and Nine Months Ended September 29, 2013, as revised.
On the Merger Date, we acquired 100% ownership of New Colt, which is a world leader in the design, development and manufacture of Colt pistols and revolvers. As a result of the Merger, the two manufacturers of Colt firearms were consolidated into a single enterprise providing Colt Defense direct access to the commercial market for Colt Defense rifles and carbines, ownership of the Colt brand and related trademarks and the technology and production facilities for the full line of Colt handguns. The operating results for New Colt have been included in the Consolidated Statements of Operations since the Merger Date.
Net Sales
The following table shows net sales for the three months and nine months ended September 28, 2014 and September 29, 2013, as revised, respectively, by product category ($ in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||
|
|
September 28, 2014 |
|
September 29, 2013 |
|
% Change |
|
September 28, 2014 |
|
September 29, 2013 |
|
% Change |
| ||||
|
|
|
|
(As Revised) |
|
(As Revised) |
|
|
|
(As Revised) |
|
(As Revised) |
| ||||
Long guns |
|
$ |
23,490 |
|
$ |
48,749 |
|
-51.8 |
% |
$ |
63,797 |
|
$ |
154,626 |
|
-58.7 |
% |
Handguns |
|
15,651 |
|
12,486 |
|
25.3 |
% |
49,541 |
|
15,007 |
|
230.1 |
% | ||||
Spares and other |
|
11,973 |
|
11,795 |
|
1.5 |
% |
37,489 |
|
31,532 |
|
18.9 |
% | ||||
Total |
|
$ |
51,114 |
|
$ |
73,030 |
|
-30.0 |
% |
$ |
150,827 |
|
$ |
201,165 |
|
-25.0 |
% |
Net sales for the three months ended September 28, 2014 were $51.1 million compared to $73.0 million for the three months ended September 29, 2013, as revised. The decrease of $21.9 million, or 30.0%, was primarily due to lower sales of long guns, spares and other partially offset by increases in handgun sales due to the acquisition of New Colt. Sales in the third quarter of 2014 decreased when compared to the third quarter of 2013 due to $18.1 million lower commercial and law enforcement rifle sales related to the continued softness in the MSR market, a decrease in direct foreign sales of $5.7 million partially associated with the non-recurrence of a large international sale in 2013 and a decrease in U.S. government sales of $1.6 million primarily related to the timing of the fulfillment of certain U.S. government contracts. These decreases were partially offset by an increase of $3.7 million of commercial handguns related to the acquisition of New Colt. The New Colt acquisition provided $16.7 million of incremental sales to Colt Defense sales, in the third quarter of 2014. Without the impact of the New Colt acquisition, our third quarter sales would have been $34.4 million.
Net sales for the nine months ended September 28, 2014 were $150.8 million compared to $201.2 million for the nine months ended September 29, 2013. The decrease of $50.4 million, or 25.0% was due to lower sales of long guns partially offset by increases in spares and other and increases in handgun sales due to the acquisition of New Colt. Sales for the nine months ended September 28, 2014 decreased compared to the nine months ended September 28, 2013 due to $48.3 million lower commercial and law enforcement rifle sales related to the continued softness of the MSR market, a decrease in direct foreign sales of $32.2 million partially associated with the non-recurrence of a large discrete international rifle sale in 2013 and a decrease in US government sales of $8.9 million primarily related to the timing of the fulfillment of certain U.S. government contracts. These decreases were partially offset by an increase of $37.5 million of commercial handguns related to the acquisition of New Colt and an increase in spares and other of $6.0 million primarily related to an overall increase in international rifle kits sold in 2014.
Cost of Sales/Gross Profit
Cost of sales for the three months ended September 28, 2014 was $40.5 million compared to $58.5 million for the three months ended September 29, 2013. Without the acquisition of New Colt, cost of sales for the third quarter of 2014 would have been $27.8 million, or a decrease of $30.7 million. Our cost of sales consists of direct labor and benefits, materials, subcontractor costs and manufacturing overhead, including depreciation and amortization, utilities, and maintenance and repairs. Gross margin, as a percentage of sales, for the period increased from 19.9% for the three months ended September 29, 2013 to 20.7% for the three months ended September 28, 2014. The primary reason for the increase in the gross margin percentage was a decrease in other manufacturing costs between periods due to inventory adjustments in 2013 partially offset by under absorption adjustments in 2014, decreased international sales of $5.3 million, which historically have had higher margins than domestic sales, decreased demand for commercial and law enforcement rifles of $19.5 million and additional M240 contract obligation expenses of $1.7 million (See Note 17, Commitments and Contingencies).
Cost of sales for the nine months ended September 28, 2014 was $125.5 million compared to $149.6 million for the nine months ended September 29, 2013. Without the acquisition of New Colt, cost of sales for the first nine months of 2014 would have been $85.0 million, or a decrease of $64.6 million. Our cost of sales consists of direct labor and benefits, materials, subcontractor costs and manufacturing overhead, including depreciation and amortization, utilities, and maintenance and repairs. Gross margin for the period decreased from 25.6% in the comparable period of 2013 to 16.8%. The decline in gross margin was primarily driven by an $11.2 million increase in under absorption related to declines in production, a $22.8 million decrease in international sales, which historically have had higher margins than domestic sales, partially offset by lower inventory, material and scrap adjustments between periods.
Selling and Commissions Expense
For the three months ended September 28, 2014, selling and commission expenses were $3.7 million compared to $4.1 million for the same period in 2013. The decrease of $0.4 million, or 7.8%, was primarily due to lower sales for the three months ended September 28, 2014, which was partially offset by an increase due to the acquisition of New Colt. Selling expense consists primarily of compensation, advertising, promotions, travel, trade shows, consulting fees and marketing materials. In addition, we pay commissions to independent foreign sales representatives on certain direct foreign sales and to domestic representatives on most commercial law enforcement rifle sales, which generally are a percentage of the selling price.
For the nine months ended September 28, 2014, selling and commission expenses were $12.8 million compared to $10.4 million for the same period in 2013. The increase of $2.4 million, or 23.1%, was primarily due to the acquisition of New Colt, partially offset by lower sales for the nine months ended September 28, 2014. Selling expense consists primarily of compensation, advertising, promotions, travel, trade shows, consulting fees and marketing materials. In addition, we pay commissions to independent foreign sales representatives on certain direct foreign sales and to domestic representatives on most commercial law enforcement rifle sales, which generally are a percentage of the selling price.
Research and Development
Research and development expense for the three months ended September 28, 2014 was $1.3 million compared to $1.7 million for the three months ended September 29, 2013. The $0.4 million decrease, or 27.1%, was primarily due to the reduced spend year over year at our Canadian facility. Research and development expenses consist primarily of compensation and benefit expenses and experimental work materials for our employees who are responsible for the development and enhancement of new and existing products as well as expenses for outside engineering services.
Research and development expense for the nine months ended September 28, 2014 was $3.9 million compared to $4.0 million for the nine months ended September 29, 2013. The $0.1 million decrease, or 3.2%, was primarily due to reduced spend year over year at our Canadian facility partially offset by increased engineering costs related to our acquisition of New Colt. Research and development expenses consist primarily of compensation and benefit expenses and experimental work materials for our employees who are responsible for the development and enhancement of new and existing products as well as expenses for outside engineering services.
General and Administrative Expense
General and administrative expense for the three months ended September 28, 2014 was $4.1 million compared to $3.9 million for the three months ended September 29. 2013. The $0.2 million increase, or 4.9%, was primarily due to higher audit, tax and other professional fees due to the acquisition of New Colt. General and administrative expense consists of compensation and benefits, professional services and other general office administration expenses. These costs do not change proportionately with changes in sales.
General and administrative expense for the nine months ended September 28, 2014 was $11.8 million compared to $10.6 million for the nine months ended September 29. 2013. The $1.2 million increase, or 10.9%, was primarily due to higher audit, tax and other professional fees due to the acquisition of New Colt. General and administrative expense consists of compensation and benefits, professional services and other general office administration expenses. These costs do not change proportionately with changes in sales.
Business Development Expenses
Business development expense for the three months ended September 28, 2014 was $0.0 million compared to $0.5 million for the three months ended September 29, 2013. The $0.5 million decrease, was primarily due to decreased outside professional service fees associated with our strategic initiatives relative to the comparable prior year period.
Business development expense for the nine months ended September 28, 2014 was $0.5 million compared to $0.7 million for the nine months ended September 29, 2013. The $0.2 million decrease, or 28.0%, was primarily related to professional fees incurred in the first quarter of 2014 related to strategic initiatives relative to the comparable prior year period.
Certain Transaction Costs
Certain transaction costs expense for the three months ended September 28, 2014 was $0.0 million compared to $0.5 million for the three months ended September 29, 2013. The decrease of $0.5 million, or 100%, is primarily related to the absence of Merger related costs in the current period relative to the comparable prior year period.
Certain transaction costs expense for the nine months ended September 28, 2014 was $0.0 million compared to $0.9 million for the nine months ended September 29, 2013. The decrease of $0.9 million, or 100%, is primarily related to the absence of Merger related costs in the current period relative to the comparable prior year period.
Restructuring Costs
Restructuring costs for the three months ended September 28, 2014 and September 29, 2013, was $0.0 million and $0.6 million.
Restructuring costs for the nine months ended September 28, 2014 was ($0.1) million compared to $0.6 million for the nine months ended September 29, 2013. The $0.1 million benefit in the current period is related to a reversal of a severance related restructuring expense recorded in the prior year.
Interest Expense
Interest expense for the three months ended September 28, 2014 was $7.9 million compared to $7.6 million for the three months ended September 29, 2013. The increase of $0.3 million, or 3.7%, was primarily due to incremental interest expense on the Term Loan, which partially funded the acquisition of New Colt and increased interest expense related to the our credit agreement.
Interest expense for the nine months ended September 28, 2014 was $23.4 million compared to $19.7 million for the nine months ended September 29, 2013. The increase of $3.8 million, or 19.1%, was primarily due to incremental interest expense on the Term Loan, which partially funded the acquisition of New Colt.
Other Expense (Income), net
Other income for the three months ended September 28, 2014 was ($0.1) million compared to $0.3 million for the three months ended September 29, 2013. The decrease of $0.4 million was primarily driven by a $0.3 million lease buyout expense in 2013 related to the acquisition of New Colt that did not recur in 2014.
Other income for the nine months ended September 28, 2014 was ($0.2) million compared to ($1.1) million for the nine months ended September 28, 2014. The decrease of $0.9 million, or 81.8%, was primarily related to a $1.0 million decrease in service income as a result of the acquisition of New Colt.
Income Taxes
Colt Defense is a limited liability company, treated as a partnership for U.S. federal and state income tax reporting purposes and is not subject to U.S. federal or state income taxes. Consequently, all taxable income (loss) of Colt Defense is reported to its members for inclusion in their respective income tax returns.
Colt Defense and Colt Technical Services LLC, a wholly owned subsidiary, collectively own 100% of Colt International, an entity formed under the laws of The Netherlands. Colt International owns 100% of Colt Canada, a Canadian C corporation. The income (loss) of Colt Canada is subject to entity level Canadian federal and provincial taxes.
As a result of the Merger, effective July 12, 2013, Colt Defense owns 100% of New Colt. Effective as of January 1, 2014, Colt affected a restructuring whereby Colt Defense and New Colt contributed their assets and operations to Colts Manufacturing. The contribution created a combined operating entity for our U.S. based operations. Therefore, effective January 1, 2014, Colt Defense owned 100% of Colt Finance, New Colt (a C corporation) and CDTS. Colt Defense and New Colt collectively own 100% of Colts Manufacturing as a result of the legal entity restructuring.
During the three months ended September 28, 2014 Colt International recognized an income tax expense and deferred tax liability of $1,369 on the undistributed earnings of Colt Canada due to the fact that management no longer considers Colt Canadas earnings permanently reinvested due to our current liquidity position (see Note 9 Liquidity). If we repatriate cash and cash equivalents from Canada to the U.S, based on our current legal entity structure, we would not be required to accrue and pay U.S. income taxes. Out cost of repatriation would be in the form of a 5% withholding tax which Colt Canada is required to withhold on dividends when declared and paid to Colt International under the terms of the treaty between Canada and the Netherlands. There is no further income or withholding tax on dividends when declared and paid to Colt Defense.
For the nine months ended September 28, 2014, Colt International recorded an income tax expense of $1.4 million on the undistributed earnings of Colt Canada. For the nine months ended September 29, 2013, Colt International and Colt Canada recorded an income tax expense of $0.3 million and $0.4 million respectively and New Colt recorded an income tax benefit of $0.2 million for a consolidated tax expense of $0.6 million. Tax benefits recorded in the nine months ended September 28, 2014 are attributable to operating losses recorded by us.
Liquidity and Capital Resources
Our primary liquidity requirements are for debt service, working capital and capital expenditures. We have historically funded these requirements through internally generated operating cash flow. On September 29, 2011, we entered into a Credit Agreement (Credit Agreement) with Wells Fargo Capital Finance, LLC. Under the terms of the Credit Agreement, senior secured revolving loans are available up to $50.0 million, inclusive of $20.0 million available for letters of credit. Revolving loans are subject to, among other things, a borrowing base, which is calculated monthly based on specified percentages of eligible accounts receivable and inventory and specified values of fixed assets. Under the Credit Agreement, our obligations are secured by a first-priority security interest in substantially all of our assets (other than intellectual property), including accounts receivable, inventory and certain other collateral, and a second-priority security interest in our intellectual property. The Credit Agreement matures on September 28, 2016.
Going Concern
During the third quarter of 2014, we faced increasing liquidity challenges as a result of several recent business trends impacting our current and forecasted revenues and cash flows. These trends included the continued decline in market demand for our commercial MSR, recent declines in demand for our commercial handguns, and delays in anticipated timing of U.S. Government and certain international sales. As a result, we expect to report lower revenues and Adjusted EBITDA for the year-ended December 31, 2014 than we had previously forecasted. These trends are expected to continue to put pressure on our liquidity for the foreseeable future.
Managements plan to mitigate the business risk associated with our increased liquidity challenges include: (i) seeking revenue growth across all sales channels, (ii) executing initiatives designed to optimize our performance and reduce costs, (iii) managing inventory levels for positive cash flow by focusing the production schedule on our backlog of firm commitments, (iv) working closely with U.S. Government regulators to obtain timely approval of international sales, and (v) seeking ways to restructure our Senior Notes to reduce overall debt service costs.
As announced in our Form 12b-25 filed on November 12, 2014, there was uncertainty about whether we would have the cash necessary to pay our November 17, 2014 Senior Notes interest payment. On November 17, 2014 we entered into the MS Term Loan, a $70.0 million senior secured term loan facility with Wilmington Savings Fund Society, FSB as agent, and Morgan Stanley Senior Funding Inc., as lender, which replaced our existing Term Loan agreement and provided us $4.1 million of additional liquidity. The MS Term Loan also enabled us to make our November 17, 2014 Senior Notes interest payment of $10.9 million. In addition, the lenders, under our existing Credit Agreement also agreed to amendments to the Credit Agreement which allowed us to enter into the MS Term Loan and provided for additional liquidity through a modification of excess availability thresholds.
After giving effect to the aforementioned market and business challenges as well as the sales opportunities that we believe exist, we have forecasted revenue and Adjusted EBITDA growth in 2015. There can be no assurance that the actual demand for our commercial MSRs or commercial handguns will meet our internal forecast. In addition, there can be no assurance that U.S. Government or international sales will take place as we have forecasted primarily due to a U.S. Government regulatory approval process which is difficult to predict. As a result of these factors, and notwithstanding the additional cash we obtained from the MS Term Loan, risk exists with respect to us achieving our internally forecasted results and projected cash flows for the remainder of 2014 and 2015. Absent achieving our internal forecast for the remainder of 2014 and 2015 and the successful execution of Managements strategy, including addressing other long-term debt such as the Senior Notes, it is probable that we may not have sufficient cash and cash equivalents on-hand along with availability under our Credit Agreement, as amended, to be able to meet our obligations as they come due over the next 12 months, including our May 15, 2015 Senior Notes interest payment of $10.9 million.
As it is probable that we may not have sufficient liquidity to be able to make our May 15, 2015 Senior Notes interest payment without meeting our internal projections (including addressing our Senior Notes), our long-term debt has been classified as current in the consolidated balance sheet. Currently we do not have sufficient funds to repay the debt upon an actual acceleration of maturity. In the event of an accelerated maturity, our lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact our liquidity. These factors raise substantial doubt about our ability to continue as a going concern.
The MS Term Loan and Credit Agreement contain a covenant requiring us to deliver audited financial statements within 90 days following each fiscal year, together with an audit opinion that does not contain a going concern explanatory paragraph. We will be re-filing under current date our 2013 Form 10-K/A sometime before December 31, 2014 in response to United States Security and Exchange Commission (SEC) comments on the 2013 10-K. The SEC comments primarily relate to the inclusion of certain certifications under Section 906 of Sarbanes-Oxley and do not require any changes to the financial statements for the year-ended December 31, 2013, as restated. In connection with our response to these comments and the re-filing of the 2013 Form 10-K/A, management expects our independent registered public accounting firm will issue an audit report that contains a going concern explanatory paragraph. We are in discussions with, and expect to receive a waiver from, each of our lenders in connection with the re-filing of the 2013 Form 10-K/A.
The $70.0 million of proceeds from the MS Term Loan were disbursed as follows: $53.0 million for the repayment of the existing Term Loan principal, interest and premium, $10.9 million for our Senior Notes interest payment paid on November 17, 2014, $2.0 million for fees and expenses associated with the MS Term Loan and $4.1 million of net proceeds remitted to Colt.
As of September 28, 2014 we had $4.0 million of cash and cash equivalents and $2.1 million of availability under our Credit Agreement. As of November 20, 2014 we had $8.2 million of cash and cash equivalents and $2.5 million of availability under our Credit Agreement (see Note 10 Notes Payable and Long-Term Debt).
Our foreign and domestic cash and cash equivalents as of September 28, 2014 and December 31, 2013, respectively, are as follows (in thousands):
|
|
September 28, 2014 |
|
December 31, 2013 |
| ||
United States (1) |
|
$ |
2,029 |
|
$ |
8,363 |
|
Canada (2) |
|
1,911 |
|
4,213 |
| ||
Netherlands (3) |
|
23 |
|
18 |
| ||
Total cash and cash equivalents |
|
$ |
3,963 |
|
$ |
12,594 |
|
(1) United States includes the following legal entities: Colt Defense LLC, New Colt Holding Corp., Colts Manufacturing Company LLC and Colt Defense Technical Services LLC
(2) Canada includes the following legal entity: Colt Canada Corporation
(3) Netherlands includes the following legal entity: Colt International Coöperatief U.A.
Due to our current liquidity situation, during the three months ended September 28, 2014 Colt International recorded a deferred tax liability of $1.4 million on the undistributed earnings from Colt Canada given that management no longer consider Colt Canadas earnings permanently reinvested.
If we repatriated cash and cash equivalents, based on our current legal entity structure as described in the accompanying financial statements under Note 1 Nature of Business, we would not be required to accrue and pay U.S. income taxes to repatriate these funds. Our cost of repatriation would be in the form of a 5% withholding tax which Colt Canada is required to withhold on dividends when declared and paid to Colt International under the terms of the treaty between Canada and the Netherlands. There is no further income or withholding tax on dividends when declared and paid to Colt Defense.
We amended our Credit Agreement in November 2014 to lower the minimum excess availability threshold from $11.0 million to $7.5 million, giving us an additional $3.5 million of borrowing capacity. As of November 20, 2014 our borrowing availability (above the excess availability threshold) under our Credit Agreement with Wells Fargo Capital Finance, LLC (WFCF) was $2.5 million. In addition, as of November 20, 2014 we had cash and cash equivalents on-hand of $8.2 million, of which $2.9 million is located at Colt Canada and would be subject to a 5% withholding tax if repatriated.
Credit Agreement
Borrowings under the Credit Agreement bear interest at a variable rate based on the London Inter-Bank Offered Rate (LIBOR), the Canadian Bankers Acceptance Rate or the lenders prime rate, as defined in the Credit Agreement, plus a spread. The interest rate spread on borrowing varies based on both the rate option selected and our quarterly average excess availability under the Credit Agreement. There is an unused line fee of .50% per annum, payable quarterly on the unused portion under the facility and a $40 thousand annual servicing fee.
The Credit Agreement limits our ability to incur additional indebtedness, make investments or certain payments, pay dividends (other than for member distributions to support member LLC-related taxes) and merge, acquire or sell assets. In addition, certain covenants would be triggered if excess availability were to fall below a specified level. Excess availability is determined as the lesser of our borrowing base or $50.0 million, reduced by outstanding obligations under the Credit Agreement and trade payables that are more than 60 days past due. Our available borrowing capacity as of September 28, 2014 was $2.1 million, which is the amount above the excess availability threshold. The Credit Agreement had an excess availability threshold of $11.0 million as of September 28, 2014, which was lowered to $7.5 million in November 2014. If excess availability is below $7.5 million, we would be required to be in compliance with a fixed charge coverage ratio, as defined in the Credit Agreement (WFCF FCCR). If we are not in compliance with the WFCF FCCR and below $7.5 million in excess availability, we would not be able to borrow additional amounts under the Credit Agreement. In addition, if excess availability falls below $7.5 million or an event of default occurs, we would be required to provide WFCF with more frequent compliance reporting and WFCF may also assume certain other contractual privileges. The Credit Agreement also contains customary events of default including, but not limited to, no material litigation or defaults under material contracts and no material adverse change. In connection with any borrowing requests, management must certify, among other things, to no default or event of default.
As of September 28, 2014, there were revolving loans of $13.0 million outstanding and $3.9 million of letters of credit outstanding under the Credit Agreement. As of December 31, 2013 there were revolving loans of $7.1 million outstanding and $3.5 million of letters of credit outstanding under the Credit Agreement. As of November 21, 2014, there were revolving loans of $16.1 million and $3.8 million of letters of credit outstanding under the credit agreement.
As of September 28, 2014 and December 31, 2013, we were in compliance with all of the Credit Agreement covenants and restrictions, as amended, and we monitor our future compliance based on current and anticipated financial results. The WFCF FCCR for four consecutive quarters may not be less than 1.00:1.00. As of September 28, 2014 and December 31, 2013 our availability was in excess of $11.0 million and therefore the WFCF FCCR was not in effect. If it had been in effect, the calculated WFCF FCCR for the four quarters ended September 28, 2014 and December 31, 2013 would have been 0.77:1.00 and 1.54:1.00, respectively.
On March 22, 2013, we entered into Amendment No. 2 to the Credit Agreement, whereby, among other things, Wells Fargo Capital Finance, LLC (WFCF), under the Credit Agreement, consented to the transaction pursuant to the Unit Repurchase Agreement. For additional information about this transaction, see Note 14, Accumulated Deficit in this Form 10-Q.
On June 19, 2013, we entered into Amendment No. 3 to the Credit Agreement, pursuant to which the WFCF consented to the contribution of all the issued and outstanding equity interests issued by Colt Canada to Colt International so that Colt Canada would be a wholly owned subsidiary of to Colt International, and provided for Colt International to become a guarantor under the Credit Agreement. For more information about this amendment, see the Form 8-K that was filed with the SEC on June 25, 2013.
On July 12, 2013, we entered into Amendment No. 4 to the Credit Agreement, whereby Colts Manufacturing became a borrower and New Colt became a guarantor under the Credit Agreement. For more information about this amendment, see the Form 8-K that was filed with the SEC on July 15, 2013.
On August 6, 2014, we entered into Amendment No. 5 to the Credit Agreement, whereby the WFCF consented to, among other things, extending the delivery date to September 15, 2014 of our obligation to deliver financial statements for the month and fiscal quarter ended June 29, 2014.
On November 12, 2014, we entered into Amendment No. 6 to the Credit Agreement, whereby WFCF consented to extending the delivery date to November 21, 2014 of our obligation to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
On November 17, 2014, we entered into amendment No. 7 to the Credit Agreement, whereby WFCF consented to amendments to the Credit Agreement necessary for us to enter into the MS Term Loan. These amendments include, among other things, (i) reducing the Senior Secured revolving loan availability from $50.0 million to $33.0 million and, (ii) incorporating a minimum $7.5 million excess availability threshold for borrowers.
On November 21, 2014, we entered into Amendment No. 8 to the Credit Agreement, whereby, WFCF consented to extending the delivery date to November 26, 2014, for us to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
Senior Notes
On November 10, 2009, Colt Defense and Colt Finance, our 100%-owned finance subsidiary, jointly and severally co-issued $250.0 million of unsecured senior notes (Senior Notes). The Senior Notes bear interest at 8.75% and mature November 15, 2017. Interest is payable semi-annually in arrears on May 15 and November 15, commencing on May 15, 2010. We issued the Senior Notes at a discount of $3.5 million from their principal value. This discount is being amortized as additional interest expense over the life of the indebtedness. No principal repayments are required until maturity.
The Senior Notes do not have financial condition covenants that require us to maintain compliance with financial ratios or other measurements on a periodic basis. The Senior Notes do contain non-financial condition covenants that, among other things, limit our ability to incur additional indebtedness, enter into certain mergers or consolidations, incur certain liens and engage in certain transactions with our affiliates. In addition, the Indenture restricts our ability to pay dividends or make other Restricted Payments (as defined in the Indenture) to our members, subject to certain exceptions. Such restrictions are not expected to affect our ability to meet our cash obligations for the next twelve months. Additionally, the Senior Notes contain certain cross default provisions with other indebtedness if such indebtedness in default aggregates to $20.0 million or more.
On June 19, 2013, we entered into an indenture supplement by which, Colt International, Colt Canada and CDTS became new subsidiary guarantors to the Senior Notes. As such, each agreed to jointly and severally guarantee the obligations under the Indenture. For more information about this indenture supplement, see the Form 8-K that was filed with the SEC on June 25, 2013.
On July 12, 2013, we entered into an indenture supplement to the Indenture (Supplemental Indenture) by which New Colt and Colts Manufacturing became new subsidiary guarantors to the Senior Notes. As such, each agreed to jointly and severally guarantee the obligations under the Indenture. For more information about the Supplemental Indenture, see the Form 8-K that was filed with the SEC on July 15, 2013.
In accordance with Rule 3-10(f) of SEC Regulation S-X, the Company and Colt Finance Corp., co-issuers of the Senior Notes, are not presenting condensed consolidating guarantor financial statements as Colt Defense LLC and Colt Finance Corp. have no independent assets or operations. All of the Companys subsidiaries are 100% owned and have guaranteed the Companys Senior Notes; and all of the guarantees are full, unconditional, joint and several.
Term Loan
On July 12, 2013, in connection with the Merger, we entered into the Term Loan (Term Loan), which matures on November 15, 2016. The Term Loan is variable rate and bears interest at a rate of 9.75% plus the greater of the 3-month LIBOR rate or 1%. Interest is payable quarterly in arrears on the first day of the subsequent calendar quarter. Under the Term Loan, our obligations are secured by a second priority security interest in the assets securing obligations under the Credit Agreement and a first priority security interest in our intellectual property and a second priority security interest in substantially all other assets. The Term Loan was issued at a discount of $2.3 million from its principal value of $50.0 million. We also incurred $2.1 million in financing fees. The discount and the financing fees are being amortized as additional interest expense over the life of the indebtedness.
On March 31, 2014 (second quarter of 2014) and June 29, 2014 (third quarter of 2014), we made Term Loan principal installment payments of $0.6 million and interest payments of $1.3 million, respectively. On September 30, 2014 (third quarter of 2014), we made a Term Loan interest payment of $1.3 million.
On August 6, 2014, we entered into Amendment No. 1 to the Term Loan (the Term Loan Amendment). Absent an amendment to the Term Loan, we would have been in violation of certain of its financial covenants as of June 29, 2014. The Term Loan Amendment is discussed in more detail in the following paragraph.
The Term Loan Amendment, provided that, (i) the financial covenants were eliminated for the rolling four quarter periods ended June 29, 2014 and September 28, 2014 and modified for the rolling four quarter period ended December 31, 2014, (ii) we were granted the option to not pay principal installment payments of $1.9 million due on September 30, 2014, December 31, 2014 and March 31, 2015, (iii) the applicable prepayment premium was increased from 2% to 6% of the outstanding principal balance of the Term Loan, (iv) the date of the applicable prepayment determination was extended to July 31, 2016 and (v) we were granted a 30 day extension to deliver financial information to the Term Loan lenders to allow for completion of the restatement of our 2013 10-K (see Note 2. Summary of Significant Accounting Policies). Additionally, we agreed to pay an amendment fee of $0.5 million that will be capitalized and paid-in-kind by being added to the outstanding principal balance of the Term Loan.
The Term Loan Amendment fee of $0.5 million, along with Term Loan lenders legal fees to be paid by us in conjunction with the Term Loan Amendment, were recorded as additional debt discount in the third quarter of 2014 and amortized as interest expense over the remaining term of the Term Loan. We expensed costs incurred by us in conjunction with the Term Loan Amendment in the third quarter of 2014. We elected not to pay the principal installment payment due on September 30, 2014.
We were in compliance with our Term Loan covenants, as amended, as of September 28, 2014 (pursuant to the Term Loan Amendment we were not required to satisfy any particular financial covenant levels for the quarter ending September 28, 2014 other than with respect to the maximum allowed capital expenditures) and December 31, 2013.
As of September 28, 2014 and December 31, 2013, we were subject to four financial covenants as defined in the Term Loan agreement: (i) minimum EBITDA (Minimum EBITDA), (ii) fixed charge coverage ratio (FCCR), (iii) secured coverage ratio (Secured Coverage Ratio) and (iv) capital expenditures (Capital Expenditures). Prior to Amendment No. 1, the required Minimum EBITDA for the four quarters ended September 28, 2014 and December 31, 2013 was $40.0 million. Actual Minimum EBITDA for the four quarters ended September 28, 2014 and December 31, 2013 was $31.8 million and $63.3 million, respectively. Amendment No. 1 eliminated the Minimum EBITDA covenant for the four quarters ended September 28, 2014. Prior to Amendment No. 1, the required FCCR for the four quarters ended September 28, 2014 and December 31, 2013 was a minimum of 0.90:1.00. The actual FCCR for the four quarters ended September 28, 2014 and December 31, 2013 was 0.75:1.00 and 1.21:1.00, respectively. Amendment No. 1 eliminated the FCCR covenant for the four quarters ended September 28, 2014. Prior to Amendment No. 1, the required Secured Coverage Ratio for the four quarters ended September 28, 2014 and December 31, 2013 was a ratio not greater than 1.20:1.00. The actual Secured Coverage Ratio for the four quarters ended September 28, 2014 and December 31, 2013 was 2.02:1.00 and 0.89:1.00, respectively. Amendment No. 1 eliminated the Secured Leverage Ratio covenant for the four quarters ended September 28, 2014. The maximum allowed Capital Expenditures for the four quarters ended September 28, 2014 and December 31, 2013 is $12.0 million. The actual Capital Expenditures for the four quarters ended September 28, 2014 and December 31, 2013 were $3.7 million and $8.6 million, respectively. Amendment No. 1 did not modify the Capital Expenditure covenant.
The Term Loan agreement also contained non-financial covenants and other restrictions which limit our ability to incur additional indebtedness, make investments or certain payments, pay dividends (other than member distributions to support our member related taxes) enter into a merger and acquire or sell assets.
On November 12, 2014, we entered into Amendment No. 2 to the Term Loan, whereby the Term Loan lenders consented to extending the delivery date to November 21, 2014 of our obligation to deliver financial statements for the month and fiscal quarter ended September 28, 2014.
We repaid the Term Loan on November 17, 2014.
MS Term Loan
On November 17, 2014, we entered into the MS Term Loan, a $70.0 million senior secured term loan facility with Wilmington Savings Fund, FSB, and Morgan Stanley Senior Funding Inc., as lender, which replaced our Term Loan. As the existing Term Loan agreement did not permit pre-payment, we agreed with the existing Term Loan lenders to pay a premium of $4.3 million in addition to the principal and interest balances outstanding. As a result of us entering into the MS Term Loan which replaced our existing Term Loan, the Term Loan has been reflected as a current liability as of September 28, 2014, in the consolidated balance sheet. The credit agreement governing the MS Term Loan (i) does not contain financial covenants or amortization provisions similar to those provisions in the Companys existing Term Loan agreement; (ii) provides for the accrual of interest on an 8% cash and 2% payment-in-kind basis; and (iii) will mature no later than August 15, 2018 subject to the satisfaction of certain conditions.
Cash Flows
At September 28, 2014, we had cash and cash equivalents totaling $4.0 million and availability under our Credit Agreement of $2.1 million. On November 20, 2014, we had cash and cash equivalents totaling $8.2 million and availability under our Credit Agreement of $2.5 million. Our existing cash balances, Credit Agreement availability and forecasted operating cash flows are not expected to be sufficient to meet our obligations for the next twelve months.
The following table sets forth our consolidated cash flows for the nine months ended September 28, 2014 and September 29, 2013, respectively (dollars in millions):
|
|
Nine Months Ended |
| ||||
|
|
September 28, 2014 |
|
September 29, 2013 |
| ||
|
|
|
|
(As Revised) |
| ||
Cash used in operating activities |
|
$ |
(10.7 |
) |
$ |
11.3 |
|
Cash used in investing activities |
|
(1.7 |
) |
(66.5 |
) | ||
Cash used in financing activities |
|
3.9 |
|
33.8 |
| ||
Cash Flows Used in Operating Activities
Our cash used in or generated from operating activities is generally a reflection of our operating results adjusted for non-cash charges or credits such as depreciation and amortization and changes in working capital, including accounts receivable and our investment in inventory. Changes in accounts receivable and inventory can cause significant fluctuations in our cash flow from operations. U.S. Government receivables are generally collected within 10 to 30 days. Payment terms for international orders are negotiated individually with each customer and tend to experience a longer collection cycle. Commercial law enforcement receivables are generally collected within 10 to 30 days as distributors take advantage of payment terms. To date, we have not experienced any significant receivable losses.
Net cash used in operating activities for the nine months ended September 28, 2014 was $10.7 million, compared to net cash provided by operating activities of $11.3 million for the nine months ended September 29, 2013, as revised. We had a net loss of $28.4 million in the first nine months of 2014 compared to net income of $20.4 million in the first nine months of 2013. Our $28.4 million net loss in the first nine months of 2014 is primarily a result of the continued decline in market demand for commercial MSRs and the timing of certain international sales when compared to the first nine months of 2013.
During the first nine months of 2014, changes in operating assets and liabilities were a $6.7 million source of cash compared to a $0.1 million source of cash for the same period in 2013. In 2014, accounts receivable decreased by $7.5 million, primarily due to lower sales. Prepaid expenses and other current assets decreased by $2.9 million primarily related to decreases in prepaid insurance and other accounts receivable. Accounts payable and accrued expenses increased by $7.8 million in 2014 primarily due increased accounts payable as a result of delays in payments as a result of our current liquidity constraints and accrued interest related to the timing of interest payments. These sources of cash were partially offset by reduced accrued compensation and benefits primarily related to suspension of bonus accruals and lower accrued excise taxes related to reduced commercial sales. In 2014, inventories increased by $10.0 million due to softness in the commercial MSR market and increased inventory levels necessary to support U.S. Government contracts and delays in shipping international sales orders related to regulatory approvals.
During the first nine months of 2013, changes in operating assets and liabilities were a $0.1 million source of cash. Inventory grew by $17.5 million to support increased production volume and a larger number of models. Accounts payable and accrued expenses increased by $16.0 million in 2013. Accounts payable increased $10.2 million to support increased production levels. Accrued expenses increased $6.3 million due to the timing of our semi-annual interest payments on the Senior Notes and the incremental accrued interest on the Term Loan and $5.4 million related to a contract obligation. These increases were partially offset by lower accrued taxes. Accounts receivable were a $3.0 million source of funds primarily due to customer mix and the timing of shipments within the third quarter of 2013 compared to the fourth quarter of 2012. This was partially offset by a $0.9 million use of cash to fund pension and post-retirement liabilities.
Cash Flows Used in Investing Activities
Cash used in investing activities was $1.7 million for the first nine months of 2014 and $66.5 million for the first nine months of 2013. In the first nine months of 2014, cash was used for capital expenditures related to capacity expansion. In the first nine months of 2013, we used $59.5 million, net of cash acquired, to fund the acquisition of New Colt. Capital expenditures for the nine months ended September 29, 2013 were $6.6 million and was primarily related to new product production and capacity expansion.
Cash Flows Used in Financing Activities
Net cash from financing activities in the first nine months of 2014 was $3.9 million. Our net borrowings on our line of credit for the period were $5.9 million, we used $1.3 million to make a schedule repayment of our Term Loan and we used $0.7 million to fund distributions to our members.
In the first nine months of 2013, the Term Loan, net of debt discount, was a $47.7 million source of funds. The Term Loan proceeds were combined with $5.0 million from the issuance and sale of Colt Defense common units, net of reinvested consideration proceeds, to partially fund the acquisition of New Colt. These sources of funds were partially offset by a $14.0 million use of cash to repurchase all of our common units previously held by the Blackstone Funds. In addition, we paid $2.0 million of debt issuance costs related to the Term Loan.
Historically, tax distributions to our members have been made in amounts equal to the highest combined marginal federal, state and/or local tax rate applicable to any member as applied to our taxable income, as defined, for the applicable period. Our Governing Board may also declare other distributions to our members from time to time. In addition, our cash requirements and liquidity could be impacted by potential acquisitions. In April 2014, we made tax distributions to our members of $0.7 million and remitted $0.5 million to the State of Connecticut both of which were accrued in 2013 based on our 2013 taxable income.
Backlog
Because a substantial portion of our business is of a build-to-order nature, we generally have a significant backlog of orders to be shipped. Our backlog decreased from $206.9 million at December 31, 2013 to $172.1 million at September 28, 2014. The decrease was primarily driven by decreased orders from our international customers, domestic orders for commercial handguns and commercial rifles partially offset by increased U.S government spare orders. When factoring the commercial component of purchase orders into our backlog analysis, we only include orders that are scheduled to ship in the next six months in our backlog. Commercial orders received that have not yet shipped could be cancelled, particularly if demand were to suddenly decrease.
Recent Accounting Pronouncements
Revenue from Contracts with Customers - In May 2014, the FASB issued ASU No. 2014-09, that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method nor has it determined the effect of the standard on our ongoing financial reporting.
Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists - In July 2013, the FASB issued ASU 2013-11 to provide guidance on the presentation of unrecognized tax benefits. ASU 2013-11 requires an entity to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows: to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013 with earlier adoption permitted. ASU 2013-11 should be applied prospectively with retroactive application permitted. We have adopted ASU 2013-11 in the first quarter of 2014.
Critical Accounting Policies and Estimates
The preparations of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. We reaffirm the significant accounting policies as disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2013, which was filed with the Securities and Exchange Commission on September 12, 2014.
Contractual Obligations
On March 30, 2014, Colt Defense through its domestic operating subsidiary Colts Manufacturing reached tentative agreement with UAW Local 376 for a new five year contract covering approximately 529 employees, which was ratified by the union membership on March 31, 2014. The new contract is in effect from April 1, 2014 through March 31, 2019.
As of September 28, 2014, there have been no other material changes to our contractual obligations outside the ordinary course of our business since December 31, 2013.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exposure
We are subject to foreign currency exchange risks relating to receipts from customers, payments to suppliers and some intercompany transactions. As a matter of policy, we do not engage in currency speculation and therefore, we have no derivative financial instruments to hedge this exposure. In our consolidated statements of operations, we had de minimis foreign currency gain for the nine months ended September 28, 2014 and $0.1 million of foreign currency gain for the nine months ended September 29, 2013. The foreign currency amounts reported in the consolidated statement of operations may change materially should our international business continue to grow or if changes in the Canadian dollar or Euro versus the U.S. dollar fluctuate materially.
Interest Rate Exposures
Our debt portfolio consists of the fixed rate Senior Notes, the variable rate Term Loan and the variable rate Credit Agreement. At September 28, 2014, there was $13.0 million outstanding under the Credit Agreement and $48.0 million owed on the Term Loan. Our exposure to market risk for changes in interest rates relates to variable rate advances on the Credit Agreement and the variable rate Term Loan outstanding balance. We do not have any derivative financial instruments to hedge this exposure. At September 28, 2014, a hypothetical 100 basis point increase in the third quarter variable rate on the Credit Agreement advances and the Term Loan outstanding balance would have increased our interest expense by $0.2 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management of the Company, with the participation of its Chief Executive Officer, Chief Financial Officer and Corporate Controller, evaluated the effectiveness of the Companys disclosure controls and procedures as of the end of the period.
Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were ineffective because of the material weakness in our internal control over financial reporting described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.
We did not maintain effective controls over contract modifications. Specifically, we did not appropriately consider the accounting implications of a contract modification to the M240 machine gun program for the U.S. Government (M240 Program) which impacted our net sales, cost of sales, accrued expenses, customer advances, deferred revenue and related financial disclosures. This control deficiency resulted in the restatement of the Companys consolidated financial statements for the year ended December 31, 2013. Additionally, this control deficiency could result in misstatements of the aforementioned accounts and related disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our management has determined that this control deficiency constitutes a material weakness.
Remediation Efforts
Management has been actively engaged in developing a remediation plan to address the above material weakness. The remediation efforts in process or expected to be implemented include the following.
· Reviewing all M240 Program contract amendments to ensure all material accounting considerations have been addressed; and
· Reviewing non-M240 Program material contracts and material contract amendments to ensure all material accounting considerations have been addressed; and
· Instituting additional training programs for accounting personnel.
We believe that the controls that we will be implementing will improve the effectiveness of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness or determine to supplement or modify certain of the remediation measures described above.
Changes in Internal Control OverFinancial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 28, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are involved in various legal claims and disputes in the ordinary course of our business. As such, we accrue for such liabilities when it is both (i) probable that a loss has occurred and (ii) the amount of the loss can be reasonably estimated in accordance with ASC 450, Contingencies. We evaluate, on a quarterly basis, developments affecting various legal claims and disputes that could cause an increase or decrease in the amount of the liability that has been previously accrued. It is possible that we could incur losses in excess of any amounts accrued. There is no litigation pending that is likely to substantially negatively affect our financial condition, results of operations and cash flows.
Our financial statements are presented on a going concern basis. Our current financial condition raises substantial doubt regarding our ability to continue as a going concern.
Our financial statements are presented in this report on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We have experienced liquidity challenges as a result of several business trends, including the continued decline in market demand for the Companys commercial modern sporting rifle (MSR), recent declines in demand for the Companys commercial handguns, and delays in anticipated timing of U.S. Government and certain international sales. There can be no assurance that these business trends will not continue to adversely impact our operations. These factors materially affected our liquidity, including our ability to repay existing indebtedness as it became due and to meet other current obligations. We are currently in compliance with financial and other covenants contained our existing debt agreements, but we may not be in continued compliance with other covenants in the future. Our inability to comply with our loan covenants, obtain waivers of non-compliance, restructure our debt or refinance our existing debt would have a material adverse effect on the Companys financial position, results of operations and cash flows.
These matters raise substantial doubt regarding the Companys ability to continue as a going concern. Our ability to continue as a going concern will be dependent upon our ability to complete asset sales, restructure or refinance existing debt, obtain modifications or waivers of our loan covenants or other actions. There can be no assurance of our success in these efforts. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets. See Note 1 Nature of Business.
In addition to the information set forth in this report, you should carefully review and consider the information discussed in Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K/A for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. These are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem immaterial also may materially adversely affect our business, financial condition or future results.
The following list of exhibits includes exhibits submitted with this Form 10-Q as filed with the Securities and Exchange Commission and those incorporated by reference to other fillings.
10.1 Senior Secured Term Loan Facility dated November 17, 2014.
10.2 Amendment No. 6 to the Credit Agreement dated November 12, 2014.
10.3 Amendment No. 7 to Credit Agreement dated November 17, 2014.
10.4 Amendment No. 3 to the Credit Agreement dated November 17, 2014.
10.5 Amendment No. 2 to the Term Loan agreement dated November 12, 2014.
31.1 Certification of Dennis R. Veilleux pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certification of Scott B. Flaherty pursuant to Section 302 of Sarbanes-Oxley Act of 2002.*
31.3 Certification of Kevin G. Green pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of Dennis R. Veilleux and Scott B. Flaherty pursuant to 18 U.S.C. Section 1350.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
Notes to Exhibits List:
* Filed electronically herewith
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets at September 28, 2014 and September 29, 2013, (ii) Consolidated Statements of Operations for the three and nine months ended September 28, 2014 and September 29, 2013, (iii) Consolidated Statements of Comprehensive Income for the nine months ended September 28, 2014 and September 29, 2013, (iv) Consolidated Statements of Cash Flows for the nine months ended September 28, 2014 and September 29, 2013 and (iv) Notes to the Consolidated Financial Statements. In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Pursuant to the requirements of the Securities Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, in West Hartford, Connecticut, on the 25th day of November, 2014.
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COLT DEFENSE LLC | |
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COLT FINANCE CORP. | |
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By: |
/s/ Scott B. Flaherty |
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Scott B. Flaherty | |
|
Senior Vice President and Chief Financial Officer |
Exhibit 10.1
Execution Version
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TERM LOAN AGREEMENT
by and among
COLT DEFENSE LLC,
COLT FINANCE CORP.,
NEW COLT HOLDING CORP.,
COLTS MANUFACTURING COMPANY, LLC AND
COLT CANADA CORPORATION,
as Borrowers,
THE SUBSIDIARIES OF COLT DEFENSE LLC
NAMED AS GUARANTORS HEREIN,
as Guarantors,
THE LENDERS THAT ARE PARTIES HERETO,
as the Lenders,
and
WILMINGTON SAVINGS FUND SOCIETY, FSB,
as Agent
Dated as of November 17, 2014
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TABLE OF CONTENTS
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Page | |
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1. |
DEFINITIONS AND CONSTRUCTION |
1 | |
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1.1 |
Definitions |
1 |
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1.2 |
Accounting Terms |
1 |
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1.3 |
Code |
2 |
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1.4 |
Construction |
2 |
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1.5 |
Schedules and Exhibits |
3 |
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1.6 |
Pro Forma and Other Calculations |
3 |
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2. |
TERM LOAN AND TERMS OF PAYMENT |
4 | |
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2.1 |
[Reserved] |
4 |
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2.2 |
Term Loan |
4 |
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2.3 |
[Reserved] |
5 |
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2.4 |
Payments; Reductions of Commitments; Prepayments |
5 |
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2.5 |
[Reserved] |
9 |
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2.6 |
Interest Rate: Rate, Payments, and Calculations |
9 |
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2.7 |
Crediting Payments; Clearance Charge |
10 |
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2.8 |
Designated Account |
10 |
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2.9 |
Maintenance of Loan Account; Statements of Obligations |
10 |
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2.10 |
Fees |
11 |
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2.11 |
[Reserved |
11 |
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2.12 |
[Reserved] |
11 |
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2.13 |
Capital Requirements |
11 |
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2.14 |
Joint and Several Liability of Borrowers |
12 |
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3. |
CONDITIONS; TERM OF AGREEMENT |
14 | |
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3.1 |
Conditions Precedent to the Initial Extension of Credit |
14 |
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3.2 |
[Reserved] |
14 |
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3.3 |
Maturity |
14 |
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3.4 |
Effect of Maturity |
14 |
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3.5 |
Early Termination by Borrowers |
15 |
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3.6 |
Conditions Subsequent |
15 |
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4. |
REPRESENTATIONS AND WARRANTIES |
15 | |
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4.1 |
Due Organization and Qualification; Subsidiaries |
15 |
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4.2 |
Due Authorization; No Conflict |
16 |
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4.3 |
Governmental Consents |
16 |
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4.4 |
Binding Obligations; Perfected Liens |
16 |
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4.5 |
Title to Assets; No Encumbrances |
17 |
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4.6 |
Jurisdiction of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims; Locations of Inventory and Equipment |
17 |
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4.7 |
Litigation |
17 |
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4.8 |
Compliance with Laws |
18 |
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4.9 |
No Material Adverse Change |
18 |
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4.10 |
Solvency; Fraudulent Transfer |
18 |
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4.11 |
Employee Benefits |
18 |
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Page | |
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4.12 |
Environmental Matters |
19 |
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4.13 |
Intellectual Property |
20 |
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4.14 |
Leases |
20 |
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4.15 |
Deposit Accounts and Securities Accounts |
21 |
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4.16 |
Complete Disclosure |
21 |
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4.17 |
Material Contracts |
21 |
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4.18 |
Patriot Act; etc. |
21 |
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4.19 |
Indebtedness |
21 |
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4.20 |
Payment of Taxes |
22 |
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4.21 |
Margin Stock |
22 |
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4.22 |
Governmental Regulation |
22 |
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4.23 |
OFAC |
22 |
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4.24 |
Employee and Labor Matters |
22 |
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4.25 |
Amended ABL Loan Documents |
23 |
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4.26 |
[Reserved] |
23 |
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4.27 |
[Reserved] |
23 |
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4.28 |
Use of Proceeds |
23 |
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4.29 |
Common Enterprise |
23 |
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4.30 |
[Reserved] |
23 |
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4.31 |
Senior Note Indenture |
23 |
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4.32 |
Insurance |
23 |
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4.33 |
Centre of Main Interests and Establishments |
24 |
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4.34 |
Tax Status |
24 |
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5. |
AFFIRMATIVE COVENANTS |
24 | |
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5.1 |
Financial Statements, Reports, Certificates |
24 |
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5.2 |
Collateral Reporting |
24 |
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5.3 |
Existence |
24 |
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5.4 |
Maintenance of Properties |
24 |
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5.5 |
Taxes |
24 |
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5.6 |
Insurance |
24 |
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5.7 |
Inspection |
25 |
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5.8 |
Compliance with Laws |
25 |
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5.9 |
Environmental |
25 |
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5.10 |
Intercompany Trademark Agreement |
27 |
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5.11 |
Formation of Subsidiaries |
27 |
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5.12 |
Further Assurances |
27 |
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5.13 |
Lender Meetings |
28 |
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5.14 |
Material Contracts |
28 |
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5.15 |
Locations of Inventory and Equipment |
28 |
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5.16 |
Compliance with ERISA and the IRC |
28 |
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5.17 |
Canadian Employee Benefits |
29 |
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6. |
NEGATIVE COVENANTS |
29 | |
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6.1 |
Indebtedness |
29 |
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6.2 |
Liens |
29 |
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6.3 |
Restrictions on Fundamental Changes |
29 |
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6.4 |
Disposal of Assets |
30 |
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6.5 |
Change Name |
30 |
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6.6 |
Nature of Business |
30 |
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Page | |
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6.7 |
Certain Payments of Debt and Amendments |
30 |
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6.8 |
Senior Note Indenture; Secured Debt Cap |
32 |
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6.9 |
Restricted Payments |
32 |
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6.10 |
Accounting Methods |
33 |
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6.11 |
Investments |
33 |
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6.12 |
Transactions with Affiliates |
33 |
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6.13 |
Use of Proceeds |
34 |
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6.14 |
Limitation on Issuance of Equity Interests |
35 |
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6.15 |
[Reserved] |
35 |
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6.16 |
Specified Canadian Pension Plans |
35 |
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6.17 |
Sale Leaseback Transactions |
35 |
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6.18 |
Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries |
35 |
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6.19 |
Limitations on Negative Pledges |
35 |
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6.20 |
Employee Benefits |
36 |
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7. |
[RESERVED] |
36 | |
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8. |
EVENTS OF DEFAULT |
36 | |
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9. |
RIGHTS AND REMEDIES |
39 | |
|
9.1 |
Rights and Remedies |
39 |
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9.2 |
Remedies Cumulative |
40 |
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9.3 |
Appointment of a Receiver |
41 |
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10. |
WAIVERS; INDEMNIFICATION |
41 | |
|
10.1 |
Demand; Protest; etc. |
41 |
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10.2 |
The Lender Groups Liability for Collateral |
41 |
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10.3 |
Indemnification |
41 |
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11. |
NOTICES |
42 | |
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12. |
CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER |
44 | |
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13. |
ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS |
45 | |
|
13.1 |
Assignments and Participations |
45 |
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13.2 |
Successors |
48 |
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14. |
AMENDMENTS; WAIVERS |
49 | |
|
14.1 |
Amendments and Waivers |
49 |
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14.2 |
Replacement of Certain Lenders |
50 |
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14.3 |
No Waivers; Cumulative Remedies |
51 |
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15. |
AGENT; THE LENDER GROUP |
51 | |
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15.1 |
Appointment and Authorization of Agent |
51 |
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15.2 |
Delegation of Duties |
52 |
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15.3 |
Liability of Agent |
52 |
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15.4 |
Reliance by Agent |
52 |
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15.5 |
Notice of Default or Event of Default |
53 |
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15.6 |
Credit Decision |
53 |
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15.7 |
Costs and Expenses; Indemnification |
53 |
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15.8 |
Agent in Individual Capacity |
54 |
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Page | |
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15.9 |
Successor Agent |
54 |
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15.10 |
Lender in Individual Capacity |
55 |
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15.11 |
Collateral Matters |
55 |
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15.12 |
Restrictions on Actions by Lenders; Sharing of Payments |
57 |
|
15.13 |
Agency for Perfection |
57 |
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15.14 |
Payments by Agent to the Lenders |
57 |
|
15.15 |
Concerning the Collateral and Related Loan Documents |
57 |
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15.16 |
Collateral Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information |
58 |
|
15.17 |
Agent May File Proofs of Claim |
59 |
|
15.18 |
Several Obligations; No Liability |
59 |
|
15.19 |
Appointment for the Province of Québec |
59 |
|
15.20 |
Dutch Parallel Debts |
60 |
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16. |
WITHHOLDING TAXES |
61 | |
|
16.1 |
No Setoff; Payments |
61 |
|
16.2 |
Exemptions |
61 |
|
16.3 |
Lender Indemnification |
63 |
|
16.4 |
Refunds |
63 |
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| |
17. |
GENERAL PROVISIONS |
64 | |
|
17.1 |
Effectiveness |
64 |
|
17.2 |
Section Headings |
64 |
|
17.3 |
Interpretation |
64 |
|
17.4 |
Severability of Provisions |
64 |
|
17.5 |
Right of Setoff |
64 |
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17.6 |
Debtor-Creditor Relationship |
64 |
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17.7 |
Counterparts; Electronic Execution |
64 |
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17.8 |
Revival and Reinstatement of Obligations |
65 |
|
17.9 |
Confidentiality |
65 |
|
17.10 |
Lender Group Expenses |
66 |
|
17.11 |
Survival |
66 |
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17.12 |
Patriot Act |
66 |
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17.13 |
Integration |
66 |
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17.14 |
Administrative Borrower as Agent for Borrowers |
67 |
|
17.15 |
Currency Indemnity |
67 |
|
17.16 |
Anti-Money Laundering Legislation |
68 |
|
17.17 |
Quebec Interpretation |
68 |
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this Agreement), is entered into as of November 17, 2014, by and among:
(i) the lenders identified on the signature pages hereof (each of such lenders, together with their respective successors and permitted assigns, are referred to hereinafter as a Lender, as that term is hereinafter further defined);
(ii) WILMINGTON SAVINGS FUND SOCIETY, FSB, as agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, Agent);
(iii) COLT DEFENSE LLC, a Delaware limited liability company (Parent), COLT FINANCE CORP., a Delaware corporation (Colt Finance), NEW COLT HOLDING CORP., a Delaware corporation (New Colt), COLTS MANUFACTURING COMPANY, LLC, a Delaware limited liability company (Colts Manufacturing), and COLT CANADA CORPORATION, a Nova Scotia unlimited company (Colt Canada, and together with Parent, Colt Finance, New Colt and Colts Manufacturing, each individually, a Borrower and, collectively, Borrowers); and
(v) COLT DEFENSE TECHNICAL SERVICES LLC, a Delaware limited liability company (CDTS), and COLT INTERNATIONAL COOPERATIEF U.A., a cooperative organized under the laws of the Netherlands registered with the trade register of the Chamber of Commerce in the Netherlands under number 56651317 (Colt Netherlands and, together with CDTS and any other Guarantor party hereto from time to time, each individually a Guarantor and, collectively, Guarantors).
WITNESSETH:
WHEREAS, Borrowers have requested that the Lenders provide a term loan facility to Borrowers to, among other things, refinance the Existing Credit Agreement (as hereinafter defined) and to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby;
WHEREAS, the Borrowers and Guarantors shall enter into an amendment or amendments to the ABL Loan Documents (as hereinafter defined) to, among other things, permit the Closing Date Transactions, including the execution of this Agreement and the transactions contemplated hereby; and
WHEREAS, the Lenders have indicated their willingness to provide such financing on the terms and conditions set forth herein.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. Capitalized terms used in this Agreement shall have the meanings specified therefor on Schedule 1.1.
1.2 Accounting Terms. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all financial computations hereunder shall be computed unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for inventory valuation as used in the preparation of the financial statements of Parent most recently received by the Lenders prior to the date hereof; provided, however, that (a) upon the adoption by Parent of IFRS as required by Parents independent certified public accountants and notification by Administrative Borrower to Agent of such adoption (the IFRS Adoption) or (b) if Administrative Borrower notifies Agent that Borrowers request an amendment to any provision hereof to eliminate the effect of any Accounting Change occurring after the Closing Date or in the application thereof on the operation of such provision (or if Agent notifies Administrative Borrower 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 the IFRS Adoption or Accounting Change or in the application thereof, then Agent, at the direction of the Required Lenders, and Borrowers agree that they will negotiate in good faith amendments to the provisions of this Agreement that are directly affected by such IFRS Adoption or Accounting Change with the intent of having the respective positions of the Lenders and Borrowers after such IFRS Adoption or Accounting Change conform as nearly as possible to their respective positions as of the date of this Agreement and, until any such amendments have been agreed upon and agreed to by the Required Lenders, the provisions in this Agreement, including the covenants, shall be calculated in accordance with GAAP as in effect, and as applied by Parent and its Subsidiaries as if no such IFRS Adoption or Accounting Change had occurred. In the case of the IFRS Adoption or the Accounting Change until such covenants are amended in a manner satisfactory to Parent, Agent and the Required Lenders (i) all calculations made for the purpose of determining compliance with the financial ratios and financial covenants contained herein shall be made on a basis consistent with GAAP in existence immediately prior to such adoption and (ii) financial statements delivered pursuant to Section 5.1 shall be accompanied by a reconciliation showing the adjustments made to calculate such financial ratios and financial covenants. Notwithstanding anything to the contrary contained herein, all financial statements delivered hereunder shall be prepared, and all financial covenants contained herein shall be calculated, without giving effect to any election under the Statement of Financial Accounting Standards No. 159 (or any similar accounting principle) permitting a Person to value its financial liabilities or Indebtedness at the fair value thereof. Notwithstanding anything to the contrary contained in GAAP or any interpretations or other pronouncements by the Financial Accounting Standards Board or otherwise, the term unqualified opinion as used herein to refer to opinions or reports provided by accountants shall mean an opinion or report that does not include any qualification, explanation, supplemental comment or other comment concerning the ability of the applicable person to continue as a going concern or the scope of the audit. When used herein, the term financial statements shall include the notes and schedules thereto. Whenever the term Parent or Borrowers is used in respect of a financial covenant or a related definition, it shall be understood to mean Parent or Borrowers and their Subsidiaries on a consolidated basis, unless the context clearly requires otherwise. For purposes of calculations pursuant to the terms of this Agreement, GAAP will be deemed to treat operating leases in a manner consistent with the current treatment under GAAP as in effect on the Closing Date, notwithstanding any modification or interpretive changes thereto that may occur hereafter.
1.3 Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein and any terms used in this Agreement that are defined in the PPSA and pertaining to Collateral consisting of assets of any Canadian Loan Party shall be construed and defined as set forth in the PPSA unless otherwise defined herein; provided, however, that to the extent that the Code is used to define any term herein and such term is defined differently in different Articles of the Code, the definition of such term contained in Article 9 of the Code shall govern.
1.4 Construction. Unless the context of this Agreement or any other Loan Document clearly requires otherwise, references to the plural include the singular, references to the singular include the
plural, the terms includes and including are not limiting, and the term or has, except where otherwise indicated, the inclusive meaning represented by the phrase and/or. The words hereof, herein, hereby, hereunder, and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section, subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in any other Loan Document to any agreement, instrument, or document shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable (subject to any restrictions on such alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements set forth herein). 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. Any reference herein to any Person shall be construed to include such Persons successors and assigns. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 14.1 or is cured if such Event of Default is capable of being cured. Any reference herein or in any other Loan Document to the satisfaction, repayment, or payment in full of the Obligations, the Secured Obligations (as defined in the Security Documents) or the Guarantied Obligations (as defined in the applicable Guaranty) shall mean the repayment in full in cash or immediately available funds of all of the Obligations other than unasserted indemnification Obligations. Unless otherwise indicated herein, all references to time of day refer to Eastern Standard Time or Eastern daylight saving time, as in effect in New York City on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word from means from and including and the words to and until each means to and including; provided, that, with respect to a computation of fees or interest payable to Agent or any Lender, such period shall in any event consist of at least one full day. Unless the context of this Agreement or any other Loan Document clearly requires otherwise or the Required Lenders otherwise determine, amounts expressed in US Dollars at any time when used with respect to Foreign Subsidiaries or similar matters shall be deemed to mean the US Dollar Equivalent of such amounts at such time.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.
1.6 Pro Forma and Other Calculations.
(a) Notwithstanding anything to the contrary herein, financial ratios and tests, including Consolidated EBITDA and the Secured Leverage Ratio and any other requirement herein to determine pro forma compliance, shall be determined based on the most recently ended 12 fiscal month period.
(b) For purposes of calculating any financial ratio or test, Specified Transactions (including, with any incurrence or repayment of any Indebtedness in connection therewith to be subject to clause (d) of this Section 1.6) that have been made (i) during the applicable period or (ii) if applicable as described in clause (a) above, subsequent to such period and prior to or simultaneously with the event for which the calculation of any such ratio is made shall be calculated on a pro forma basis assuming that all such Specified Transactions (and any increase or decrease in Consolidated EBITDA and the component financial definitions used therein attributable to any Specified Transaction) had occurred on the first day of the applicable period. If, since the beginning of any applicable period, any Person that subsequently became a Subsidiary or was merged, amalgamated or consolidated with or into Parent or any of its Subsidiaries since the beginning of such period as a result of a Specified Transaction that would have required adjustment pursuant to this Section 1.6, then such financial ratio or test shall be calculated to give pro forma effect thereto in accordance with this Section 1.6.
(c) Whenever pro forma effect is to be given to any Specified Transaction, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of Parent, which shall include any adjustments that would be required to be included in a Registration Statement on Form S-1 in accordance with Article 11 of Regulation S-X promulgated under the Securities Act; provided, however, that, without the prior written consent of the Required Lenders, no such pro forma calculations shall include any cost savings, operating expense reductions, synergies or other similar items.
(d) In the event that (x) Parent or any Subsidiary of Parent incurs (including by assumption or guarantees) or repays (including by redemption, repayment, retirement or extinguishment) any Indebtedness (other than Indebtedness incurred or repaid under any revolving credit facility unless such Indebtedness has been permanently repaid and not replaced), or (y) Parent or any Subsidiary of Parent issues, repurchases or redeems Disqualified Equity Interests, in each case, included in the calculations of any financial ratio or test, (i) during the applicable period or (ii) subsequent to the end of the applicable period and prior to or simultaneously with the event for which the calculation of any such ratio is made, then such financial ratio or test shall be calculated giving pro forma effect to such incurrence or repayment of Indebtedness, or such issuance or redemption of Disqualified Equity Interests, in each case to the extent required, as if the same had occurred on the last day of the applicable period (except in the case of Consolidated EBITDA and the Secured Leverage Ratio (or similar ratio), in which case such incurrence, assumption, guarantee, redemption, repayment, retirement or extinguishment of Indebtedness or such issuance, repurchase or redemption of Disqualified Equity Interests will be given effect, as if the same had occurred on the first day of the applicable period). Notwithstanding the foregoing or any other provision contained in the Loan Documents, with respect to the repayment or redemption of Indebtedness with the proceeds of an Excluded Issuance, such repayment or redemption shall be disregarded for all purposes under this Agreement, including the calculation of any financial covenants or ratios and, for the avoidance of doubt, Sections 7(a), (b) and (c), until Parent has delivered the financial information required under Section 5.1 for the first full fiscal quarter of Parent ending after the fiscal quarter in which such repayment or redemption was made.
(e) If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the date of the event for which the calculation of Consolidated EBITDA or the Secured Leverage Ratio is made had been the applicable rate for the entire period (taking into account any interest hedging arrangements applicable to such Indebtedness permitted by this Agreement). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a Responsible Officer of Parent to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a Eurocurrency interbank offered rate, or other rate, shall be determined to have been based upon the rate actually chosen, or if none, then based upon such optional rate chosen as Parent or Subsidiary may designate.
2. TERM LOAN AND TERMS OF PAYMENT.
2.1 [Reserved].
2.2 Term Loan.
(a) Subject to the terms and conditions of this Agreement, on the Closing Date each Lender with a Term Loan Commitment agrees (severally, not jointly or jointly and severally) to make a
term loan (collectively, the Term Loan) to Borrowers in an amount equal to such Lenders Pro Rata Share of the Term Loan Amount.
(b) Each Term Loan made by each Lender shall be evidenced by this Agreement and, if requested by a Lender, a Term Note payable to such Lender or its registered assigns in the original principal amount of such Term Loan.
(c) The outstanding unpaid principal balance of, and all accrued and unpaid interest on, the Term Loan shall be due and payable on the earlier of (i) the Maturity Date and (ii) the date of the acceleration of the Term Loan in accordance with the terms hereof. Any principal amount of the Term Loan that is repaid or prepaid may not be reborrowed. All principal of, interest on, and other amounts payable in respect of the Term Loan, including any premiums, fees, expenses or other additional amounts owed and all PIK Interest, shall constitute Obligations hereunder.
2.3 [Reserved].
2.4 Payments; Reductions of Commitments; Prepayments.
(a) Payments by Borrowers.
(i) Except as otherwise expressly provided herein, all payments by any Borrower shall be made to Agents Account for the account of the Lender Group and shall be made in immediately available funds, no later than 11:00 a.m. (New York time) on the date specified herein. Any payment received by Agent later than 11:00 a.m. (New York time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.
(ii) Unless Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the interest rate then applicable to the Term Loan for each day from the date such amount is distributed to such Lender until the date repaid.
(b) Apportionment and Application.
(i) So long as no Application Event has occurred and is continuing and except as otherwise provided herein, including with respect to Defaulting Lenders, all principal and interest payments received by Agent shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by each Lender) entitled to such payments and all payments of fees and expenses received by Agent (other than fees or expenses that are for Agents separate account) shall be apportioned ratably among the Lenders having a Pro Rata Share of the type of Obligation to which a particular fee or expense relates. All payments to be made hereunder by Borrowers shall be remitted to Agent and all such payments, and all proceeds of Collateral received by Agent, shall be applied, so long as no Application Event has occurred and is continuing, to repay the remaining Term Loan (which payments shall be applied against the Term Loan in the inverse order of maturity), and, thereafter, to Borrowers (to be wired to the Designated Account) or such other Person entitled thereto under applicable law (subject to Section 2.4(b)(v), Section 2.4(d)(ii) and Section 2.4(e)).
(ii) At any time that an Application Event has occurred and is continuing and except as otherwise provided herein with respect to Defaulting Lenders, all payments remitted to Agent in respect of the Obligations and all proceeds of Collateral received by Agent shall be applied as follows:
(A) first, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to Agent under the Loan Documents, until paid in full,
(B) second, to pay any fees then due to Agent under the Loan Documents until paid in full,
(C) third, ratably, to pay any Lender Group Expenses (including cost or expense reimbursements) or indemnities then due to any of the Lenders under the Loan Documents, until paid in full,
(D) fourth, ratably, to pay any fees (including any fees, premiums and penalties specified in Section 2.10) then due to any of the Lenders under the Loan Documents until paid in full,
(E) fifth, to pay interest due in respect of the Term Loan until paid in full,
(F) sixth, to pay the principal of the Term Loan until paid in full,
(G) seventh, to pay any other Obligations other than Obligations owed to Defaulting Lenders to pay any other Obligations,
(H) eighth, ratably to pay any Obligations owed to Defaulting Lenders, and
(I) ninth, to Borrowers or such other Person entitled thereto under applicable law.
(iii) In each instance, so long as no Application Event has occurred and is continuing, Section 2.4(b)(i) shall not apply to any payment made by any Borrower to Agent and specified by such Borrower to be for the payment of specific Obligations then due and payable (or prepayable) under any provision of this Agreement or any other Loan Document.
(iv) For purposes of Section 2.4(b)(ii), paid in full of a type of Obligation means payment in cash or immediately available funds of all amounts owing on account of such type of Obligation, including interest accrued after the commencement of any Insolvency Proceeding, default interest, interest on interest, and expense reimbursements, whether or not any of the foregoing would be or is allowed or disallowed in whole or in part in any Insolvency Proceeding.
(v) In the event of a direct conflict between the priority provisions of this Section 2.4 and any other provision contained in this Agreement or any other Loan Document, it is the intention of the parties hereto that such provisions be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of any actual, irreconcilable conflict that cannot be resolved as aforesaid, then the terms and provisions of this Section 2.4 shall control and govern.
(c) Reduction of Commitments.
(i) [Reserved].
(ii) Termination of the Term Loan Commitments. The Term Loan Commitments shall terminate upon the making of the Term Loan on the Closing Date. Notwithstanding the foregoing, all of the Term Loan Commitments shall automatically terminate at 5:00 p.m., New York time, on December 31, 2014 if the Closing Date shall have not occurred by such time.
(d) Optional Prepayments.
(i) [Reserved].
(ii) Term Loan. The Borrowers may, at any time and from time to time, upon at least 5 Business Days prior written notice to Agent (or such shorter period as the Required Lenders may agree to in their sole discretion), prepay the principal of the Term Loan, in whole or in part. Each prepayment made pursuant to this Section 2.4(d)(ii) shall be (1) accompanied by the payment of accrued interest to the date of such payment on the amount prepaid and the payment of any premiums or penalties required by Section 2.10, (2) in a minimum amount of $500,000, or the remaining balance of the Term Loan, if less, and (3) accompanied by the Applicable Prepayment Premium and the Repayment Fee, as applicable.
(e) Mandatory Prepayments.
(i) [Reserved].
(ii) Dispositions. Within 5 Business Days of the date of receipt by Parent or any of its Subsidiaries of the Net Cash Proceeds of any voluntary or involuntary sale or disposition by Parent or any of its Subsidiaries of assets (including casualty losses or condemnations but excluding (x) sales or dispositions which qualify as Permitted Dispositions under clauses (a),(b), (c), (e), (i), (j), (l), (m) or (n) of the definition of Permitted Dispositions and (y) any single sale or disposition (including any casualty losses or condemnations) or series of related sales or dispositions for which the aggregate amount of Net Cash Proceeds received from such sales or dispositions or series of related sales or dispositions does not exceed $50,000), Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of such Net Cash Proceeds (including condemnation awards and payments in lieu thereof) received by such Person in connection with such sales or dispositions to the extent that the aggregate amount of Net Cash Proceeds received exceeds $2,500,000 in the aggregate during the term of this Agreement. Notwithstanding the foregoing payment requirement, so long as (A) no Default or Event of Default shall have occurred and be continuing or would result therefrom, (B) Administrative Borrower shall have given Agent prior written notice of Borrowers intention to use such Net Cash Proceeds to pay for the costs of replacement of the properties or assets that are the subject of such sale or disposition or the cost of purchase or construction of other assets (other than Current Assets) that are useful in the business of Parent or its Subsidiaries, and (C) Parent or its Subsidiaries, as applicable, complete such replacement, purchase, or construction within 180 days after the initial receipt of such Net Cash Proceeds, the Borrower may retain (in a Deposit Account over which the Agent has a perfected first priority Lien) such proceeds for reinvestment as permitted hereunder; provided, however, that Net Cash Proceeds in excess of (x) up to $4,000,000 of Net Cash Proceeds of Term Priority Collateral for licensing transactions permitted hereunder agreed to in writing by the Loan Parties prior to the Closing Date and (y) up to $5,000,000 of Net Cash Proceeds of Term Priority Collateral for licensing transactions permitted hereunder entered into from and after the Closing Date, shall be remitted to the Agent to be held by it in an account in its own name and shall be either deemed applied to the payment of the Obligations (including any accrued interest and premiums and fees required to be paid at the time of any repayment in accordance with the terms hereof) automatically and without notice it further action on the Agents part upon the occurrence of any Event of Default under Section 8.4 or Section 8.5, or, if sooner, returned to the Borrowers if the chief financial
officer of Parent has certified to the Agent that (x) such Net Cash Proceeds will be reinvested in assets that will be Term Priority Collateral and (y) on a pro forma basis after giving effect to the applicable reinvestment, the Secured Leverage Ratio of Parent and its Subsidiaries as of the end of the fiscal month most recently ended as to which financial statements are available (which shall be dated no more than three weeks prior to the proposed date of increase) is no more than 4.5 to 1.00. To the extent the disposition is of ABL Priority Collateral, the Net Cash Proceeds (as defined in the ABL Agreement) therefrom shall be used to repay outstanding loans under the ABL Credit Agreement. Nothing contained in this Section 2.4(e)(ii) shall permit Parent or any of its Subsidiaries to sell or otherwise dispose of any assets other than in accordance with Section 6.4.
(iii) Extraordinary Receipts. Within 5 Business Days of the date of receipt by Parent or any of its Subsidiaries of any Extraordinary Receipts, Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of such Extraordinary Receipts, net of any reasonable expenses incurred in collecting such Extraordinary Receipts.
(iv) Indebtedness Issuances . Within 5 Business Days of the date of incurrence or issuance by Parent or any of its Subsidiaries of any Indebtedness (other than Permitted Indebtedness), Borrowers shall prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii) in an amount equal to 100% of the Net Cash Proceeds received by such Person in connection with such incurrence or issuance. The provisions of this Section 2.4(e)(iv) shall not be deemed to be implied consent to any such incurrence or issuance otherwise prohibited by the terms of this Agreement.
(v) Change of Control. Borrowers shall immediately prepay the outstanding Obligations in the event that a Change of Control shall have occurred.
(vii) Waivable Mandatory Prepayments. Anything contained herein to the contrary notwithstanding, in the event Borrowers are required to make any mandatory prepayment (a Waivable Mandatory Prepayment) of the Term Loan pursuant to this Section 2.4(e), not less than 5 Business Days prior to the date (the Required Prepayment Date) on which Borrowers are required to make such Waivable Mandatory Prepayment, Administrative Borrower shall notify Agent of the amount of such prepayment, and Agent will promptly thereafter notify each Lender of the amount of such Lenders Pro Rata Share of such Waivable Mandatory Prepayment and such Lenders option to refuse such amount. Each such Lender may exercise such option by giving written notice to Administrative Borrower and Agent of its election to do so on or before the first Business Day prior to the Required Prepayment Date (it being understood that any Lender that does not notify Administrative Borrower and Agent of its election to exercise such option on or before the first Business Day prior to the Required Prepayment Date shall be deemed to have elected, as of such date, not to exercise such option). On the Required Prepayment Date, Borrowers shall pay to Agent the amount of the Waivable Mandatory Prepayment, which amount shall be applied (A) in an amount equal to that portion of the Waivable Mandatory Prepayment payable to those Lenders that have elected not to exercise such option, to prepay the Term Loans of such Lenders (which prepayment shall be applied to prepay the outstanding principal amount of the Obligations in accordance with Section 2.4(f)(ii)) and (B) to the extent of any excess, to Borrowers for working capital and general corporate purposes.
(f) Application of Payments.
(i) Any prepayments required pursuant to Section 2.4(e) shall be preceded by irrevocable written notice delivered to Agent by 11:00 A.M., New York City time, not less than three (3) Business
Days prior to the date of such prepayment, specifying the underlying reason for the mandatory prepayment and the amount of the same.
(ii) Subject to Section 2.4(f)(iii), each prepayment pursuant to Section 2.4(d) or Section 2.4(e) shall (A) so long as no Application Event shall have occurred and be continuing, be applied, to the outstanding principal amount of the remaining Term Loan until paid in full, and (B) if an Application Event shall have occurred and be continuing, be applied in the manner set forth in Section 2.4(b)(ii).
(iii) With respect to any mandatory prepayment required by Section 2.4(e)(ii): (A) if the proceeds are from any sale or disposition of, or insurance or any condemnation, taking or other casualty with respect to, any ABL Priority Collateral, such proceeds shall be applied (x) first, to the ABL Obligations, to the extent required by the ABL Credit Agreement (as in effect on the date hereof) until paid in full (but, for the avoidance of doubt, without a permanent reduction in commitments, unless required by the terms of the ABL Credit Agreement), and (y) second, to the principal of the Term Loan , until paid in full; and (B) if the proceeds are from the sale or disposition of, or insurance or any condemnation, taking or other casualty with respect to, any other assets of the Loan Parties not described in subclause (A), such proceeds shall be applied to the principal of the Term Loan, until paid in full.
2.5 [Reserved].
2.6 Interest Rate: Rate, Payments, and Calculations.
(a) Cash Interest. Except as provided in Section 2.6(b) and Section 2.6(c), all Obligations that have been (or were intended to be) charged to the Loan Account pursuant to the terms hereof shall bear interest at a rate per annum equal to 8.00% (Cash Interest).
(b) PIK Interest. All Obligations that have been (or were intended to be) charged to the Loan Account pursuant to the terms hereof shall bear in-kind interest at a rate per annum equal to 2.00%, which interest shall be paid by adding an amount equal to such unpaid interest to the then outstanding principal amount of the Term Loans (interest so paid, PIK Interest).
(c) Default Rate. Upon the occurrence and during the continuation of an Event of Default, all Obligations shall bear interest at a per annum rate equal to two (2) percentage points above the per annum rates otherwise applicable thereunder.
(d) Payment. All interest, and all fees payable hereunder or under any of the other Loan Documents and all costs and expenses payable hereunder or under any of the other Loan Documents shall be due and payable, in arrears, on the first day of each month (Interest Payment Date) at any time that Obligations are outstanding, except as otherwise provided herein. The Borrowers shall deliver written notice to the Agent at least 5 Business Days prior to each Interest Payment Date setting forth a calculation of the Cash Interest and PIK Interest to be paid on such Interest Payment Date. The Agent shall have the right to review and adjust any such calculations. Each Borrower hereby authorizes Agent, from time to time without prior notice to such Borrower, to charge all interest, fees, costs, expenses and other amounts payable hereunder or under any of the other Loan Documents when due and payable to the Loan Account.
(e) Computation. All interest shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. For the purposes of the Interest Act (Canada), the yearly rate of interest to which any rate calculated on the basis of a period of time different from the actual number of days in the year (360 days, for example) is equivalent is the stated rate multiplied by the actual number
of days in the year (365 or 366 days) and divided by the number of days in the shorter period (360 days, in the example).
(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Each Borrower and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, that, anything contained herein to the contrary notwithstanding, if such rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are and shall be liable only for the payment of such maximum amount as is allowed by law, and payment received from Borrowers in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess.
2.7 Crediting Payments; Clearance Charge. The receipt of any payment item by Agent shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made to Agents Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Agent only if it is received into Agents Account on a Business Day on or before 11:00 a.m. (New York time). If any payment item is received into Agents Account on a non-Business Day or after 11:00 a.m. (New York time) on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.
2.8 Designated Account. Agent is authorized to make any advance of the Term Loan in accordance with this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person or, without instructions, if pursuant to Section 2.6(d). Borrowers agree to establish and maintain the Designated Account for the purpose of receiving the proceeds of the Term Loan requested by Borrowers and made by the Lenders hereunder. Unless otherwise agreed by Agent and Borrowers, any Term Loan requested by Borrowers and made by the Lenders hereunder shall be made to the Designated Account.
2.9 Maintenance of Loan Account; Statements of Obligations. Agent shall maintain an account on its books in the name of Borrowers (the Loan Account) on which Borrowers will be charged with the Term Loan made by the Lenders to Borrowers or for Borrowers account and with all other payment Obligations hereunder or under the other Loan Documents, including, accrued interest, fees and expenses, and Lender Group Expenses. In accordance with Section 2.7, the Loan Account will be credited with all payments received by Agent from Borrowers or for Borrowers account. Agent shall make available to Borrowers quarterly statements regarding the Loan Account, including the principal amount of the Term Loan interest accrued hereunder, fees accrued or charged hereunder or under the other Loan Documents, and a summary itemization of all charges and expenses constituting Lender Group Expenses accrued hereunder or under the other Loan Documents, and each such statement, absent manifest error, shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after Agent first makes such a statement available to Borrowers, Borrowers shall deliver to Agent written objection thereto describing the error or errors contained in such statement. The Borrower shall continue to have such obligations notwithstanding any failure by the Agent to maintain the Loan Account.
2.10 Fees.
(a) Closing Fee. Borrowers shall pay to Agent (or to the Lenders, as may be directed at the Closing Date) for the account of the Lenders a closing fee in an amount equal to $1,050,000, which fee shall be due and payable in full on the Closing Date.
(b) Agent Fees. Borrowers shall timely pay to Agent such fees and expenses as are required under the Agent Fee Letter.
(c) Prepayment Premium. If Borrowers have (i) sent a notice of voluntary prepayment of the Term Loan pursuant to Section 2.4(d)(ii) or shall otherwise make any voluntary prepayment of the Term Loan, (ii) terminated this Agreement pursuant to Section 3.5 of this Agreement, or (iii) sent a notice of mandatory repayment of the Term Loan pursuant to Section 2.4(e) or shall otherwise make mandatory prepayment, then on the date of repayment, prepayment or termination, Borrowers shall pay to Agent, in cash, in the case of clauses (i), (ii) or (iii) (in the case of clause (iii) only for such mandatory prepayments pursuant to Section 2.4(e)(iii), (iv) or (v)), the Applicable Prepayment Premium and the Repayment Fee. Calculations of the Applicable Prepayment Premium and the Repayment Fee shall be made by the Borrowers; provided that the Agent shall have the right to review and adjust such calculations.
2.11 [Reserved].
2.12 [Reserved].
2.13 Capital Requirements.
(a) If, after the date hereof, any Lender determines that (i) the adoption of or change in any law, rule, regulation or guideline regarding capital or reserve requirements for banks or bank holding companies, or any change in the interpretation, implementation, or application thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of any such entity regarding capital adequacy (whether or not having the force of law), has the effect of reducing the return on such Lenders or such holding companys capital as a consequence of such Lenders obligations hereunder to a level below that which such Lender or such holding company could have achieved but for such adoption, change, or compliance (taking into consideration such Lenders or such holding companys then existing policies with respect to capital adequacy and assuming the full utilization of such entitys capital) by any amount deemed by such Lender to be material, then such Lender may notify Administrative Borrower and Agent thereof. Following receipt of such notice, Borrowers agree to pay such Lender on demand the amount of such reduction of return of capital as and when such reduction is determined, payable within 30 days after presentation by such Lender of a statement in the amount and setting forth in reasonable detail such Lenders calculation thereof and the assumptions upon which such calculation was based (which statement shall be deemed true and correct absent manifest error). In determining such amount, such Lender may use any reasonable averaging and attribution methods. Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lenders right to demand such compensation; provided, that, (A) no Borrower shall be required to compensate a Lender pursuant to this Section for any reductions in return incurred more than 180 days prior to the date that such Lender notifies Administrative Borrower of such law, rule, regulation or guideline giving rise to such reductions and of such Lenders intention to claim compensation therefor and (B) if such claim arises by reason of the adoption of or change in any law, rule, regulation or guideline that is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof. For purposes of this Section 2.13(a), the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Basel Committee on Banking Supervision (of any successor or similar authority), the Bank for International Settlements and (in each case) all rules, regulations, orders, requests, guidelines or directives in connection therewith are deemed to have been enacted and become effective after the date of this Agreement.
(b) If any Lender requests additional or increased costs referred to in Section 2.12 or amounts under Section 2.13(a) or sends a notice under Section 2.12(i) relative to changed circumstances (any such Lender, an Affected Lender), then such Affected Lender shall use reasonable efforts to promptly designate a different one of its lending offices or to assign its rights and obligations hereunder to another of its offices or branches, if (i) in the reasonable judgment of such Affected Lender, such designation or assignment would eliminate or reduce amounts payable pursuant to Section 2.12 or Section 2.13(a), as applicable, and (ii) in the reasonable judgment of such Affected Lender, such designation or assignment would not subject it to any material unreimbursed cost or expense and would not otherwise be materially disadvantageous to it. Borrowers agree to pay all reasonable out-of-pocket costs and expenses incurred by such Affected Lender in connection with any such designation or assignment. If, after such reasonable efforts, such Affected Lender does not so designate a different one of its lending offices or assign its rights to another of its offices or branches so as to eliminate Borrowers obligation to pay any future amounts to such Affected Lender pursuant to Section 2.12 or Section 2.13(a), as applicable, then Borrowers (without prejudice to any amounts then due to such Affected Lender under Section 2.12 or Section 2.13(a), as applicable) may, unless prior to the effective date of any such assignment the Affected Lender withdraws its request for such additional amounts under Section 2.12 or Section 2.13(a), as applicable, may seek a substitute Lender acceptable to the Required Lenders to purchase the Obligations owed to such Affected Lender and such Affected Lenders Commitments hereunder (a Replacement Lender), and if such Replacement Lender agrees to such purchase, such Affected Lender shall assign to the Replacement Lender its Obligations and Commitments, pursuant to an Assignment and Acceptance Agreement, and upon such purchase by the Replacement Lender, such Replacement Lender shall be deemed to be a Lender for purposes of this Agreement and such Affected Lender shall cease to be a Lender for purposes of this Agreement.
2.14 Joint and Several Liability of Borrowers.
(a) Each Borrower is accepting joint and several liability for the Obligations hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Lender Group under this Agreement, for the mutual benefit, directly and indirectly, of each Borrower and in consideration of the undertakings of the other Borrowers to accept joint and several liability for the Obligations.
(b) Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Borrowers, with respect to the payment and performance of all of the Obligations (including any Obligations arising under this Section 2.14), it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each Borrower without preferences or distinction among them.
(c) If and to the extent that any Borrower shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the other Borrowers will make such payment with respect to, or perform, such Obligation until such time as all of the Obligations are paid in full.
(d) The Obligations of each Borrower under the provisions of this Section 2.14 constitute the absolute and unconditional, full recourse Obligations of each Borrower enforceable against each Borrower to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of the provisions of this Agreement (other than this Section 2.14(d)) or any other circumstances whatsoever.
(e) Except as otherwise expressly provided in this Agreement, each Borrower hereby waives notice of acceptance of its joint and several liability, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or Lenders at any time or times in respect of any default by any Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assents to any other action or delay in acting or failure to act on the part of any Agent or Lender with respect to the failure by any Borrower to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.14 afford grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 2.14, it being the intention of each Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of each Borrower under this Section 2.14 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each Borrower under this Section 2.14 shall not be diminished or rendered unenforceable by any bankruptcy, insolvency, winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any other Borrower or any Agent or Lender.
(f) Each Borrower represents and warrants to Agent and Lenders that such Borrower is currently informed of the financial condition of Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower further represents and warrants to Agent and Lenders that such Borrower has read and understands the terms and conditions of the Loan Documents. Each Borrower hereby covenants that such Borrower will continue to keep informed of Borrowers financial condition and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Obligations.
(g) The provisions of this Section 2.14 are made for the benefit of Agent, each member of the Lender Group, and their respective successors and assigns, and may be enforced by it or them from time to time against any or all Borrowers as often as occasion therefor may arise and without requirement on the part of Agent, any member of the Lender Group, or any of their successors or assigns first to marshal any of its or their claims or to exercise any of its or their rights against any Borrower or to exhaust any remedies available to it or them against any Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.14 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in
respect of any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or any Lender upon the insolvency, bankruptcy or reorganization of any Borrower, or otherwise, the provisions of this Section 2.14 will forthwith be reinstated in effect, as though such payment had not been made.
(h) Each Borrower hereby agrees that it will not enforce any of its rights of contribution or subrogation against any other Borrower with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to Agent or Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to any Agent or any member of the Lender Group hereunder are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization, winding up, arrangement, or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full in cash before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.
(i) Each Borrower hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness, such amounts shall be collected, enforced and received by such Borrower as trustee for Agent, and such Borrower shall deliver any such amounts to Agent for application to the Obligations in accordance with Section 2.4(b).
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Extension of Credit. The obligation of each Lender to make its initial extension of credit provided for hereunder is subject to the fulfillment, to the satisfaction of each Lender and Agent of the conditions precedent set forth on Schedule 3.1.
3.2 [Reserved].
3.3 Maturity. This Agreement shall continue in full force and effect for a term ending on August 15, 2018 (the Maturity Date). The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate its obligations under this Agreement immediately and upon notice by Agent to Administrative Borrower or any other Loan Party upon the occurrence and during the continuation of an Event of Default.
3.4 Effect of Maturity. On the Maturity Date, all of the Obligations immediately shall become due and payable without notice or demand and Borrowers shall be required to repay all of the Obligations in full. No termination of the obligations of the Lender Group (other than payment in full of the Obligations) shall relieve or discharge any Loan Party of its duties, obligations, or covenants hereunder or under any other Loan Document and Agents Liens in the Collateral shall continue to secure the Obligations and shall remain in effect until all Obligations have been paid in full. When all of the Obligations have been paid in full, Agent (upon the direction of the Required Lenders) will, at Borrowers sole expense, execute and deliver any termination statements, lien releases, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as are
reasonably necessary to release, as of record, Agents Liens and all notices of security interests and liens previously filed by Agent and Loan Parties shall execute and deliver to Agent a release of Agent and Lenders in form and substance satisfactory to Agent and the Required Lenders.
3.5 Early Termination by Borrowers. Borrowers have the option, at any time at any time upon 5 Business Days prior written notice to Agent, to terminate this Agreement by repaying to Agent all of the Obligations in full in accordance with the provisions of Section 2 (which, for the avoidance of doubt, shall include any prepayment fees required by Section 2.10).
3.6 Conditions Subsequent. The obligation of the Lender Group (or any member thereof) to continue to maintain the Term Loan (or otherwise extend credit hereunder) is subject to the fulfillment, on or before the date applicable thereto, of the conditions subsequent set forth on Schedule 3.6 (the failure by Borrowers to so perform or cause to be performed such conditions subsequent as and when required by the terms thereof (unless such date is extended, in writing, by the Required Lenders, which the Required Lenders may do without obtaining the consent of the other members of the Lender Group), shall constitute an immediate Event of Default).
4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this Agreement, each Loan Party makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date, and such representations and warranties shall survive the execution and delivery of this Agreement.
4.1 Due Organization and Qualification; Subsidiaries.
(a) Each Loan Party (i) is duly organized and existing and in good standing under the laws of the jurisdiction of its organization, (ii) is qualified to do business in any jurisdiction where the failure to be so qualified could reasonably be expected to result in a Material Adverse Change, (iii) has all requisite power and authority to own and operate its material properties, to carry on its material business as now conducted and as proposed to be conducted and (iv) has all requisite power and authority to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby.
(b) Set forth on Schedule 4.1(b) are the authorized Equity Interests of each Loan Party and each direct Subsidiary of such Loan Party, by class, and a description of the number of shares of each such class that are issued and outstanding, in each case, as of the Closing Date. Other than as described on Schedule 4.1(b), there are no subscriptions, options, warrants, or calls relating to any shares of any Borrowers or Subsidiarys Equity Interests, including any right of conversion or exchange under any outstanding security or other instrument. No Borrower nor any Subsidiary of Borrowers is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Equity Interests or any security convertible into or exchangeable for any of its Equity Interests.
(c) All of the outstanding Equity Interests of each Subsidiary of a Loan Party have been validly issued and are fully paid and, except with respect to the shares of Colt Canada, non-assessable.
(d) Neither Borrowers nor any of their Subsidiaries are subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of any Loan Partys Equity Interests or any security convertible into or exchangeable for any such Equity Interests.
4.2 Due Authorization; No Conflict.
(a) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part of such Loan Party.
(b) As to each Loan Party, the execution, delivery, and performance by such Loan Party of the Loan Documents to which it is a party do not and will not (i) violate any provision of any material federal, provincial, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, (ii) violate any provisions of the Governing Documents of any Loan Party or its Subsidiaries, (iii) conflict with, result in a material breach of, or constitute (with due notice or lapse of time or both) a material default under any Material Contract of any Loan Party or its Subsidiaries, (iv) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (v) require any approval of any holders of Equity Interests of a Loan Party or, except as set forth on Schedule 4.2, any approval or consent of any Person under any Material Contract of any Loan Party, other than consents or approvals that have been obtained and that are still in force and effect.
4.3 Governmental Consents. Except as set forth on Schedule 4.3, the execution, delivery, and performance by each Loan Party of the Loan Documents to which such Loan Party is a party and the consummation of the transactions contemplated by the Loan Documents do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect and except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Agent for filing or recordation, as of the Closing Date.
4.4 Binding Obligations; Perfected Liens.
(a) Each Loan Document has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors rights generally.
(b) Agents Liens are validly created Liens. Agents Liens will be perfected, first priority Liens, subject as to priority only to the Permitted Liens that have priority by operation of law or unless otherwise permitted hereby, upon (i) in the case of all Collateral in which a security interests may be perfected by filing a financing statements under the Code or the PPSA, as applicable, the filing of the UCC financing statement or PPSA financing statement, as applicable, naming such Borrower or Guarantor as debtor and Agent as secured party in the filing offices set forth opposite such Borrowers or such Guarantors name on Schedule 4.4(b), (ii) with respect to any deposit account, securities account, commodity account, securities entitlement or commodity contract, the execution of a Control Agreement, (iii) in the case of U.S. or Canadian copyrights, trademarks and patents to the extent that UCC financing statements or PPSA financing statements, as applicable, may be insufficient to establish the rights of a secured party as to certain parties, the recording of the appropriate filings in the United States Patent and Trademark Office, the United States Copyright Office and the Canadian Intellectual Property Office, as applicable, (iv) in the case of letter-of-credit rights that are not supporting obligations (as defined in the Code), the execution by the issuer or any nominated person of an agreement granting control to Agent over such letter-of-credit rights, and (v) in the case of electronic
chattel paper, the completion of steps necessary to grant control to Agent over such electronic chattel paper.
4.5 Title to Assets; No Encumbrances. Each of the Loan Parties and its Subsidiaries has (a) good and marketable title to (in the case of fee interests in Real Property), (b) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (c) good and marketable title to (in the case of all other personal property), all of their respective assets or property necessary to conduct its business or used in the ordinary course of business. All of such assets are free and clear of Liens except for Permitted Liens.
4.6 Jurisdiction of Organization; Location of Chief Executive Office; Organizational Identification Number; Commercial Tort Claims; Locations of Inventory and Equipment.
(a) The name (within the meaning of the Code or PPSA, as applicable) and jurisdiction of organization of each Loan Party and each of its Subsidiaries is set forth on Schedule 4.6(a) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).
(b) The chief executive offices of each Loan Party and each of its Subsidiaries are located at the addresses indicated on Schedule 4.6(b) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).
(c) Each Loan Partys and each of its Subsidiaries tax identification numbers and organizational identification numbers, if any, are identified on Schedule 4.6(c) (as such Schedule may be updated from time to time to reflect changes resulting from transactions permitted under this Agreement).
(d) As of the Closing Date, no Loan Party and no Subsidiary of a Loan Party holds any commercial tort claims that exceed $50,000 or more in any one case or $100,000 or more in the aggregate, except as set forth on Schedule 4.6(d).
(e) Each Loan Partys Inventory and Equipment (other than (x) vehicles, Inventory and Equipment out for repair or in-transit, (y) Inventory and Equipment owned by Persons other than Loan Parties or having an aggregate book value of less than $50,000 and (z) Inventory consigned pursuant to the DCAM Consignment described in clause (b) of the definition of Permitted Dispositions) is located only at the locations identified on Schedule 4.6(e).
4.7 Litigation.
(a) There are no actions, suits, or proceedings pending or, to the knowledge of any Loan Party, after due inquiry, threatened in writing against a Loan Party or any of its Subsidiaries that either individually or in the aggregate could reasonably be expected to result in a Material Adverse Change.
(b) Schedule 4.7 sets forth a complete and accurate description, with respect to each of the actions, suits, or proceedings with asserted liabilities in excess of, or that could reasonably be expected to result in liabilities in excess of, $50,000 that, as of the Closing Date, is pending or, to the knowledge of any Loan Party, after due inquiry, threatened against a Loan Party or any of its Subsidiaries, of (i) the parties to such actions, suits, or proceedings, (ii) the nature of the dispute that is the subject of such actions, suits, or proceedings, (iii) the procedural status, as of the Closing Date, with respect to such actions, suits, or proceedings, and (iv) whether any liability of the Loan Parties and their Subsidiaries in connection with such actions, suits, or proceedings is covered by insurance.
4.8 Compliance with Laws. No Loan Party nor any of its Subsidiaries (a) is in violation of any applicable material laws, rules, regulations, executive orders, or codes (including Environmental Laws) in any material respect or (b) is subject to or in default in any material respect with respect to any material final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign.
4.9 No Material Adverse Change. All historical financial statements relating to the Loan Parties and their Subsidiaries that have been delivered by any Borrower to the Lenders have been prepared in accordance with GAAP (except (x) in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments and (y) as set forth on Schedule 4.9) and present fairly in all material respects, the Loan Parties and their Subsidiaries consolidated financial condition as of the date thereof and results of operations for the period then ended. Since December 31, 2013 (but without regard to any change or development expressly included in any reports filed with the Securities and Exchange Commission on forms 8-K, 10-Q or 12b-25 on or prior to November 12, 2014) no event, circumstance, or change has occurred that has or could reasonably be expected to result in a Material Adverse Change.
4.10 Solvency; Fraudulent Transfer.
(a) Based on reasonable assumptions and plans, after giving effect to the Closing Date Transactions, Parent and its Subsidiaries (taken as a whole) on a consolidated basis (after giving effect to any rights of contribution or subrogation) are Solvent.
(b) No transfer of property is being made by any Loan Party and no obligation is being incurred by any Loan Party in connection with the Closing Date Transactions with the intent to hinder, delay, or defraud either present or future creditors of such Loan Party.
4.11 Employee Benefits.
(a) Except as set forth on Schedule 4.11, no Loan Party, none of their Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any Pension Plan.
(b) (i) Each Loan Party and each of the ERISA Affiliates has complied in all material respects with the terms of ERISA, the IRC and all other applicable laws regarding each Employee Benefit Plan, (ii) no material liability to the PBGC (other than for the payment of current premiums which are not past due) by any Loan Party or ERISA Affiliate has been incurred or is reasonably expected by any Loan Party or ERISA Affiliate to be incurred with respect to any Pension Plan, (iii) no Loan Party nor any of its Subsidiaries maintains, sponsors, administers, contributes to, participates in or has any material liability in respect of any Specified Canadian Pension Plan, nor has any such Person ever maintained, sponsored, administered, contributed or participated in any Specified Canadian Pension Plan, (iv) the Canadian Pension Plans are duly registered under the Income Tax Act (Canada) and any other applicable laws which require registration have been administered in accordance with the Income Tax Act (Canada) and such other applicable law and no event has occurred which could reasonably be expected to cause the loss of such registered status, (v) all obligations of the Loan Parties and their Subsidiaries (including fiduciary, funding, investment and administration obligations) required to be performed in connection with the Specified Canadian Pension Plans and the funding agreements therefor have been performed on a timely basis, and (vi) all contributions or premiums required to be made or paid by the Loan Parties and their Subsidiaries to the Specified Canadian Pension Plans have been made on a timely basis in accordance with the terms of such plans and all applicable laws.
(c) Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the IRC has received a favorable determination letter from the Internal Revenue Service or an application for such letter is currently being processed by the Internal Revenue Service. To the best knowledge of each Loan Party and the ERISA Affiliates after due inquiry, nothing has occurred which would reasonably be expected to prevent, or cause the loss of, such qualification.
(d) No Notification Event which could reasonably be expected to result in any material liability to any Loan Party or ERISA Affiliate exists or has occurred in the past six (6) years.
4.12 Environmental Matters. Except as set forth on Schedule 4.12:
(a) The operation of the business of, and each of the properties owned or operated by, each Loan Party are in compliance with all Environmental Laws and each Loan Party holds and is in compliance with all Environmental Permits required under Environmental Law, except where any such non-compliance with Environmental Law or failure to hold or comply with such Environmental Permits individually or in the aggregate could not reasonably be expected to result in a Material Adverse Change.
(b) No Environmental Action is pending, or to each Loan Partys knowledge is threatened, against a Loan Party, any predecessor in interest or any facilities that may have received Hazardous Materials generated by any Loan Party or any predecessor in interest.
(c) No Environmental Action has been asserted, or to each Loan Partys knowledge is threatened, against a Loan Party, any predecessor in interest or any facilities that may have received Hazardous Materials generated by any Loan Party or any predecessor in interest.
(d) There has been no Release of Hazardous Materials and there are no Hazardous Materials present in violation of Environmental Law at any properties currently, or to the knowledge of any Loan Party, formerly owned or operated by any Loan Party or any predecessor in interest, or at any disposal or treatment facility that received Hazardous Materials generated by any Loan Party or a predecessor in interest, which individually or in the aggregate could reasonably be expected to result in a Material Adverse Change.
(e) No property now, or to the knowledge of any Loan Party, formerly owned or operated by a Loan Party has been used as treatment or disposal site for any Hazardous Material.
(f) No Loan Party has received written notice that an Environmental Lien has attached to any revenues or to any assets or to any property owned or operated by a Loan Party.
(g) No Environmental Law regulates, or requires notification to a Governmental Authority of the Closing Date Transactions
(h) To the knowledge of each Loan Party, there are no facts, conditions or circumstances, including any contractual obligations, that could reasonably be expected to result in an Environmental Action or Environmental Liabilities asserted against a Loan Party or which would require a Loan Party to perform a Remedial Action, which individually or in the aggregate could reasonably be expected to result in a Material Adverse Change.
(i) The Loan Parties have made available to Lenders true and complete copies of all material environmental reports, audits, and investigations in any Loan Partys possession or under its reasonable control related to each Real Property and the operations of business of the Loan Parties.
4.13 Intellectual Property. Except as set forth on the Perfection Certificate dated as of the Closing Date:
(a) Each Loan Party owns, licenses or otherwise has the right to use all Intellectual Property that is necessary for the operation of its business, without infringement upon, misappropriation of, dilution of, or conflict with the rights of any other Person or other Loan Party.
(b) To the knowledge of the Loan Parties, no Loan Party nor any of its agents or representatives has engaged in any conduct, or omitted to perform any necessary act, the result of which would invalidate any material Intellectual Property of a Loan Party or hinder its enforcement. To the knowledge of the Loan Parties, no other Person has infringed or is infringing any material Intellectual Property of a Loan Party. For the avoidance of doubt, all registered trademarks or service marks of a Loan Party shall be deemed material Intellectual Property.
(c) None of the Loan Parties registered Intellectual Property that is material to the operation of a Loan Partys business is currently involved in any reexamination, reissue, interference, invalidity, opposition or cancellation proceeding before any patent office or patent authority, including the United States Patent and Trademark Office and the Canadian Intellectual Property Office, or any similar proceeding, and no such proceedings are pending.
(d) All of the Loan Parties Intellectual Property identified in the Perfection Certificate is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and, to the knowledge of the Loan Parties, is valid and enforceable.
(e) Other than Permitted Liens, all rights with respect to the Intellectual Property owned by each Loan Party are free of all Liens and are fully assignable by the Loan Parties to any Person, without payment, consent of any Person or other condition or restriction.
(f) (i) No claim has been asserted in writing and is pending by any Person challenging or questioning the use of any of the Loan Parties Intellectual Property, or the validity or effectiveness of any such Intellectual Property, and (ii) no claim has been asserted in writing and is pending by any Person challenging or questioning the use of any material Intellectual Property owned by any of the Loan Parties, or the validity or effectiveness of any such material Intellectual Property. Each Loan Party has made or performed all filings, recordings and other acts and has paid all maintenance fees, annuities and any other required fees and taxes, as deemed necessary by such Loan Party in its reasonable business judgment, to maintain and protect its interest in all Intellectual Property owned by such Loan Party in full force and effect.
(g) To the knowledge of the Loan Parties, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party infringes upon, misappropriates, dilutes or conflicts with, any rights owned by any other Person. No claim or litigation regarding any of the foregoing is pending or, to the knowledge of the Loan Parties, threatened.
4.14 Leases. Except as set forth on Schedule 4.14, each Loan Party and its Subsidiaries enjoy peaceful and undisturbed possession under all leases material to their business and to which they are parties or under which they are operating, and, subject to Permitted Protests, all of such material leases are valid and subsisting and no material default beyond any applicable cure period by the applicable Loan Party or its Subsidiaries exists under any of them.
4.15 Deposit Accounts and Securities Accounts. Set forth on Schedule 4.15 is a listing of all of the Loan Parties and their Subsidiaries Deposit Accounts and Securities Accounts, including, with respect to each bank or securities intermediary (a) the name and address of such Person, and (b) the account numbers of the Deposit Accounts or Securities Accounts maintained with such Person.
4.16 Complete Disclosure. All factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrowers industry) furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement or the other Loan Documents, and all other such factual information taken as a whole (other than forward-looking information and projections and information of a general economic nature and general information about Borrowers industry) hereafter furnished by or on behalf of a Loan Party or its Subsidiaries in writing to Agent or any Lender will be, true and accurate, in all material respects, on the date as of which such information is dated or certified and not incomplete by omitting to state any fact necessary to make such information (taken as a whole) not misleading in any material respect at such time in light of the circumstances under which such information was provided. The Projections delivered to the Lenders on November 6, 2014, represent, and as of the date on which any other Projections are delivered to Agent, such additional Projections represent, Borrowers good faith estimate, on the date such Projections are delivered, of the Loan Parties and their Subsidiaries future performance for the periods covered thereby based upon assumptions believed by Borrowers to be reasonable at the time of the delivery thereof to the Lenders (it being understood that such Projections are subject to uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, that no assurances can be given that such Projections will be realized, and that actual results may differ in a material manner from such Projections).
4.17 Material Contracts. Each Material Contract is not in default due to the action or inaction of the applicable Loan Party or any of its Subsidiaries.
4.18 Patriot Act; etc.To the extent applicable, each Loan Party is in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act of 2001) (the Patriot Act), and (c) the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and the regulations promulgated thereunder. No part of the proceeds of the loans made hereunder will be used by any Loan Party or any of their Affiliates, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
4.19 Indebtedness. Set forth on Schedule 4.19 is a true and complete list of all Indebtedness of each Loan Party and each of its Subsidiaries outstanding immediately prior to the Closing Date (other than unsecured Indebtedness outstanding immediately prior to the Closing Date with respect to any one transaction or a series of related transactions in an amount not to exceed $50,000, provided that all such Indebtedness, in the aggregate, shall not exceed $250,000) that is to remain outstanding immediately after giving effect to the closing hereunder on the Closing Date and such Schedule accurately sets forth the aggregate principal amount of such Indebtedness as of the Closing Date.
4.20 Payment of Taxes. All federal and other material tax returns and reports of each Loan Party and its Subsidiaries required to be filed by any of them have been timely filed, and all Taxes shown on such tax returns to be due and payable and all governmental assessments, fees and other charges upon a Loan Party and its Subsidiaries and upon their respective assets, income, businesses and franchises that are due and payable have been paid when due and payable, except to the extent the validity of such Taxes shall be the subject of a Permitted Protest. No Loan Party knows of any proposed tax assessment (other than those with respect to which the aggregate potential tax liability is less than $100,000) against a Loan Party or any of its Subsidiaries that is not the subject of a Permitted Protest.
4.21 Margin Stock. 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 purchasing or carrying any Margin Stock. No part of the proceeds of the Term Loan made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve.
4.22 Governmental Regulation. No Loan Party nor any of its Subsidiaries is subject to regulation under the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. No Loan Party nor any of its Subsidiaries is a registered investment company or a company controlled by a registered investment company or a principal underwriter of a registered investment company as such terms are defined in the Investment Company Act of 1940.
4.23 OFAC. No Loan Party nor any of its Subsidiaries is in violation of any of the country or list based economic and trade sanctions administered and enforced by OFAC. No Loan Party nor any of its Subsidiaries (a) is a Sanctioned Person or a Sanctioned Entity, (b) has its assets located in Sanctioned Entities, or (c) derives revenues from investments in, or transactions with Sanctioned Persons or Sanctioned Entities. No proceeds of any loan made hereunder will be used to fund any operations in, finance any investments or activities in, or make any payments to, a Sanctioned Person or a Sanctioned Entity.
4.24 Employee and Labor Matters. Except as set forth on Schedule 4.24, there is (a) no unfair labor practice complaint pending or, to the knowledge of Borrowers, threatened against Parent or its Subsidiaries before any Governmental Authority and no grievance or arbitration proceeding pending or, to the knowledge of Borrowers, threatened against Parent or its Subsidiaries which arises out of or under any collective bargaining agreement, (b) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or threatened in writing against Parent or its Subsidiaries, (c) to the knowledge of Borrowers, after due inquiry, no union representation question existing with respect to the employees of Parent or its Subsidiaries and no union organizing activity taking place with respect to any of the employees of Parent or its Subsidiaries, or (d) any liability or obligation incurred by Parent or any of its Subsidiaries under the Worker Adjustment and Retraining Notification Act or similar state law, which remains unpaid or unsatisfied. The hours worked and payments made to employees of Parent or its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable legal requirements, except to the extent such violations could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change. All material payments due from Parent or its Subsidiaries 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 Parent, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Change.
4.25 Amended ABL Loan Documents. Borrowers have delivered or made available to the Lenders true and correct copies of the ABL Loan Documents. The transactions contemplated by the ABL Loan Documents will be, contemporaneously with the making of the Term Loan hereunder, consummated in accordance with their respective terms and all of the representations and warranties of Parent or its Subsidiaries in the ABL Loan Documents are true and correct in all material respects as of the Closing Date or, to the extent that any such representation or warranty relates solely to an earlier date, as of such earlier date.
4.26 [Reserved].
4.27 [Reserved].
4.28 Use of Proceeds. Borrowers will use the proceeds of the Term Loan made hereunder (a) on the Closing Date to refinance the Existing Credit Agreement and to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby and (b) thereafter, consistent with the terms and conditions hereof, for their lawful and permitted purposes (including that no part of the proceeds of the loans made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve).
4.29 Common Enterprise. The Loan Parties make up a related organization of various entities constituting a single economic and business enterprise so that the Loan Parties share an identity of interests such that any benefit received by any one of them benefits the others. The Loan Parties render services to or for the benefit of certain of the other Loan Parties and purchase or sell and supply goods to or from or for the benefit of certain of the others. Certain of the Loan Parties have the same chief executive office, certain common officers and directors and generally do not provide consolidating financial statements to creditors.
4.30 [Reserved].
4.31 Senior Note Indenture. All Obligations, including, without limitation, those to pay principal of and interest (including post-petition interest) on the Term Loan and fees and expenses in connection therewith, constitute Indebtedness (under and as defined in the Senior Note Indenture) that is permitted under Section 3.2(b)(2) of the Senior Note Indenture. The Obligations constitute Indebtedness senior in priority to the obligations of the Borrowers under the Senior Note Indenture. Parent acknowledges that Agent and the Lenders are entering into this Agreement, and extending their Commitments, in reliance upon this Section 4.31.
4.32 Insurance. The Loan Parties keep their respective properties adequately insured and maintains (a) insurance to such extent and against such risks, including fire, as is customary with companies in the same or similar businesses, (b) workmens compensation insurance in the amount required by applicable law, (c) public liability insurance, which shall include product liability insurance, in the amount customary with companies in the same or similar business against claims for personal injury or death on properties owned, occupied or controlled by it, and (d) such other insurance as may be required by law (including, without limitation, against larceny, embezzlement or other criminal misappropriation). Schedule 4.32 sets forth a list of all insurance maintained by the Loan Parties on the Closing Date.
4.33 Centre of Main Interests and Establishments. Each Dutch Loan Party has its centre of main interests (as that term is used in Article 3(7) of the Council of the European Union Regulation No. 1346/2000 as Insolvency Proceeding (the Regulation) in its jurisdiction of incorporation. The Dutch Loan Parties do not have an establishment (as that term is used in Article 2(h) of the Regulation) in any jurisdiction other than The Netherlands.
4.34 Tax Status. No notice under Section 36 of the Tax Collection Act (Invorderingswet 1990) has been given by any Dutch Loan Party.
5. AFFIRMATIVE COVENANTS.
Each Loan Party covenants and agrees that, until payment in full of the Obligations, the Loan Parties shall and shall cause each of their Subsidiaries to comply with each of the following:
5.1 Financial Statements, Reports, Certificates. Loan Parties shall deliver to Agent, with copies to each Lender, each of the financial statements, reports, and other items set forth on Schedule 5.1 no later than the times specified therein. In addition, Parent agrees that it shall not change its fiscal year. In addition, Parent agrees to maintain a system of accounting that enables Parent to produce financial statements in accordance with GAAP.
5.2 Collateral Reporting. Provide Agent (and if so requested by Agent or the Required Lenders, with copies for each Lender) with each of the reports set forth on Schedule 5.2 at the times specified therein.
5.3 Existence. Except as otherwise permitted under Section 6.3 or Section 6.4, at all times maintain and preserve in full force and effect (a) its existence, (b) all rights and franchises, licenses and permits related to any Intellectual Property that are necessary or otherwise material to the conduct of its business as currently conducted, unless otherwise consented to by the Required Lenders, and (c) all other rights and franchises, licenses and permits that are necessary or otherwise material to the conduct of the business of Parent and its Subsidiaries; provided, however, that no Loan Party or any of its Subsidiaries shall be required to preserve any such right or franchise, licenses or permits under clause (c) if such Persons board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person.
5.4 Maintenance of Properties. Maintain and preserve all of its assets that are necessary or useful in the proper conduct of its business in good working order and condition, except for ordinary wear, tear, and casualty and Permitted Dispositions.
5.5 Taxes. Cause all Taxes imposed, levied, or assessed against any Loan Party or its Subsidiaries, or any of their respective assets or in respect of any of its income, businesses, or franchises to be paid in full when due (taking into account any valid and effective extension for payment thereof), except (a) to the extent that the validity of such Tax shall be the subject of a Permitted Protest or (b) delinquent Taxes outstanding in an aggregate amount not to exceed $100,000 at any one time.
5.6 Insurance. Each Loan Party shall, at such Loan Partys expense, (a) maintain insurance respecting each Loan Partys assets wherever located, covering liabilities, losses or damages as are customarily are insured against by other Persons engaged in same or similar businesses and similarly situated and located. All such policies of insurance shall be with financially sound and reputable insurance companies reasonably acceptable to the Required Lenders (it being agreed that, as of the Closing Date, the insurance companies identified on Schedule 4.32 are acceptable to the Required Lenders) and in such amounts as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and located and, in any event, in amount, adequacy, and scope reasonably satisfactory to the Required Lenders (it being agreed that the amount, adequacy, and scope of the policies of insurance of the Loan Parties in effect as of the Closing Date are acceptable to the Required Lenders and it being further agreed and understood that with respect to insurance in respect of director and officer liability, the amount, adequacy and scope of the policies of such insurance shall be determined in the sole discretion of Parent). All property insurance policies covering the Collateral are to be made payable to Agent for the benefit of Agent and the Lenders, as their interests may appear, in case of loss, pursuant to a standard loss payable endorsement with a standard noncontributory lender or secured party clause and are to contain such other provisions as Agent or the Required Lenders may reasonably require to fully protect the Lenders interest in the Collateral and to any payments to be made under such policies (and any payments received by Agent shall be applied by Agent or otherwise returned to Borrowers in accordance with the provisions set forth in this Agreement). All certificates of property and general liability insurance are to be delivered to Agent, with the loss payable (but only in respect of Collateral) and additional insured endorsements (other than directors and officers policies and workers compensation) in favor of Agent and shall provide for not less than 30 days (10 days in the case of non-payment) prior written notice to Agent of the exercise of any right of cancellation. If any Loan Party fails to maintain such insurance, Agent (upon the direction of the Required Lenders) shall arrange for such insurance, but at such Loan Partys expense and without any responsibility on Agents part for obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. Borrowers shall give Agent prompt notice of any loss exceeding $50,000 covered by any Loan Partys casualty or business interruption insurance. Upon the occurrence and during the continuance of an Event of Default, Agent (upon the direction of the Required Lenders) shall have the sole right to file claims under any property and general liability insurance policies in respect of the Collateral, to receive, receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies.
5.7 Inspection. Permit Agent and the Lenders and each of their duly authorized representatives or agents to visit any of its properties and inspect any of its assets or books and records, to conduct appraisals and valuations, to examine and make copies of its books and records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers and employees at such reasonable times (during normal business hours) and intervals as Agent (upon the direction of the Required Lenders) shall designate and, so long as no Default or Event of Default exists and is continuing, with reasonable prior notice to Administrative Borrower all at such times and intervals as Agent (upon the direction of the Required Lenders) shall request, all at Borrowers expense; provided, that, as to such examinations and appraisals of Intellectual Property of the Loan Parties, unless an Event of Default exists or has occurred and is continuing, no more than one (1) examination and one (1) appraisal of Intellectual Property in any twelve (12) month period shall be at the expense of Borrowers.
5.8 Compliance with Laws. Comply with the requirements of all applicable material laws, rules, regulations, and orders of any Governmental Authority in all material respects.
5.9 Environmental.
(a) To the extent applicable, comply with all requirements pursuant to and within the timeframes set forth in Connecticuts Transfer Act (Conn. Gen. Stat. §22a-134, et seq.) as a result of any prior transactions and the Closing Date Transactions, including but not limited to retaining a Licensed Environmental Professional and completing all required filings, authorizations, approvals, notifications, site investigations, and remediation. The Loan Parties shall provide Agent with copies of
all material documents filed with, and material responses from, the Connecticut Department of Environmental Protection, with respect to Connecticuts Transfer Act.
(b) Keep any property either owned or operated by any Loan Party free of any Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens.
(c) Comply, and use reasonable efforts to cause all tenants and other Persons who may come upon any property owned, leased or operated by a Loan Party to comply, with all Environmental Laws in all material respects and provide to Agent documentation of such compliance which Agent reasonably requests.
(d) Maintain and comply in all material respects with all Environmental Permits required under applicable Environmental Laws.
(e) Take all commercially reasonable steps to prevent any Release of Hazardous Materials in violation of Environmental Law at, on or migrating from the any property owned, leased or operated by the Loan Parties.
(f) Undertake or cause to be undertaken any and all Remedial Actions in response to any Environmental Claim, Release of Hazardous Materials in violation of Environmental Law or violation of Environmental Law, to the extent required by Environmental Law or any Governmental Authority and to repair or remedy any environmental condition or impairment to the Real Property consistent with its current use and, upon request of Agent or the Required Lenders, provide Agent with copies of all data, information and reports generated in connection therewith as Agent or the Required Lenders may request.
(g) Promptly, but in any event within 5 Business Days of its receipt thereof, (i) provide Agent with written notice of any of the following: (A) any Release of which any Loan Party has knowledge of a Hazardous Material in any reportable quantity from or onto property owned or operated by any Loan Party; (B) written notice that an Environmental Lien has been filed against any of the real or personal property of any Loan Party, (C) commencement of any Environmental Action or written notice that an Environmental Action will be filed against any Loan Party that such Loan Party reasonably estimates liability in excess of $50,000; (D) material violation of Environmental Laws in, at, on, under or from any part of the Real Property or any improvements constructed thereon; and (E) discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Real Property that could reasonably be expected to cause such Real Property or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; and (ii) provide such other documents and information as reasonably requested by Agent in relation to any matter pursuant to this Section 5.9(g);
(h) At the request of the Required Lenders or Agent (at the direction of the Required Lenders) upon the Required Lenders sole determination that a Release of Hazardous Materials in excess of a reportable quantity or a violation of Environmental Law may have occurred at, onto or from the Real Property, or upon an Event of Default, the Loan Parties shall provide to Agent and the Lenders, within thirty (30) calendar days after such request, at the sole expense of the Loan Parties, a Phase I Report for any of the Real Property prepared by an environmental consulting firm acceptable to the Required Lenders and, if recommended by the Phase I Report, a Phase II environmental site assessment report . Without limiting the generality of the foregoing, if the Required Lenders determine at any time that a risk exists that any requested Phase I Report and Phase II report will not be provided
within the time referred to above, Agent and/or the Required Lenders may retain an environmental consulting firm to prepare such reports at the sole expense of the Loan Parties, and the Loan Parties shall provide reasonable access to Agent and/or the Required Lenders, such firm and any agents or representatives to their respective properties to undertake such Phase I or Phase II environmental site assessment.
5.10 Intercompany Trademark Agreement. Within 30 days of the Closing Date (or such longer period as the Agent may agree at the written direction of the Required Lenders), the applicable Borrowers shall execute an intercompany trademark license agreement acknowledging the ownership and control by Colts Manufacturing Company LLC and Colt Canada Corporation in the trademarks registered in their respective names, and associated goodwill, and confirming the grant of rights to Colt Defense LLC and each of its Subsidiaries to use such trademarks in the conduct of its business as conducted in the past, as currently conducted, and as contemplated to be conducted, in form and substance reasonably acceptable to the Agent (at the written direction of the Required Lenders).
5.11 Formation of Subsidiaries. At any time that any Loan Party forms any direct or indirect Subsidiary or acquires any direct Subsidiary after the Closing Date, such Loan Party shall (a) within 30 days of such formation or acquisition (or such later date as permitted by the Required Lenders in their sole discretion) cause any such new Subsidiary to provide to Agent a Guaranty and a joinder to the applicable Security Documents, together with such other security documents (including mortgages with respect to any Real Property owned in fee of such new Subsidiary with a fair market value of at least $200,000), as well as appropriate financing statements (and with respect to all property subject to a mortgage, fixture filings), all in form and substance reasonably satisfactory to the Required Lenders (including being sufficient to grant Agent a first priority Lien (subject to Permitted Liens) in and to the assets of such newly formed or acquired Subsidiary); provided, that, a Guaranty or a joinder to the applicable Security Documents, and such other security documents shall not be required to be provided to Agent if the costs to the Loan Parties of providing such Guaranty, executing any such Security Documents or perfecting the security interests created thereby are unreasonably excessive (as determined by the Required Lenders in consultation with Borrowers) in relation to the benefits of Agent and the Lenders of the security or guarantee afforded thereby, (b) within 30 days of such formation or acquisition (or such later date as permitted by the Required Lenders in their sole discretion) provide to Agent a pledge agreement (or an addendum to the applicable Security Document) and appropriate certificates and powers or financing statements, pledging all of the direct or beneficial ownership interest in such new Subsidiary reasonably satisfactory to the Required Lenders; provided, that, no other pledge shall be required if the costs to the Loan Parties of providing such other pledge are unreasonably excessive (as determined by the Required Lenders in consultation with Borrowers) in relation to the benefits of Agent and Lenders of the security afforded thereby, and (c) within 30 days of such formation or acquisition (or such later date as permitted by the Required Lenders in their sole discretion) provide to Agent all other documentation reasonably requested by Agent or the Required Lenders (including policies of title insurance or other documentation with respect to all Real Property owned in fee and subject to a mortgage).
5.12 Further Assurances. Execute or deliver to Agent any and all financing statements, fixture filings, security agreements, pledges, assignments, endorsements of certificates of title, mortgages, deeds of trust, opinions of counsel and all other documents (the Additional Documents) that are required by applicable law, or that Agent or the Required Lenders may reasonably request, in form and substance reasonably satisfactory to Agent and the Required Lenders, to create, perfect, and maintain Agents Liens in all of the assets of Parent and its Subsidiaries (other than Excluded Property but, for the avoidance of doubt, including any Intellectual Property and other Collateral located in jurisdictions outside the United States or Canada) (whether now owned or hereafter arising or acquired, tangible or
intangible, real or personal), to create and perfect Liens in favor of Agent in any Real Property acquired by Parent or its Subsidiaries after the Closing Date with a fair market value in excess of $200,000, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents; provided, that, no other pledge shall be required if the costs to the Loan Parties of providing such documents are unreasonably excessive (as determined by the Required Lenders in consultation with Borrowers) in relation to the benefits of Agent and the Lenders of the benefits afforded thereby. To the maximum extent permitted by applicable law, if any Loan Party refuses or fails to execute or deliver any reasonably requested Additional Documents within a reasonable period of time following the request to do so, such Loan Party hereby authorizes Agent to execute any such Additional Documents in the applicable Loan Partys name, as applicable, and authorizes Agent to file such executed Additional Documents in any appropriate filing office. In furtherance and not in limitation of the foregoing, each Loan Party shall take such actions as Agent or the Required Lenders may reasonably request from time to time (a) in connection with any merger, amalgamation, consolidation, or reorganization permitted under Section 6.3, delivery to Agent of the agreements and documentation set forth in Section 5.11 above, or (b) to ensure that the Obligations are guaranteed by the Guarantors and are secured by substantially all of the assets of the Loan Parties (subject to exceptions and limitations contained in the Loan Documents).
5.13 Lender Meetings. On a weekly basis from the Closing Date until June 30, 2015 and thereafter on a twice-monthly basis (or less frequently as the Required Lenders shall agree), hold a meeting (at a mutually agreeable location and time or, at the option of Agent, by conference call) with all Lenders (and any financial advisor retained by the Agent or any Lender) who choose to attend such meeting at which meeting shall be reviewed, among other things, the financial results of Parent and the financial condition of Parent and its Subsidiaries and the projections presented for the current fiscal year of Parent; provided, however, that following the occurrence of a Default or an Event of Default, such meetings shall be held as often as the Agent or the Required Lenders shall request.
5.14 Material Contracts. Contemporaneously with the delivery of each Compliance Certificate pursuant to Section 5.1, provide Agent with copies of each (a) Material Contract entered into since the delivery of the previous Compliance Certificate, and (b) each material amendment or modification of any Material Contract entered into since the delivery of the previous Compliance Certificate.
5.15 Locations of Inventory and Equipment. Keep each Loan Parties Inventory and Equipment (other than (x) vehicles, Inventory and Equipment out for repair or in-transit, (y) Inventory and Equipment owned by Persons other than Loan Parties or having an aggregate book value of less than $50,000 and (z) Inventory consigned pursuant to the DCAM Consignment described in clause (b) of the definition of Permitted Dispositions) only at the locations identified on Schedule 4.6(e); provided, that, any Borrower may amend Schedule 4.6(e) so long as such amendment occurs by written notice to Agent not less than 10 days after the date on which such Inventory or Equipment is moved to such new location.
5.16 Compliance with ERISA and the IRC. In addition to and without limiting the generality of Section 5.8, (a) comply in all material respects with applicable provisions of ERISA and the IRC with respect to all Employee Benefit Plans, (b) without the prior written consent of the Required Lenders, not take any action or fail to take action the result of which could reasonably be expected to result in a Loan Party or ERISA Affiliate incurring a material liability to the PBGC or to a Multiemployer Plan (other than to pay contributions or premiums payable in the ordinary course), (c) not participate in any prohibited transaction that could reasonably be expected to result in a material civil penalty, excise tax, fiduciary liability or correction obligation under ERISA or the IRC, and (d) furnish to Agent upon the Required Lenders written request such additional information about any Employee Benefit Plan for which any Loan Party or ERISA Affiliate could reasonably expect to incur any material liability. With
respect to each Pension Plan (other than a Multiemployer Plan) except as could not reasonably be expected to result in material liability to the Loan Parties, the Loan Parties and the ERISA Affiliates shall (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any Lien, all of the contribution and funding requirements of the IRC and of ERISA, and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge or penalty, all premiums required pursuant to ERISA.
5.17 Canadian Employee Benefits.
(a) Cause the Canadian Pension Plans to be duly registered under the Income Tax Act (Canada) and any other applicable laws which require registration and cause such Canadian Pension Plans to be administered in accordance with the Income Tax Act (Canada) and such other applicable law and maintain such registered status.
(b) Cause each Loan Party and its Subsidiaries to perform its obligations (including fiduciary, funding, investment and administration obligations) required to be performed in connection with the Canadian Pension Plans and cause the funding agreements therefor to be performed on a timely basis.
(c) Cause all contributions or premiums required to be made or paid by the Loan Parties and their Subsidiaries to the Canadian Pension Plans to be made or paid on a timely basis in accordance with the terms of such plans and all applicable laws.
6. NEGATIVE COVENANTS.
Each Loan Party covenants and agrees that, until payment in full of the Obligations, the Loan Parties will not and will not permit any of their Subsidiaries to do any of the following:
6.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except for Permitted Indebtedness.
6.2 Liens. Create, incur, assume, or suffer to exist, directly or indirectly, any Lien on or with respect to any of its assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens.
6.3 Restrictions on Fundamental Changes.
(a) Enter into any merger, amalgamation, consolidation, reorganization, or recapitalization, or reclassify its Equity Interests except for mergers, consolidations and amalgamations (i) between US Loan Parties, (ii) between Canadian Loan Parties, (iii) between Dutch Loan Parties, provided that, a Borrower is the surviving entity of such merger, amalgamation or consolidation, (iv) between Subsidiaries of Parent which are not Loan Parties and (v) between Guarantors to the extent required for a Permitted Acquisition; provided, that, nothing in this Section 6.3 or in Section 6.5 shall restrict or prohibit Colt Canada from registering as a limited liability company under the laws of the Province of Nova Scotia, Canada (Colt Canada currently being an unlimited liability company) or from continuing its certificate of amalgamation under the laws of another Canadian provincial, territorial or federal jurisdiction, so long as Colt Canada otherwise complies with the provisions of Section 6.5 concerning change of corporate name, if applicable, and Section 5.12.
(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), except for (i) the wind up, liquidation or dissolution of non-operating Subsidiaries of Parent with nominal
assets and nominal liabilities or (ii) the wind up, liquidation or dissolution of a Loan Party (other than Borrowers) or any of Borrowers wholly-owned Subsidiaries so long as all of the assets (including any interest in any Equity Interests) of such liquidating or dissolving Loan Party or Subsidiary are transferred to a Loan Party that is not liquidating or dissolving, or
(c) Suspend or terminate all or a substantial portion of its or their business, except as permitted pursuant to clause (a) or (b) above or in connection with the transactions permitted pursuant to Section 6.4.
6.4 Disposal of Assets. Convey, sell, lease, license, assign, transfer, or otherwise dispose of (or enter into an agreement to convey, sell, lease, license, assign, transfer, or otherwise dispose of) any assets or Equity Interests of Parent or its Subsidiaries, except for Permitted Dispositions or transactions expressly permitted by Section 6.3 or 6.11.
6.5 Change Name. Change the name, organizational identification number, jurisdiction of organization or organizational identity of any Loan Party; provided, that, any Loan Party may change its name so long as such Loan Party gives written notice to Agent of such change within ten (10) days following such change.
6.6 Nature of Business. Make any change in the nature of its or their business as presently conducted on the Closing Date or acquire any properties or assets that are not reasonably related to the conduct of such business activities; provided, that, the foregoing shall not be construed to prohibit Parent and its Subsidiaries from engaging in any business that is reasonably related or ancillary to its or their business.
6.7 Certain Payments of Debt and Amendments.
(a) Make any payment, prepayment, redemption, retirement, defeasance, purchase or sinking fund payment or other acquisition for value of any of its Indebtedness or make any payment, prepayment, redemption, defeasance, sinking fund payment or repurchase of any Indebtedness as a result of any asset sale, change of control issuance and sale of debt and equity securities or similar event, or giving notice of any notice with respect to any of the foregoing, other than the Indebtedness hereunder, under the other Loan Documents, or under the ABL Loan Documents (including, without limitation, by way of depositing money or securities with the trustee therefor before the date required for the purpose of paying any portion of such Indebtedness when due), or otherwise set aside or deposit or invest any sums for such purpose, except that:
(i) The Loan Parties may make regularly scheduled payments of principal and interest in respect of Indebtedness permitted under clause (p) of the definition of Permitted Indebtedness as and when due in respect of such Indebtedness in accordance with the terms thereof;
(ii) Borrowers and Guarantors may make payments in respect of Indebtedness permitted under clause (b), (c), (g) or (p) of the definition of Permitted Indebtedness, in each case with proceeds of Refinancing Indebtedness as permitted in the definition of the term Permitted Indebtedness;
(iii) all Loan Parties may make optional prepayments and redemptions of Indebtedness solely with the proceeds of the issuance and sale of Qualified Equity Interests of Parent that constitutes an Excluded Issuance (as described in clause (d) of the definition thereof);
provided, that, as of the date of any such prepayment or redemption, and after giving effect thereto, no Event of Default shall exist or have occurred and be continuing;
(iv) Borrowers and Guarantors may make optional prepayments and redemptions of Indebtedness not otherwise expressly provided for in this Section 6.7 (other than Indebtedness owed to Specified Loan Parties unless agreed to in writing by the Required Lenders) in an aggregate amount not exceeding $2,500,000 during the term of this Agreement; provided, that, immediately before and after giving effect to any such payment, (x) the Secured Leverage Ratio is less than 1.00:1.00 and (y) no Default or Event of Default shall exist or have occurred and be continuing.
(v) Parent and its Subsidiaries may make optional prepayments of Permitted Intercompany Advances to the extent permitted by the Intercompany Subordination Agreement; provided, that, (x) so long as on and as of the date of any such prepayment, and after giving effect thereto, no Event of Default shall exist or have occurred and be continuing and (y) unless agreed to in writing by the Required Lenders, optional prepayments by a Loan Party of Permitted Intercompany Advances owing to a Specified Loan Party shall not exceed $500,000 in aggregate principal amount during the term of this Agreement;
(vi) as to payments in respect of any other Permitted Indebtedness not subject to the provisions above in this Section 6.7, Borrowers and Guarantors may make payments of regularly scheduled principal and interest or other mandatory prepayments as and when due in respect of such Indebtedness in accordance with the terms thereof (and in the case of Indebtedness that has been contractually subordinated in right of payment to the Obligations or subject to an intercreditor agreement with Agent solely to the extent such payment is permitted at such time under the subordination and/or intercreditor terms and conditions set forth therein or applicable thereto);
(vii) the Loan Parties may make any payment, prepayment, redemption, retirement, retirement, defeasance, purchase or sinking fund payment or other acquisition for value of Indebtedness evidenced by the Senior Note Indenture so long as the Agent shall have received a certificate of the chief financial officer of Parent certifying that: (x) the purchase price is at a discount to the face value of the Senior Notes; and (y) at the time of such payment, (a) no Default or Event of Default shall have occurred and be continuing, (b) pro forma for such repurchase, the aggregate cash interest expense of the Loan Parties has been reduced, and (c) immediately following such repurchase, Excess Availability will be at least $7,500,000 (any such payments meeting these conditions, Permitted Senior Note Discounted Buybacks).
(b) Borrowers shall not, and shall not permit any of their Subsidiaries, directly or indirectly, to amend, modify, or change (or permit the amendment, modification or other change in any manner of) any of the terms or provisions of:
(i) (x) any agreements, documents or instruments in respect of any subordinated indebtedness except to the extent permitted under any intercreditor or subordination agreement applicable thereto and (y) Indebtedness permitted pursuant to clause (w), to the extent not prohibited under the ABL Intercreditor Agreement;
(ii) the certificate of incorporation, memorandum and articles of association, certificate of formation, limited liability agreement, limited partnership agreement or other organizational documents of any Loan Party, except for amendments, modifications or other
changes that do not adversely affect the rights and privileges of any Borrower or its Subsidiaries in any material respect and do not adversely affect in any material respect the ability of a Loan Party to be in compliance with the terms hereof or to amend, modify, renew or supplement the terms of this Agreement or any of the other Loan Documents, or otherwise adversely affect the interests of Agent or Lenders in any material respect;
(iii) [reserved];
(iv) the Management Agreement, the Consulting Agreement or any other agreement listed on Schedule 6.12(d) except with the prior written consent of the Required Lenders.
6.8 Senior Note Indenture; Secured Debt Cap.
(a) Incur (under and as defined in the Senior Note Indenture) or suffer to exist any Indebtedness (under and as defined in the Senior Note Indenture) pursuant to Section 3.2(b)(1) of the Senior Note Indenture other than (i) Indebtedness under this Agreement and the other Loan Documents and (ii) Indebtedness under the ABL Credit Agreement and the other ABL Loan Documents.
(b) Permit the amount of the Senior Note Indenture Secured Debt Cap with respect to the Loan Parties at any time to be less than the aggregate outstanding principal amount of the Term Loan (including any accrued PIK Interest), plus all Advances, Swing Line Loans, Letter of Credit Usage and Overadvances (as such terms are defined in the ABL Credit Agreement).
6.9 Restricted Payments. Declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except:
(a) Parent and each Subsidiary may declare and make dividend payments or other distributions payable in the Equity Interests of such Person (other than Disqualified Equity Interests);
(b) any Subsidiary of Parent may make Restricted Payments described in Section 6.12(f);
(c) any Subsidiary of Parent may pay or make distributions to Parent that are used to make substantially contemporaneous payments to, and Parent may make payments to, repurchase or redeem Equity Interests and options to purchase Equity Interests of Parent held by officers, directors or employees or former officers, directors or employees (or their transferees, estates or beneficiaries under their estates) of Parent pursuant to any management equity subscription agreement, employee agreement or stock option agreement or other agreement with such officer, director or employee or former officer, director or employee; provided, that, (i) no Default or Event of Default shall have occurred and be continuing or would result therefrom and (ii) the aggregate cash consideration paid for all such payments, repurchases or redemptions shall not in any fiscal year of Parent exceed $250,000;
(d) Parent may repurchase its Equity Interests to the extent such repurchase is deemed to occur upon (i) the non-cash exercise of stock options to the extent such Equity Interests represents a portion of the exercise price of such options and (ii) the withholding of a portion of such Equity Interests to pay taxes associated therewith, and the purchase of fractional shares of Equity Interests of Parent or any Subsidiary arising out of stock dividends, splits or combinations or business combinations;
(e) for each taxable year ending after the Closing Date with respect to which Parent is treated as a partnership or a disregarded entity for U.S. federal income tax purposes, Parent may make distributions, advances or other payments to each owner of its Equity Interests, in an amount equal to the product of (i) the portion of Parents taxable income (as modified below) allocable to such member for such year and (ii) the highest combined marginal federal, state and/or local income tax rate applicable to any such owner for such year; provided, that, for purposes of this clause (e), Parents taxable income for any year shall be computed (A) with respect to any taxable year (or portion thereof) through and including Parents fiscal quarter ending September 28, 2014, without any deduction for any interest expense for such year attributable to any indebtedness of Parent used to finance distributions (as determined in accordance with Treasury Regulation Section 1.163-8T) or any indebtedness treated as having refinanced any such indebtedness, or any other interest expense incurred by Parent, that, in each case, is not treated as deductible or federal income tax purposes by each holder of Equity Interests issued by Parent, and (B) with respect to any taxable year, whether ended prior to or after the Closing Date, by including any increases to taxable income for such year as a result of any tax examination, audit or other adjustment; and
(f) any Subsidiary of Parent may pay dividends or other distributions to a Loan Party (including, without limitation, distributions to a Loan Party upon the reduction of capital (by whatsoever name called, including paid in capital, paid up capital or stated capital) of such Subsidiary).
6.10 Accounting Methods. Modify or change its fiscal year or its method of accounting (other than as may be required to conform to GAAP or as permitted under Section 1.2).
6.11 Investments. Directly or indirectly, make or acquire any Investment or incur any liabilities (including contingent obligations) for or in connection with any Investment, except for Permitted Investments.
6.12 Transactions with Affiliates. Directly or indirectly, enter into or permit to exist any transaction with any Affiliate (including, without limitation, any transaction to purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, director or other Affiliates of Parent or any of its Subsidiaries), except for:
(a) any employment or compensation arrangement or agreement, employee benefit plan or arrangement, officer or director indemnification agreement or any similar arrangement or other compensation arrangement entered into by Parent or any of its Subsidiaries in the ordinary course of business and payments, issuance of securities or awards pursuant thereto, and including the grant of stock options, restricted stock, stock appreciation rights, phantom stock awards or similar rights to employees and directors in each case approved by the Board of Directors of such Parent or such Subsidiary, provided, that, such transactions are not otherwise prohibited by this Agreement;
(b) transactions exclusively between the Loan Parties, provided, that, such transactions are not otherwise prohibited by this Agreement;
(c) transactions permitted under Section 6.3, or 6.9 hereof;
(d) any agreement as in effect as of the Closing Date and listed on Schedule 6.12(d), as each such agreement may be amended, modified, supplemented, extended or renewed from time to time with the prior written consent of the Required Lenders;
(e) (x) fees payable by Parent to Sciens Management LLC and Sciens Institutional Services LLC and (y) the reimbursement by Parent of Sciens Management LLC and Sciens Institutional Services LLC of reasonable and customary out-of-pocket expenses of Sciens Management LLC and Sciens Institutional Services LLC incurred in the ordinary course of business in connection with the businesses of Parent and its Subsidiaries, solely to the extent required by terms of the Management Agreement and the Consulting Agreement, in an aggregate amount in respect of subclause (x) not to exceed $1,000,000 in the aggregate in any fiscal year of Parent and in respect of subclause (y) not to exceed $75,000 in the aggregate in any fiscal year of Parent; provided, that, as of the date of any such payment and after giving effect thereto, no Default or Event of Default, in each case, pursuant to Section 8.1, shall exist or have occurred and be continuing; provided, further, that for the fiscal year 2014 of Parent, any such payments under (i) clause (x) following the Closing Date shall not exceed $250,000 in the aggregate and (ii) clause (y) shall have been for expenses incurred following the Closing Date and shall not exceed $10,000 in the aggregate.
(f) the payment of reasonable and customary (i) fees and reasonable out-of-pocket expenses paid to and (ii) indemnities provided on behalf of, the directors of Parent or any Subsidiary;
(g) transactions with customers, clients, suppliers, joint venture partners (other than joint ventures with Sponsor or any of its Affiliates), or purchasers of, or sellers of goods or services to, a Loan Party, in each case, that are Affiliates of the Loan Parties; provided, that (i) any such transaction is made in the ordinary course of business of the Loan Parties and is in compliance with the terms of this Agreement and (ii) any such transaction is on terms that are no less favorable to Parent or the relevant Subsidiary than those that could have been obtained at the time of such transactions in a comparable transaction by Parent or such Subsidiary with an unrelated person; and
(h) any transaction or series of related transactions involving aggregate payments or the transfer of assets or provisions or services (other than any transactions with Sciens Capital Management), in each case, solely to the extent that (i) the value of any single such transaction (or series of related transactions) does not exceed $50,000 in the aggregate, (ii) the value of all such transactions does not exceed $500,000 in the aggregate during the term of this Agreement, (iii) any such transaction is made pursuant to the reasonable requirements of Parents or such Subsidiarys business (as the case may be) and (iv) any such transaction is upon fair and reasonable terms no less favorable to Parent or such Subsidiary than Parent or such Subsidiary would obtain in a comparable arms length transaction with a Person that is not an Affiliate.
6.13 Use of Proceeds. Use the proceeds of any loan made hereunder for any purpose other than (a) on the Closing Date to refinance in full the Existing Credit Agreement and to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby and (b) thereafter, consistent with the terms and conditions hereof, for their lawful and permitted purposes (including that no part of the proceeds of the loans made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors of the United States Federal Reserve).
6.14 Limitation on Issuance of Equity Interests. Except for the issuance or sale of Qualified Equity Interests of Parent and the issuances or sales of Equity Interests by a Loan Party to another Loan Party, issue or sell or enter into any agreement or arrangement for the issuance or sale of any of its Equity Interests.
6.15 [Reserved].
6.16 Specified Canadian Pension Plans. (i) Maintain, sponsor, administer, contribute to, participate in or assume or incur any liability in respect of any Specified Canadian Pension Plan, or (ii) acquire an interest in any Person if such Person sponsors, administers, contributes to, participates in or has any liability in respect of, any Specified Canadian Pension Plan, unless the obligation to pay any deficit under any such Specified Canadian Pension Plan would not have priority under applicable law over any Liens created by the Security Documents.
6.17 Sale Leaseback Transactions. Create, incur or suffer to exist, or permit any of its Subsidiaries to create, incur or suffer to exist, any obligations as lessee for the payment of rent for any real or personal property in connection with any sale and leaseback transaction, except for any sale and leaseback transaction, so long as the aggregate amount of all sale and leaseback transactions shall not exceed $1,000,000 in any fiscal year of Parent.
6.18 Limitations on Dividends and Other Payment Restrictions Affecting Subsidiaries. Create or otherwise cause, incur, assume, suffer or permit to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of any Loan Party (a) to pay dividends or to make any other distribution on any shares of Equity Interests of such Subsidiary owned by any Loan Party or any of its Subsidiaries, (b) to pay or prepay or to subordinate any Indebtedness owed to any Loan Party or any of its Subsidiaries, (c) to make loans or advances to any Loan Party or any of its Subsidiaries or (d) to transfer any of its property or assets to any Loan Party or any of its Subsidiaries, or permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing in any of clauses (a) through (d) of this Section 6.18 shall prohibit or restrict compliance with:
(i) this Agreement and the other Loan Documents;
(ii) the ABL Credit Agreement and the other ABL Loan Documents;
(ii) the Senior Note Indenture;
(iv) any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances);
(v) in the case of clause (d), customary restrictions on the subletting, assignment or transfer of any specified property or asset set forth in a lease, license, asset sale agreement or similar contract for the conveyance of such property or asset; or
(vi) in the case of clause (d), any agreement, instrument or other document evidencing a Permitted Lien (or the Indebtedness secured thereby) from restricting on customary terms the transfer of any property or assets subject thereto.
6.19 Limitations on Negative Pledges.Enter into, incur or permit to exist, or permit any Subsidiary to enter into, incur or permit to exist, directly or indirectly, any agreement, instrument, deed, lease or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Loan
Party or any Subsidiary of any Loan Party to create, incur or permit to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, or that requires the grant of any security for an obligation if security is granted for another obligation, except the following: (a) this Agreement and the other Loan Documents, (b) the ABL Credit Agreement and the other ABL Loan Documents, (c) the Senior Note Indenture and any related security documents, (d) restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by Section 6.1 of this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (e) any customary restrictions and conditions contained in agreements relating to the sale or other disposition of assets or of a Subsidiary pending such sale or other disposition; provided that such restrictions and conditions apply only to the assets or Subsidiary to be sold or disposed of and such sale or disposition is permitted hereunder and (f) customary provisions in leases restricting the assignment or sublet thereof. Notwithstanding the foregoing, the limitations set forth in this Section 6.19 shall not be any more restrictive than permitted pursuant to Sections 3.4 and 3.6 of the Senior Note Indenture to the extent in effect.
6.20 Employee Benefits.
(a) Terminate, or permit any ERISA Affiliate to terminate, any Pension Plan in a manner, or take any other action with respect to any Pension Plan, which could reasonably be expected to result in any material liability of any Loan Party or ERISA Affiliate to the PBGC.
(b) Fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Pension Plan, agreement relating thereto or applicable Law, any Loan Party or ERISA Affiliate is required to pay if such failure could reasonably be expected to result in a Material Adverse Change.
(c) Permit to occur, or allow any ERISA Affiliate to permit to occur, any failure to satisfy the minimum funding standards under section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan which exceeds $1,000,000 with respect to all Pension Plans in the aggregate.
(d) Except as could not reasonably be expected to have a material liability, acquire, or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to a Loan Party or with respect to any ERISA Affiliate if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has sponsored, maintained, or contributed to, (i) any Pension or (ii) any Multiemployer Plan.
(e) Contribute to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan not set forth on Schedule 4.11.
(f) Amend, or permit any ERISA Affiliate to amend, a Pension Plan resulting in a material increase in current liability such that a Loan Party or ERISA Affiliate is required to provide security to such Plan under the IRC.
7. [RESERVED].
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default (each, an Event of Default) under this Agreement:
8.1 If Borrowers fail to pay when due and payable, or when declared due and payable, (a) all or any portion of the Obligations consisting of interest, fees, or charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts (other than any portion thereof constituting principal) constituting Obligations that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), and such failure continues for a period of 3 Business Days, or (b) all or any portion of the principal of the Obligations;
8.2 If any Loan Party or any of its Subsidiaries:
(a) fails to perform or observe any covenant or other agreement contained in any of (i) Sections 3.6, 5.1, 5.2, 5.3 (solely if any Borrower or any other Loan Party is not in good standing in its jurisdiction of organization), 5.6, 5.7 (solely if any Borrower refuses to allow Agent or its representatives or agents to visit such Borrowers properties, inspect its assets or books or records, examine and make copies of its books and records, or discuss such Borrowers affairs, finances, and accounts with officers and employees of such Borrower), 5.10, 5.11, 5.13, or 5.16 of this Agreement; provided, that the Loan Parties failure to deliver the financial statements, reports and other items described as items (a), (b), (c), (d), (e), (g), (h), (j) and (k) on Schedule 5.1 shall not be an Event of Default until such failure continues for a period of three (3) Business Days; or
(b) fails to perform or observe any covenant or other agreement contained in this Agreement, or in any of the other Loan Documents, in each case, other than any such covenant or agreement that is the subject of another provision of this Section 8 (in which event such other provision of this Section 8 shall govern), and such failure continues for a period of 10 days after the earlier of (i) the date on which such failure shall first become known to a Responsible Officer of any Loan Party or (ii) the date on which written notice thereof is given to Administrative Borrower by Agent;
8.3 If one or more judgments, orders, or awards for the payment of money involving an aggregate amount of $2,000,000, or more (except to the extent fully covered by cash escrowed to satisfy such judgment, order or award or (other than to the extent of customary deductibles) by insurance pursuant to which the insurer has not denied coverage) is entered or filed against a Loan Party or any of its Subsidiaries, or with respect to any of their respective assets, and either (a) there is a period of 30 consecutive days at any time after the entry of any such judgment, order, or award during which (1) the same is not discharged, satisfied, vacated, or bonded pending appeal, or (2) a stay of enforcement thereof is not in effect, or (b) enforcement proceedings are commenced upon such judgment, order, or award;
8.4 If an Insolvency Proceeding is commenced by a Loan Party or any of its Subsidiaries;
8.5 If an Insolvency Proceeding is commenced against a Loan Party or any of its Subsidiaries and any of the following events occur: (a) such Loan Party or such Subsidiary consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Loan Party or its Subsidiary, or (e) an order for relief shall have been issued or entered therein;
8.6 If a Loan Party or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of the business affairs of Parent and its Subsidiaries, taken as a whole;
8.7 If there is (a) a default in respect of one or more agreements to which a Loan Party or any of its Subsidiaries is a party with one or more third Persons relative to a Loan Partys or any of its Subsidiaries Indebtedness involving an aggregate amount of $2,000,000 or more, and such default (i) occurs at the final maturity of the obligations thereunder, or (ii) results in a right by such third Person, irrespective of whether exercised, to accelerate the maturity of such Loan Partys or its Subsidiarys obligations thereunder, (b) a default in respect of one or more Material Contracts or (c) a default in respect of or an involuntary early termination of one or more Hedge Agreements to which a Loan Party or any of its Subsidiaries is a party involving an aggregate amount of $2,000,000 or more;
8.8 If any warranty, representation, certificate, statement, or Record made herein or in any other Loan Document or delivered in writing to Agent or any Lender in connection with this Agreement or any other Loan Document proves to be untrue in any material respect (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of the date of issuance or making or deemed making thereof;
8.9 If the obligation of any Guarantor under the applicable Guaranty ceases to be in full force and effect;
8.10 If the Security Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent of Permitted Liens which are permitted purchase money Liens or the interests of lessors under Capital Leases, first priority Lien on Collateral covered thereby having an aggregate book value in excess of $100,000, except (a) as a result of a disposition of the applicable Collateral in a transaction permitted under this Agreement or (b) as the result of an action or failure to act on the part of Agent;
8.11 (a) The occurrence of any damage to, or loss, theft or destruction of, any Collateral having an aggregate book value in excess of $500,000 (exclusive of any damage to Collateral covered by insurance pursuant to which the insurer has not denied coverage) if (i) the proceeds of such insurance are not received by the Loan Parties within 120 days of such occurrence and (ii) such Collateral is not repaired and/or replaced within 150 days of such occurrence or (b) any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty which causes, for more than 15 consecutive days, the cessation or substantial curtailment of material revenue producing activities of the Loan Parties, taken as a whole;
8.12 The loss, suspension or revocation of, or failure to renew, any material license or permit now held or hereafter acquired by any Loan Parties;
8.13 (a) The indictment (or an indictment threatened in writing) of any Loan Party (or any executive officer thereof acting in such capacity as an executive officer and not in his or her personal capacity) under any criminal statute, or (b) commencement of, or commencement threatened in writing of, criminal or civil proceedings against any Loan Party (or any executive officer thereof acting in such capacity as an executive officer and not in his or her personal capacity), solely to the extent that pursuant to such indictment, statute or proceedings, the penalties or remedies sought or available in connection therewith include forfeiture to any Governmental Authority of any material portion of the property of the Loan Parties, taken as a whole;
8.14 The validity or enforceability of any Loan Document shall at any time for any reason (other than solely as the result of an action or failure to act on the part of Agent) be declared to be null and void, or a proceeding shall be commenced by a Loan Party or its Subsidiaries, or by any Governmental Authority having jurisdiction over a Loan Party or its Subsidiaries, seeking to establish the invalidity or unenforceability thereof, or a Loan Party or its Subsidiaries shall deny that such Loan Party or its Subsidiaries has any liability or obligation purported to be created under any Loan Document;
8.15 If any Loan Party ceases to have the right to use, or the Loan Parties are not in possession and control of, a material amount of the Specified Government Property;
8.16 (a) The occurrence of an event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, which could reasonably be expected to result in liability in excess of $2,500,000; (b) the imposition of any liability in excess of $2,500,000 under Title I or Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any of its ERISA Affiliates, (c) the occurrence of a nonexempt prohibited transaction under Section 406 or 407 of ERISA for which any Loan Party may be directly or indirectly liable and which is reasonably expected to result in a liability to any Loan Party in excess of $1,000,000, (d) receipt from the Internal Revenue Service of notice of the failure of any Employee Benefit Plan to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Employee Plan to fail to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code or (e) the imposition of any lien on any of the rights, properties or assets of any Loan Party or any of its ERISA Affiliates, in either case pursuant to Title IV of ERISA, and which lien secures a liability in excess of $1,000,000;
8.17 An event, circumstance, or change has occurred that has or could reasonably be expected to result in a Material Adverse Effect with respect to the Loan Parties and their Subsidiaries;
8.18 A Dutch Loan Party gives notice under Section 36(2) of the 1990 Tax Collection Act (Invorderingswet 1990);
8.19 A Change of Control shall occur; or
8.20 If, after August 15, 2017, the stated maturity date of more than $25.0 million aggregate principal amount of the Senior Notes, at any time, fails to be at least 91 days following the Maturity Date.
9. RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuation of an Event of Default, Agent, upon the written instruction of the Required Lenders, shall (in each case under clause (a) by written notice to Administrative Borrower), in addition to any other rights or remedies provided for hereunder or under any other Loan Document or by applicable law, do any one or more of the following:
(a) declare the Obligations, whether evidenced by this Agreement or by any of the other Loan Documents to be immediately due and payable, whereupon the same shall become and be immediately due and payable and Borrowers shall be obligated to repay all of such
Obligations in full, without presentment, demand, protest, or further notice or other requirements of any kind, all of which are hereby expressly waived by each Borrower;
(b) [reserved]; and
(c) exercise all other rights and remedies available to Agent or the Lenders under the Loan Documents or applicable law.
The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or Section 8.5, in addition to the remedies set forth above, without any notice to any Borrower or any other Person or any act by the Lender Group, and the Obligations, inclusive of all accrued and unpaid interest thereon and all fees and all other amounts owing under this Agreement or under any of the other Loan Documents, shall automatically and immediately become due and payable and Borrowers shall be obligated to repay all of such Obligations in full, without presentment, demand, protest, or notice of any kind, all of which are expressly waived by each Loan Party.
Without limiting the generality of the foregoing, it is understood and agreed that if the Obligations are accelerated or otherwise become due prior to the third anniversary of the Closing Date, in each case, in respect of any Event of Default (including, but not limited to, upon the occurrence of a an Insolvency Proceeding (including the acceleration of claims by operation of law)), the Applicable Prepayment Premium and the Repayment Fee will also be due and payable and shall constitute part of the Obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of each Lenders lost profits as a result thereof, and such premiums shall be presumed to be the liquidated damages sustained by each Lender as a result of the early prepayment and the Borrowers agree that it is reasonable under the circumstances currently existing. The Applicable Prepayment Premium and the Repayment Fee shall also be payable in the event the Term Loan (and/or this Agreement) are satisfied or released by foreclosure (whether by power of judicial proceeding), deed in lieu of foreclosure or by any other means. THE BORROWERS EXPRESSLY WAIVE (TO THE FULLEST EXTENT OF APPLICABLE LAW) THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING PREMIUMS IN CONNECTION WITH ANY SUCH ACCELERATION. The Borrowers expressly agree (to the fullest extent of applicable law) that: (A) the Applicable Prepayment Premium and the Repayment Fee are reasonable and the product of an arms length transaction between sophisticated business people, ably represented by counsel; (B) the Applicable Prepayment Premium and the Repayment Fee shall be payable notwithstanding the then prevailing market rates at the time payment is made; (C) there has been a course of conduct between the Lenders and the Borrowers giving specific consideration in this transaction for such agreement to pay the premium; and (D) the Borrowers shall be estopped hereafter from claiming differently than as agreed to in this paragraph. The Borrowers expressly acknowledge that its agreement to pay the Applicable Prepayment Premium and the Repayment Fee as herein described is a material inducement to the Lenders to make the Term Loans.
9.2 Remedies Cumulative. The rights and remedies of the Lender Group under this Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, the PPSA, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.
9.3 Appointment of a Receiver. Upon the occurrence and during the continuance of an Event of Default, Agent (upon the written direction of the Required Lenders) shall seek the appointment of a receiver, interim receiver, manager or receiver and manager (a Receiver) under the laws of Canada or any province thereof to take possession of all or any portion of the Collateral of any Loan Party or to operate same and, to the maximum extent permitted by law, may seek the appointment of such a Receiver without the requirement of prior notice or a hearing. Any such Receiver shall, to the extent permitted by law, so far as concerns responsibility for his/her acts, be deemed to be an agent of such Loan Party and not Agent and the Lenders, and Agent and the Lenders shall not be in any way responsible for any misconduct, negligence or non-feasance on the part of any such Receiver, or his/her servants or employees, absent the gross negligence, willful misconduct or bad faith of the Agent or the Lenders as determined pursuant to a final, non-appealable order of a court of competent jurisdiction. Subject to the provisions of the instrument appointing him/her, any such Receiver shall have power to take possession of Collateral of any Loan Party, to preserve Collateral of such Loan Party or its value, to carry on or concur in carrying on all or any part of the business of such Loan Party and to sell, lease, license or otherwise dispose of or concur in selling, leasing, licensing or otherwise disposing of Collateral of such Loan Party. To facilitate the foregoing powers, any such Receiver may, to the exclusion of all others, including a Loan Party, enter upon, use and occupy all premises owned or occupied by a Loan Party wherein Collateral of such Loan Party may be situated, maintain Collateral of a Loan Party upon such premises, borrow money on a secured or unsecured basis and use Collateral of a Loan Party directly in carrying on such Loan Partys business or as security for loans or advances to enable the Receiver to carry on such Loan Partys business or otherwise, as such Receiver shall, in its discretion, determine. Except as may be otherwise directed by Agent (upon the direction of the Required Lenders), all money received from time to time by such Receiver in carrying out his/her appointment shall be received in trust for and paid over to Agent. Every such Receiver may, in the discretion of the Required Lenders, be vested with all or any of the rights and powers of Agent and the Lenders. Agent (upon the direction of the Required Lenders) shall, either directly or through its nominees, exercise any or all powers and rights given to a Receiver by virtue of the foregoing provisions of this paragraph.
10. WAIVERS; INDEMNIFICATION.
10.1 Demand; Protest; etc.Each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which such Borrower may in any way be liable.
10.2 The Lender Groups Liability for Collateral. Each Borrower hereby agrees that: (a) so long as Agent complies with its obligations, if any, under the Code and the PPSA, the Lender Group shall not in any way or manner be liable or responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause, (iii) any diminution in the value thereof, or (iv) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by Borrowers, other than any such loss or damage resulting from the gross negligence, willful misconduct or bad faith of the Agent or any member of the Lender Group, as finally determined by a court of competent jurisdiction.
10.3 Indemnification. Borrowers shall pay, indemnify, defend, and hold the Agent-Related Persons, the Lender-Related Persons (each, an Indemnified Person) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, and damages, and all reasonable fees and disbursements of attorneys (limited to one U.S. counsel to Agent-Related Persons and one U.S. counsel to Lender-Related Persons, one Canadian counsel to Agent-Related Persons and one Canadian counsel to Lender-Related
Persons, one Dutch counsel to Agent-Related Persons and one Dutch counsel to Lender-Related Persons and any local or regulatory counsel to Agent-Related Persons and Lender-Related Persons reasonably selected by Agent, one additional counsel for the Lenders (taken as a whole) if an Event of Default has occurred and is continuing and, if the interests of any Agent-Related Person or Lender-Related Person are distinctly and disproportionately affected, one additional counsel for such affected Person), experts, or consultants and all other costs and expenses actually incurred in connection therewith or in connection with the enforcement of this indemnification (promptly upon demand of Agent but in any event not later than 5 days of demand therefor by Agent irrespective of (1) the provisions of Section 17.10 hereof and (2) whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them (a) in connection with or as a result of or related to the execution and delivery incurred in advising, structuring, drafting, reviewing, administering or syndicating the Loan Documents), enforcement, performance, or administration (including any restructuring or workout with respect hereto) of this Agreement, any of the other Loan Documents, or the transactions contemplated hereby or thereby or the monitoring of Parents and its Subsidiaries compliance with the terms of the Loan Documents (provided, however, that the indemnification in this clause (a) shall not extend to (i) disputes solely between or among the Lenders or (ii) disputes solely between or among the Lenders and their respective Affiliates; it being understood and agreed that the indemnification in this clause (a) shall extend to Agent (but not the Lenders) relative to disputes between or among Agent (in its capacity as such) on the one hand, and one or more Lenders, or one or more of their Affiliates, on the other hand, (b) with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event, or circumstance in any manner related thereto, and (c) in connection with or arising out of any Environmental Liabilities, Environmental Action or Remedial Action, including any presence or release of Hazardous Materials at, on, under, to or from any assets or properties owned, leased or operated by Parent or any of its Subsidiaries (each and all of the foregoing, the Indemnified Liabilities); provided, that, no Borrower shall be obligated to indemnify any Indemnified Person under this Section 10.3 for any Taxes (except Taxes that represent claims, demands, suits, actions, investigations, proceedings, liabilities, fines, costs, penalties, disbursements, etc., arising solely from any non-Tax claim), which shall be governed solely by Section 16. The foregoing to the contrary notwithstanding, no Borrower shall have any obligation to any Indemnified Person under this Section 10.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence, willful misconduct or bad faith of such Indemnified Person or its officers, directors, employees, attorneys, or agents. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which any Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrowers with respect thereto.
11. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as a party may designate in accordance herewith), or telefacsimile. In the case of notices or demands to Loan Parties or Agent, as the case may be, they shall be sent to the respective address set forth below:
If to Loan Parties: Colt Defense LLC
547 New Park Avenue
West Hartford, CT 06110
Attn: John Coghlin
Fax No. (860) 244-1442
Phone: (860) 232-4489
Email: jcoghlin@colt.com
with copies to: Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Attn: William J. Miller, Esq.
Fax No.: (212) 269-5420
Phone: (212) 701-3036
Email: wmiller@cahill.com
and
Cahill Gordon & Reindel LLP
80 Pine Street
New York, New York 10005
Attn: Josiah M. Slotnick, Esq.
Fax No.: (212) 378-2925
Phone: (212) 701-3637
Email: jslotnick@cahill.com
If to Agent: Wilmington Savings Fund Society, FSB
500 Delaware Avenue, 11th Floor
Wilmington, Delaware 19801
Attn: Kristin Moore
Fax No.: (302) 421-9137
Phone: (302) 573-3239
Email: kmoore@wsfsbank.com
with copies to: Pryor Cashman LLP
7 Times Square
New York, New York 10036
Attn: Eric M. Hellige, Esq.
Fax No.: (212) 798-6380
Phone: (212) 326-0846
Email: ehellige@pryorcashman.com
If to a Lender: to the address of such Lender specified on Schedule C-1
with copies to: Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, New York 10019
Attn: Leonard Klingbaum
Fax No. (212) 728-9290
Phone: (212) 728-8290
Email: lklingbaum@willkie.com
Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 11, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail; provided, that (a) notices sent by overnight courier service shall be deemed to have been given when received, (b) notices by facsimile shall be deemed to have been given when sent (except 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) and (c) notices by electronic mail shall be deemed received upon the senders receipt of an acknowledgment from the intended recipient (such as by the return receipt requested function, as available, return email or other written acknowledgment).
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE OF NEW YORK AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENTS OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH LOAN PARTY AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).
(c) TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH LOAN PARTY AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH LOAN PARTY AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY
OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(d) SUBJECT TO THE LAST SENTENCE OF THIS SECTION (D) EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK AND THE STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT AGENT MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
13.1 Assignments and Participations.
(a) Any Lender may at any time assign to one or more other Lenders or other entities (each, an Assignee) all or a portion of its rights and obligations under this Agreement (including all or a portion of the Obligations at the time owing to it), provided, that, any such assignment shall be subject to the following conditions:
(i) The aggregate amount of the principal outstanding balance of the Obligations of the assigning Lender subject to such assignment shall be not less than $1,000,000, unless the Required Lenders otherwise consent, except that such minimum amount shall not apply to (A) an assignment or delegation by any Lender to any other Lender, an Affiliate of any Lender or a Related Fund or (B) a group of new Lenders, each of which is an Affiliate of each other or a Related Fund of such new Lender to the extent that the aggregate amount to be assigned to all such new Lenders is at least $1,000,000 or (C) in the case of an assignment of the entire remaining amount of the assigning Lenders Obligations at the time owing to it;
(ii) Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement;
(iii) The consent of the Agent shall be required for any assignment, other than any assignment to a Lender, an Affiliate of a Lender or a Related Fund;
(iv) The consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) a Default or Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or a Related Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Agent within ten (10) Business Days after having received notice thereof;
(v) The parties to each assignment shall execute and deliver to the Agent an Assignment and Acceptance (substantially in the form of Exhibit A-1), together with a processing
fee of $3,500, provided, that Agent may, in its discretion, elect to reduce or waive such processing fee in the case of any assignment (and shall waive such fee if the assignment is from a Lender to an Affiliate of a Lender), and the assignee, if it is not a Lender, shall deliver to the Agent an administrative questionnaire in a form satisfactory to Agent;
(vi) No such assignment shall be made to (A) a Loan Party or an Affiliate of any Loan Party, (B) any Defaulting Lender or any of its Subsidiaries or any Person who, upon becoming a Lender hereunder, would constitute a Defaulting Lender or one of its Subsidiaries, (C) a natural Person or (D) any Disqualified Lender;
(vii) Borrowers and Agent may continue to deal solely and directly with a Lender in connection with the interest so assigned to an Assignee until (A) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, have been given to Administrative Borrower and Agent by such Lender and the Assignee, (B) such Lender and its Assignee have delivered to Administrative Borrower and Agent an Assignment and Acceptance and Agent has notified the assigning Lender of its receipt thereof in accordance with this Section 13.1(a) and the satisfaction of the other conditions herein.
(b) From and after the date that Agent has recorded the assignment in the Register and Agent notifies the assigning Lender (with a copy to Administrative Borrower) that it has received an executed Assignment and Acceptance and, if applicable, payment of the required processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall be a Lender and shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assigning Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 10.3) and be released from any future obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lenders rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto); provided, however, that nothing contained herein shall release any assigning Lender from obligations that survive the termination of this Agreement, including such assigning Lenders obligations under Section 15 and Section 17.9(a).
(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, 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 or any other Loan Document furnished pursuant hereto, (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto, (iii) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance, (iv) such Assignee will, independently and without reliance upon 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, (v) such Assignee appoints and authorizes Agent to take such actions and to exercise such powers under this Agreement and the other Loan Documents as are delegated to Agent, by the terms hereof and thereof, together with
such powers as are reasonably incidental thereto, and (vi) such Assignee agrees that it will perform all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.
(d) Immediately upon Agents receipt of the required processing fee, if applicable, and delivery of notice to the assigning Lender pursuant to Section 13.1(b), this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee.
(e) Any Lender may at any time sell to one or more commercial banks, financial institutions, or other Persons (a Participant) participating interests in all or any portion of its Obligations, its Commitment, and the other rights and interests of that Lender (the Originating Lender) hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender shall remain a Lender for all purposes of this Agreement and the other Loan Documents and the Participant receiving the participating interest in the Obligations, and the other rights and interests of the Originating Lender hereunder shall not constitute a Lender hereunder or under the other Loan Documents and the Originating Lenders obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrowers, Agent, and the Lenders shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lenders rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating, (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating, (C) release all or substantially all of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating, (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender (other than a waiver of default interest), or (E) decreases the amount or postpones the due dates of scheduled principal repayments or prepayments or premiums payable to such Participant through such Lender, and (v) all amounts payable (other than with respect to Section 16) by Borrowers hereunder shall be determined as if such Lender had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement. The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any rights under this Agreement or the other Loan Documents or any direct rights as to the other Lenders, Agent, Loan Parties, the Collections of Loan Parties, the Collateral, or otherwise in respect of the Obligations. For the avoidance of doubt, a Participant shall be entitled to the benefits of Section 16 (subject to the requirements and limitations therein, including the requirements under Section 16.2 and the provisions of Section 14.2) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to this Section 13.1. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or participation or proposed assignment or participation or any grant of a security interest in, or pledge of, its rights under and interest in this Agreement, a Lender may, subject to the provisions of Section 17.9, disclose all documents and information which it now or hereafter may have relating to Parent and its Subsidiaries and their respective businesses.
(g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.
(h) Agent (as a non-fiduciary agent on behalf of Borrowers) shall maintain, or cause to be maintained, a register (the Register) on which it enters the name and address of each Lender as the registered owner of the Term Loan (and the principal amount thereof and stated interest thereon) held by such Lender (each, a Registered Loan). A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (and each registered note shall expressly so provide) and any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on the Register, together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any evidencing the same), Borrowers shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.
(i) In the event that a Lender sells participations in the Registered Loan, such Lender, as a non-fiduciary agent on behalf of Borrowers, shall maintain (or cause to be maintained) a register on which it enters the name of all participants in the Registered Loans held by it (and the principal amount (and stated interest thereon) of the portion of such Registered Loans that is subject to such participations) (the Participant Register). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.
(j) Agent shall make a copy of the Register (and each Lender shall make a copy of its Participant Register in the extent it has one) available for review by Borrowers from time to time as Borrowers may reasonably request.
(k) In order to comply with the Dutch Financial Supervision Act (Wet op het financieel toezicht), the amount transferred under this Section 13.1 shall include an outstanding portion of at least EUR 100,000 (or its equivalent in other currencies) per Lender or such other amount as may be required from time to time by the Dutch Financial Supervision Act (or implementing legislation) or if less, the new Lender shall confirm in writing to Borrower that it is a professional market party within the meaning of the Dutch Financial Supervision Act.
13.2 Successors. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that no Borrower may assign this Agreement or any rights or duties hereunder without the Lenders prior written consent and notice thereof to Agent and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lenders shall release any Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 13.1 and no consent or approval by any Borrower is required in connection with any such assignment.
14. AMENDMENTS; WAIVERS.
14.1 Amendments and Waivers.
(a) No amendment, waiver or other modification of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by any Loan Party therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and the Loan Parties that are party thereto, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Lenders directly affected thereby and all of the Loan Parties that are party thereto, do any of the following:
(i) increase the amount of or extend the expiration date of any Commitment of any Lender,
(ii) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due hereunder or under any other Loan Document,
(iii) reduce the principal of, or the rate of interest on, any loan or other extension of credit hereunder, or reduce any fees or other amounts payable hereunder or under any other Loan Document (except (y) in connection with the waiver of applicability of Section 2.6(c) (which waiver shall be effective with the written consent of the Required Lenders), and (z) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or a reduction of fees for purposes of this clause (iii)),
(iv) amend, modify, or eliminate this Section or any provision of this Agreement providing for consent or other action by all Lenders,
(v) amend, modify, or eliminate Section 15.11,
(vi) release Agents Lien in and to any of the Collateral, except as permitted by Section 15.11,
(vii) amend, modify, or eliminate the definition of Required Lenders or Pro Rata Share,
(viii) contractually subordinate any of Agents Liens, except as permitted by Section 15.11,
(ix) release any Borrower or any Guarantor from any obligation for the payment of money or consent to the assignment or transfer by any Borrower or any Guarantor of any of its rights or duties under this Agreement or the other Loan Documents, except in connection with a merger, wind up, liquidation, dissolution or sale of such Person expressly permitted by the terms hereof or the other Loan Documents,
(x) amend, modify, or eliminate any of the provisions of Section 2.4(b)(i) or (ii) or Section 2.4(f),
(xi) amend, modify, or eliminate the definition of Term Loan Amount, or
(xii) amend, modify, or eliminate any of the provisions of Section 13.1(a) to permit a Loan Party or an Affiliate of a Loan Party to be permitted to become an Assignee.
(b) No amendment, waiver, modification, elimination, or consent shall amend, modify, or waive (i) any of the terms or provisions of Section 2.10, without the written consent of the Required Lenders and Borrowers, and (ii) any provision of Section 15 pertaining to Agent, or any other rights or duties of Agent under this Agreement or the other Loan Documents, without the written consent of Agent, Borrowers and the Required Lenders. Notwithstanding anything to the contrary contained in this Agreement or the other Loan Documents, the consent of Loan Parties and Lenders shall not be required for the exercise by Agent of any of its rights under this Agreement in accordance with the terms of this Agreement.
(c) Anything in this Section 14.1 to the contrary notwithstanding, (i) any amendment, modification, elimination, waiver, consent, termination, or release of, or with respect to, any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of any Loan Party, shall not require consent by or the agreement of any Loan Party, and (ii) any amendment, waiver, modification, elimination, or consent of or with respect to any provision of this Agreement or any other Loan Document may be entered into without the consent of, or over the objection of, any Defaulting Lender other than any of the matters governed by Section 14.1(a)(ii) and (iii).
14.2 Replacement of Certain Lenders.
(a) If (i) any action to be taken by the Lender Group or Agent hereunder requires the consent, authorization, or agreement of all Lenders or all Lenders affected thereby and if such action has received the consent, authorization, or agreement of the Required Lenders but not of all Lenders or all Lenders affected thereby, or (ii) any Lender makes a claim for compensation under Section 16 and such Lender has declined to designate a different lending office, then Borrowers or Agent, upon at least 5 Business Days prior irrevocable notice, may permanently replace any Lender that failed to give its consent, authorization, or agreement (a Holdout Lender) or any Lender that made a claim for compensation (a Tax Lender) with one or more Replacement Lenders, and the Holdout Lender or Tax Lender, as applicable, shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender or Tax Lender, as applicable, shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given.
(b) Prior to the effective date of such replacement, the Holdout Lender or Tax Lender, as applicable, and each Replacement Lender shall execute and deliver an Assignment and Acceptance, subject only to the Holdout Lender or Tax Lender, as applicable, being repaid in full its share of the outstanding Obligations (without any premium or penalty of any kind whatsoever, but including all interest, fees and other amounts that may be due in payable in respect thereof and its existing rights to payment pursuant to Section 16). If the Holdout Lender or Tax Lender, as applicable, shall refuse or fail to execute and deliver any such Assignment and Acceptance prior to the effective date of such replacement, Agent may, but shall not be required to, execute and deliver such Assignment and Acceptance in the name or and on behalf of the Holdout Lender or Tax Lender, as applicable, and irrespective of whether Agent executes and delivers such Assignment and Acceptance, the Holdout
Lender or Tax Lender, as applicable, shall be deemed to have executed and delivered such Assignment and Acceptance. The replacement of any Holdout Lender or Tax Lender, as applicable, shall be made in accordance with the terms of Section 13.1. Until such time as one or more Replacement Lenders shall have acquired all of the Obligations and the other rights and obligations of the Holdout Lender or Tax Lender, as applicable, hereunder and under the other Loan Documents, the Holdout Lender or Tax Lender, as applicable, shall remain obligated to make the Holdout Lenders or Tax Lenders, as applicable, Pro Rata Share of Term Loan.
14.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement or any other Loan Document, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or any Lender on any occasion shall affect or diminish Agents and each Lenders rights thereafter to require strict performance by each Loan Party of any provision of this Agreement. Agents and each Lenders rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy that Agent or any Lender may have.
15. AGENT; THE LENDER GROUP.
15.1 Appointment and Authorization of Agent. Each Lender hereby designates and appoints Wilmington Savings Fund Society, FSB as its agent under this Agreement, the other Loan Documents and the ABL Intercreditor Agreement and each Lender hereby irrevocably authorizes Agent to execute and deliver each of the other Loan Documents and the ABL Intercreditor Agreement on its behalf and to take such other action on its behalf under the provisions of this Agreement and each other Loan Document and the ABL Intercreditor Agreement and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document and the ABL Intercreditor Agreement, together with such powers as are reasonably incidental thereto. Agent agrees to act as agent for and on behalf of the Lenders on the conditions contained in this Section 15. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Loan Documents, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing, the use of the term agent in this Agreement or the other Loan Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only a representative relationship between independent contracting parties. Each Lender hereby further authorizes Agent to act as the secured party under each of the Loan Documents that create a Lien on any item of Collateral. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions that Agent expressly is entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Collateral, the Collections of Parent and its Subsidiaries, and related matters, (b) execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents, (c) exclusively receive, apply, and distribute the Collections of Parent and its Subsidiaries as
provided in the Loan Documents, (d) open and maintain such bank accounts and cash management arrangements as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections of Parent and its Subsidiaries, (e) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Parent or its Subsidiaries, the Obligations, the Collateral, the Collections of Parent and its Subsidiaries, or otherwise related to any of same as provided in the Loan Documents, and (f) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents.
15.2 Delegation of Duties. Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects as long as such selection was made without gross negligence or willful misconduct.
15.3 Liability of Agent. None of the Agent-Related Persons shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (b) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Parent or any of its Subsidiaries or Affiliates, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Parent or its Subsidiaries or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lenders to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the books and records or properties of Parent or its Subsidiaries. Notwithstanding the terms and provisions of the ABL Intercreditor Agreement or any reference to the ABL Intercreditor Agreement or the ABL Loan Documents herein, none of the Agent-Related Persons shall be liable for any action taken or omitted to be taken by any of them under the ABL Intercreditor Agreement or under this Agreement relating to the ABL Intercreditor Agreement or the ABL Loan Documents unless directed in writing by the Required Lenders to take or to omit to take any such action, which direction shall, in the case of a payment required to be made to the ABL Agent, specify the amount of such payment.
15.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, telefacsimile or other electronic method of transmission, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrowers or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take or refraining from taking any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or
consent of the Required Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.
15.5 Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of the Lenders and, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or any Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a notice of default. Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 15.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however, that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable.
15.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Parent and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such due diligence, documents and information as it has deemed appropriate, made its own appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower or any other Person party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of any Borrower or any other Person party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Borrower or any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. Each Lender acknowledges that Agent does not have any duty or responsibility, either initially or on a continuing basis to provide such Lender with any credit or other information with respect to any Borrower, its Affiliates or any of their respective business, legal, financial or other affairs, and irrespective of whether such information came into Agents or its Affiliates or representatives possession before or after the date on which such Lender became a party to this Agreement.
15.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including court costs, attorneys fees and expenses, fees and expenses of financial accountants, advisors, consultants, and appraisers, costs of collection by outside collection agencies, auctioneer fees and expenses, and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrowers are
obligated to reimburse Agent or Lenders for such expenses pursuant to this Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from the Collections of Parent and its Subsidiaries received by Agent to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses by Parent or its Subsidiaries, each Lender hereby agrees that it is and shall be obligated to pay to Agent such Lenders ratable share thereof. Whether or not the transactions contemplated hereby are consummated, each of the Lenders, on a ratable basis, shall indemnify and defend the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so) from and against any and all Indemnified Liabilities; provided, that, no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting solely from such Persons gross negligence or willful misconduct nor shall any Lender be liable for the obligations of any Defaulting Lender in failing to make an extension of credit hereunder. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lenders ratable share of any costs or out-of-pocket expenses (including attorneys, accountants, advisors, and consultants fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder, the termination of this Agreement and the resignation or replacement of Agent.
15.8 Agent in Individual Capacity. Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide bank products to, acquire equity interests in, and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Parent and its Subsidiaries and Affiliates and any other Person party to any Loan Document as though Agent were not Agent hereunder, and, in each case, without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, Agent or its Affiliates may receive information regarding Borrowers or their Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms Lender and Lenders may include Agent in its individual capacity.
15.9 Successor Agent. Agent may resign as Agent upon 30 days (10 days if an Event of Default has occurred and is continuing) prior written notice to the Lenders (unless such notice is waived by the Required Lenders) and Administrative Borrower (unless such notice is waived by Administrative Borrower). If Agent resigns under this Agreement, the Required Lenders shall be entitled, with (so long as no Event of Default has occurred and is continuing) the consent of Administrative Borrower (such consent not to be unreasonably withheld, delayed, or conditioned), appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the resignation of Agent, Agent may appoint, after consulting with Administrative Borrower and with the consent of the Required Lenders, a successor Agent. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers, and duties of the retiring Agent and the term Agent shall mean such successor Agent and the retiring Agents appointment, powers, and duties as Agent shall be terminated. After any retiring Agents resignation hereunder as Agent, the provisions of this Section 15 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor Agent has accepted appointment as Agent by the date which is 30 days following a retiring Agents notice of resignation, the retiring Agents
resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above.
15.10 Lender in Individual Capacity. Any Lender and its respective Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, provide bank products to, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Parent and its Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group. The other members of the Lender Group acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Parent or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Parent or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to them.
15.11 Collateral Matters.
(a) The Lenders hereby irrevocably authorize Agent, upon the written direction of the Required Lenders, to release, or subordinate, any Lien on any of the Collateral (i) upon payment and satisfaction of all of the Obligations, or (ii) constituting property being sold or disposed of if Administrative Borrower or any Loan Party certifies to Agent and the Required Lenders that the sale or disposition is made in compliance with Section 6.4 (and Agent and the Required Lenders may rely conclusively on any such certificate, without further inquiry), or (iii) constituting property in which any Loan Party did not own an interest at the time the security interest, mortgage or lien was granted or at any time thereafter, or (iv) having a value in the aggregate in any twelve (12) month period of less than $2,500,000, and to the extent Agent (at the direction of the Required Lenders) may release its Lien on any such Collateral pursuant to the sale or other disposition thereof, such sale or other disposition shall be deemed consented to by the Lenders, or (v) if required or permitted under the terms of any of the other Loan Documents, including any intercreditor agreement, or (vi) constituting property leased to a Loan Party under a lease that has expired or is terminated, or (vii) subject to Section 14.1 and the Security Documents, if the release is approved, authorized or ratified in writing by the Required Lenders. Upon request by Agent or Borrower at any time, the Lenders will confirm in writing Agents authority to release or subordinate any such Liens on particular types or items of Collateral pursuant to this Section 15.11; provided, that, (1) Agent shall not be required to execute any document necessary to evidence such release or subordination on terms that, in Agents opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release or subordination shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released or subordinated) upon (or obligations of Borrower in respect of) all interests retained by any Loan Party, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. The Lenders further hereby irrevocably authorize Agent, upon the direction of the Required Lenders, to subordinate any Lien granted to or held by Agent under any Loan Document to the holder of any Permitted Lien on such property if such Permitted Lien secures Permitted Purchase Money Indebtedness.
(b) The Loan Parties and the Lenders hereby irrevocably authorize Agent, upon the written instruction of the Required Lenders, to (A) consent to, credit bid or purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any sale thereof conducted under
the provisions of the Bankruptcy Code or other bankruptcy laws, including under Section 363 of the Bankruptcy Code, (B) credit bid or purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any sale or other disposition thereof conducted under the provisions of the Code or the PPSA, including pursuant to Sections 9-610 or 9-620 of the Code, or (C) credit bid or purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral at any other sale or foreclosure conducted by Agent (whether by judicial action or otherwise) in accordance with applicable law. In connection with any such credit bid or purchase, the Obligations owed to the Lenders shall be entitled to be, and shall be, credit bid on a ratable basis (with Obligations with respect to contingent or unliquidated claims being estimated for such purpose if the fixing or liquidation thereof would not unduly delay the ability of Agent to credit bid or purchase at such sale or other disposition of the Collateral and, if such claims cannot be estimated without unduly delaying the ability of Agent to credit bid, then such claims shall be disregarded, not credit bid, and not entitled to any interest in the asset or assets purchased by means of such credit bid) and the Lenders whose Obligations are credit bid shall be entitled to receive interests (ratably based upon the proportion of their Obligations credit bid in relation to the aggregate amount of Obligations so credit bid) in the asset or assets so purchased (or in the Equity Interests of the acquisition vehicle or vehicles that are used to consummate such purchase).
(c) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by a Loan Party or is cared for, protected, or insured or has been encumbered, or that Agents Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or that any particular items of Collateral meet the eligibility criteria applicable in respect thereof or whether to impose, maintain, reduce, or eliminate any particular reserve hereunder or whether the amount of any such reserve is appropriate or not, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion, regardless of whether Agent shall obtain its own interest in the Collateral in its capacity as one of the Lenders, and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein.
(d) In no event shall the Agent be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. Notwithstanding any provision of this Agreement, the Agent shall not have any duties or responsibilities except those expressly set forth herein and the permissive provisions with respect to the Agent set forth herein shall not be deemed to be duties. Notwithstanding anything to the contrary contained herein, the Agent shall have no responsibility for the preparing, recording, filing, re-recording, or re-filing of any financing statement, continuation statement or other instrument in any public office. In no event shall the Agent be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Agent shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
15.12 Restrictions on Actions by Lenders; Sharing of Payments.
(a) Each of the Lenders agrees that it shall not, without the express written consent of the Required Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon the written request of the Required Lenders, set off against the Obligations, any amounts owing by such Lender to Parent or its Subsidiaries or any deposit accounts of Parent or its Subsidiaries now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so in writing by the Required Lenders, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings to enforce any Loan Document against any Borrower or any Guarantor or to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.
(b) If, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lenders Pro Rata Share of all such distributions by Agent, such Lender promptly shall (A) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in immediately available funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (B) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that to the extent that such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment.
15.13 Agency for Perfection. Agent hereby appoints each other Lender as its agent (and each Lender hereby accepts such appointment) for the purpose of perfecting Agents Liens in assets which, in accordance with Article 8 or Article 9, as applicable, of the Code or in accordance with the PPSA or the Securities Transfer Act of any applicable jurisdictions in Canada can be perfected by possession or control. Should any Lender obtain possession or control of any such Collateral, such Lender shall notify Agent and the Required Lenders thereof, and, promptly upon Agents request (upon the direction of the Required Lenders) therefor shall deliver possession or control of such Collateral to Agent or in accordance with Agents instructions.
15.14 Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders shall be made by bank wire transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with, or promptly following each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium, fees, or interest of the Obligations.
15.15 Concerning the Collateral and Related Loan Documents. Each member of the Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents and the ABL Intercreditor Agreement. Each member of the Lender Group agrees that any action taken by Agent in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent of its powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders.
15.16 Collateral Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information.
(a) By becoming a party to this Agreement, each Lender:
(i) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each collateral report respecting Parent or its Subsidiaries (each, a Report) delivered in accordance with Section 5.2, and Agent shall so furnish each Lender with such Reports,
(ii) expressly agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report,
(iii) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Parent and its Subsidiaries and will rely significantly upon Parents and its Subsidiaries books and records, as well as on representations of each Borrowers personnel,
(iv) agrees to keep all Reports and other material, non-public information regarding Parent and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner in accordance with Section 17.9, and
(v) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any other Lender preparing a Report harmless from any action the indemnifying Lender may take or fail to take or any conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lenders participation in, or the indemnifying Lenders purchase of, a loan or loans of Borrowers, and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including, attorneys fees and costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.
(b) In addition to the foregoing: (i) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Parent or any Subsidiary of Parent to Agent that has not been contemporaneously provided by Parent or its Subsidiaries to such Lender, and, upon receipt of such request, Agent promptly shall provide a copy of same to such Lender, (ii) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Parent or its Subsidiaries, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lenders notice to Agent, whereupon Agent promptly shall request of such Borrower the additional reports or information reasonably specified by such Lender, and, upon receipt thereof from Parent or its Subsidiaries, Agent promptly shall provide a copy of same to such Lender and (iii) any time that Agent renders to any Borrower a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender.
15.17 Agent May File Proofs of Claim.
(a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, Agent (irrespective of whether the principal of any Obligations shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on Borrowers) shall be entitled and empowered, upon the direction of the Required Lenders, by intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of Lenders and Agent and their respective agents and counsel and all other amounts due Lenders and Agent allowed in such judicial proceeding; and
(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, interim receiver, receiver and manager, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent and the Required Lenders shall consent to the making of such payments directly to Lenders, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its agents and counsel, and any other amounts due Agent.
(b) Nothing contained herein shall be deemed to authorize Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize Agent to vote in respect of the claim of any Lender in any such proceeding.
15.18 Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any credit available hereunder, shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis in accordance with such Lenders percentage of the Term Loan outstanding. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 15.7, no member of the Lender Group shall have any liability for the acts of any other member of the Lender Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for such Lender or on its behalf, nor to take any other action on behalf of such Lender hereunder or in connection with the financing contemplated herein.
15.19 Appointment for the Province of Québec. Without prejudice to Section 15.1 above, each member of the Lender Group hereby appoints Agent as the person holding the power of attorney (fondé pouvoir) of the Lender Group as contemplated under Article 2692 of the Civil Code of Québec, to enter into, to take and to hold on their behalf, and for their benefit, any deed of hypothec (Deed of Hypothec) to be executed by any of the Borrowers or Guarantors granting a hypothec pursuant to the
laws of the Province of Québec (Canada) and to exercise such powers and duties which are conferred thereupon under such deed. All of the Lender Group hereby additionally appoints Agent as agent, mandatary, custodian and depositary for and on behalf of the Lender Group (a) to hold and to be the sole registered holder of any bond (Bond) issued under the Deed of Hypothec, the whole notwithstanding any other applicable law, and (b) to enter into, to take and to hold on their behalf, and for their benefit, a bond pledge agreement (Pledge) to be executed by such Borrower or such Guarantor pursuant to the laws of the Province of Québec and creating a pledge of the Bond as security for the payment and performance of, inter alia, the Obligations. In this respect, (i) Agent as agent, mandatary, custodian and depositary for and on behalf of the Lender Group, shall keep a record indicating the names and addresses of, and the pro rata portion of the obligations and indebtedness secured by the Pledge, owing to each of the members of the Lender Group for and on behalf of whom the Bond is so held from time to time, and (ii) each of the members of the Lender Group will be entitled to the benefits of any property or assets charged under the Deed of Hypothec and the Pledge and will participate in the proceeds of realization of any such property or assets. Agent, in such aforesaid capacities shall (A) upon the direction of the Required Lenders 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 Agent with respect to the property or assets charged under the Deed of Hypothec and Pledge, any other applicable law or otherwise, and (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 Lender Group, the Borrowers or the Guarantors. The execution prior to the date hereof by Agent of any Deed of Hypothec, Pledge or other security documents made pursuant to the laws of the Province of Québec (Canada) is hereby ratified and confirmed. The constitution of Agent as the Person holding the power of attorney (fondé de pouvoir), and of Agent, as agent, mandatary, custodian and depositary with respect to any bond that may be issued and pledged from time to time to Agent for the benefit of the Lender Group, shall be deemed to have been ratified and confirmed by each Person accepting an assignment of, a participation in or an arrangement in respect of, all or any portion of any of the Lender Groups rights and obligations under this Agreement by the execution of an assignment, including an Assignment and Acceptance Agreement or other agreement pursuant to which it becomes such assignee or participant, and by each successor Agent by the execution of an assignment agreement or other agreement, or by the compliance with other formalities, as the case may be, pursuant to which it becomes a successor Agent hereunder.
15.20 Dutch Parallel Debts.
(a) Each Loan Party undertakes with Agent to pay to Agent its Dutch Parallel Debt.
(b) Each Dutch Parallel Debt is a separate and independent obligation and shall not constitute Agent and any Finance Party as joint creditors (hoofdelijk schuldeisers) of any Underlying Debt.
(c) If any Underlying Debt is avoided or reduced other than (i) as a result of payment to, or recovery or discharge by, the Finance Party to which the Underlying Debt is owed or (ii) otherwise with the consent of such Finance Party, the amount of the Dutch Parallel Debt corresponding to such Underlying Debt shall be equal to the amount which such Underlying Debt would have had if the avoidance or reduction had not occurred.
(d) No Loan Party may pay any Dutch Parallel Debt other than at the instruction of, and in the manner determined by, Agent (at the direction of the Required Lenders).
(e) Any payment made, or amount recovered, in respect of a Loan Partys Dutch Parallel Debts shall reduce the Underlying Debt owed to a Finance Party by the amount which that Finance Party has received out of that payment or recovery under the Loan Documents.
(f) Notwithstanding any provision to the contrary in any Loan Document, in relation to the Dutch Parallel Debt and any Dutch Security Documents, Agent shall act in its own name and not as agent of any Lender (but always for the benefit of the Required Lenders and the other Finance Parties in accordance with the provisions of the Loan Documents).
16. WITHHOLDING TAXES.
16.1 No Setoff; Payments.
(a) All payments made by any Loan Party under any Loan Document will be made without setoff, counterclaim or other defense. In addition, all such payments will be made free and clear of, and without deduction or withholding for, any present or future Taxes unless deduction or withholding of any Taxes is required under applicable law. If any deduction or withholding of any Tax is required by law, the applicable withholding agent shall make such deduction or withholding and shall timely pay to the relevant Governmental Authority such amounts in accordance with applicable law. To the extent such Tax is an Indemnified Tax, the applicable Loan Party shall pay such additional amounts as may be necessary so that, after such required deduction or withholding of Indemnified Tax (including any Indemnified Tax on the additional amounts payable under this Section 16.1), the amount payable to the affected Agent or Lender (as applicable) by any Loan Party is equal to same amount that would have been so payable had no such deduction or withholding of Indemnified Tax been required under applicable law.
(b) The Loan Parties shall indemnify each Agent or Lender (as applicable), within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes on the additional amounts payable under this Section 16.1) payable or paid by such Agent or Lender or required to be withheld or deducted from a payment to such Agent or Lender and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Administrative Borrower by a Lender (with a copy to Agent), or by Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(c) Administrative Borrower will furnish to Agent as promptly as possible after payment by any Loan Party of any Tax in respect of any payment made by any Loan Party under any Loan Document is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Loan Parties or other evidence reasonably satisfactory to the Required Lenders.
(d) The Loan Parties agree to pay any present or future stamp, value added or documentary Taxes, intangible, recording or any other similar property Taxes that arise from any payment made hereunder or from the execution, delivery, performance, recordation, or filing of, or otherwise with respect to this Agreement or any other Loan Document.
16.2 Exemptions.
(a) If a Lender is entitled to claim an exemption or reduction from U.S. withholding tax, such Lender agrees with and in favor of Agent, to deliver to Administrative Borrower and Agent one of the following before receiving its first payment under the Loan Documents:
(i) In the case of a Lender claiming an exemption from U.S. withholding tax pursuant to the portfolio interest exception, (A) a statement of the Lender, substantially in the form of Exhibit D-1, signed under penalty of perjury, that it is not a (I) a bank as described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of any Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign corporation related to any Borrower within the meaning of Section 864(d)(4) of the IRC (a U.S. Tax Compliance Certificate), and (B) an original, properly completed and executed IRS Form W-8BEN;
(ii) in the case of a Lender claiming an exemption from, or reduction of, U.S. federal withholding tax under a U.S. tax treaty, a properly completed and executed copy of IRS Form W-8BEN;
(iii) an original, properly completed and executed copy of IRS Form W-8ECI;
(iv) to the extent a Lender is not the beneficial owner, a properly completed and executed copy of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-2 or Exhibit D-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Lender is a partnership and one or more direct or indirect partners of such Lender are claiming the portfolio interest exemption, such Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-4 on behalf of each such direct and indirect partner;
(v) a properly completed and executed copy of any other form or forms, including IRS Form W-9, as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, U.S. withholding or backup withholding tax; or
(vi) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the IRC, as applicable), such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the IRC) and such additional documentation reasonably requested by the Administrative Borrower or Agent as may be necessary for Administrative Borrower and Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under Section 1471 through 1474 of the IRC or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (vi), FATCA shall include any amendments made to FATCA after the date of this Agreement.
(b) Each Lender shall provide new forms (or successor forms) upon the expiration, invalidity or obsolescence of any previously delivered forms and shall promptly notify Administrative Borrower and Agent in writing of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
(c) If a Lender is entitled to claim an exemption from, or reduction of, withholding or backup withholding tax in a jurisdiction other than the United States, such Lender agrees with and in favor of Agent and Administrative Borrower to deliver to Administrative Borrower and Agent at the times reasonably requested by Agent or Administrative Borrower such forms or other information reasonably requested by Administrative Borrower or Agent as will permit exemption from, or reduction of, withholding or backup withholding tax, but only if such Lender or such Participant (i) is legally
eligible to deliver such forms and (ii) in such Lenders reasonable judgment delivery of such forms or other information does not subject such Lender to any material unreimbursed cost or expense or does not materially prejudice the legal or commercial position of such Lender. Each Lender shall provide new forms (or successor forms) or information upon the expiration, invalidity or obsolescence of any previously delivered forms or information and to promptly notify Administrative Borrower and Agent in writing of any change in circumstances which would modify or render invalid any claimed exemption or reduction.
(d) Each Borrower agrees that each Participant shall be entitled to the benefits of this Section 16 with respect to its participation in any portion of the Commitments and the Obligations so long as such Participant complies with the obligations set forth in this Section 16 (including the requirements under this Section 16.2) subject to the provisions of Section 14.2, in each case, with respect thereto as if it were a Lender.
16.3 Lender Indemnification. Each Lender shall severally indemnify the Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so in accordance with Section 16.1), (ii) any Taxes attributable to such Lenders failure to comply with the provisions of Section 13.1(i) relating to the maintenance of a Participant Register and (iii) any non-Indemnified Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this Section 16.3.
16.4 Refunds.
If Agent or a Lender determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified by any Loan Party or with respect to which any Loan Party has paid additional amounts pursuant to this Section 16, it shall pay over such refund to Borrowers (but only to the extent of payments made, or additional amounts paid, by any Loan Party under this Section 16 with respect to Taxes giving rise to such a refund), net of all out-of-pocket expenses of Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such a refund); provided, that the Loan Parties, upon the request of Agent or such Lender, agree to repay the amount paid over to the Loan Parties (plus any penalties, interest or other charges, imposed by the relevant Governmental Authority in respect thereof) to Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 16.4, in no event will Agent or a Lender be required to pay any amount to the Loan Parties pursuant to this Section 16.4 the payment of which would place Agent or such Lender in a less favorable net after-tax position than Agent or such Lender would have been in if the tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such tax had never been paid. This Section 16.4 shall not be construed to require Agent or any Lender to make available its tax returns (or any other confidential information which it in good faith deems confidential) to any Borrower or any other Person.
17. GENERAL PROVISIONS.
17.1 Effectiveness. This Agreement shall be binding and deemed effective when executed by each Loan Party, Agent, and each Lender whose signature is provided for on the signature pages hereof.
17.2 Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each Section applies equally to this entire Agreement.
17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed against the Lender Group or any Loan Party, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to accomplish fairly the purposes and intentions of all parties hereto.
17.4 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.
17.5 Right of Setoff. If an Event of Default shall have occurred and be continuing, any Lender and any Affiliate of any Lender 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 Lender or Affiliate of a Lender to or for the credit or the account of any Loan Party against any of and all the Obligations held by such Lender or Affiliate of a Lender, irrespective of whether or not such Lender or Affiliate of a Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender or Affiliate of a Lender shall notify the Borrower 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 Lender or Affiliate of a Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender or Affiliate of a Lender may have.
17.6 Debtor-Creditor Relationship. The relationship between the Lenders and Agent, on the one hand, and the Loan Parties, on the other hand, is solely that of creditor and debtor. No member of the Lender Group has (or shall be deemed to have) any fiduciary relationship or duty to any Loan Party arising out of or in connection with the Loan Documents or the transactions contemplated thereby, and there is no agency or joint venture relationship between the members of the Lender Group, on the one hand, and the Loan Parties, on the other hand, by virtue of any Loan Document or any transaction contemplated therein.
17.7 Counterparts; Electronic Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis.
17.8 Revival and Reinstatement of Obligations. If the incurrence or payment of the Obligations by any Borrower or any Guarantor or the transfer to the Lender Group of any property should for any reason subsequently be asserted, or declared, to be void or voidable under any state or federal law relating to creditors rights, including provisions of the Bankruptcy Code (or under any bankruptcy or insolvency laws of Canada, including the BIA, the CCAA and the Winding-Up and Restructuring Act (Canada)) relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property (each, a Voidable Transfer), and if the Lender Group is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the advice of counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrowers or Guarantors automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.
17.9 Confidentiality.
(a) Agent and Lenders each individually (and not jointly or jointly and severally) agree that non-public information regarding Parent and its Subsidiaries, their operations, assets, and existing and contemplated business plans (Confidential Information) shall be treated by Agent and the Lenders in a confidential manner, and shall not be disclosed by Agent and the Lenders to Persons who are not parties to this Agreement, except: (i) to attorneys for and other advisors, accountants, auditors, and consultants to any member of the Lender Group and to employees, directors and officers of any member of the Lender Group (the Persons in this clause (i), Lender Group Representatives) on a need to know basis in connection with this Agreement and the transactions contemplated hereby and on a confidential basis, (ii) to Subsidiaries and Affiliates of any member of the Lender Group, provided that any such Subsidiary or Affiliate shall have agreed to receive such information hereunder subject to the terms of this Section 17.9, (iii) as may be required by regulatory authorities so long as such authorities are informed of the confidential nature of such information, (iv) as may be required by statute, decision, or judicial or administrative order, rule, or regulation; provided that (x) prior to any disclosure under clause (iii) or (iv), the disclosing party agrees to provide Administrative Borrower with prior notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior notice to Administrative Borrower pursuant to the terms of the applicable statute, decision, or judicial or administrative order, rule, or regulation and (y) any disclosure under clause (iii) or (iv) shall be limited to the portion of the Confidential Information as may be required by such regulatory authority, statute, decision, or judicial or administrative order, rule, or regulation, (v) as may be agreed to in advance in writing by Borrowers, (vi) as requested or required by any Governmental Authority pursuant to any subpoena or other legal process, provided, that, (x) prior to any disclosure under this clause (vi) the disclosing party agrees to provide Administrative Borrower with prior written notice thereof, to the extent that it is practicable to do so and to the extent that the disclosing party is permitted to provide such prior written notice to Administrative Borrower pursuant to the terms of the subpoena or other legal process and (y) any disclosure under this clause (vi) shall be limited to the portion of the Confidential Information as may be required by such Governmental Authority pursuant to such subpoena or other legal process, (vii) as to any such information that is or becomes generally available to the public (other than as a result of prohibited disclosure by Agent or the Lenders or the Lender Group Representatives), (viii) in connection with any assignment, participation or pledge of any Lenders interest under this Agreement, provided that prior to receipt of Confidential Information any such assignee, participant, or pledgee shall have agreed in writing to receive such Confidential Information hereunder subject to the terms of this Section, (ix) in connection with any litigation or other adversary proceeding involving parties hereto which such litigation or adversary proceeding involves claims related to the rights or duties of such parties under this Agreement or the other Loan Documents; provided, that, prior to any disclosure to any Person (other than any Loan Party,
Agent, any Lender, any of their respective Affiliates, or their respective counsel) under this clause (ix) with respect to litigation involving any Person (other than any Borrower, Agent, any Lender, any of their respective Affiliates, or their respective counsel), the disclosing party agrees to provide Administrative Borrower with prior written notice thereof, and (x) in connection with, and to the extent reasonably necessary for, the exercise of any secured creditor remedy under this Agreement or under any other Loan Document.
(b) Anything in this Agreement to the contrary notwithstanding, Agent (upon the direction of the Required Lenders) may disclose information concerning the terms and conditions of this Agreement and the other Loan Documents to loan syndication and pricing reporting services or for its marketing materials, with such information to consist of deal terms and other information customarily found in such publications or marketing materials and may otherwise use the name, logos, and other insignia of Borrowers and the Loan Parties and the Commitments provided hereunder in any tombstone, press releases, or other advertisements, on its website or in other marketing materials of Agent.
17.10 Lender Group Expenses. Borrowers agree to pay any and all Lender Group Expenses promptly upon demand therefor by Agent. Borrowers agree that their respective obligations contained in this Section 17.10 shall survive payment or satisfaction in full of all other Obligations and the termination of this Agreement.
17.11 Survival. All 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, regardless of any investigation made by any such other party or on its behalf and notwithstanding that Agent or any Lender may have had notice or knowledge of any Default or Event of 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.
17.12 Patriot Act. Each Lender that is subject to the requirements of the Patriot Act hereby notifies Borrowers that, pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies each Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender to identify each Borrower in accordance with the Patriot Act. In addition, if Agent is required by law or regulation or internal policies to do so, it shall have the right to periodically conduct (a) Patriot Act searches, OFAC/PEP searches, and customary individual background checks for the Loan Parties and (b) OFAC/PEP searches and customary individual background checks for the Loan Parties senior management and key principals, and each Borrower agrees to cooperate in respect of the conduct of such searches and further agrees that the reasonable costs and charges for such searches shall constitute Lender Group Expenses hereunder and be for the account of such Borrower.
17.13 Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.
17.14 Administrative Borrower as Agent for Borrowers.
(a) Each Borrower hereby irrevocably appoints and constitutes Parent (Administrative Borrower) as its agent and attorney-in-fact to request and receive Term Loans pursuant to this Agreement and the other Loan Documents from Agent or any Lender in the name or on behalf of such Borrower. Agent and Lenders may disburse the Term Loans to such bank account of Administrative Borrower or a Borrower or otherwise make such Term Loans to a Borrower as Administrative Borrower may designate or direct, without notice to any other Borrower or Guarantor. Notwithstanding anything to the contrary contained herein, Agent (upon the direction of the Required Lenders) may at any time and from time to time require that Term Loans to or for the account of any Borrower be disbursed directly to an operating account of such Borrower.
(b) Administrative Borrower hereby accepts the appointment by Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this Section 17.14. Administrative Borrower shall ensure that the disbursement of any Loans to each Borrower requested by or paid to or for the account of Parent shall be paid to or for the account of such Borrower.
(c) Each Borrower and Guarantor hereby irrevocably appoints and constitutes Administrative Borrower as its agent to receive statements on account and all other notices from Agent and Lenders with respect to the Obligations or otherwise under or in connection with this Agreement and the other Loan Documents.
(d) Any notice, election, representation, warranty, agreement or undertaking by or on behalf of any other Borrower or any Guarantor by Administrative Borrower shall be deemed for all purposes to have been made by such Borrower or Guarantor, as the case may be, and shall be binding upon and enforceable against such Borrower or Guarantor to the same extent as if made directly by such Borrower or Guarantor.
(e) No resignation or termination of the appointment of Administrative Borrower as agent as aforesaid shall be effective, except after ten (10) Business Days prior written notice to Agent. If the Administrative Borrower resigns under this Agreement, Borrowers shall be entitled to appoint a successor Administrative Borrower (which shall be a Borrower). Upon the acceptance of its appointment as successor Administrative Borrower hereunder, such successor Administrative Borrower shall succeed to all the rights, powers and duties of the retiring Administrative Borrower and the term Administrative Borrower shall mean such successor Administrative Borrower and the retiring or terminated Administrative Borrowers appointment, powers and duties as Administrative Borrower shall be terminated.
17.15 Currency Indemnity. If, for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any of the other Loan Documents, it becomes necessary to convert into the currency of such jurisdiction (the Judgment Currency) any amount due under this Agreement or under any of the other Loan Documents in any currency other than the Judgment Currency (the Currency Due), then conversion shall be made at the exchange rate at which Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency prevailing on the Business Day before the day on which judgment is given. In the event that there is a change in the rate of exchange rate prevailing between the Business Day before the day on which the judgment is given and the date of receipt by Agent of the amount due, Borrowers will, on the date of receipt by Agent, pay such additional amounts, if any, as may be necessary to ensure that the amount received by Agent on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by Agent is the amount then due under this Agreement or such other of the Loan Documents in the
Currency Due. If the amount of the Currency Due which Agent is able to purchase is less than the amount of the Currency Due originally due to it, Borrowers and Guarantors shall indemnify and save Agent harmless from and against loss or damage arising as a result of such deficiency. If the amount of the Judgment Currency which Agent is able to purchase is greater than the amount of the Judgment Currency original due it, Agent agrees, so long as no Event of Default has occurred and is continuing, to return the amount of any excess to Borrowers (or to any other Person who may be entitled thereto under applicable law). The indemnity contained herein shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Loan Documents, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any Agent from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due under this Agreement or any of the other Loan Documents or under any judgment or order.
17.16 Anti-Money Laundering Legislation.
(a) Each Loan Party acknowledges that, pursuant to the Proceeds of Crime Money Laundering) and Terrorist Financing Act (Canada) and other applicable anti-money laundering, anti-terrorist financing, government sanction and know your client laws, under the laws of Canada (collectively, including any guidelines or orders thereunder, AML Legislation), Agent and Lenders may be required to obtain, verify and record information regarding each Loan Party, its respective directors, authorized signing officers, direct or indirect shareholders or other Persons in control of such Loan Party, and the transactions contemplated hereby. Administrative Borrower shall promptly provide all such information, including supporting documentation and other evidence, as may be reasonably requested by any Lender or Agent, or any prospective assign or participant of a Lender or Agent, necessary in order to comply with any applicable AML Legislation, whether now or hereafter in existence.
(b) If Agent has ascertained the identity of any Loan Party or any authorized signatories of any Loan Party for the purposes of applicable AML Legislation, then the Agent:
(i) shall be deemed to have done so as an agent for each Lender, and this Agreement shall constitute a written agreement in such regard between each Lender and the Agent within the meaning of applicable AML Legislation; and
(ii) shall provide to each Lender copies of all information obtained in such regard without any representation or warranty as to its accuracy or completeness.
(c) Notwithstanding the provisions of this Section and except as may otherwise be agreed in writing, each Lender agrees that Agent has no obligation to ascertain the identity of the Loan Parties or any authorized signatories of the Loan Parties on behalf of any Lender, or to confirm the completeness or accuracy of any information it obtains from the Loan Parties or any such authorized signatory in doing so.
17.17 Quebec Interpretation. For all purposes pursuant to which the interpretation or construction of this Agreement 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 include movable property, (b) real property shall include immovable property, (c) tangible property shall include corporeal property, (d) intangible property shall include incorporeal property, (e) security interest, mortgage and lien shall include a hypothec, prior claim and a resolutory clause, (f) all references to filing, registering or recording under the Code or PPSA shall include publication under
the Civil Code of Quebec, (g) all references to perfection of or perfected liens or security interest shall include a reference to an opposable or set up lien or security interest as against third parties, (h) any right of offset, right of setoff or similar expression shall include a right of compensation, (i) goods shall include corporeal movable property other than chattel paper, documents of title, instruments, money and securities, (j) an agent shall include a mandatary, (k) construction liens shall include legal hypothecs, (l) joint and several shall include solidary, (m) gross negligence or willful misconduct shall be deemed to be intentional or gross fault, (n) beneficial ownership shall include ownership on behalf of another as mandatary, (o) easement shall include servitude, (p) priority shall include prior claim, (q) survey shall include certificate of location and plan, and (r) fee simple title shall include absolute ownership.
[Signature pages to follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.
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COLT DEFENSE LLC, as a Borrower | |
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/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
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COLT FINANCE CORP., as a Borrower | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
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NEW COLT HOLDING CORP., as a Borrower | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
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COLTS MANUFACTURING COMPANY, LLC, as a Borrower | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
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COLT DEFENSE TECHNICAL SERVICES LLC, as a Guarantor | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
[Signature Page to Colt Term Loan Agreement]
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COLT CANADA CORPORATION, as a Borrower | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
[Signature Page to Colt Term Loan Agreement]
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COLT INTERNATIONAL COÖPERATIEF U.A., as a Guarantor | |
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By: |
/s/ Dennis Veilleux |
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Name: |
Dennis Veilleux |
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Title: |
President and Chief Executive Officer |
[Signature Page to Colt Term Loan Agreement]
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WILMINGTON SAVINGS FUND SOCIETY, FSB, | |
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as Agent | |
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By: |
/s/ Kristin L. Moore |
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Name: |
Kristin L. Moore |
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Title: |
Vice President |
[Signature Page to Colt Term Loan Agreement]
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MORGAN STANLEY SENIOR FUNDING, INC., | |
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as a Lender | |
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By: |
/s/ John Ragusa |
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Name: |
John Ragusa |
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Title: |
Authorized Signatory |
[Signature Page to Colt Term Loan Agreement]
Schedule 1.1
As used in the Agreement, the following terms shall have the following definitions:
ABL Agent means Wells Fargo Capital Finance, LLC, and its permitted successors and assigns.
ABL Credit Agreement means that Credit Agreement, dated as of September 29, 2011, entered into by, among others, the Loan Parties and ABL Agent, as amended, supplemented, modified, restated, renewed, refinanced or replaced, except to the extent prohibited by the ABL Intercreditor Agreement.
ABL Intercreditor Agreement means that certain Intercreditor Agreement, dated as of the date hereof, entered into between Agent and ABL Agent, as amended and in effect from time to time.
ABL Lenders means the lenders from time to time party to the ABL Credit Agreement.
ABL Loan Documents means each Loan Document as defined in the ABL Credit Agreement, as amended, supplemented, modified, restated, renewed, refinanced or replaced, except to the extent prohibited by the ABL Intercreditor Agreement.
ABL Obligations means the Obligations as such term is defined in the ABL Credit Agreement.
ABL Priority Collateral has the meaning specified therefor in the ABL Intercreditor Agreement.
Account means an account (as that term is defined in the Code).
Account Debtor means any Person who is obligated on an Account, chattel paper, or a general intangible.
Accounting Changes means changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions).
Acquired Indebtedness means Indebtedness of a Person whose assets or Equity Interests are acquired by Parent or its Subsidiaries in a Permitted Acquisition; provided, however, that such Indebtedness (a) was in existence prior to the date of such Permitted Acquisition, and (b) was not acquired, assumed or incurred in connection with, or in contemplation of, such Permitted Acquisition.
Acquisition means (a) the purchase or other acquisition by a Person or its Subsidiaries of all or substantially all of the assets of (or any division or business line of) any other Person, or (b) the purchase or other acquisition (whether by means of a merger, consolidation, amalgamation or otherwise) by a Person or its Subsidiaries of at least a majority of the Equity Interests of any other Person having ordinary voting power for the election of directors or other members of the governing body of such other Person.
Additional Documents has the meaning specified therefor in Section 5.12 of the Agreement.
Administrative Borrower has the meaning specified therefor in Section 17.14 of the Agreement.
Affected Lender has the meaning specified therefor in Section 2.13(b) of the Agreement.
Affiliate means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, control means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Equity Interests of such Person, by contract, or otherwise; provided, however, that, for purposes of Section 6.12 of the Agreement: (a) any Person which owns directly or indirectly 10% or more of the Equity Interests of such Person having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each current and former (within the five-year period prior to the Closing Date) officer and/or director (or comparable manager) of a Loan Party or Sponsor shall be deemed to be an Affiliate of such a Loan Party, (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person and (d) any Person that is a current or former (within the five-year period prior to the Closing Date) partner, member or principal (or any employee acting in any such capacity) of any Loan Party or a consultant (other than any consultants, financial advisors and/or other third party service providers of nationally recognized standing) of Sponsor shall be deemed to be an Affiliate of a Loan Party.
Agent has the meaning specified therefor in the preamble to the Agreement.
Agent Fee Letter means that certain letter agreement of even date herewith among the Borrowers and the Agent.
Agent-Related Persons means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.
Agents Account means the Deposit Account of Agent identified on Schedule A-1 as the Agents Account.
Agents Liens means the Liens granted by Parent or its Subsidiaries to Agent under the Loan Documents.
Agreement means the Term Loan Agreement to which this Schedule 1.1 is attached.
AML Legislation has the meaning specified in Section 17.16 of the Agreement.
Application Event means the occurrence of (a) a failure by Borrowers to repay all of the Obligations in full on the Maturity Date, or (b) an Event of Default and the election by Agent (at the written direction of the Required Lenders) to require that payments and proceeds of Collateral be applied pursuant to Section 2.4(b)(ii) of the Agreement.
Applicable Prepayment Premium means, as of any date of determination, an amount equal to (A) during the period on and after the Closing Date up to and including the 720th day following the Closing Date, the greater of: (a) 1.0% of the amount of the Term Loans repaid; and (b) the present value as of the payment date of all interest payments (including amounts that would have been paid as PIK Interest) that would have become due on the amount being paid from the payment date through the 720th day after the Closing Date, computed using a discount rate equal to the Treasury Rate as of such payment date plus 0.50%; and (B) from the 721st day following the Closing Date through the 1080th day after the Closing Date, 1.0% of the amount of the Term Loans repaid.
Assignee has the meaning specified therefor in Section 13.1(a) of the Agreement.
Assignment and Acceptance means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1.
Authorized Person means any one of the individuals identified on Schedule A-2, as such schedule is updated from time to time by written notice from Administrative Borrower to Agent.
Bankruptcy Code means title 11 of the United States Code, as in effect from time to time.
BIA means the Bankruptcy and Insolvency Act (Canada), R.S.C. 1985, c. B-3, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all official rules, regulations and interpretations thereunder or related thereto.
Board of Directors means, as to any Person, the board of directors (or comparable managers) of such Person or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).
Borrower and Borrowers shall have the meanings assigned to such terms in the Recitals of this Agreement.
Business Day means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of New York, except that, the term Business Day also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.
Canadian Loan Party and Canadian Loan Parties means, individually and collectively, Colt Canada and any other Loan Party organized under the laws of Canada or any province or territory thereof.
Canadian Pension Plan means any plan, program or arrangement that is a pension plan for the purposes of any applicable pension benefits legislation or any tax laws of Canada or a Province thereof, whether or not registered under any such laws, which is maintained or contributed to by, or to which there is or may be an obligation to contribute by, any Borrower or any Guarantor in respect of any Persons employment in Canada with such Borrower or such Guarantor.
Canadian Security Documents means (a) each document identified on Schedule S to the Agreement (as such schedule may be amended or supplemented by Agent to add additional Canadian Security Documents in connection with the Loan Documents) and (b) any other documents governed by the laws of Canada or any province or territory thereof under which a Lien is granted to Agent.
Capital Expenditures means, with respect to any Person for any period, the aggregate of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed.
Capital Lease means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
Capitalized Lease Obligation means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.
Cash Equivalents means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued or fully guaranteed by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poors Rating Group (S&P) or Moodys Investors Service, Inc. (Moodys), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moodys, (d) certificates of deposit, time deposits, overnight bank deposits or bankers acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and surplus of not less than $250,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the criteria described in clause (d) above, and (h) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (g) above; provided, that, in the case of any Foreign Subsidiary, Cash Equivalents of such Foreign Subsidiary shall also include direct obligations of the sovereign country (or any agency thereof which is backed by the full faith and credit of such sovereign country) in which such Foreign Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such foreign country (or any agency thereof); provided, further, in the case of any Foreign Subsidiary that is not a Loan Party, Cash Equivalents of such Foreign Subsidiary shall also include securities and other investments held by such Foreign Subsidiary in the ordinary course of business which are substantially similar to the assets described in clauses (a) through (g) above.
Cash Interest has the meaning specified therefor in Section 2.6(a) of the Agreement.
Cash Management Services means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other cash management arrangements.
CCAA means the Companies Creditors Arrangement Act, R.S.C. 1985, c.C-36, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all official rules, regulations and interpretations thereunder or related thereto.
Change of Control means:
(a) prior to the first public offering of common stock of Parent, the Permitted Holders cease to be the beneficial owner (as defined in Rules 13 d-3 and 13 d-5 under the Exchange Act), directly or indirectly, of a majority in the aggregate of the total voting power of the Equity Interests of Parent then outstanding, whether as a result of the issuance of securities of Parent, any merger, consolidation, winding up, liquidation or dissolution of Parent, any direct or indirect transfer of securities by any Permitted Holder or otherwise (for purposes of this clause (a) and clause (b) below, the Permitted Holders shall be deemed to beneficially own any the Equity Interests holding voting power of an entity (the specified entity) held by any other entity (the
parent entity) so long as (x) the Permitted Holders beneficially own (as so defined), directly or indirectly, in the aggregate a majority of the voting power of the Equity Interests of the parent entity) or (y) no person or group of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), beneficially owns, directly or indirectly, a larger percentage of the voting power of the Equity Interests of the parent entity than the Permitted Holders;
(b) on the date of or after the first public offering of common stock of Parent, any person or group of related persons (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, becomes the beneficial owner (as defined in Rules 13 d-3 and 13 d-5 under the Exchange Act, except that such person or group shall be deemed to have beneficial ownership of all shares that any such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 35% of the total voting power of the Equity Interests of Parent or any of its direct or indirect parent entities (or their successors by merger, consolidation or purchase of all or substantially all of their assets);
(c) the Continuing Directors shall cease for any reason to constitute a majority of the Board of Directors of Parent then in office;
(d) except as otherwise expressly permitted herein, Parent shall cease to be the direct or indirect holder and owner of one hundred (100%) percent of the Equity Interests of the other Loan Parties; or
(e) a Change of Control under (and as defined in) the Senior Note Indenture or the ABL Credit Agreement.
Closing Date means the date of the making of the Term Loan under the Agreement.
Closing Date Transactions means, collectively, the transactions contemplated by the Loan Documents and the ABL Loan Documents, as amended in connection with each of the foregoing.
Code means the New York Uniform Commercial Code, as in effect from time to time.
Collateral means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by Parent or its Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent or the Lenders under any of the Loan Documents.
Collateral Access Agreement means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman, processor, consignee, freight forwarder, or other Person in possession of, having a Lien upon, or having rights or interests in Parents or its Subsidiaries books and records, Equipment, or Inventory, in each case, in form and substance satisfactory to Agent and the Required Lenders.
Collections means all cash, checks, notes, instruments, and other items of payment (including insurance proceeds, cash proceeds of asset sales, rental proceeds, and tax refunds).
Commitment means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, as the context requires.
Compliance Certificate means a certificate substantially in the form of Exhibit C-1 delivered by the chief financial officer of Administrative Borrower to Agent.
Confidential Information has the meaning specified therefor in Section 17.9(a) of the Agreement.
Consolidated EBITDA shall mean, as to any Person and its Subsidiaries, for any period, the amount equal to (without duplication): (a) the Consolidated Net Income of such Person and its Subsidiaries for such period determined in accordance with GAAP, plus (b) as to such Person and its Subsidiaries, each of the following (in each case to the extent deducted in or excluded from the calculation of Consolidated Net Income for such period (in accordance with GAAP)): (i) the Interest Expense for such period, (ii) all Taxes of such Person and its Subsidiaries paid or accrued in accordance with GAAP for such period, including any Permitted Tax Distributions, (iii) depreciation and amortization (including, but not limited to, imputed interest and deferred compensation) for such period, all in accordance with GAAP, (iv) extraordinary, unusual or non-recurring charges, expenses or losses that are incurred outside the ordinary course of business, other than contract start-up costs and losses, and other non-cash charges, expenses or losses; provided, however, in the case of the Loan Parties, the aggregate amount added back to Consolidated EBITDA pursuant to this clause (iv) shall not exceed $1,000,000, and (v) other non-cash charges, expenses or losses, and (vi) costs and expenses in connection with the Closing Date Transactions in an aggregate amount not exceeding $2,500,000.
Consolidated Net Income shall mean, with respect to any Person for any period, the aggregate of the net income (loss) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided, that, (a) except to the extent included pursuant to the foregoing clause and except to the extent necessary to reflect Consolidated Net Income on a pro forma basis as provided herein, the net income of any Person accrued prior to the date it becomes a Subsidiary of such Person or is merged into or consolidated or amalgamated with such Person or any of its Subsidiaries or that Persons assets are acquired by such Person or by any of its Subsidiaries shall be excluded; and (b) the net income (if positive) of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary to such Person or to any other Subsidiary of such Person is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary shall be excluded, other than any distribution or dividend actually received in cash by such Person or its Subsidiaries, (c) any non-cash compensation expense recorded from grants of stock appreciation or similar rights, stock options or other rights to officers, directors or employees shall be excluded, (d) any impairment charges or asset writeoffs, in each case pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded, (e) any after tax effect of income (loss) from early extinguishment of Indebtedness or Hedge Agreements or other derivative instruments or any currency translation gains and losses related to currency remeasurements of Indebtedness, and any net loss or gain resulting from hedging transactions for currency exchange risk shall be excluded, (f) any extraordinary non-cash gain or loss shall be excluded, (g) an amount equal to the Permitted Tax Distributions in respect of such period shall be included as though such amounts had been paid as income taxes directly by such Person for such period, and (h) the cumulative effect of a change in accounting principles shall be excluded. For the purpose of this definition, net income excludes any gain together with any related Taxes for such gain realized upon the sale or other disposition of any assets outside of the ordinary course of business or of any Equity Interests of such Person or a Subsidiary of such Person.
Consulting Agreement means the Consulting Services Agreement, dated as of July 12, 2013, by and between Parent and Sciens Institutional Services LLC, as amended, restated, modified or supplemented from time to time in accordance with the terms hereof, pursuant to which Parent engaged Sciens Institutional Services LLC to provide certain consulting services.
Continuing Director means (a) any member of the Board of Directors of Parent who was a director (or comparable manager) on the Closing Date, after giving effect to the execution and delivery of this Agreement and the other transactions contemplated hereby to occur on such date, and (b) any individual who becomes a member of the Board of Directors of Parent after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors by either the Permitted Holders or a majority of the Continuing Directors.
Control Agreement means a control agreement, in form and substance satisfactory to Agent and the Required Lenders, executed and delivered by Parent or one of its Subsidiaries, Agent, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).
Copyright Security Agreement has the meaning specified therefor in the Security Agreement.
Covered Claims shall have the meaning given to such term in the Litigation Management Agreement, dated as of July 12, 2013, by and among, Parent, New Colt, Colts Manufacturing, and each of the Stockholder Representatives signatory thereto, as in effect on the Closing Date.
Currency Due has the meaning specified in Section 17.15 of the Agreement.
Current Assets means, as at any date of determination, the total assets of Parent and its Subsidiaries (other than cash and Cash Equivalents) which may properly be classified as current assets on a consolidated balance sheet of Parent and its Subsidiaries in accordance with GAAP, excluding any increase in Current Assets in respect to any Excluded Issuances.
Current Liabilities means, as at any date of determination, the total liabilities of Parent and its Subsidiaries which may properly be classified as current liabilities (other than the current portion of the Term Loan or the ABL Obligations) on a consolidated balance sheet of Parent and its Subsidiaries in accordance with GAAP.
Default means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.
Defaulting Lender means any Lender that (a) has failed to fund any amounts required to be funded by it under the Agreement on the date that it is required to do so under the Agreement, (b) notified Administrative Borrower, Agent, or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations under the Agreement, (c) has made a public statement to the effect that it does not intend to comply with its funding obligations under the Agreement or under other agreements generally (as determined by the Required Lenders) under which it has committed to extend credit, (d) failed, within 1 Business Day after written request by Agent, to confirm that it will comply with the terms of the Agreement relating to its obligations to fund any amounts required to be funded by it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other amount required to be paid by it under the Agreement on the date that it is required to do so under the Agreement, or (f) (i) becomes or is insolvent or has a parent company that has become or is insolvent or (ii) becomes the subject of a bankruptcy or Insolvency Proceeding, or has had a receiver, interim receiver, receiver and manager, conservator, trustee, or custodian or appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or Insolvency Proceeding, or has had a receiver, interim receiver, receiver and manager, conservator, trustee, or custodian appointed for it, or has
taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.
Designated Account means the Deposit Account of Administrative Borrower identified on Schedule D-1.
Deposit Account means any deposit account (as that term is defined in the Code).
Disqualified Equity Interest means, with respect to any Person, any Equity Interest in such Person that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable, either mandatorily or at the option of the holder thereof) or upon the happening of any event or condition:
(a) matures or is mandatorily redeemable (other than solely for Equity Interests in such Person that do not constitute Disqualified Equity Interests and cash in lieu of fractional shares of such Equity Interests), whether pursuant to a sinking fund obligation or otherwise;
(b) is convertible or exchangeable at the option of the holder thereof for Indebtedness or Equity Interests (other than solely for Equity Interests in such Person that do not constitute Disqualified Equity Interest and cash in lieu of fractional shares of such Equity Interests); or
(c) is redeemable (other than solely for Equity Interests in such Person that do not constitute Disqualified Equity Interest and cash in lieu of fractional shares of such Equity Interests) or is required to be repurchased by such Person or any of its Affiliates, in whole or in part, at the option of the holder thereof;
in each case, on or prior to the date that is 91 days after the Maturity Date; provided, that, an Equity Interest that would not constitute a Disqualified Equity Interest but for terms thereof giving holders thereof the right to require such Person to redeem or purchase such Equity Interest upon the occurrence of an asset sale or a change of control shall not constitute a Disqualified Equity Interest if any such requirement becomes operative only after repayment in full in cash of all of the Obligations and the termination of the Commitments.
Disqualified Lender means any of the Persons listed on Schedule E-1 and any other Persons identified from time to time in writing to the Agent to the extent reasonably acceptable to the Agent.
Dollars or $ means lawful currency of United States of America.
Domestic Subsidiary means any direct or indirect Subsidiary of a Loan Party other than a Foreign Subsidiary.
Dutch Guaranty means a general continuing guaranty of the Obligations executed and delivered by Colt Netherlands in favor of Agent, for the benefit of Agent and the Lenders, in form and substance satisfactory to Agent and the Required Lenders, as amended, modified, restated and/or supplemented from time to time.
Dutch Loan Party and Dutch Loan Parties means, individually and collectively, Colt Netherlands and any other Loan Party organized under the laws of the Netherlands.
Dutch Parallel Debt means, in relation to an Underlying Debt (and subject to clause (c) of Section 15.20), an obligation to pay to Agent an amount equal to (and in the same currency as) the amount of that Underlying Debt.
Dutch Security Documents means (a) each document identified on Schedule S to the Agreement (as such schedule may be amended or supplemented by Agent (at the direction of the Required Lenders) to add additional Dutch Security Documents in connection with the Loan Documents) and (b) any other documents governed by Dutch law under which security rights are granted to Agent.
Employee Benefit Plan means any employee benefit plan within the meaning of Section 3(3) of ERISA, whether or not subject to ERISA, (a) that is or within the preceding six (6) years has been sponsored, maintained or contributed to by any Loan Party or ERISA Affiliate or (b) to which any Loan Party or ERISA Affiliate has, or has had at any time within the preceding six (6) years, any liability, contingent or otherwise.
Employee Litigation Escrow Fund shall have the meaning given to such term in the Escrow Agreement, dated as of July 12, 2013, by and among Parent, the Stockholder Representatives signatory thereto and Bank of America, as escrow agent, as in effect on the Closing Date.
Environmental Action means any written complaint, summons, citation, notice, directive, order, claim, investigation, judicial or administrative proceeding, judgment, or other written communication from any Governmental Authority, or any third party alleging violations by or liabilities of any Loan Party under any Environmental Laws, including those relating to Releases of Hazardous Materials (a) from any assets, properties, or businesses of Parent, any Subsidiary of Parent or any of their predecessors in interest, (b) from adjoining properties or businesses or (c) from or onto any facilities which received Hazardous Materials generated any Loan Party or any of their predecessors in interest.
Environmental Law means any applicable federal, state, provincial, territorial, foreign or local statute, law, by-law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, in each case, to the extent binding on Parent or its Subsidiaries, relating to protection of the environment, or human health or safety, including without limitation, those relating to the generation, processing, radiation, vibration, use, storage, treatment, disposal, transport or handling of Hazardous Materials, in each case as amended from time to time.
Environmental Liabilities means all liabilities, monetary obligations, losses (including monies paid in settlement), damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any Remedial Action, Release or threated Release of Hazardous Materials, any violation of Environmental Law, or any Environmental Action.
Environmental Lien means any Lien in favor of any Governmental Authority for Environmental Liabilities.
Environmental Permit means any permit, registration, certificate, qualification, approval, identification number, license or other authorization required under or issued pursuant to any applicable Environmental Law or by any Governmental Entity pursuant to its authority under Environmental Law.
Equipment means equipment (as that term is defined in the Code).
Equity Interests shall mean, with respect to any Person, all of the shares, interests, participations or other equivalents (however designated) of such Persons capital stock or general partnership, limited partnership, limited liability company or other equity, ownership or profit interests at any time outstanding, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), but excluding any interests in phantom equity plans and any debt security that is convertible into or exchangeable for such shares, and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
ERISA means the Employee Retirement Income Security Act of 1974, as amended, and any successor statutes, and all regulations and guidance promulgated thereunder. Any reference to a specific section of ERISA shall be deemed to be a reference to such section of ERISA and any successor statutes, and all regulations and guidance promulgated thereunder.
ERISA Affiliate means each entity, trade or business (whether or not incorporated) that together with a Loan Party or a Subsidiary would be (or has been) treated as a single employer within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the IRC. ERISA Affiliate shall include any Subsidiary of any Loan Party.
Event of Default has the meaning specified therefor in Section 8 of the Agreement.
Excess Availability has the meaning ascribed to such term in the ABL Credit Agreement as in effect of the date hereof.
Exchange Act means the Securities Exchange Act of 1934, as in effect from time to time.
Excluded Issuances means (a) the issuance of Qualified Equity Interests of Parent to directors, officers and employees of Parent and its Subsidiaries pursuant to employee stock option plans (or other employee incentive plans or other compensation arrangements) approved by the Board of Directors of Parent and permitted under this Agreement), (b) in the event that Parent or any of its Subsidiaries forms any Subsidiary in accordance with the terms hereof, the issuance by such Subsidiary of Qualified Equity Interests to Parent or such Subsidiary, as applicable, (c) the issuance of Qualified Equity Interests of Parent in order to finance (i) the purchase consideration (or a portion thereof) in connection with a Permitted Acquisition or an Investment permitted under clause (w)(ii) of the definition of Permitted Investments, (ii) Capital Expenditures permitted under this Agreement, and/or (iii) so long as no Default or Event of Default shall have occurred and be continuing, for working capital purposes of Parent and its Subsidiaries (other than for the prepayment of Indebtedness permitted under Section 6.7(a)(iii)), (d) the issuance of Qualified Equity Interests of Parent in order to fund the prepayment of Indebtedness permitted under Section 6.7(a)(iii) and (e) the issuance of Qualified Equity Interests by a Subsidiary of Parent to its parent or member in connection with the contribution by such parent or member to such Subsidiary of the proceeds of an issuance described in clauses (a) through (e) above, but solely to the extent that (i) in the case of clauses (a) through (e) above, prior to the issuance of any such Qualified Equity Interests, Administrative Borrower has provided Agent with written notice of Borrowers intention to apply the proceeds of such Qualified Equity Interests in accordance with clause (a), (b), (c), (d) or (e) above, and (ii) in the case of clauses (c)(i), (c)(ii) and (d) above, the use of the proceeds of such issuance or sale of Qualified Equity Interests occurs substantially contemporaneously with the issuance or sale of such Qualified Equity Interests.
Excluded Property has the meaning specified in the Security Agreement or the Canadian Security Agreement, as the case may be.
Existing Credit Agreement means that certain Term Loan Credit Agreement, dated as of July 12, 2013, entered into by, among others, the Loan Parties and Cortland Capital Market Services LLC, as agent, as amended, supplemented, modified, restated, renewed, refinanced or replaced, except to the extent prohibited by the ABL Intercreditor Agreement.
Extraordinary Receipts means any payments in cash received by Parent or any of its Subsidiaries not in the ordinary course of business (and not consisting of proceeds described in Section 2.4(e)(ii) of the Agreement) consisting of (a) proceeds of judgments, proceeds of settlements, or other consideration of any kind received in connection with any cause of action or claim, (b) indemnity payments (other than to the extent such indemnity payments are immediately payable to a Person that is not an Affiliate of Parent or any of its Subsidiaries, (c) foreign, federal, state or local tax refunds, (d) pension plan reversions, and (e) any purchase price adjustment received in connection with any purchase agreement, in each case, after deducting therefrom, to the extent applicable, taxes paid or payable to any taxing authorities (or tax distributions made to members or shareholders) by Parent or such Subsidiary in connection with such event, in each case (other than with respect to tax distributions), to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of Parent or any of its Subsidiaries, and are properly attributable to such transaction.
FATCA means Sections 1471 through 1474 of the IRC, as of the date of this Agreement (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 IRC as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with).
Federal Funds Rate means, for any period, a fluctuating interest rate per annum equal to, for each day during such period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it.
Finance Party means Agent or any Lender.
Flow of Funds Agreement means a flow of funds agreement, dated as of even date herewith, in form and substance satisfactory to Agent and the Required Lenders, executed and delivered by each Loan Party, Agent, and ABL Agent.
Foreign Lender means any Lender or Participant that is not a United States person within the meaning of IRC Section 7701(a)(30).
Foreign Security Documents means each Canadian Security Document, each Dutch Security Document and each other security document entered into by a Foreign Subsidiary of Parent in favor of Agent.
Foreign Subsidiary means a Subsidiary of a Loan Party organized or incorporated under the laws of a jurisdiction other than the United States of America, any state thereof or the District of Columbia.
GAAP means generally accepted accounting principles as in effect from time to time in the United States, consistently applied; provided, that, all calculations relative to liabilities shall be made without giving effect to Statement of Financial Accounting Standards No. 159.
Governing Documents means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.
Governmental Authority means any federal, state, provincial, territorial, local, or other governmental or administrative body, instrumentality, board, department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body.
Guarantors has the meaning assigned to such term in the Recitals.
Guaranty means each guaranty, including the Dutch Guaranty, executed by the Guarantors (or any Guarantor) in favor of Agent, for the benefit of the Lender Group, in form and substance satisfactory to the Required Lenders, and as may be amended or otherwise modified from time to time.
Hazardous Materials means, regardless of amount or quantity, (a) any element, compound, substance or chemical that is defined or listed in, or otherwise classified or regulated pursuant to, any Environmental Laws as a contaminant, pollutant, hazardous substances, hazardous materials, hazardous wastes, toxic substances, or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or EP toxicity, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form and polychlorinated biphenyls.
Hedge Agreement means a swap agreement as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.
Holdout Lender has the meaning specified therefor in Section 14.2(a) of the Agreement.
IFRS means the International Financial Reporting Standards.
Indebtedness as to any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices), (f) all obligations of such Person owing under Hedge Agreements (which amount shall be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated on the date of determination), (g) any Disqualified Equity Interests such Person, and (h) any obligation of such Person guaranteeing or intended to guarantee (whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (g) above. For purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and still outstanding and the maximum
amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness, (ii) the amount of any Indebtedness described in clause (d) above shall be the lower of the amount of the obligation and the fair market value of the assets of such Person securing such obligation and (iii) any earn out obligation of a Person shall not constitute Indebtedness for the purposes of calculating any of the financial ratios herein until such obligation constitutes a liability on the balance sheet of such Person.
Indemnified Liabilities has the meaning specified therefor in Section 10.3 of the Agreement.
Indemnified Person has the meaning specified therefor in Section 10.3 of the Agreement.
Indemnified Taxes means any Taxes now or hereafter imposed by any Governmental Authority with respect to any payments by any Loan Party under any Loan Document; provided, however, that Indemnified Taxes shall exclude (i) any Tax imposed on the net income (including any branch profits Taxes) and any franchise or similar Taxes in lieu thereof, in each case imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which Agent, such Lender or such Participant is organized or in which Agents, such Lenders or such Participants principal office or applicable lending office is located or as a result of any other present or former connection between Agent, such Lender or such Participant and the jurisdiction (or political subdivision or taxing authority thereof) imposing the Tax (other than any such connection arising solely from Agent, such Lender or such Participant having executed, delivered, become a party to, or performed its obligations or received payment under, or enforced its rights or remedies under the Agreement or any other Loan Document); (ii) Taxes resulting from a Lenders or a Participants failure to comply with the requirements of Section 16.2(a), (b) or (c) of the Agreement, (iii) any U.S. federal withholding Taxes that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding rate in effect at the time such Foreign Lender acquires its interest in the applicable Obligation or Commitment (or designates a new lending office), except to the extent that such Foreign Lender (or its assignor, if any) was entitled to receive additional amounts pursuant to Section 16.1 of the Agreement with respect to such withholding Tax immediately prior to such assignment or change in lending office and (iv) any U.S. federal withholding Taxes imposed under FATCA.
Insolvency Proceeding means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code, the CCAA or the BIA or under any other provincial, territorial, state or federal bankruptcy or insolvency law or any bankruptcy or insolvency law of any other applicable jurisdiction, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
Intellectual Property means all domestic and foreign rights, title and interest in the following: (i) inventions, discoveries and ideas, whether patentable or not, and all patents, registrations and applications therefor, including without limitation divisions, continuations, continuations-in-part, reexaminations, reissues and renewal applications; (ii) published and unpublished works of authorship, whether copyrightable or not, copyrights therein and thereto and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof; (iii) trademarks, service marks, trade names, trade dress, brand names, Internet domain names, logos, symbols, and other indicia of origin, all applications and registrations for all of the foregoing, and all goodwill associated therewith and symbolized thereby, including without limitation all extensions, modifications and renewal of the same; (iv) confidential and proprietary information, trade secrets and know-how, including, without limitation, TDPs, formulae, processes, compounds, drawings, designs, industrial designs, blueprints, surveys, reports, manuals, operating standards and customer lists; (v) software and contract rights relating to
computer software programs, in whatever form created or maintained; and (vi) all other intellectual property rights or proprietary rights and claims or causes of action arising out of or related to any infringement, misappropriation or other violation of any of the foregoing throughout the world, including, without limitation, rights to recover for past, present and future violations thereof and any and all products and proceeds of the foregoing.
Intercompany Subordination Agreement means an intercompany subordinated note executed and delivered by the Loan Parties and the other parties thereto, the form and substance of which is satisfactory to the Required Lenders.
Interest Expense means, for any period, as to any Person, as determined in accordance with GAAP, the amount equal to total interest expense of such Person and its Subsidiaries on a consolidated basis for such period, whether paid or accrued (including the interest component of any Capital Lease for such period), and in any event, including, without limitation, (a) discounts in connection with the sale of any Accounts, (b) bank fees, commissions, discounts and other fees and charges in each case owed with respect to letters of credit, bankers acceptances or similar instruments or any factoring, securitization or similar arrangements, (c) interest payable by addition to principal or in the form of property other than cash and any other interest expense not payable in cash, and (d) the costs or fees for such period associated with Hedge Agreements to the extent not otherwise included in such total interest expense; provided, that, for purposes of the determination of Consolidated EBITDA, Interest Expense shall include, to the extent treated as interest in accordance with GAAP, all non-cash amounts in connection with borrowed money (including paid-in-kind interest).
Interest Payment Date has the meaning specified therefor in Section 2.6(d) of the Agreement.
Inventory means inventory (as such term is defined in the Code).
Investment means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business), or acquisitions of Indebtedness, Equity Interests, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP.
IP Reporting Certificate means an IP reporting certificate substantially in the form of Exhibit I-1 executed and delivered by the Loan Parties to Agent.
IRC means the Internal Revenue Code of 1986, as amended.
Judgment Currency has the meaning specified in Section 17.15 of the Agreement.
Lender has the meaning set forth in the preamble to the Agreement, and shall also include any other Person made a party to the Agreement pursuant to the provisions of Section 13.1 of the Agreement and Lenders means each of the Lenders or any one or more of them.
Lender Group means each of the Lenders and Agent, or any one or more of them.
Lender Group Expenses means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by Parent or its Subsidiaries under any of the Loan Documents that are paid, advanced, or incurred by the Lender Group, (b) reasonable and documented out-of-pocket fees or
charges paid or incurred by Agent and each Lender in connection with the Lender Groups transactions with Parent or its Subsidiaries under any of the Loan Documents, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and PPSA and UCC searches and including searches with the patent and trademark office, or the copyright office, or similar searches with respect to the Canadian Loan Parties and the Dutch Loan Parties), filing, recording, publication, appraisal (including periodic collateral appraisals to the extent of the fees and charges (and up to the amount of any limitation) contained in the Agreement), real estate surveys, real estate title policies and endorsements, and environmental audits, (c) Agents customary fees and charges (as adjusted from time to time) with respect to the disbursement of funds (or the receipt of funds) to or for the account of any Borrower (whether by wire transfer or otherwise) or with respect to the establishment of electronic collateral reporting systems, together with any reasonable and documented out-of-pocket costs and expenses incurred in connection therewith, (d) reasonable and documented out-of-pocket charges paid or incurred by Agent resulting from the dishonor of checks payable by or to any Loan Party, (e) reasonable out-of-pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or during the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) [reserved], (g) reasonable and documented out-of-pocket costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Groups relationship with Parent or any of its Subsidiaries, (h) Agents and each Lenders reasonable and documented costs and expenses (including reasonable attorneys and financial advisor fees) incurred in advising, structuring, drafting, reviewing, administering (including travel, meals, and lodging), syndicating, or amending the Loan Documents, and (i) Agents and each Lenders reasonable and documented costs and expenses (including reasonable attorneys, accountants, consultants, financial advisors, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a workout, a restructuring, or an Insolvency Proceeding concerning Parent or any of its Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any Remedial Action concerning the Collateral.
Lender Group Representatives has the meaning specified therefor in Section 17.9 of the Agreement.
Lender-Related Person means, with respect to any Lender, such Lender, together with such Lenders Affiliates, officers, directors, employees, attorneys, and agents.
Lien means any mortgage, deed of trust, pledge, hypothecation, assignment, hypothec, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other security arrangement and any other preference, priority, or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
Loan Account has the meaning specified therefor in Section 2.9 of the Agreement.
Loan Documents means the Agreement, each Canadian Security Document, the Control Agreements, any Copyright Security Agreement, each Dutch Security Document, the Flow of Funds Agreement, each Guaranty, the Intercompany Subordination Agreement, any Mortgage, any Patent
Security Agreement, the Security Agreement, any Trademark Security Agreement, any other Security Document, any UCC Filing Authorization Letter or similar authorization, any Agent Fee Letter or similar document, any note or notes executed by Borrower in connection with the Agreement and payable to any member of the Lender Group, any letter of credit application entered into by any Borrower in connection with the Agreement, and any other agreement entered into or certificate issued, now or in the future, by Parent or any of its Subsidiaries in connection with the Agreement.
Loan Party means Borrower or any Guarantor.
Management Agreement means the letter agreement, dated as of July 9, 2007, by and between Parent and Sciens Management, LLC, as amended, restated, modified or supplemented from time to time in accordance with the terms hereof, pursuant to which Parent engaged Sciens Management, LLC to provide certain investment banking, corporate and strategic advisory services.
Margin Stock as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
Material Adverse Change means (a) a material adverse change in the business, operations, assets, condition (financial or otherwise) or prospects of Parent and its Subsidiaries, taken as a whole, (b) a material impairment of Parents and its Subsidiaries ability to perform their obligations under the Loan Documents to which they are parties or of the Lender Groups ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of Agents Liens with respect to the Collateral as a result of an action or failure to act on the part of Parent and its Subsidiaries.
Material Contract means (i) the Senior Note Indenture, (ii) each ABL Loan Document, (iii) any contract or agreement (other than a Loan Document or ABL Loan Document) of any Loan Party involving monetary liability of or to Parent or its Subsidiaries in excess of $2,000,000 in any fiscal year of Parent and (vi) each other contract or agreement, the loss of which could reasonably be expected to result in a Material Adverse Change.
Maturity Date has the meaning specified therefor in Section 3.3 of the Agreement.
Moodys has the meaning specified therefor in the definition of Cash Equivalents.
Mortgage Policy has the meaning specified therefor in Schedule 3.1.
Mortgages means, individually and collectively, one or more mortgages, deeds of trust, deeds to secure debt, charges or debentures executed and delivered by Parent or its Subsidiaries in favor of Agent, in form and substance satisfactory to Agent and the Required Lenders, that encumber the Real Property Collateral.
Multiemployer Plan means any multiemployer plan within the meaning of Section 3(37) or 4001(a)(3) of ERISA with respect to which any Loan Party or ERISA Affiliate has an obligation to contribute or has any liability, contingent or otherwise or could be assessed withdrawal liability assuming a complete withdrawal from any such multiemployer plan.
Net Cash Proceeds means:
(a) with respect to any sale or disposition by Parent or any of its Subsidiaries of assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of Parent or its
Subsidiaries, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under the Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii) reasonable fees, commissions, and expenses related thereto and required to be paid by Parent or such Subsidiary in connection with such sale or disposition, (iii) taxes paid or payable to any taxing authorities (or tax distributions made to members or shareholders) by Parent or such Subsidiary in connection with such sale or disposition, in each case (other than with respect to tax distributions), to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of Parent or any of its Subsidiaries, and are properly attributable to such transaction; and (iv) all amounts that are set aside as a reserve (A) for adjustments in respect of the purchase price of such assets, (B) for any liabilities associated with such sale or casualty, to the extent such reserve is required by GAAP, and (C) for the payment of unassumed liabilities relating to the assets sold or otherwise disposed of at the time of, or within 30 days after, the date of such sale or other disposition, to the extent that in each case the funds described above in this clause (iv) are (x) deposited into escrow with a third party escrow agent or set aside in a separate Deposit Account that is subject to a Control Agreement in favor of Agent and (y) paid to Agent as a prepayment of the applicable Obligations in accordance with Section 2.4(e) of the Agreement at such time when such amounts are no longer required to be set aside as such a reserve; and
(b) with respect to the issuance or incurrence of any Indebtedness by Parent or any of its Subsidiaries, or the issuance by Parent or any of its Subsidiaries of any Equity Interests, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of Parent or such Subsidiary in connection with such issuance or incurrence, after deducting therefrom only (i) reasonable fees, commissions, and expenses related thereto and required to be paid by Parent or such Subsidiary in connection with such issuance or incurrence, (ii) taxes paid or payable to any taxing authorities by Parent or such Subsidiary in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of Parent or any of its Subsidiaries, and are properly attributable to such transaction.
Notification Event means (a) the occurrence of a reportable event described in Section 4043 of ERISA for which the 30-day notice requirement has not been waived by applicable regulations issued by the PBGC, (b) the withdrawal of any Loan Party or ERISA Affiliate from a Pension Plan during a plan year in which it was a substantial employer as defined in Section 4001(a)(2) of ERISA, (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination, under Section 4041 of ERISA, if the plan assets are not sufficient to pay all plan liabilities, (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC or any Pension Plan or Multiemployer Plan administrator, (e) any other event or condition that would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, (f) the imposition of a Lien pursuant to the IRC or ERISA in connection with any Employee Benefit Plan, (g) the partial or complete withdrawal of any Loan Party or ERISA Affiliate from a Multiemployer Plan (other than any withdrawal that would not constitute an Event of Default under Section 8.16 of the Agreement), (h) any event or condition that results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate or to appoint a trustee to administer a Multiemployer Plan under ERISA, (i) any Pension Plan being in at risk status within the meaning of IRC Section 430(i), (j) any Multiemployer Plan being in endangered status or critical status within the meaning of IRC Section 432(b) or the determination that any Multiemployer Plan is or is expected to
be insolvent or in reorganization within the meaning of Title IV of ERISA, (k) with respect to any Pension Plan, any Loan Party or ERISA Affiliate incurring a substantial cessation of operations within the meaning of ERISA Section 4062(e), (l) the failure of any Pension Plan to meet the minimum funding standards within the meaning of the IRC or ERISA (including Section 412 of the IRC or Section 302 of ERISA), in each case, whether or not waived, (m) the filing of an application for a waiver of the minimum funding standards within the meaning of the IRC or ERISA (including Section 412 of the IRC or Section 302 of ERISA) with respect to any Pension Plan, (n) the failure to make by its due date a required payment or contribution with respect to any Pension Plan or Multiemployer Plan, or (o) any event that results in or could reasonably be expected to result in a liability by a Loan Party or ERISA Affiliate pursuant to Title IV of ERISA.
Obligations means all loans, debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), all amounts charged to the Loan Account pursuant to the Agreement, premiums, liabilities, obligations (including indemnification obligations), fees (including the fees provided in Section 2.10), Lender Group Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, covenants, and duties of any kind and description owing by any Loan Party pursuant to or evidenced by the Agreement or any of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all other expenses or other amounts that Borrower is required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents. Any reference in the Agreement or in the Loan Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.
OFAC means The Office of Foreign Assets Control of the U.S. Department of the Treasury.
Originating Lender has the meaning specified therefor in Section 13.1(e) of the Agreement.
Parent has the meaning specified therefor in the preamble to the Agreement.
Participant has the meaning specified therefor in Section 13.1(e) of the Agreement.
Participant Register has the meaning set forth in Section 13.1(i) of the Agreement.
Patent Security Agreement has the meaning specified therefor in the Security Agreement.
Patriot Act has the meaning specified therefor in Section 4.18 of the Agreement.
PBGC means the Pension Benefit Guaranty Corporation or any successor agency.
Pension Plan means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV or Section 302 of ERISA or Sections 412 or 430 of the Code and which is sponsored, maintained, or contributed to by any Loan Party or ERISA Affiliate or with respect to which any Loan Party or ERISA Affiliate has any liability, contingent or otherwise.
Perfection Certificate means the Perfection Certificate delivered to Agent and the Lenders on the Closing Date, as such certificate may be updated pursuant to Section 6(k) of the Security Agreement, which certificate provides information with respect to the assets of each Loan Party.
Permitted Acquisition means any Acquisition to the extent that each of the following conditions shall have been satisfied:
(a) as of the date of such Permitted Acquisition and immediately after giving effect thereto, no Default or Event of Default shall exist or shall have occurred and be continuing,
(b) (i) the daily average Excess Availability for the thirty (30) day period immediately preceding and, as projected on a pro forma basis (after giving effect to such Permitted Acquisition) for the thirty (30) day period immediately following, such Permitted Acquisition shall not be less than $20,000,000, and (ii) as of the date of such Permitted Acquisition and immediately after giving effect thereto, Excess Availability shall not be less than $20,000,000,
(c) Agent shall have received not less than ten (10) days prior written notice of such Permitted Acquisition, together with such information with respect thereto as the Required Lenders shall request,
(d) the aggregate amount of the consideration (including any deferred purchase price payment, indemnification payment, purchase price adjustment, earn out or similar payment) for any Acquisition shall not exceed $5,000,000 during the term of the Agreement,
(e) the Acquisition shall be with respect to an operating company or division or line of business that engages in a line of business substantially similar, reasonably related or incidental to the business that Borrowers are engaged in,
(f) the Board of Directors of the Person to be acquired shall have duly approved such Acquisition and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition will violate applicable law,
(g) Parent has provided Agent with a certificate of the chief financial officer of Parent, supported by financial statements, certifying that on a pro forma basis, the Loan Parties and their Subsidiaries would have been in compliance with a Secured Leverage Ratio of 4.50:1.00 for the most recently ended 12 fiscal month period ended immediately prior to the proposed date of consummation of such Acquisition, together with a reasonably detailed calculation thereof,
(h) the assets being acquired are located within the United States or Canada, or the Person whose Equity Interests are being acquired is organized in a jurisdiction located within the United States or Canada, except if the aggregate amount(s) of consideration payable in respect of assets located outside the United States or Canada or Equity Interests of a Person organized in a jurisdiction outside the United States or Canada (including deferred purchase price payments, indemnity payments, purchase price adjustments, earn-outs or similar payments) do not exceed $5,000,000 during the term of the Agreement,
(i) the subject assets or Equity Interests, as applicable, are being acquired directly by Parent or one of its Subsidiaries that is a Loan Party and, in connection therewith, such Parent or the applicable Loan Party shall have complied with Section 5.11 or 5.12, as applicable, of the Agreement, and
(j) Administrative Borrower shall have provided Agent with evidence satisfactory to the Required Lenders that each of the conditions contained in this definition have been satisfied.
Permitted Disposition means:
(a) sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete in the ordinary course of business,
(b) sales of Inventory to buyers in the ordinary course of business and the consignment of Inventory to the Government of the United Mexican States in the ordinary course of business pursuant to a written agreement (the DCAM Consignment); provided, that, the maximum value of Inventory at the Government of the United Mexican States at any one time shall not exceed $2,000,000,
(c) the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents,
(d) the non-exclusive licensing or sublicensing of Intellectual Property or other general intangibles (other than the exclusive licenses in effect on the Closing Date as set forth on Schedule L-1) and licenses, leases or subleases of other property (in each case other than Eligible Accounts, Eligible Inventory, Eligible Equipment and Eligible Real Property as defined in the ABL Credit Agreement), in each case, in the ordinary course of business and so long as any such transaction shall not: (i) materially interfere with the business of Parent and its Subsidiaries, (ii) adversely affect, limit or restrict the rights of Agent to use any Intellectual Property of Loan Parties to sell or otherwise dispose of any Inventory or other Collateral, (iii) have a material and adverse effect on the value of such Intellectual Property, or (iv) otherwise adversely limit or interfere in any respect with the use of any such Intellectual Property by Agent in connection with the exercise of its rights or remedies hereunder or under any of the other Loan Documents;
(e) the granting of Permitted Liens,
(f) the sale or discount, in each case without recourse, of Accounts arising in the ordinary course of business, but only in connection with the compromise or collection thereof,
(g) any involuntary loss, damage or destruction of property,
(h) any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or confiscation or requisition of use of property;
(i) the leasing or subleasing of assets of Parent or its Subsidiaries (other than Accounts and Inventory) in the ordinary course of business,
(j) the sale or issuance of Equity Interests by any Subsidiary of Parent to a Loan Party,
(k) the non-exclusive licensing or sublicensing of Intellectual Property pursuant to manufacturing license agreements or technical assistance agreements with certain foreign governments, or otherwise in accordance with the International Traffic in Arms Regulations, in each case so long as any such transaction does not: (i) adversely affect, limit or restrict the rights of Agent to use any Intellectual Property of Loan Parties to sell or otherwise dispose of any Inventory or other Collateral, (ii) have a material and adverse effect on the value of such Intellectual Property, or (iii) otherwise adversely limit or interfere with the use of such Intellectual Property by Agent in connection with the exercise of its rights or remedies hereunder or under any of the other Loan Documents;
(l) the making of a Restricted Payment that is expressly permitted to be made pursuant to the Agreement,
(m) the making of a Permitted Investment,
(n) the sale or other disposition of property by a Loan Party to another Loan Party, and
(o) sales or other dispositions of assets of Parent and its Subsidiaries not otherwise subject to the provisions set forth in this definition, provided, that, as to any such sale or other disposition, each of the following conditions is satisfied:
(i) such transaction does not involve the sale or other disposition of any Intellectual Property, Equity Interest in any Subsidiary or of Accounts or Inventory; and
(ii) the aggregate amount of such dispositions does not exceed $1,000,000 during any fiscal year.
Permitted Holder means the Persons listed on Schedule P-3 to the Agreement.
Permitted Indebtedness means:
(a) Indebtedness evidenced by the Agreement or the other Loan Documents,
(b) Indebtedness set forth on Schedule 4.19 and any Refinancing Indebtedness in respect of such Indebtedness,
(c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness,
(d) endorsement of instruments or other payment items for deposit,
(e) Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of business with respect to surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantee and similar obligations; (ii) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with Permitted Dispositions; and (iii) unsecured guarantees with respect to Indebtedness of Parent or one of its Subsidiaries, to the extent that the Person that is obligated under such guaranty would have been permitted to incur such underlying Indebtedness,
(f) unsecured Indebtedness of Parent or its Subsidiaries that is incurred on the date of the consummation of a Permitted Acquisition solely for the purpose of consummating such Permitted Acquisition so long as (i) no Event of Default has occurred and is continuing or would result therefrom, (ii) such unsecured Indebtedness does not mature prior to the date that is 180 days after the Maturity Date, (iii) the terms of such Indebtedness do not permit Parent or such Subsidiary to make any cash interest payment prior to the Maturity Date and (iv) no amortization payments are required prior to the Maturity Date,
(g) Acquired Indebtedness in an amount not to exceed $4,000,000 outstanding at any one time, and any Refinancing Indebtedness in respect of such Indebtedness,
(h) Indebtedness incurred in the ordinary course of business under performance, surety, statutory, and appeal bonds,
(i) Indebtedness to finance premiums for property, casualty, liability, or other insurance to Parent or any of its Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance,
(j) the incurrence by Parent or its Subsidiaries of Indebtedness under unsecured Hedge Agreements that are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency risks associated with Parents and its Subsidiaries operations and not for speculative purposes,
(k) Indebtedness incurred in respect of credit cards, credit card processing services, debit cards, stored value cards, purchase cards (including so-called procurement cards or P-cards), or treasury or Cash Management Services, in each case, incurred in the ordinary course of business,
(l) unsecured Indebtedness of Parent owing to former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) incurred in connection with the repurchase by Parent of the Equity Interests of Parent that has been issued to such Persons, so long as (i) no Default or Event of Default has occurred and is continuing or would result from the incurrence of such Indebtedness, (ii) such Indebtedness is subordinated to the Obligations on terms and conditions acceptable to the Required Lenders and (iii) the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $500,000,
(m) Indebtedness of Parent or its Subsidiaries arising pursuant to Permitted Intercompany Advances,
(n) Indebtedness arising from (i) agreements of Parent or a Subsidiary providing for adjustment of purchase price, earnout payments or similar obligations, in each case incurred or assumed in connection with a Permitted Acquisition, other than guarantees of Indebtedness incurred by any Person in connection with a Permitted Acquisition, to the extent that the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $1,000,000, or (ii) agreements of Parent or a Subsidiary providing for indemnification and similar obligations, in each case incurred or assumed in connection with a Permitted Acquisition or a Permitted Disposition, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary,
(o) Indebtedness consisting of Permitted Investments,
(p) Indebtedness evidenced by the Senior Note Indenture in an aggregate outstanding principal amount not to exceed $250,000,000, and any Refinancing Indebtedness in respect of such Indebtedness; provided, however, that for the purposes of Refinancing Indebtedness pursuant to this clause (p): (x) to the extent the Borrowers determine to grant a Lien to the holders of such Refinancing Indebtedness, (A) clause (h) of the definition of Refinancing Indebtedness shall not apply, (B) the Lien securing such Refinancing Indebtedness shall have a priority junior to the Obligations under the Term Loans and (C) such Refinancing Indebtedness shall be subject to an intercreditor agreement in form and substance reasonably satisfactory to the Agent and the Required Lenders in their reasonable discretion (it being understood that such intercreditor
agreement shall include a provision that results in all payments on account of such Refinancing Indebtedness being last out or subject to turnover to the Lenders until such time as the Obligations have been paid in full in cash; and (y) to the extent the Borrowers determine not to grant a Lien to the holders of such Indebtedness, the Refinancing Indebtedness shall have a cash interest expense that is less than or equal to the cash interest expense of the Indebtedness being refinanced; together with reasonably detailed supporting calculations, as to the satisfaction of clauses (x) and (y) of the immediately preceding proviso.
(q) [reserved],
(r) Indebtedness incurred by Parent or its Subsidiaries in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance, self-insurance obligations, performance, bid surety and similar bonds and completion guarantees (not for borrowed money), in each case in the ordinary course of business,
(s) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, that such Indebtedness is extinguished with ten Business Days of incurrence,
(t) [reserved],
(u) [reserved],
(v) other unsecured Indebtedness in an aggregate principal amount not to exceed $1,000,000 at any time outstanding,
(w) Indebtedness evidenced by the ABL Credit Agreement and any refinancings thereof in an aggregate principal amount not to exceed $33,000,000 any time outstanding.
Permitted Intercompany Advances means loans (a) made by a Loan Party that is not a Specified Loan Party to another Loan Party that is not a Specified Loan Party and (b) made by a Loan Party that is not a Specified Loan Party to a Specified Loan Party; provided, that, (i) in the case of clauses (a) and (b), Agent shall have received an Intercompany Subordination Agreement as duly authorized, executed and delivered by the parties to any such loans and (ii) in the case of clause (b) only, the aggregate amount of all such loans does not exceed $500,000 at any time outstanding unless otherwise agreed to in writing by the Required Lenders.
Permitted Investments means:
(a) Investments in cash and Cash Equivalents of any Loan Party or other Investments by a Loan Party or a non-Loan Party in any Loan Party,
(b) Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business,
(c) advances made in connection with purchases of goods or services in the ordinary course of business,
(d) Investments received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the ordinary course of business or owing to any Loan Party or any of its
Subsidiaries as a result of Insolvency Proceedings involving an Account Debtor or upon the foreclosure or enforcement of any Lien in favor of any Loan Party or any of its Subsidiaries,
(e) Investments owned by any Loan Party or any of its Subsidiaries on the Closing Date and set forth on Schedule P-1,
(f) guarantees permitted under the definition of Permitted Indebtedness,
(g) Permitted Intercompany Advances,
(h) Equity Interests or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to any Loan Party or any of its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary course of business) or as security for any such Indebtedness or claims,
(i) deposits of cash made in the ordinary course of business to secure performance of operating leases,
(j) Permitted Acquisitions,
(k) Investments resulting from entering into agreements relative to Indebtedness that is permitted under clause (j) of the definition of Permitted Indebtedness,
(l) Investments held by a Person acquired in a Permitted Acquisition to the extent that such Investments were not made in contemplation of or in connection with such Permitted Acquisition and were in existence on the date of such Permitted Acquisition,
(m) [reserved],
(n) the endorsement of instruments for collection or deposit in the ordinary course of business,
(o) deposits of cash for leases, utilities, workers compensation and similar matters in the ordinary course of business,
(p) receivables owing to Parent or any of its Subsidiaries if created or acquired in the ordinary course of business consistent with current practices as of the date hereof,
(q) loans and advances by Parent and its Subsidiaries to independent directors, officers and employees of Parent and its Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $250,000 at any time outstanding,
(r) stock or obligations issued to Parent and its Subsidiaries by any Person (or the representative of such Person) in respect of Indebtedness of such Person owing to Parent and its Subsidiaries in connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person, provided, that, the original of any such stock or instrument evidencing such obligations shall be promptly delivered to Agent, upon the Required Lenders request, together with such stock power, assignment or endorsement by Parent and its Subsidiaries as the Required Lenders may request,
(s) Investments constituting Restricted Payments permitted by Section 6.9 of the Agreement,
(t) Investments made as a result of the receipt of non-cash consideration from a Permitted Disposition,
(u) Investments made in connection with the funding of contributions under any non-qualified retirement plan or similar employee compensation plan in an amount not to exceed the amount of compensation expense recognized by Parent and its Subsidiaries in connection with such plans,
(v) solely to the extent constituting Investments, purchases and acquisitions of inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of intellectual property, in each case in the ordinary course of business,
(w) (i) other Investments in an aggregate outstanding amount not to exceed $500,000 at any time and (ii) other Investments not constituting Permitted Acquisitions made solely with the proceeds of any Excluded Issuances (as described in clause (c)(i) of the definition thereof); provided, that, as of the date of and such Investment and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing; and
(x) Permitted Senior Note Discounted Buybacks.
Permitted Liens means:
(a) Liens granted to, or for the benefit of, Agent to secure the Obligations,
(b) Liens for unpaid Taxes that either (i) are not yet delinquent, or (ii) for which the underlying Taxes are the subject of Permitted Protests,
(c) judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under Section 8.3 of the Agreement,
(d) Liens set forth on Schedule P-2; provided, however, that to qualify as a Permitted Lien, any such Lien described on Schedule P-2 shall only secure the Indebtedness that it secures on the Closing Date and any Refinancing Indebtedness in respect thereof,
(e) any interest or title of a lessor, sublessor or licensor in or to any asset (other than Accounts or Inventory) under any lease, sublease or license entered into by Parent or its Subsidiaries in the ordinary course of business and covering only such asset,
(f) Liens or the interests of lessors under Capital Leases, in each case, as to assets or property, other than Accounts or Inventory, to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset or property purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset or property purchased or acquired or any Refinancing Indebtedness in respect thereof,
(g) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and
not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(h) Liens on cash deposited to secure Parents and its Subsidiaries obligations in connection with workers compensation or other unemployment insurance,
(i) Liens on cash deposited to secure Parents and its Subsidiaries obligations in connection with the making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of money,
(j) Liens on cash deposited to secure Parents and its Subsidiaries reimbursement obligations with respect to surety or appeal bonds obtained in the ordinary course of business,
(k) with respect to any Real Property, encumbrances, ground leases, easements or reservations of, or rights of others (including any reservations, limitations, provisos and conditions expressed in any original grant from the Crown with respect of any Real Property owned by Colt Canada) for, licensees, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning, building codes or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) in each case as to the use of Real Property or Liens on Real Property incidental to the conduct of the business of Parent or its Subsidiaries or to the ownership of its Real Property that (in each case) do not individually or in the aggregate materially adversely affect the value of any such Real Property or materially impair, or interfere with, the use or operation of such Real Property,
(l) non-exclusive licenses of Intellectual Property to the extent permitted under clause (k) of the definition of Permitted Disposition, in the ordinary course of business,
(m) Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted Refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness,
(n) rights of setoff or bankers liens upon deposits of cash in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such deposit accounts in the ordinary course of business,
(o) Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness,
(p) Liens in favor of customs, revenue or other tax authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods,
(q) Liens on any cash earnest money deposits made by Parent or any of its Subsidiaries in connection with any letter of intent or purchase agreement with respect to an acquisition or disposition of assets not prohibited by the terms of the Agreement,
(r) [reserved],
(s) any Lien existing on any asset or a Person existing at the time such Person becomes a Subsidiary after the date of the Agreement; 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 Lien shall not apply to any other assets of Parent or any Subsidiary (other than proceeds of such asset), (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and Refinancing Indebtedness in respect thereof, (iv) neither (x) the aggregate outstanding principal amount of the obligations secured thereby nor (y) the aggregate fair market value (determined as of the date such Person becomes a Subsidiary) of the assets subject thereto exceeds (as to Parent and all Subsidiaries) $1,000,000 at any one time, and (v) such Lien shall not extend or attach to any Inventory or Accounts,
(t) Liens arising from precautionary Code financing statement filings regarding operating leases entered into by Parent and its Subsidiaries in the ordinary course of business,
(u) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into in the ordinary course of business, including Inventory consigned pursuant to the DCAM Consignment described in clause (b) of the definition of Permitted Dispositions,
(v) [reserved],
(w) Liens securing Permitted Indebtedness pursuant to clause (g) of the definition or Permitted Indebtedness; provided, that, such Liens shall be subordinated to the Liens securing the Obligations pursuant to an intercreditor agreement, in form and substance satisfactory to the Required Lenders, duly executed and delivered by each holder of such Liens and acknowledged by each grantor of such Liens,
(x) with respect to any Real Property, minor survey exceptions, minor encumbrances, ground leases, easements or reservations or, or rights of others for, licenses, rights-of-way servitudes, sewers, restrictive consents, electric lines, drains, telegraph and telephone and cable television lines, gas and oil pipelines and other similar purposes, or zoning, building codes or other restrictions (including, without limitation, minor defects or irregularities in title and similar encumbrances) which (in each case) were not incurred in connection with Indebtedness and which do not individually or in the aggregate materially adversely affect the value of such Real Property or materially impair, interfere with, the use or operation of such Real Property,
(y) leases, subleases, licenses or sublicenses to the extent permitted by clause (d) of the definition of Permitted Dispositions,
(z) any Lien securing Indebtedness permitted by clause (p)(x) of the definition of Permitted Indebtedness; provided, that, such Lien satisfies the criteria specified in such clause,
(aa) Liens securing Permitted Indebtedness pursuant to clause (w) of the definition or Permitted Indebtedness, provided that such Liens are subject to the terms of the ABL Intercreditor Agreement; and
(bb) any Lien arising out of a prejudgment remedy to the extent ordered by the court overseeing any Covered Claim, including any prejudgment writ of attachment, solely to the extent that each of the following conditions have been satisfied, as certified by Parent within three (3) Business Days of the date any such prejudgment remedy is ordered by such Court: (i) the allocated amount available for satisfaction of such Covered Claim in the Employee Litigation Escrow Fund (the Allocated Escrow) shall not be less than the amount specified in such
prejudgment writ of attachment (collectively, the Claim Amount), (ii) the Employee Litigation Escrow Fund shall be valid and in full force and effect at all times that such Covered Claim is secured by such Lien, (iii) to the extent the Claim Amount exceeds the Allocated Escrow, the Loan Parties shall have posted bonds, cash collateral or other financial assurances acceptable to such Court sufficient to satisfy the amount specified in such prejudgment writ of attachment (the Additional Security), and (iv) such Lien shall be junior to the Liens securing the Obligations pursuant to applicable law.
Notwithstanding anything to the contrary contained in any of the Loan Documents, Permitted Liens shall not include any Liens on assets of any Loan Party which secure any Indebtedness or other obligations of any Foreign Subsidiary, except (x) as permitted by clauses (a) and (w) of the definition of Permitted Liens, or (y) as consented to in writing by the Required Lenders.
Permitted Protest means the right of Parent or any of its Subsidiaries to protest any Lien (other than any Lien that secures the Obligations), Taxes, or rental payment, provided that (a) a reserve or provision with respect to such obligation is established on Parents or its Subsidiaries books and records in such amount as is required under GAAP and (b) such Lien or other obligations are being contested in good faith by appropriate proceedings diligently conducted and such proceedings operate to stay the enforcement of such Lien or any Lien securing any such obligations.
Permitted Purchase Money Indebtedness means, as of any date of determination, Purchase Money Indebtedness incurred after the Closing Date in an aggregate principal amount outstanding at any one time not in excess of $1,000,000.
Permitted Senior Notes Discounted Buyback has the meaning specified therefore in Section 6.7(a)(vii) of this Agreement.
Permitted Tax Distributions means, for any period, the amount of tax distributions that the Loan Parties are permitted to make, and actually make, to Parents equityholders pursuant to Section 6.9(e) of the Agreement.
Person means natural persons, corporations, companies, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, Governmental Authorities or otherwise.
PIK Interest has the meaning specified therefore in Section 2.6(b) of the Agreement.
PPSA means the Personal Property Security Act (Ontario), the Civil Code of Québec or any other applicable Canadian Federal, Provincial or Territorial statute pertaining to the granting, perfecting, priority or ranking of security interests, liens, hypothecs on personal property, and any successor statutes, together with any regulations thereunder, in each case as in effect from time to time. References to sections of the PPSA shall be construed to also refer to any successor sections.
Pro Rata Share means, as of any date of determination: with respect to a Lenders obligation to make all or a portion of the Term Loan and right to receive payments of principal, interest, fees, costs, and expenses with respect thereto, the percentage obtained by dividing (a) the outstanding principal amount of the Term Loan owed to such Lender, by (b) the aggregate outstanding principal amount of the Term Loan.
Projections means Parents forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Parents historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.
Purchase Money Indebtedness means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.
Qualified Equity Interests means and refers to any Equity Interests issued by Parent (and not by one or more of its Subsidiaries) that are not Disqualified Equity Interests.
Real Property means any estates or interests in real property now owned or hereafter acquired by Parent or its their Subsidiaries and the improvements thereto.
Receiver has the meaning specified therefore in Section 9.3 of the Agreement.
Record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
Refinancing Indebtedness means refinancings, renewals, or extensions of Indebtedness so long as:
(a) Agent shall have received not less than five (5) Business Days prior written notice of the intention to incur such Refinancing Indebtedness, which notice shall set forth in reasonable detail satisfactory to the Required Lenders, the amount of such Indebtedness, the schedule of repayments and maturity date with respect thereto and such other information with respect thereto as the Required Lenders may request,
(b) promptly upon the Required Lenders request, Agent shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, as duly authorized, executed and delivered by the parties thereto,
(c) the Refinancing Indebtedness shall have a Weighted Average Life to Maturity and a final maturity equal to or greater than the Weighted Average Life to Maturity and the final maturity, respectively, of the Indebtedness being extended, refinanced, replaced, or substituted for,
(d) the Refinancing Indebtedness shall rank in right of payment no more senior than, and be at least subordinated (if subordinated) to, the Obligations as the Indebtedness being extended, refinanced, replaced or substituted for,
(e) the Refinancing Indebtedness shall not include terms and conditions with respect to any Borrower or Guarantor which are more burdensome or restrictive in any material respect than those contained in this Agreement, taken as a whole,
(f) such Indebtedness incurred by any Borrower or Guarantor shall be at rates and with fees or other charges that are commercially reasonable,
(g) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of the Indebtedness so extended, refinanced, replaced or substituted for (plus the
amount of reasonable refinancing fees and expenses incurred in connection therewith outstanding on the date of such event), and
(h) if the Indebtedness being extended, refinanced, replaced or substituted for is secured by any assets, the Refinancing Indebtedness shall not be secured other than by such assets, provided, that, such security interests (if any) with respect to the Refinancing Indebtedness shall have a priority no more senior than, and be at least as subordinated, if subordinated (on terms and conditions substantially similar to the subordination provisions applicable to the Indebtedness so extended, refinanced, replaced or substituted for or as is otherwise acceptable to the Required Lenders) as the security interest with respect to the Indebtedness so extended, refinanced, replaced or substituted for.
Register has the meaning set forth in Section 13.1(h) of the Agreement.
Registered Loan has the meaning set forth in Section 13.1(h) of the Agreement.
Related Fund means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
Release means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater.
Remedial Action means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a Release or threatened Release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials or violations of Environmental Law, in each case as required by Environmental Laws or Governmental Authority.
Repayment Fee means 3.50% times the outstanding principal balance of the Term Loan to be prepaid on such date (or if the Term Loan is being prepaid in full, the outstanding principal balance of the Term Loan on the date immediately prior to the date of determination).
Replacement Lender has the meaning specified therefor in Section 2.13(b) of the Agreement.
Report has the meaning specified therefor in Section 15.16 of the Agreement.
Required Availability means that Excess Availability exceeds $15,000,000.
Required Lenders means, at any time, Lenders whose aggregate Pro Rata Shares exceed 50.0%.
Required Prepayment Date has the meaning specified therefor in Section 2.4(e)(vii) of the Agreement.
Responsible Officer means any chief executive officer, president, senior vice president, executive vice president, chief operating officer, chief financial officer, chief accounting officer, general counsel, treasurer or other similar officer of any Borrower.
Restricted Payment means to the declaration or payment of any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests of Parent or any of its Subsidiaries, 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 or on account of any return of capital to Parent or such Subsidiarys stockholders, partners or members (or the equivalent Person thereof), or payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire any Equity Interests of Parent or any of its Subsidiaries, or any setting apart of funds or property for any of the foregoing.
Sanctioned Entity means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.
Sanctioned Person means a person named on the list of Specially Designated Nationals maintained by OFAC.
S&P has the meaning specified therefor in the definition of Cash Equivalents.
SEC means the United States Securities and Exchange Commission and any successor thereto.
Securities Account means a securities account (as that term is defined in the Code).
Secured Funded Indebtedness means, as of any date of determination, all secured Indebtedness for borrowed money or letters of credit of Parent, determined on a consolidated basis in accordance with GAAP, including, in any event, but without duplication, with respect to Parent and its Subsidiaries, the Indebtedness under the ABL Loan Documents, the Term Loan, the amount of their Capitalized Lease Obligations, and the amount of their Permitted Purchase Money Indebtedness; provided, however, that Secured Funded Indebtedness shall not include any Indebtedness of Parent and its Subsidiaries which has Liens junior to the Liens securing, the Obligations.
Secured Leverage Ratio means, as of any date of determination the ratio of (a) (i) the amount of Borrowers Secured Funded Indebtedness as of such date, less (ii) the aggregate amount of Unrestricted Cash on such date, to (b) Consolidated EBITDA for the 12 fiscal month period ended as of such date.
Securities Act means the Securities Act of 1933, as amended from time to time, and any successor statute.
Security Agreement means a security agreement, dated as of even date with the Agreement, in form and substance satisfactory to Agent and the Required Lenders, executed and delivered by the US Loan Parties to Agent.
Security Documents means any Canadian Security Document, any Dutch Security Document, any other Foreign Security Document, any US Security Document, and any other security document entered into by a Loan Party in favor of Agent.
Senior Note Indenture means the Indenture, dated as of November 10, 2009, by and among Parent, Colt Finance Corp. and Wilmington Trust FSB, as trustee with respect to 8.75% Senior Notes due 2017, as may be amended from time to time in accordance with the terms thereof.
Senior Note Indenture Secured Debt Cap means, on any date, the maximum principal amount of all Advances, Swing Line Loans, Letter of Credit Usage and Overadvances (as such terms are defined in the ABL Intercreditor Agreement), plus the Term Loan permitted to be incurred by the Loan Parties in accordance with, and without contravening Section 3.2(b)(2) of the Senior Note Indenture and remain outstanding on a fully secured basis pursuant to clause (1) of the definition of Permitted Liens (as defined in the Senior Note Indenture) in accordance with Section 3.6 of the Senior Note Indenture.
Senior Notes means the 8.75% Senior Notes due 2017 issued under the Senior Note Indenture.
Solvent means, at any time with respect to any Person, that at such time such Person is able to pay its debts as they become due in the ordinary course.
Specified Canadian Pension Plan means any Canadian Pension Plan which contains a defined benefit provision, as defined in subsection 147.1(1) of the Income Tax Act (Canada).
Specified Government Property means any and all property loaned, leased or otherwise provided to a Loan Party pursuant to or in connection with a Specified Government Property Loan Agreement.
Specified Government Property Loan Agreement means, individually and collectively, (a) the Loan Agreement, executed on or about May 27, 2009, between Colt Canada and Department of National Defence (Canada), and (b) any other agreement between any Loan Party and the national government of Canada or any of its agencies or instrumentalities pursuant to which the national government of Canada or any of its agencies or instrumentalities lends, leases or otherwise provides goods to a Loan Party to be used by a Loan Party for purposes of performing work pursuant to a supply or similar agreement between a Loan Party and the national government of Canada or any of its agencies or instrumentalities.
Specified Loan Party means any Loan Party (a) that is not formed, organized and/or incorporated under the laws of the United States of America, any state thereof, the District of Columbia, Canada (or any province or territory thereof) or the Netherlands and (b) for which Agent has provided notice to Administrative Borrower that such Loan Party is a Specified Loan Party.
Specified Transaction means (i) any Investment permitted under this Agreement that results in a Person becoming a Subsidiary, (ii) any Permitted Acquisition, (iii) any sale, disposition or transfer that results in a Subsidiary ceasing to be a Subsidiary of Parent or any, in each case, whether by merger, consolidation, amalgamation or otherwise, (iv) any incurrence or repayment of Indebtedness (other than Indebtedness incurred or repaid under any revolving credit facility or line of credit, unless such Indebtedness has been permanently repaid and has not been replaced), or (iv) any other transaction that by the terms of this Agreement requires any financial ratio (or component definition) to be calculated on a pro forma basis.
Sponsor means Sciens Management LLC.
Subsidiary of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the Equity Interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.
Tax Lender has the meaning specified therefor in Section 14.2(a) of the Agreement.
Taxes means any taxes, levies, imposts, duties, assessments or other similar charges now or hereafter imposed by any Governmental Authority, and all interest, penalties or similar liabilities with respect thereto.
Technical Data Package or TDP means data that is used in the production of firearms or accessories for firearms, including, but not limited to, engineering drawings, three dimensional CAD models, associated lists, material specifications, product specifications, tooling and gauging, including associated drawings and models, assembly instructions, fixtures, including associated drawings, engineering change information, previous revision information, process specifications and standards, as may be revised from time to time.
Term Loan means, collectively, the loans made pursuant to Section 2.2 of the Agreement.
Term Loan Amount means $70,000,000.00, including, without limitation, any increase in the principal amount of Term Loans as a result of PIK Interest.
Term Loan Commitment means, for any Lender, its obligation to make a portion of the Term Loan in the principal amount shown on Schedule C-1 of the Agreement.
Term Note means a promissory note of Borrower payable to the order of a Lender in substantially the form of Exhibit B-1 of the Agreement, evidencing indebtedness of Borrower to each Lender pursuant to the Term Loan.
Term Priority Collateral has the meaning specified therefor in the ABL Intercreditor Agreement.
Trademark Security Agreement has the meaning specified therefor in the Security Agreement.
Treasury Rate means, as of the applicable prepayment date, the yield to maturity as of such prepayment date of the United States Treasury securities with a constant maturity most nearly equal to the period from such redemption date to the Maturity Date; provided, however, that if no published maturity exactly corresponds with such date, then the Treasury Rate shall be interpolated or extrapolated on a straight-line basis from the arithmetic mean of the yields for the next shortest and next longest published maturities; provided, further, however, that if the period from such redemption date to the Maturity Date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
UCC Filing Authorization Letter means a letter duly executed by each Loan Party authorizing Agent to file appropriate financing statements on Form UCC-1 in such office or offices as may be necessary or, in the opinion of Agent or the Required Lenders, desirable to perfect the security interests purported to be created by each US Security Document.
Underlying Debt means, in relation to a Loan Party and at any given time, each Obligation (whether present or future, actual or contingent) owing by such Loan Party to a Finance Party under the Loan Documents (including, for the avoidance of doubt, any change or increase in those obligations pursuant to or in connection with any amendment or supplement or restatement or novation of any Loan Document, in each case whether or not anticipated as of the date of this Agreement) excluding that Loan Partys Dutch Parallel Debt.
United States means the United States of America.
Unrestricted Cash means cash or Cash Equivalents of any Loan Party organized under the laws United States or Canada that are not subject to any express contractual restrictions on the application thereof (it being expressly understood and agreed that, for the avoidance of doubt, affirmative and negative covenants and events of default that do not expressly restrict the application of such cash or Cash Equivalents shall not constitute express contractual restrictions for purposes of this definition) and not subject to any Lien (other than Liens created by the Loan Documents, non-consensual Liens permitted by Section 6.3 and (whether or not consensual) Liens permitted by clauses (w), (z) and (aa) of the definition of Permitted Liens); provided; however; that for the purposes of this definition the cash or Cash Equivalents of any Loan Party organized under the laws of Canada shall be net of out of pocket costs or fees and applicable taxes, necessary to repatriate such cash determined by Parent in good faith.
US Dollar Equivalent means at any time (a) as to any amount denominated in US Dollars, the amount thereof at such time, and (b) as to any amount denominated in any other currency, the equivalent amount in US Dollars calculated by Agent in good faith at such time using the exchange rate in effect on the Business Day of determination.
US Dollars, US$ and $ shall each mean lawful currency of the United States of America.
US Loan Party and US Loan Parties means, individually and collectively, each Loan Party organized under the laws of the United States.
US Security Documents means the Security Agreement, any Copyright Security Agreement, any Patent Security Agreement, any Trademark Security Agreements, any Mortgage, and each other document identified on Schedule S (as such schedule may be amended or supplemented by Agent (at the written direction of the Required Lenders) to add additional US Security Documents in connection with in connection with the Loan Documents), and such other mortgages, debentures, charges, pledges, security agreements, joinder agreements, documents and instruments as may be required by the Required Lenders.
VAT means Value Added Tax imposed in Canada (including Goods and Services Tax, Harmonized Sales Tax and Quebec Sales Tax).
Voidable Transfer has the meaning specified therefor in Section 17.8 of the Agreement.
Waivable Mandatory Prepayment has the meaning specified therefor in Section 2.4(e)(vii) of the Agreement.
Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding principal amount of such Indebtedness into (b) the total of the product obtained by multiplying (c) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (d) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment.
Exhibit 10.2
[Execution]
AMENDMENT NO. 6 TO CREDIT AGREEMENT AND EXTENSION
AMENDMENT NO. 6 TO CREDIT AGREEMENT AND EXTENSION, dated as of November 12, 2014 (this Amendment No. 6), is by and among Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as agent for the Lenders (as hereinafter defined) pursuant to the Credit Agreement as defined below (in such capacity, together with its successors and assigns, and any replacement, in such capacity, Agent), the parties to the Credit Agreement as lenders (individually, each a Lender and collectively, Lenders), Colt Defense LLC, a Delaware limited liability company (Colt Defense), Colt Canada Corporation, a Nova Scotia corporation (Colt Canada), Colts Manufacturing Company LLC, a Delaware limited liability company (CMC and together with Colt Defense and Colt Canada, each individually, a Borrower and collectively, Borrowers), New Colt Holding Corp., a Delaware corporation (New Colt), Colt Finance Corp., a Delaware corporation (Colt Finance), Colt Defense Technical Services LLC, a Delaware limited liability company (CDTS) and Colt International Coöperatief U.A., a cooperative formed under Dutch law (Dutch Holdings and, together with New Colt, Colt Finance and CDTS, each individually a Guarantor and collectively, Guarantors). All terms used herein that are defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Agent, Lenders, Borrowers and Guarantors are parties to financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Credit Agreement dated as of September 29, 2011 by and among Agent, Lenders, Borrowers and the guarantors party thereto, as amended by Amendment No. 1 to Credit Agreement and Waiver, dated as of February 24, 2012, Amendment No. 2 to Credit Agreement and Consent, dated as of March 22, 2013, Amendment No. 3 to Credit Agreement and Consent, dated as of June 19, 2013, Amendment No. 4 to Credit Agreement, dated as of July 12, 2013 (as amended by the First Amendment to Amendment No. 4 to Credit Agreement, dated as of October 4, 2013, Second Amendment to Amendment No. 4 to Credit Agreement, dated as of January 31, 2014, and Third Amendment to Amendment No. 4 to Credit Agreement, dated as of April 30, 2014), and Amendment No. 5 to the Credit Agreement and Extension, dated as of August 5, 2014 (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced, the Credit Agreement) and the other Loan Documents;
WHEREAS, the Loan Parties have requested that Agent and the Lenders amend certain terms and conditions of the Credit Agreement and agree to certain extensions;
WHEREAS, Agent and Lenders are willing to agree to such amendments and to provide such extensions on the terms and subject to the conditions contained herein; and
WHEREAS, by this Amendment No. 6 Agent, Lenders, Borrowers and Guarantors intend to evidence such extensions and the amendments set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein or in the Credit Agreement or any of the other Loan Documents, the following terms shall have the meanings given to them below and the Credit Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following:
(i) Amendment No. 6 shall mean Amendment No. 6 to Credit Agreement and Extension by and among Borrowers, Guarantors, Agent and Lenders, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced.
(ii) Amendment No. 6 Effective Date shall mean the date on which all conditions precedent to the effectiveness of Amendment No. 6 have been satisfied or waived.
(b) Interpretation. For purposes of this Amendment No. 6, all terms used herein which are not otherwise defined herein, including but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Credit Agreement as amended by this Amendment No. 6.
2. Extension of Time to Deliver Certain Monthly Financial Statements. Notwithstanding anything contained in Section 5.1 or Schedules 5.1(a) or 5.1(b) of the Credit Agreement to the contrary, Agent and Required Lenders agrees that Borrowers and Guarantors may deliver the monthly financial statements, reports and other items required pursuant to Section 5.1 and Schedules 5.1(a) or 5.1(b) of the Credit Agreement in respect of the month and fiscal quarter ended September 30, 2014 on or before November 21, 2014. Acknowledgment. Each Borrower and Guarantor (collectively, Loan Parties and each, a Loan Party) acknowledges that the Fixed Charge Coverage Ratio of Parent and its Subsidiaries for the period of four consecutive fiscal quarters ended on or about September 28, 2014 was less than 1.00:1.00. The Loan Parties agree that in accordance with Section 3.2 of the Credit Agreement, Lenders are not obligated to make Advances or to extend any other credit if a Compliance Period exists or to the extent that such Advance or extension of credit would cause a Compliance Period to exist. Representations and Warranties. Each Loan Party, jointly and severally, hereby represents and warrants to Lender Group as follows: This Amendment No. 6 and each of the documents, instruments and agreements executed and delivered in connection herewith (collectively, with this Amendment No. 6, the Amendment Documents) have been duly authorized, executed and delivered by all necessary action of each Loan Party party hereto and thereto and constitutes the legal, valid and binding obligations of each such Loan Party party thereto enforceable against each Loan Party in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, moratorium or similar laws relating to or limiting creditors rights generally;
(b) The execution, delivery, and performance by each Loan Party of this Amendment and each other Amendment Document to which it is a party and the
consummation of the transactions contemplated hereby and thereby do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect where the failure to obtain the foregoing has or could reasonably be expected to have a Material Adverse Change;
(c) As to each Loan Party, the execution, delivery, and performance by such Loan Party of this Amendment No. 6 and each other Amendment Document to which it is a party and the transactions contemplated hereby and thereby do not and will not (i) violate any provision of federal, provincial, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, where such violation has or could reasonably be expected to have a Material Adverse Change, (ii) violate any provisions of the Governing Documents of any Loan Party or its Subsidiaries, (iii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Loan Party or its Subsidiaries where any such conflict, breach or default has or could individually or in the aggregate reasonably be expected to have a Material Adverse Effect,(iv) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (v) require any approval of any holders of Equity Interests of a Loan Party or any approval or consent of any Person under any Material Contract of any Loan Party, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to have a Material Adverse Change; and
(d) No Default or Event of Default has occurred and is continuing.
5. Conditions Precedent. The amendment and extension provided for herein shall only be effective upon the receipt by Agent of the following:
(a) counterparts of this Amendment No. 6, duly authorized, executed and delivered by Borrowers, Guarantors and Required Lenders; and
(b) a true and correct copy of an amendment and extension to the Term Loan Agreement, in form and substance reasonably satisfactory to Agent, duly authorized, executed and delivered by the parties thereto, which shall be in full force and effect.
6. General.
(a) Effect of this Amendment. Except as expressly provided herein or in the other Amendment Documents, no other changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. On and after the Amendment No. 6 Effective Date each Amendment Document shall for all purposes constitute a Loan Document.
(b) Governing Law. THE VALIDITY OF THIS AMENDMENT NO. 6, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE
RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(c) Binding Effect. This Amendment No. 6 and each of the other Amendment Documents, shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto.
(d) Counterparts, etc. Each Amendment Document may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same agreement. Delivery of an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of such Amendment Document. Any party delivering an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of such Amendment Document but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of such Amendment Document.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 6 to be duly executed and delivered by their authorized officers as of the day and year first above written.
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COLT DEFENSE LLC | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT FINANCE CORP. | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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NEW COLT HOLDING CORP. | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLTS MANUFACTURING COMPANY LLC | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT DEFENSE TECHNICAL SERVICES LLC | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT CANADA CORPORATION | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT INTERNATIONAL COÖPERATIEF U.A. | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
[Signature Page to Amendment No. 6 to Credit Agreement and Extension]
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AGENT AND LENDERS | |
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WELLS FARGO CAPITAL FINANCE, LLC, as Agent and as a Lender | |
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By: |
/s/ William Williams |
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Name: William Williams |
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Title: Vice President |
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Lender | |
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By: |
/s/ Carmela Massari |
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Name: Carmela Masari |
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Title: Senior Vice President |
[Signature Page to Amendment No. 6 to Credit Agreement and Extension]
Exhibit 10.3
[Execution]
AMENDMENT NO. 7 TO CREDIT AGREEMENT
AMENDMENT NO. 7 TO CREDIT AGREEMENT, dated as of November 17, 2014 (this Amendment No. 7), is by and among Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as agent for the Lenders (as hereinafter defined) pursuant to the Credit Agreement as defined below (in such capacity, together with its successors and assigns, and any replacement, in such capacity, Agent), the parties to the Credit Agreement as lenders (individually, each a Lender and collectively, Lenders), Colt Defense LLC, a Delaware limited liability company (Colt Defense), Colt Canada Corporation, a Nova Scotia corporation (Colt Canada), Colts Manufacturing Company LLC, a Delaware limited liability company (CMC and together with Colt Defense and Colt Canada, each individually, a Borrower and collectively, Borrowers), New Colt Holding Corp., a Delaware corporation (New Colt), Colt Finance Corp., a Delaware corporation (Colt Finance), Colt Defense Technical Services LLC, a Delaware limited liability company (CDTS) and Colt International Coöperatief U.A., a cooperative formed under Dutch law (Dutch Holdings and, together with New Colt, Colt Finance and CDTS, each individually a Guarantor and collectively, Guarantors). All terms used herein that are defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Agent, Lenders, Borrowers and Guarantors are parties to financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Credit Agreement dated as of September 29, 2011 by and among Agent, Lenders, Borrowers and the guarantors party thereto, as amended by Amendment No. 1 to Credit Agreement and Waiver, dated as of February 24, 2012, Amendment No. 2 to Credit Agreement and Consent, dated as of March 22, 2013, Amendment No. 3 to Credit Agreement and Consent, dated as of June 19, 2013, Amendment No. 4 to Credit Agreement, dated as of July 12, 2013 (as amended by the First Amendment to Amendment No. 4 to Credit Agreement, dated as of October 4, 2013, Second Amendment to Amendment No. 4 to Credit Agreement, dated as of January 31, 2014, and Third Amendment to Amendment No. 4 to Credit Agreement, dated as of April 30, 2014), Amendment No. 5 to Credit Agreement and Extension, dated as of August 5, 2014, and Amendment No. 6 to Credit Agreement and Extension, dated as of November 12, 2014 (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced, the Credit Agreement) and the other Loan Documents;
WHEREAS, the Loan Parties have advised that Parent and certain of its affiliates will receive a term loan from the lenders under the Term Loan Agreement in the principal amount of $70,000,000 on the terms and conditions set forth in the Term Loan Agreement, dated as of the date hereof, among Parent, certain affiliates of Parent, the lenders party thereto and Wilmington Savings Fund Society, FSB, as agent;
WHEREAS, the Loan Parties have further advised that they intend to incur certain Indebtedness and use the proceeds thereof to refinance all of the Indebtedness arising under or in connection with the Term Loan Agreement, dated as of July 12, 2013, by and among Cortland
Capital Market Services LLC, as agent, the lenders party thereto, and Parent and certain of its affiliates (as amended or modified prior to the date hereof, the Existing Term Loan Facility);
WHEREAS, in connection with the foregoing, Borrowers and Guarantors have requested that certain amendments be made to the Credit Agreement and Agent and Lenders are willing to make such amendments, subject to the terms and subject to the conditions contained herein; and
WHEREAS, by this Amendment No. 7 Agent, Lenders, Borrowers and Guarantors intend to evidence such amendments.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. Schedule 1.1 of the Credit Agreement is hereby amended to include, in addition and not in limitation, each of the following definitions:
(i) Amendment No. 7 shall mean Amendment No. 7 to Credit Agreement by and among Borrowers, Guarantors, Agent and Lenders, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced.
(ii) Amendment No. 7 Effective Date shall mean the date on which all conditions precedent to the effectiveness of Amendment No. 7 have been satisfied or waived.
(iii) Availability Block has the meaning specified therefor in the definition of Cash Dominion Period.
(iv) Closing Date Transactions shall mean, collectively, the transactions contemplated by the Loan Documents and the Term Loan Documents, as amended in connection with each of the foregoing.
(v) Term Loan Debt Amount shall mean $70,000,000; provided, that, the Term Loan Debt Amount may be increased to an amount not in excess of $105,000,000 if and to the extent that, as of the date of such increase and immediately after giving effect thereto, the Loan Parties are in compliance with the terms of Section 6.14 hereof.
(b) Amendments to Definitions.
(i) Canadian Excess Availability. The definition of Canadian Excess Availability is hereby amended by deleting the phrase a Compliance Period,.
(ii) Cash Dominion Period. The definition of Cash Dominion Period in Section 1.1 of the Credit Agreement is hereby amended by deleting clause (b) in its entirety and replacing it with the following: (b) commencing on the date that
Excess Availability, after deducting therefrom the amount set forth in Section 7(a) of this Agreement (the Availability Block), is less than $1,000,000 and ending on the date that Excess Availability, after deducting therefrom the Availability Block, has been greater than $1,000,000 for any consecutive sixty (60) day period thereafter; provided, that, a Cash Dominion Period may not end as contemplated by this clause (b) more than two (2) times during the term of this Agreement.
(iii) Compliance Period. The definition of Compliance Period in Section 1.1 of the Credit Agreement is hereby amended by deleting such definition in its entirety.
(iv) Intercreditor Agreement. The definition of Intercreditor Agreement in Section 1.1 of the Credit Agreement is hereby amended by deleting such definition in its entirety and replacing it with the following:
Intercreditor Agreement means the Intercreditor Agreement, dated as of November 17, 2014, by and between Agent and Term Loan Agent, as acknowledged and agreed to by Borrowers and Guarantors, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.
(v) Permitted Indebtedness. The definition of Permitted Indebtedness in Section 1.1 of the Credit Agreement is hereby amended by (a) deleting $50,000,000 from clause (w) thereof and replacing it with the Term Loan Debt Amount, and (b) deleting the comma appearing at the end of clause (p) thereof and replacing it with following:
; provided, however, that for purposes of Refinancing Indebtedness pursuant to this clause (p): (x) to the extent the Borrowers determine to grant a Lien to the holders of such Refinancing Indebtedness, (A) clause (h) of the definition of Refinancing Indebtedness shall not apply, (B) the Lien securing such Refinancing Indebtedness shall have a priority junior to the Lien securing the Obligations and (C) such Refinancing Indebtedness shall be subject to an intercreditor agreement in form and substance satisfactory to the Agent and the Required Lenders in their sole discretion (it being understood that such intercreditor agreement shall include a provision that results in all payments on account of such Refinancing Indebtedness being last out or subject to turnover to the Lenders until such time as the Obligations have been paid in full in cash; and (y) to the extent the Borrowers determine not to grant a Lien to the holders of such Indebtedness, the Refinancing Indebtedness shall have a cash interest expense that is less than or equal to the cash interest expense of the Indebtedness being refinanced; together with reasonably detailed supporting calculations, as to the satisfaction clauses (x) and (y) of the immediately preceding proviso.
(vi) Permitted Liens. The definition of Permitted Liens in Section 1.1 of the Credit Agreement is hereby amended by (a) deleting and appearing at the end of clause (aa) thereof, (b) deleting the period appearing at the end of
clause (bb) thereof and replacing it with , and and (c) adding the following at the end of such definition:
(cc) any Lien securing Indebtedness permitted by clause (p)(x) of the definition of Permitted Indebtedness; provided, that, such Lien satisfies the criteria specified in such clause.
(vii) Senior Note Indenture Secured Debt Cap. The definition of Senior Note Indenture Secured Debt Cap in Section 1.1 of the Credit Agreement is hereby amended by deleting such definition in its entirety and replacing it with the following:
Senior Note Indenture Secured Debt Cap means, on any date, the maximum principal amount of all Advances, Swing Loans, Letter of Credit Usage, Overadvances, Term Loan Debt and any other Indebtedness permitted under clause (f) of the definition of Permitted Indebtedness which is permitted to be incurred by the Loan Parties and remain outstanding on a fully secured basis as to the assets of the Loan Parties pursuant to the Senior Note Indenture or under any agreement governing or evidencing any Refinancing Indebtedness in respect of Indebtedness under the Senior Note Indenture.
(viii) Solvent. The definition of Solvent in Section 1.1 of the Credit Agreement is hereby amended by deleting such definition in its entirety and replacing it with the following:
Solvent means, at any time with respect to any Person, that at such time such Person is able to pay its debts as they become due in the ordinary course.
(ix) Term Loan Agent. The definition of Term Loan Agent in Section 1.1 of the Credit Agreement is hereby amended by deleting the reference to Cortland Capital Market Services LLC therein and replacing it with Wilmington Savings Fund Society, FSB.
(x) Term Loan Agreement. The definition of Term Loan Agreement in Section 1.1 of the Credit Agreement is hereby amended by deleting the reference to July 12, 2013 and replacing it with November 17, 2014.
(xi) US Excess Availability. The definition of US Excess Availability is hereby amended by deleting the phrase a Compliance Period,.
(c) Interpretation. For purposes of this Amendment No. 7, all terms used herein which are not otherwise defined herein, including but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Credit Agreement as amended by this Amendment No. 7.
2. Fees. Section 2.10(c) of the Credit Agreement is hereby amended and restated in its entirety as follows:
(c) Early Termination Fee. In consideration of the agreements set forth in Amendment No. 7, if for any reason this Agreement is terminated on or prior to the first anniversary of the Amendment No. 7 Effective Date, in view of the impracticality and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lenders lost profits as a result thereof, Borrowers shall pay to Agent, for the ratable account of Lenders, upon the effective date of such termination, an early termination fee in the amount equal to $750,000. Such early termination fee shall be presumed to be the amount of damages sustained by Lenders as a result of such early termination and each Borrower agrees that it is reasonable under the circumstances currently existing (including, but not limited to, the borrowings that are reasonably expected by Borrowers hereunder and the interest, fees and other charges that are reasonably expected to be received by Lenders hereunder). In addition, Lenders shall be entitled to such early termination fee in the event that Lenders elect to provide financing to Borrowers or permit the use of cash collateral under the Bankruptcy Code or other bankruptcy laws.
3. Solvency. Section 4.10 of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
4.10 Solvency.
Based on reasonable assumptions and plans, after giving effect to the Closing Date Transactions, the Loan Parties, on a consolidated basis, are Solvent.
4. Certain Payments of Debts and Amendments. Section 6.7(a)(i)(B) of the Credit Agreement is hereby amended by deleting the phrase Amendment No. 4 Effective Date and replacing it with Amendment No. 7 Effective Date.
5. Senior Note Indenture Secured Debt Cap. Section 6.15 of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
6.15 Senior Note Indenture Secured Debt Cap.
(a) Incur or suffer to exist any Indebtedness (under and as defined in the Senior Note Indenture) pursuant to Section 3.2(b)(1) of the Senior Note Indenture other than (i) Indebtedness under this Agreement and the other Loan Documents and (ii) Indebtedness under the Term Loan Agreement and the other Term Loan Documents and any Refinancing Indebtedness in respect of such Indebtedness.
(b) Permit the amount of the Senior Note Indenture Secured Debt Cap at any time to be less than the sum of the aggregate outstanding principal amount of the loans under the Term Loan Agreement, plus the Maximum Revolver Amount, plus the aggregate outstanding principal amount of Indebtedness permitted under clause (x) of the definition of Permitted Indebtedness.
6. Financial Covenants. Section 7(a) of the Credit Agreement is hereby amended by deleting such Section in its entirety and replacing it with the following:
(a) Minimum Excess Availability. Excess Availability shall at all times be no less than $7,500,000.
7. Compliance Certificate. Paragraph 5 of the Form of Compliance Certificate (Exhibit C-1 to the Credit Agreement) is hereby amended by deleting such paragraph in its entirety and replacing it with the following:
5. Attached hereto on Schedule 3 hereto are the calculation used in calculating the Fixed Charge Coverage Ratio of Parent and its Subsidiaries (on a consolidated basis) for the most recently ended period of four consecutive fiscal quarters.
8. Commitments. Schedule C-1 to the Credit Agreement is hereby amended by deleting such Schedule in its entirety and replacing it with Annex A hereto.
9. Covenants.
(a) The Loan Parties shall continue to retain Calibre Group LLC, on terms and conditions satisfactory to Agent, until such time as the Senior Notes have been refinanced or restructured in a manner satisfactory to Agent.
(b) Within ninety (90) days after the Amendment No. 7 Effective Date (or such later date as Agent may agree in writing), each Loan Party shall establish and maintain its cash management system with Wells Fargo, or, in the case of accounts maintained in Canada, a bank reasonably satisfactory to Wells Fargo, and shall enter into Controlled Account Agreements with Agent, Term Loan Agent and Wells Fargo (or such other bank reasonably satisfactory to Wells Fargo), in form and substance reasonably acceptable to Agent, in each case other than Excluded Accounts (as defined in the Security Agreement or the Canadian Security Agreement, as applicable). Notwithstanding anything to the contrary in the Loan Documents, the Loan Parties hereby agree that the failure to comply with this Section 9 shall constitute an immediate Event of Default.
10. Representations and Warranties. Each Borrower and Guarantor (collectively, Loan Parties and each, a Loan Party), jointly and severally, hereby represents and warrants to Lender Group as follows:
(a) This Amendment No. 7 and each of the documents, instruments and agreements executed and delivered in connection herewith (collectively, with this Amendment No. 7, the Amendment Documents) have been duly authorized, executed and delivered by all necessary action of each Loan Party party hereto and thereto and constitutes the legal, valid and binding obligations of each such Loan Party party thereto enforceable against each Loan Party in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, moratorium or similar laws relating to or limiting creditors rights generally;
(b) The execution, delivery, and performance by each Loan Party of this Amendment and each other Amendment Document to which it is a party and the consummation of the transactions contemplated hereby and thereby do not and will not
require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect where the failure to obtain the foregoing has or could reasonably be expected to have a Material Adverse Change;
(c) As to each Loan Party, the execution, delivery, and performance by such Loan Party of this Amendment No. 7 and each other Amendment Document to which it is a party and the transactions contemplated hereby and thereby do not and will not (i) violate any provision of federal, provincial, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, where such violation has or could reasonably be expected to have a Material Adverse Change, (ii) violate any provisions of the Governing Documents of any Loan Party or its Subsidiaries, (iii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Loan Party or its Subsidiaries where any such conflict, breach or default has or could individually or in the aggregate reasonably be expected to have a Material Adverse Effect, (iv) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (v) require any approval of any holders of Equity Interests of a Loan Party or any approval or consent of any Person under any Material Contract of any Loan Party, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to have a Material Adverse Change;
(d) No Default or Event of Default has occurred and is continuing; and
(e) After giving effect to the transaction contemplated to occur on the Amendment No. 7 Effective Date (including, without limitation, the making of the loans under the Term Loan Agreement), the Senior Note Indenture Secured Debt Cap exceeds the sum of the Maximum Revolver Amount plus the outstanding principal of the loans under the Term Loan Agreement.
11. Amendment Fee. In addition to all other fees, charges, interest and expenses payable by Borrowers to Agent and Lenders under the Credit Agreement and the other Loan Documents, Borrowers shall pay to Agent, for the ratable benefit of Lenders, an amendment fee of $100,000, which amount is fully earned and payable on the Amendment No. 7 Effective Date and may be charged directly to any loan account(s) of Borrowers maintained by Agent.
12. Conditions Precedent. This Amendment No. 7 shall only be effective upon the satisfaction of each of the following conditions precedent in a manner reasonably satisfactory to Agent:
(a) Agent shall have received counterparts of this Amendment No. 7, duly authorized, executed and delivered by Borrowers, Guarantors and Lenders;
(b) Agent shall have received, in form and substance reasonably satisfactory to Agent, true, correct and complete copies of all Term Loan Documents, as duly authorized, executed and delivered by the parties thereto;
(c) Agent shall have received a true and correct copy of each consent, waiver or approval (if any) to or of this Amendment No. 7, which Borrowers and Guarantors are required to obtain from any other Person, and such consent, approval or waiver (if any) shall be in form and substance reasonably satisfactory to Agent;
(d) Agent shall have received, in form and substance reasonably satisfactory to Agent, true, correct and complete copies of the Intercreditor Agreement, duly executed by Term Loan Agent and as acknowledged and consented to by Borrowers and Guarantors;
(e) Agent shall have received, in form and substance reasonably satisfactory to Agent, Certificates from the Secretary or similar officer or authorized representative of each Borrower and Guarantor (i) attesting to (among other things) the resolutions of such Borrowers or Guarantors Board of Directors or other governing board authorizing its execution, delivery and performance of the Amendment Documents to which it is a party and the transactions contemplated thereby, (ii) to the extent applicable, authorizing specific officers of such Borrower or Guarantor to execute the same, and (iii) attesting to the incumbency and signatures of such specific officers or authorized representatives of such Borrower or Guarantor;
(f) Agent shall have received evidence, in form and substance reasonably satisfactory to Agent, of the closing of the transactions contemplated by the Term Loan Agreement, resulting in the receipt by Borrowers of net cash proceeds of the loans thereunder of not less than $70,000,000;
(g) Agent shall have received, in form and substance reasonably satisfactory to Agent, duly executed payoff letters and lien releases with respect to the Existing Term Loan Facility; and
(h) Agent shall have received in cash the amendment fee described in Section 11 hereof.
13. General.
(a) Effect of this Amendment. Except as expressly provided herein or in the other Amendment Documents, no other changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. On and after the Amendment No. 7 Effective Date each Amendment Document shall for all purposes constitute a Loan Document.
(b) Governing Law. THE VALIDITY OF THIS AMENDMENT NO. 7, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(c) Binding Effect. This Amendment No. 7 and each of the other Amendment Documents, shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto.
(d) Counterparts, etc. Each Amendment Document may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same agreement. Delivery of an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of such Amendment Document. Any party delivering an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of such Amendment Document but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of such Amendment Document.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 7 to be duly executed and delivered by their authorized officers as of the day and year first above written.
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COLT DEFENSE LLC | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT FINANCE CORP. | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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NEW COLT HOLDING CORP. | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLTS MANUFACTURING COMPANY LLC | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT DEFENSE TECHNICAL SERVICES LLC | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
[Signature Page to Amendment No. 7 to Credit Agreement]
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COLT CANADA CORPORATION | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT INTERNATIONAL COÖPERATIEF U.A. | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
[Signature Page to Amendment No. 7 to Credit Agreement]
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AGENT AND LENDERS | |
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WELLS FARGO CAPITAL FINANCE, LLC, as Agent and as a Lender | |
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By: |
/s/ William Williams |
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Name: William Williams |
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Title: Vice President |
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Lender | |
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By: |
/s/ Carmela Massari |
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Name: Carmela Massari |
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Title: Senior Vice President |
[Signature Page to Amendment No. 7 to Credit Agreement]
Annex A
to
Amendment No. 7
Schedule C-1
Commitments
1. US Commitments
US Lender |
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US Revolver |
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Wells Fargo Capital Finance LLC |
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$ |
33,000,000 |
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2. Canadian Commitments
Canadian Lender |
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Canadian Revolver |
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Wells Fargo Capital Finance Corporation Canada |
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$ |
15,000,000 |
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(1) The Canadian Revolver Commitments of Lenders are a sublimit of the US Revolver Commitments of Lenders.
Exhibit 10.4
AMENDMENT NO. 8 TO CREDIT AGREEMENT AND EXTENSION
AMENDMENT NO. 8 TO CREDIT AGREEMENT AND EXTENSION, dated as of November 21, 2014 (this Amendment No. 8), is by and among Wells Fargo Capital Finance, LLC, a Delaware limited liability company, as agent for the Lenders (as hereinafter defined) pursuant to the Credit Agreement as defined below (in such capacity, together with its successors and assigns, and any replacement, in such capacity, Agent), the parties to the Credit Agreement as lenders (individually, each a Lender and collectively, Lenders), Colt Defense LLC, a Delaware limited liability company (Colt Defense), Colt Canada Corporation, a Nova Scotia corporation (Colt Canada), Colts Manufacturing Company LLC, a Delaware limited liability company (CMC and together with Colt Defense and Colt Canada, each individually, a Borrower and collectively, Borrowers), New Colt Holding Corp., a Delaware corporation (New Colt), Colt Finance Corp., a Delaware corporation (Colt Finance), Colt Defense Technical Services LLC, a Delaware limited liability company (CDTS) and Colt International Coöperatief U.A., a cooperative formed under Dutch law (Dutch Holdings and, together with New Colt, Colt Finance and CDTS, each individually a Guarantor and collectively, Guarantors). All terms used herein that are defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, Agent, Lenders, Borrowers and Guarantors are parties to financing arrangements pursuant to which Lenders (or Agent on behalf of Lenders) may make loans and advances and provide other financial accommodations to Borrowers as set forth in the Credit Agreement dated as of September 29, 2011 by and among Agent, Lenders, Borrowers and the guarantors party thereto, as amended by Amendment No. 1 to Credit Agreement and Waiver, dated as of February 24, 2012, Amendment No. 2 to Credit Agreement and Consent, dated as of March 22, 2013, Amendment No. 3 to Credit Agreement and Consent, dated as of June 19, 2013, Amendment No. 4 to Credit Agreement, dated as of July 12, 2013 (as amended by the First Amendment to Amendment No. 4 to Credit Agreement, dated as of October 4, 2013, Second Amendment to Amendment No. 4 to Credit Agreement, dated as of January 31, 2014, and Third Amendment to Amendment No. 4 to Credit Agreement, dated as of April 30, 2014), and Amendment No. 5 to the Credit Agreement and Extension, dated as of August 5, 2014, Amendment No. 6 to Credit Agreement and Extension, dated as of November 12, 2014 and Amendment No. 7 to Credit Agreement, dated as of November 17, 2014 (as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced, the Credit Agreement) and the other Loan Documents;
WHEREAS, the Loan Parties have requested that Agent and the Lenders amend certain terms and conditions of the Credit Agreement and agree to certain extensions;
WHEREAS, Agent and Lenders are willing to agree to such amendments and to provide such extensions on the terms and subject to the conditions contained herein; and
WHEREAS, by this Amendment No. 8 Agent, Lenders, Borrowers and Guarantors intend to evidence such extensions and the amendments set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein or in the Credit Agreement or any of the other Loan Documents, the following terms shall have the meanings given to them below and the Credit Agreement shall be deemed and is hereby amended to include, in addition and not in limitation, the following:
(i) Amendment No. 8 shall mean Amendment No. 8 to Credit Agreement and Extension by and among Borrowers, Guarantors, Agent and Lenders, as the same now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated, restructured, refinanced or replaced.
(ii) Amendment No. 8 Effective Date shall mean the date on which all conditions precedent to the effectiveness of Amendment No. 8 have been satisfied or waived.
(b) Interpretation. For purposes of this Amendment No. 8, all terms used herein which are not otherwise defined herein, including but not limited to, those terms used in the recitals hereto, shall have the respective meanings assigned thereto in the Credit Agreement as amended by this Amendment No. 8.
2. Extension of Time to File Reports. Notwithstanding anything contained in Section 5.1 or Schedules 5.1(a), through 5.1(e) of the Credit Agreement to the contrary, Agent and Required Lenders agrees that Borrowers and Guarantors may deliver the monthly financial statement, reports and other items required pursuant to Section 5.1 and Schedules 5.1(a), through (e) of the Credit Agreement in respect of the month and fiscal quarter ended September 30, 2014 on or before November 26, 2014.3. Waiver. Notwithstanding anything contained in Section 5.1 or Schedules 5.1(c) or 5.1(d) of the Credit Agreement to the contrary, Agent and Required Lenders waives the requirement that consolidated financial statements of Parent and its Subsidiaries for each such fiscal year of Parent, audited by independent certified public accountants acceptable to the Required Lenders be certified without any qualifications including any going concern or like qualification or exception, solely with respect to the fiscal year ended December 31, 2013 and acknowledges that it understands such consolidated financial statements will include a going concern or like qualification or exception.
4. Representations and Warranties. Each Loan Party, jointly and severally, hereby represents and warrants to Lender Group as follows:(a) This Amendment No. 8 and each of the documents, instruments and agreements executed and delivered in connection herewith (collectively, with this Amendment No. 8, the Amendment Documents) have been duly authorized, executed and delivered by all necessary action of each Loan Party party hereto and thereto and constitutes the legal, valid and binding obligations of each such Loan Party party thereto enforceable against each Loan Party in accordance with its respective terms, except as such enforceability may be limited by bankruptcy, moratorium or similar laws relating to or limiting creditors rights generally;
(b) The execution, delivery, and performance by each Loan Party of this Amendment and each other Amendment Document to which it is a party and the consummation of the transactions contemplated hereby and thereby do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than registrations, consents, approvals, notices, or other actions that have been obtained and that are still in force and effect where the failure to obtain the foregoing has or could reasonably be expected to have a Material Adverse Change;
(c) As to each Loan Party, the execution, delivery, and performance by such Loan Party of this Amendment No. 8 and each other Amendment Document to which it is a party and the transactions contemplated hereby and thereby do not and will not (i) violate any provision of federal, provincial, state, or local law or regulation applicable to any Loan Party or its Subsidiaries, or any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party or its Subsidiaries, where such violation has or could reasonably be expected to have a Material Adverse Change, (ii) violate any provisions of the Governing Documents of any Loan Party or its Subsidiaries, (iii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any Material Contract of any Loan Party or its Subsidiaries where any such conflict, breach or default has or could individually or in the aggregate reasonably be expected to have a Material Adverse Effect,(iv) result in or require the creation or imposition of any Lien of any nature whatsoever upon any assets of any Loan Party, other than Permitted Liens, or (v) require any approval of any holders of Equity Interests of a Loan Party or any approval or consent of any Person under any Material Contract of any Loan Party, other than consents or approvals that have been obtained and that are still in force and effect and except, in the case of Material Contracts, for consents or approvals, the failure to obtain could not individually or in the aggregate reasonably be expected to have a Material Adverse Change; and
(d) No Default or Event of Default has occurred and is continuing.
5. Conditions Precedent. The amendment and extension provided for herein shall only be effective upon the receipt by Agent of the following:
(a) counterparts of this Amendment No. 8, duly authorized, executed and delivered by Borrowers, Guarantors and Required Lenders; and
(b) a true and correct copy of an amendment and extension to the Term Loan Agreement, in form and substance reasonably satisfactory to Agent, duly authorized, executed and delivered by the parties thereto, which shall be in full force and effect.
6. General.
(a) Effect of this Amendment. Except as expressly provided herein or in the other Amendment Documents, no other changes or modifications to the Loan Documents are intended or implied, and in all other respects the Loan Documents are hereby specifically ratified, restated and confirmed by all parties hereto as of the date hereof. On and after the Amendment No. 8 Effective Date each Amendment Document shall for all purposes constitute a Loan Document.
(b) Governing Law. THE VALIDITY OF THIS AMENDMENT NO. 8, THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(c) Binding Effect. This Amendment No. 8 and each of the other Amendment Documents, shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties hereto.
(d) Counterparts, etc. Each Amendment Document may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same agreement. Delivery of an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission shall be equally as effective as delivery of an original executed counterpart of such Amendment Document. Any party delivering an executed counterpart of each Amendment Document by telefacsimile or other electronic method of transmission also shall deliver an original executed counterpart of such Amendment Document but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of such Amendment Document.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 8 to be duly executed and delivered by their authorized officers as of the day and year first above written.
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COLT DEFENSE LLC | |
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By: |
/s/ Scott Flaherty |
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Name: Scott Flaherty |
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Title: Chief Financial Officer |
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COLT FINANCE CORP. | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty | |
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Title: Chief Financial Officer | |
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NEW COLT HOLDING CORP. | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty | |
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Title: Chief Financial Officer | |
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COLTS MANUFACTURING COMPANY LLC | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty | |
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Title: Chief Financial Officer | |
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COLT DEFENSE TECHNICAL SERVICES LLC | ||
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty | |
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Title: Chief Financial Officer | |
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COLT CANADA CORPORATION
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By: |
/s/ Scott Flaherty | |
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Name: Scott Flaherty | |
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Title: Chief Financial Officer | |
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COLT INTERNATIONAL COÖPERATIEF U.A. | ||
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By: |
/s/ Dennis Veilleux | |
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Name: Dennis Veilleux | |
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Title: President and Chief Executive Officer | |
[Signature Page to Amendment No. 8 to Credit Agreement and Extension]
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AGENT AND LENDERS | |
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WELLS FARGO CAPITAL FINANCE, LLC, as Agent and as a Lender | |
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By: |
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Name: |
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Title: |
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WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Lender | |
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By: |
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Name: |
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Title: |
[Signature Page to Amendment No. 8 to Credit Agreement and Extension]
Exhibit 10.5
AMENDMENT NO. 2 TO
TERM LOAN AGREEMENT
AMENDMENT NO. 2 TO TERM LOAN AGREEMENT, dated as of November [12], 2014 (this Second Amendment), to the Term Loan Agreement, dated as of July 12, 2013 as amended by Amendment No. 1 the Term Loan Agreement dated August 6, 2014 (as amended, restated, supplemented, or otherwise modified from time to time, the Credit Agreement), by and among Colt Defense LLC (the Parent), each subsidiary of Parent listed as a Borrower on the signature pages thereto (together with Parent, each a Borrower and, collectively, the Borrowers), each subsidiary of the Parent listed as a Guarantor on the signature pages thereto (each a Guarantor and, collectively, the Guarantors), the lenders from time to time party thereto (each a Lender and collectively, the Lenders), and Cortland Capital Market Services LLC, as agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, if any, Agent).
WHEREAS, the Loan Parties have requested that Agent and the Lenders amend certain terms and conditions of the Credit Agreement; and
WHEREAS, Agent and the Lenders are willing to amend such terms and conditions of the Credit Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All terms used herein that are defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
2. New Definitions. Schedule 1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of the term Second Amendment is hereby inserted, in appropriate alphabetical order, to read as follows:
Second Amendment means Amendment No. 2 to Term Loan Agreement, dated as of November [ ], 2014, by and among the Loan Parties and Agent on behalf of the Lenders.
(b) The definition of the term Second Amendment Effective Date is hereby inserted, in appropriate alphabetical order, to read as follows:
Second Amendment Effective Date means the Second Amendment Effective Date under and as defined in the Second Amendment.
3. Limited Consent.
(a) Subject to the satisfaction of the conditions to effectiveness set forth in Section 5 herein, as of the Second Amendment Effective Date (as defined below), Agent and the Lenders hereby consent to the extension to November [ ], 2014 of each of the deadlines by which the Loan Parties are required to deliver to Agent the financial statements, Compliance Certificates and report described in Section 5.1 and Schedule 5.1(a), (b), (c), (d) and (e) of the Credit Agreement for the fiscal
month and fiscal quarter ending September 30, 2014. Each Loan Party hereby acknowledges and agrees that it shall be an immediate Event of Default under the Credit Agreement if such financial statements, Compliance Certificates and report are not delivered to Agent on or prior to November [ ], 2014.
(b) The consent in this Section 3 shall be effective only in this specific instance and for the specific purpose set forth herein and do not allow for any other or further departure from the terms and conditions of the Credit Agreement or any other Loan Document, which terms and conditions shall continue in full force and effect.
4. Representations and Warranties. Each Loan Party hereby represents and warrants to Agent and the Lenders as follows:
(a) Organization, Good Standing, Etc. Each Loan Party is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state where the failure to be so qualified reasonably could be expected to result in a Material Adverse Change.
(b) Authorization, No Conflict, Etc.
(i) The execution, delivery, and performance by each Loan Party of this Second Amendment and the other Loan Documents to which it is a party, and the performance by it of the Credit Agreement, as amended hereby, have been duly authorized by all necessary action on the part of such Loan Party.
(ii) The execution, delivery, and performance by each Loan Party of this Second Amendment and the other Loan Documents to which it is a party, and the performance by it of the Credit Agreement, as amended hereby, do not and will not (A) violate any provision of federal, state, or local law or regulation applicable to any Loan Party, the Governing Documents of any Loan Party, any order, judgment, or decree of any court or other Governmental Authority binding on any Loan Party, or any material governmental approvals, permits, licenses, authorizations, entitlements or accreditations of any Loan Party, (B) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contract of any Loan Party, (C) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of any Loan Party, other than Agents Liens, or (D) require any approval of any Loan Partys interest holders or any approval or consent of any Person under any material contract of any Loan Party, other than consents or approvals that have been obtained and that are still in force and effect.
(iii) The execution, delivery, and performance by each Loan Party of this Second Amendment and the other Loan Documents to which such Loan Party is a party, and the performance by it of the Credit Agreement, as amended hereby, do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority, other than consents or approvals that have been obtained and that are still in force and effect.
(iv) This Second Amendment and the other Loan Documents to which each Loan Party is a party, the Credit Agreement, as amended hereby, and all other documents contemplated hereby and thereby, when executed and delivered by such Loan Party will be the legally valid and binding obligations of such Loan Party, enforceable against such Loan Party in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors rights generally.
5. Conditions to Effectiveness. This Second Amendment shall become effective only upon satisfaction in full, in a manner satisfactory to Agent and the Lenders, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied being hereinafter referred to as the Second Amendment Effective Date):
(a) Agent and each of the Lenders shall have executed this Second Amendment and shall have received counterparts thereto, executed and delivered by each Loan Party.
(b) All other documents and legal matters in connection with the transactions contemplated by this Second Amendment shall have been delivered, executed, or recorded and shall be in form and substance reasonably satisfactory to Agent.
6. Continued Effectiveness of the Credit Agreement and Other Loan Documents. Each Loan Party hereby (a) acknowledges and consents to this Second Amendment, (b) confirms and agrees that the Credit Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Second Amendment Effective Date, all references in any such Loan Document to the Credit Agreement, the Agreement, thereto, thereof, thereunder or words of like import referring to the Credit Agreement shall mean the Credit Agreement as amended by this Second Amendment, and (c) confirms and agrees that, to the extent that any such Loan Document purports to assign or pledge to Agent, for the benefit of Agent and the Lenders, or to grant to Agent, for the benefit of Agent and the Lenders, a security interest in or Lien on any Collateral as security for the Obligations of the Loan Parties from time to time existing in respect of the Credit Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Second Amendment does not and shall not affect any of the obligations of the Loan Parties, other than as expressly provided herein, including, without limitation, the Loan Parties obligations to repay all loans and advances in accordance with the terms of Credit Agreement or the obligations of the Loan Parties under any Loan Document to which they are a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Second Amendment shall not operate as a waiver of any right, power or remedy of Agent or any Lender under the Credit Agreement or any other Loan Document nor constitute a waiver of any provision of the Credit Agreement or any other Loan Document.
7. No Novation. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Credit Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby.
8. No Representations by Agent or Lenders. Each Loan Party hereby acknowledges that it has not relied on any representation, written or oral, express or implied, by Agent or any Lender, other than those expressly contained herein, in entering into this Second Amendment.
9. Release. Each Loan Party hereby acknowledges and agrees that: (a) neither it nor any of its Subsidiaries has any claim or cause of action against Agent or any Lender (or any of the directors, officers, employees, agents, attorneys or consultants of any of the foregoing) and (b) Agent and the Lenders have heretofore properly performed and satisfied in a timely manner all of their obligations to the Loan Parties, and all of their Subsidiaries and Affiliates. Notwithstanding the foregoing, Agent and the Lenders wish (and the Loan Parties agree) to eliminate any possibility that any past conditions, acts, omissions, events or circumstances would impair or otherwise adversely affect any of their rights, interests, security and/or remedies. Accordingly, for and in consideration of the agreements contained in this Second Amendment and other good and valuable consideration, each Loan Party (for itself and its Subsidiaries and Affiliates and the successors, assigns, heirs and representatives
of each of the foregoing) (collectively, the Releasors) does hereby fully, finally, unconditionally and irrevocably release, waive and forever discharge Agent and the Lenders, together with their respective Affiliates, and each of the directors, officers, employees, agents, attorneys and consultants of each of the foregoing (collectively, the Released Parties), from any and all debts, claims, allegations, obligations, damages, costs, attorneys fees, suits, demands, liabilities, actions, proceedings and causes of action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done, in each case, on or prior to the Second Amendment Effective Date directly arising out of, connected with or related to this Second Amendment, the Credit Agreement or any other Loan Document, or any act, event or transaction related or attendant thereto, or the agreements of Agent or any Lender contained therein, or the possession, use, operation or control of any of the assets of any Loan Party, or the making of any loans or other advances, or the management of such loans or other advances or the Collateral. Each Loan Party represents and warrants that it has no knowledge of any claim by any Releasor against any Released Party or of any facts or acts or omissions of any Released Party which on the date hereof would be the basis of a claim by any Releasor against any Released Party which would not be released hereby.
10. Further Assurances. The Loan Parties shall execute any and all further documents, agreements and instruments, and take all further actions, as may be required under applicable law or as Agent may reasonably request, in order to effect the purposes of this Second Amendment.
11. Miscellaneous.
(a) This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Second Amendment by facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Second Amendment.
(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose.
(c) This Second Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.
(d) Each Loan Party hereby acknowledges and agrees that this Second Amendment constitutes a Loan Document under the Credit Agreement. Accordingly, it shall be an immediate Event of Default under the Credit Agreement if (i) any representation or warranty made by any Loan Party under or in connection with this Second Amendment shall have been incorrect in any respect when made or deemed made, or (ii) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in this Second Amendment.
(e) Any provision of this Second Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be executed and delivered as of the date first written above.
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COLT DEFENSE LLC, as a Borrower | |
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COLT FINANCE CORP., as a Borrower | |
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NEW COLT HOLDING CORP., as a Borrower | |
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COLTS MANUFACTURING COMPANY LLC, as a Borrower | |
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COLT DEFENSE TECHNICAL SERVICES LLC, as a Guarantor | |
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COLT CANADA CORPORATION, as a Borrower | |
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COLT INTERNATIONAL COÖPERATIEF U.A., as a Guarantor | |
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CORTLAND CAPITAL MARKET SERVICES LLC, as Agent | |
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dennis R. Veilleux, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Colt Defense LLC and Colt Finance Corp;
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 registrants other certifying officer(s) 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 by Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) than has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: November 25, 2014 |
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/s/ Dennis R. Veilleux |
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Dennis R. Veilleux |
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President and Chief Executive Officer |
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Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Scott B. Flaherty, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Colt Defense LLC and Colt Finance Corp;
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 registrants other certifying officer(s) 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 by Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) than has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: November 25, 2014 |
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/s/ Scott B. Flaherty |
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Scott B. Flaherty |
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Senior Vice President and Chief Financial Officer |
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Exhibit 31.3
Certification of Corporate Controller
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Kevin G. Green, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Colt Defense LLC and Colt Finance Corp;
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 registrants other certifying officer(s) 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 by Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and we 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 registrants 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 registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) than has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants 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 registrants 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 registrants internal control over financial reporting.
Date: November 25, 2014 |
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/s/ Kevin G. Green |
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Kevin G. Green |
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Corporate Controller |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Colt Defense LLC (the Company) on Form 10-Q for the period ending September 28, 2014 as filed with the Securities and Exchange Commission on the date hereof (the Report), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: November 25, 2014 |
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/s/ Scott B. Flaherty |
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Scott B. Flaherty |
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Senior Vice President and Chief Financial Officer |
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/s/ Dennis R. Veilleux |
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Dennis R. Veilleux |
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President and Chief Executive Officer |
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Pension and Postretirement Benefits (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 28, 2014
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Pension plans
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Pension and postretirement benefits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the components of income and cost recognized in Consolidated Statements of Operations |
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Postretirement health cost coverage
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Schedule of the components of income and cost recognized in Consolidated Statements of Operations |
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Inventories (Details) (USD $)
In Thousands, unless otherwise specified |
Sep. 28, 2014
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Dec. 31, 2013
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Inventories | ||
Raw materials | $ 43,251 | $ 43,469 |
Work in process | 20,627 | 9,476 |
Finished products | 12,675 | 13,729 |
Inventories | $ 76,553 | $ 66,674 |
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